Question 1

For each of the following, journalize the necessary adjusting entry:
a) A business pays weekly salaries of $22,000 on Friday for a five-day week ending on that day. Journalize the necessary adjusting entry at the end of the fiscal period, assuming that the fiscal period ends 1) on Tuesday, 2) on Wednesday.
b) The balance in the prepaid insurance account before adjustment at the end of the year is $18,000. Journalize the adjusting entry required under each of the following alternatives: 1) the amount of insurance expired during the year is $5,300, 2) the amount of unexpired insurance applicable to a future period is $2,700.
c) On July 1 of the current year, a business pays $54,000 to the city for license taxes for the coming fiscal year. The same business is also required to pay an annual property tax at the end of the year. The estimated amount of the current year's property tax allocated to July is $4,800. 1) Journalize the two adjusting entries required to bring the accounts affected by the taxes up to date as of July 31. 2) What is the amount of tax expense for July?
d) The estimated depreciation on equipment for the year is $32,000.

Accepted Answer

The answer of For each of the following, journalize the...

Question 2

What is the purpose of the adjusted trial balance?
A) to verify that all of the adjusting entries have been posted
B) to verify that the net income loss) is correctly reported
C) to verify that no adjusting journal entry has been omitted
D) to verify that the debits and credits balance

Accepted Answer

The answer of What is the purpose of the adjusted...

Question 3

Classify the following items as: 1) prepaid expense, 2) unearned revenue, 3) accrued expense, or 4) accrued revenue.
a) fees received but not yet earned
b) fees earned but not yet received
c) paid premium on a one-year insurance policy
d) property tax owed to be paid beginning of next year

Accepted Answer

The answer of Classify the following items as: 1) prepaid...

Question 4

Under the accrual basis, some accounts in the ledger require updating at the end of the period. Discuss the three main reasons for this updating and give an example of each.

Accepted Answer

The answer of Under the accrual basis, some accounts in...

Question 5

Which of the accounts below would most likely appear on an adjusted trial balance but probably would not appear on the trial balance?
A) Fees Earned
B) Accounts Receivable
C) Unearned Fees
D) Depreciation Expense

Accepted Answer

Depreciation Expense is an example of an adjusting entry that is not recorded on the trial balance, but will be included on the adjusted trial balance. The other accounts listed (Fees Earned, Accounts Receivable, and Unearned Fees) are all accounts that would appear on both the trial balance and the adjusted trial balance.

Question 6

When is the adjusted trial balance prepared?
A) before adjusting journal entries are posted
B) after adjusting journal entries are posted
C) after the adjusting journal entries are journalized
D) before the adjusting journal entries are journalized

Accepted Answer

The adjusted trial balance is prepared after adjusting journal entries have been posted to the accounts. This allows for an accurate reflection of the account balances after any necessary adjustments have been made.

Question 7

List the four basic types of accounts that require adjusting entries and give an example of each.

Accepted Answer

The answer of List the four basic types of accounts...

Question 8

For the year ending December 31, Orion, Inc. mistakenly omitted adjusting entries for $1,500 of supplies that were used, 2) unearned revenue of $4,200 that was earned, and 3) insurance of $5,000 that expired. For the year ending December 31, what is the effect of these errors on revenues, expenses, and net income?
A) revenues are overstated by $4,200
B) net income is overstated by $2,300
C) expenses are overstated by $6,500
D) expenses are understated by $3,500

Accepted Answer

The $1,500 in supplies that were used should have been recorded as an expense, which was not done. This means that expenses are understated by $1,500. 
The $4,200 of unearned revenue that was earned should have been recorded as revenue, which was not done. This means that revenues are understated by $4,200.
The $5,000 of insurance that expired should have been recorded as an expense, which was not done. This means that expenses are understated by $5,000.
Therefore, the net income is overstated by the amount of the sum of these errors, which is $2,300. So, option B is the correct choice.

Question 9

Explain the difference between accrual basis accounting and cash basis accounting.

Accepted Answer

The answer of Explain the difference between accrual basis accounting...

Question 10

At the end of the fiscal year, the usual adjusting entry to prepaid insurance to record expired insurance was omitted. Which of the following statements is true?
A) total assets at the end of the year will be understated.
B) stockholders' equity at the end of the year will be understated.
C) net income for the year will be overstated.
D) insurance expense will be overstated

Accepted Answer

Since the adjusting entry to record expired insurance was omitted, prepaid insurance will be overstated and insurance expense will be understated. As a result, net income will be overstated.

Question 11

A business pays biweekly salaries of $20,000 every other Friday for a ten-day period ending on that day. The adjusting entry necessary at the end of the fiscal period ending on the second Wednesday of the pay period includes a
A) debit to salary expense of $8,000
B) debit to salaries payable of $8,000
C) credit to salary expense of $16,000
D) credit to salaries payable of $16,000

Accepted Answer

Since the bi-weekly salaries are paid on every other Friday for a ten-day period ending on that day, the pay period ends on the second Wednesday of the pay period. This means that there are two days of salaries (Thursday and Friday) that have been earned, but not yet paid for at the end of the fiscal period.

To account for this, an adjusting entry is needed to record the amount of these two days of salaries that have been earned but not yet paid for. Since the salaries have been earned, but not yet paid, this is a liability to the company and is recorded as salaries payable.

Therefore, the adjusting entry necessary at the end of the fiscal period ending on the second Wednesday of the pay period includes a debit to salaries payable of $16,000 (two days of salaries for all employees) and a credit to salary expense, which has already been recorded for the full bi-weekly salary amount.

Thus, the correct choice is option D, which states a credit to salaries payable of $16,000.

Question 12

Two income statements for Toby Sam Enterprises are shown below:  Prepare a vertical analysis of Toby Sam Enterprises' income statements. Has operating income increased or decreased as a percentage of revenue?
A) increased by 5%
B) increased by 111%
C) decreased by 5%
D) decreased by 111%

Accepted Answer

To perform vertical analysis, we calculate each line item as a percentage of revenue.

For the first income statement:

Revenue = $370,000
Cost of goods sold = $222,000,  which is 60% of revenue (222,000/370,000)
Gross profit = $148,000, which is 40% of revenue (148,000/370,000)
Operating expenses = $100,000, which is 27% of revenue (100,000/370,000)
Operating income = $48,000, which is 13% of revenue (48,000/370,000)
Net income = $37,000, which is 10% of revenue (37,000/370,000)

For the second income statement:

Revenue = $400,000
Cost of goods sold = $240,000, which is 60% of revenue (240,000/400,000)
Gross profit = $160,000, which is 40% of revenue (160,000/400,000)
Operating expenses = $92,000, which is 23% of revenue (92,000/400,000)
Operating income = $68,000, which is 17% of revenue (68,000/400,000)
Net income = $52,000, which is 13% of revenue (52,000/400,000)

By comparing the percentages of the two income statements, we can see that operating income has decreased by 5% as a percentage of revenue (from 13% to 17%). Therefore, the correct answer is C: decreased by 5%.

Question 13

At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following is true?
A) total assets will be understated at the end of the current year
B) the balance sheet and income statement will be misstated but the statement of stockholders' equity will be correct for the current year
C) net income will be overstated for the current year
D) total liabilities and total assets will be understated

Accepted Answer

The omission of the adjusting entry for depreciation means that the cost of the equipment was not properly allocated to expense, leading to an overstatement of net income for the current year. This error will not affect total assets or total liabilities, but it will result in an overstatement of retained earnings on the statement of stockholders' equity.

Question 14

The adjusting entry to adjust supplies was omitted at the end of the year. This would affect the income statement by having
A) expenses understated and therefore net income overstated
B) revenues understated and therefore net income understated
C) expenses understated and therefore net income understated
D) expenses overstated and therefore net income understated

Accepted Answer

When the adjusting entry for supplies is omitted, the supplies expense is not recorded, leading to expenses being understated. Consequently, net income is overstated because expenses are deducted from revenues to calculate net income.

Question 15

Which of the accounting steps in the accounting process below would be completed last?
A) preparing the adjusted trial balance
B) posting
C) preparing the financial statements
D) journalizing

Accepted Answer

Preparing the financial statements is typically the last step in the accounting process as it involves compiling all of the information from previous steps and presenting it in a clear and concise format for users of the financial statements.

Question 16

Indicate with a Yes or No whether or not each of the following accounts would, under normal circumstances, require an adjusting entry.
1. Cash
2. Prepaid Expenses
3. Depreciation Expense
4. Accounts Payable
5. Accumulated Depreciation
6. Equipment

Accepted Answer

The answer of Indicate with a Yes or No whether...

Question 17

A business pays biweekly salaries of $20,000 every other Friday for a ten-day period ending on that day. The last payday of December is Friday, December 27. Assume the next pay period begins on Monday, December 30 and the proper adjusting entry is journalized at the end of the fiscal period December 31). The entry for the payment of the payroll on Friday, January 10 includes a
A) debit to Salary Expense of $16,000
B) debit to Salary Expense of $4,000
C) credit to Salary Payable of $16,000
D) credit to Salary Payable of $4,000

Accepted Answer

The answer of A business pays biweekly salaries of $20,000...

Question 18

Explain the differences between
a) Accrued revenues and unearned revenues.
b) Accrued expenses and prepaid expenses.
c) Give an example of each.

Accepted Answer

The answer of Explain the differences between
a) Accrued revenues and...

Question 19

The net income reported on the income statement is $58,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,200 and accrued salaries of $1,300. Net income, as corrected, is
A) $56,700
B) $58,000
C) $55,800
D) $54,500

Accepted Answer

The answer of The net income reported on the income...

Question 20

All of the following statements regarding vertical analysis are true except
A) vertical analysis may be prepared for several periods to analyze changes in relationships over time
B) in a vertical analysis of a balance sheet, each asset item is stated as a percent of total assets
C) in a vertical analysis of an income statement, each item is stated as a percent of total expenses
D) major differences between a company's vertical analysis and industry averages should be investigated

Accepted Answer

In a vertical analysis of an income statement, each item is stated as a percent of total revenues, not total expenses.

Quiz 3: The Adjusting Process

What is the purpose of the adjusted trial balance?

Classify the following items as: 1) prepaid expense, 2) unearned revenue, 3) accrued expense, or 4) accrued revenue. a) fees received but not yet earned b) fees earned but not yet received c) paid premium on a one-year insurance policy d) property tax owed to be paid beginning of next year

Under the accrual basis, some accounts in the ledger require updating at the end of the period. Discuss the three main reasons for this updating and give an example of each.

Which of the accounts below would most likely appear on an adjusted trial balance but probably would not appear on the trial balance?

When is the adjusted trial balance prepared?

List the four basic types of accounts that require adjusting entries and give an example of each.

Explain the difference between accrual basis accounting and cash basis accounting.

At the end of the fiscal year, the usual adjusting entry to prepaid insurance to record expired insurance was omitted. Which of the following statements is true?

A business pays biweekly salaries of $20,000 every other Friday for a ten-day period ending on that day. The adjusting entry necessary at the end of the fiscal period ending on the second Wednesday of the pay period includes a

Two income statements for Toby Sam Enterprises are shown below: Prepare a vertical analysis of Toby Sam Enterprises' income statements. Has operating income increased or decreased as a percentage of revenue?

At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following is true?

The adjusting entry to adjust supplies was omitted at the end of the year. This would affect the income statement by having

Which of the accounting steps in the accounting process below would be completed last?

Indicate with a Yes or No whether or not each of the following accounts would, under normal circumstances, require an adjusting entry. 1. Cash 2. Prepaid Expenses 3. Depreciation Expense 4. Accounts Payable 5. Accumulated Depreciation 6. Equipment

Explain the differences between a) Accrued revenues and unearned revenues. b) Accrued expenses and prepaid expenses. c) Give an example of each.

The net income reported on the income statement is $58,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,200 and accrued salaries of $1,300. Net income, as corrected, is

All of the following statements regarding vertical analysis are true except