Question 1

Penny Resources determines that it has not yet recorded the accrual for 2010 interest revenue to be received in 2011.Assuming the amount to be recorded for 2010 is $8,000, the required adjustment on December 31, 2010 is

Accepted Answer

Since the interest revenue for 2010 has not yet been recorded and will be received in 2011, an adjustment needs to be made on December 31, 2010 to record the accrual. The accrual would be recorded as a debit to interest receivable (an asset account) and a credit to interest revenue (a revenue account) in the amount of $8,000. This option is represented by choice letter A.

Question 2

Which of the following is a real (permanent) account?

Accepted Answer

Goodwill and Accounts Receivable are both real (permanent) accounts. Real accounts are accounts that are not closed at the end of the accounting period and carry over their balances to the next period. Goodwill is an intangible asset that represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Accounts Receivable is an asset account that represents the amount owed to a company by its customers for goods or services sold on credit. Sales is a nominal (temporary) account that is closed at the end of each accounting period, therefore it is not a real (permanent) account.

Question 3

Breg Company's account balances at December 31, 2010 for Accounts Receivable and the Allowance for Doubtful Accounts are $860,000 debit and $1,200 credit.Sales during 2010 were $3,000,000.It is estimated that 2 percent of sales will be uncollectible.The adjusting entry would include a credit to the allowance account for

Accepted Answer

The adjusting entry should reflect 2% of the total sales as uncollectible, which is $3,000,000 * 0.02 = $60,000.

Question 4

Blue Company's account balances at December 31, 2010 for Accounts Receivable and the related Allowance for Doubtful Accounts are $284,000 debit and $1,000 credit, respectively.From an aging of accounts receivable, it is estimated that $10,000 of the December 31 receivables will be uncollectible.The necessary adjusting entry would include a credit to the allowance account for

Accepted Answer

The allowance for doubtful accounts needs to be adjusted to reflect the estimated uncollectible amount of $10,000. Since there is already a $1,000 credit balance, an additional $9,000 credit is needed to reach the $10,000 total.

Question 5

Use the following information for questions
The income statement of Carsen Corporation for 2010 included the following items:
 
-The cash paid for insurance premiums during 2010 was

Accepted Answer

The answer of Use the following information for questions
The income...

Question 6

An accrued revenue can best be described as an amount

Accepted Answer

An accrued revenue is revenue that has been earned by a company but has not yet been received in cash. It is considered as an asset on the balance sheet and is matched with the expenses incurred to earn that revenue. Therefore, it is not collected but currently matched with expenses. Choice A is incorrect because if the amount has already been collected, it would not be an accrued revenue. Choice B is incorrect because if the revenue is not currently matched with expenses, it would be considered an unearned or deferred revenue. Choice D is incorrect because if the revenue is not accrued, it would not be an asset on the balance sheet.

Question 7

Which of the following items should be journalized?

Accepted Answer

A customer's pending bankruptcy should be journalized if an adequate allowance for doubtful accounts has not already been set up, as it affects the financial statements by potentially increasing bad debt expense.

Question 8

Use the following information for questions
The income statement of Carsen Corporation for 2010 included the following items:
 
-The cash received for interest during 2010 was

Accepted Answer

To calculate cash received for interest, we need to add interest earned but not received at the beginning of the year to interest earned during the year and then subtract interest earned but not received at the end of the year. Using the information given in the income statement, the calculation would be: $60,000 (beginning balance of interest receivable) + $110,000 (interest earned for the year) - $96,100 (ending balance of interest receivable) = $73,900 of cash received for interest.

Question 9

Below are several statements about the trial balance.Which of these statements is not correct?

Accepted Answer

Statement B is correct, as the equality of credits and debits ensures that the double-entry accounting system has been properly followed and no errors have been made. Statement A is also correct, as the trial balance is a list of all accounts and their balances, with debits and credits balancing each other out. However, statement C is not correct, as the post-closing trial balance includes both permanent (balance sheet) and temporary (income statement) accounts. Therefore, the best choice is D (b) and (c).

Question 10

Adjusting entries that should be reversed include those for prepaid or unearned items that

Accepted Answer

The answer of Adjusting entries that should be reversed include...

Question 11

Year-end net assets would be overstated and current expenses would be understated as a result of failure to record which of the following adjusting entries?

Accepted Answer

The failure to record any of these adjusting entries (expiration of prepaid insurance, depreciation of long-lived assets, and accrued wages payable) would result in an overstatement of net assets and an understatement of current expenses. Therefore, the best choice is D, all of these.

Question 12

Jackson Company made the annual lease payment of $9,000 for its fleet of delivery trucks.The payment was made on September 1, 2010 and covered the period September 1, 2010 to August 31, 2011.Assuming the entire amount had originally been charged to
Lease expense, the required adjustment on December 31, 2010 is

Accepted Answer

The annual lease payment is $9,000, which covers the period from September 1, 2010, to August 31, 2011. Since the payment was made on September 1, 2010, and the company's fiscal year ends on December 31, 2010, there are four months remaining until the end of the accounting period.

To adjust for the four months' worth of prepaid rent, we need to divide the annual payment by 12 (the number of months in a year) and then multiply by the number of months remaining until the end of the accounting period:

$9,000 ÷ 12 = $750 monthly payment 
$750 × 4 = $3,000 prepaid lease expense

Therefore, we need to debit prepaid lease for $3,000 (to show that a portion of the payment has already been made) and credit lease expense for $3,000 (to show that the expense has not yet been incurred).

The correct answer is B: debit prepaid lease and credit lease expense $6,000.

Question 13

Perez Corporation received cash of $12,000 on August 1, 2010 for one year's rent in advance and recorded the transaction with a credit to Rent Revenue.The December 31, 2010 adjusting entry is

Accepted Answer

Since Perez Corporation received cash for one year's rent in advance on August 1, 2010 and recorded the transaction with a credit to Rent Revenue, the amount received needs to be adjusted at the end of the year to reflect the portion of rent that hasn't been earned yet. The adjusting entry on December 31, 2010, therefore, should be a debit to Rent Revenue and a credit to Unearned Rent.

To find the amount of rent that hasn't been earned yet, we first need to determine how much rent has been earned from August 1, 2010, to December 31, 2010. Since the rental period is for one year, the total amount of rent earned during this 5-month period is (5/12) x $12,000 = $5,000.

Therefore, the adjusting entry should be a debit to Rent Revenue for $5,000 and a credit to Unearned Rent for $5,000, making Choice B the correct answer.

Question 14

A prepaid expense can best be described as an amount

Accepted Answer

A prepaid expense is an expense that has been paid but has not yet been used or consumed. Therefore, it is not currently matched with revenues and is considered a deferred expense.

Question 15

Use the following information for questions
The income statement of Carsen Corporation for 2010 included the following items:
 
-The cash paid for salaries during 2010 was

Accepted Answer

The answer of Use the following information for questions
The income...

Question 16

If the inventory account at the end of the year is understated, the effect will be to

Accepted Answer

If the inventory account at the end of the year is understated, it means that some of the inventory that was sold during the year was not recorded in the inventory account. This will cause a lower cost of goods sold to be reported, which will in turn overstate the gross profit on sales. Therefore, option A is incorrect. Additionally, because the cost of goods sold is understated, the goods available for sale will also be understated. Therefore, option D is incorrect. Option B is also incorrect as the net purchases are not affected by the inventory account being understated. The correct answer is option C, which correctly states that the cost of goods sold will be overstated if the inventory account is understated.

Question 17

An unearned revenue can best be described as an amount

Accepted Answer

Unearned revenue refers to the cash collected from customers for services or products that have not yet been delivered or fulfilled. It is considered a liability on the balance sheet until the goods or services are provided, and then it is recognized as revenue. Therefore, unearned revenue is collected but not currently matched with expenses.

Question 18

Adjusting entries that should be reversed include

Accepted Answer

All of the given choices should be reversed because adjusting entries are made at the end of an accounting period to ensure that the financial statements reflect the correct balance of accounts. Reversing entries are made to undo the effects of certain adjusting entries that shouldn't be included in the next accounting period, such as accrued revenues and expenses. Additionally, adjusting entries that debit an asset or credit a liability usually need to be reversed to prevent misstating the balance sheet accounts. Therefore, all of the given choices should be reversed.

Question 19

Which of the following is a nominal (temporary) account?

Accepted Answer

The answer of Which of the following is a nominal...

Question 20

Scott Company purchased equipment on November 1, 2010 and gave a 3-month, 9 percent note with a face value of $50,000.The December 31, 2010 adjusting entry is

Accepted Answer

The interest for two months (November and December) is calculated as $50,000 * 9% * (2/12) = $750. The adjusting entry is to debit Interest Expense and credit Interest Payable for $750.

Quiz 3: The Accounting Information System