Question 1

At Sea, a cruise industry magazine, collected $480,000 in subscription revenue in May. Each subscriber will receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the accrual basis of accounting. Provide the adjusting entry needed on June 30. (Ignore explanation.) Assume the magazine initially records a liability for the subscription revenue.

Accepted Answer

The answer of At Sea, a cruise industry magazine, collected...

Question 2

Harvard Financial Services purchased computers that are to be used in its consultancy services. Based on the matching principle, what account, other than Computers, should appear on the balance sheet as of December 31, 2016?
A) Depreciation Expense
B) Service Revenue
C) Accumulated Depreciation
D) Equipment Expense

Accepted Answer

According to the matching principle, the cost of the computers should be matched with the revenue they generate over their useful life. This means that the cost of the computers should be recognized as an expense over time through depreciation. The accumulated depreciation account is used to record the total of all depreciation expense recognized to date. Therefore, option C) Accumulated Depreciation is the correct choice as it reflects the decreasing value of the asset as it is used over time. None of the other options are relevant in this situation, as there is no mention of equipment expense, service revenue or other accounts related to the acquisition of the computers.

Question 3

Prepaid Insurance is an asset account that appears on the balance sheet.

Accepted Answer

Prepaid Insurance is an asset account that represents the amount paid in advance for insurance coverage that has not yet been used. It is listed on the balance sheet as an asset.

Question 4

Explore, a travel magazine, collected $500,000 in subscription revenue in May. Each subscriber will receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. Provide the journal entry for collection of cash in May. (Ignore explanation.) Assume the magazine initially records a liability for the subscription revenue.

Accepted Answer

The answer of Explore, a travel magazine, collected $500,000 in...

Question 5

The sum of all the depreciation expenses recorded to date for a depreciable asset is called residual value.

Accepted Answer

Residual value is the estimated value of a depreciable asset at the end of its useful life.

Question 6

In the case of a deferred expense, the adjusting entry required at the end of a period will consist of a credit to the Prepaid Expense account. Assume the deferred expense was initially recorded as an asset.

Accepted Answer

A deferred expense is initially recorded as an asset and requires a credit to the Prepaid Expense account when adjusting at the end of a period.

Question 7

Unearned Revenue is a(n) ________ account and carries a normal ________ balance.
A) liability; credit
B) asset; credit
C) revenue; debit
D) asset; debit

Accepted Answer

Unearned Revenue is a liability account because it represents revenue that has been received but not yet earned or delivered. It carries a normal credit balance because it represents an obligation that the company owes to its customers to fulfill a service or deliver a product in the future.

Question 8

On December 31, 2016, the balance in Pinnacle Exploration Company's Unearned Revenue account was a credit of $6,000. In January, 2017, the company received an advance payment of $14,000 from a new customer for services to be performed. By January 31, adjustments were made to recognize $4,000 of the revenue that had been earned during January. What was the balance in Unearned Revenue on January 31, 2017?
A) $4,000 credit
B) $14,000 debit
C) $6,000 credit
D) $16,000 credit

Accepted Answer

D)
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Question 9

Holland Company purchased manufacturing equipment for $10,920. It has an estimated useful life of seven years and no residual value. The company should record depreciation expense of $80 per month. (Assume that the company uses the straight-line method.)

Accepted Answer

Depreciation Expense per month = ($10,920 / 7)/ 12 = $130

Question 10

The depreciation method that allocates an equal amount of depreciation each year is called the straight-line method.

Accepted Answer

This statement is true - the straight-line method evenly allocates depreciation over the useful life of an asset.

Question 11

Kittery Services purchased computers that are to be used in its consultancy services. Based on the matching principle, the related account that should appear on the income statement for the year ended December 31, 2016 is ________.
A) Depreciation Expense
B) Service Revenue
C) Accumulated Depreciation
D) Equipment Expense

Accepted Answer

The matching principle requires that expenses be recorded in the same period as the related revenue. Since the computers are being used to generate revenue, the related expense that should appear on the income statement for the year ended December 31, 2016 is depreciation expense.

Question 12

The following Office Supplies account information is available for Able Company:  From the above information, calculate the amount of office supplies purchased.
A) $7,800
B) $6,000
C) $1,200
D) $3,000

Accepted Answer

The answer of The following Office Supplies account information is...

Question 13

On January 1, 2016, Prepaid Insurance of Maywood Company had a beginning balance of $900. Three months of insurance premiums remain in the beginning balance. On February 1, 2016, the company paid an annual insurance premium in the amount of $3,400 for the period beginning April 1. On February 28, 2016, the balance in Prepaid Insurance is $600. The deferred expense was initially recorded as an asset.

Accepted Answer

Insurance premium per month = $900 / 3 = $300
Balance in Prepaid Insurance as of 11ea8a42_4f1e_bb6b_8b44_a3cbf96879ae_TB5024_00

Question 14

In the case of a deferred expense, the adjusting entry required at the end of a period will consist of a debit to the Prepaid Expense account. Assume the deferred expense was initially recorded as an asset.

Accepted Answer

The adjusting entry for a deferred expense typically involves a debit to an expense account (reflecting the expense now incurred) and a credit to the Prepaid Expense account (reducing the asset as it is used up).

Question 15

Prepaid Rent is an expense account that appears on the income statement.

Accepted Answer

Prepaid Rent is actually an asset account that appears on the balance sheet, representing rent payment made in advance. It is not an expense until the period it relates to.

Question 16

A contra account's normal balance (debit or credit) is the opposite of the normal balance of the related account.

Accepted Answer

This is a correct statement. Contra accounts are used to reduce the balance of the related account, so their normal balance is the opposite of the related account. For example, the contra account "Allowance for Doubtful Accounts" has a credit balance, while its related account "Accounts Receivable" has a debit balance.

Question 17

Contra asset accounts, such as Accumulated Depreciation, always have normal debit balances.

Accepted Answer

Contra asset accounts have a credit balance and are used to reduce the balance of their respective asset accounts, which have a debit balance. So Accumulated Depreciation would have a credit balance, not a debit balance.

Question 18

On January 1, Ogden Company had $1,500 of supplies on hand. During January, Ogden purchased $5,500 worth of new supplies. At the end of the month, a count revealed $600 worth of supplies remaining on the shelves. The adjusting entry needed will include a debit to Supplies Expense of $6,400. The supplies were initially recorded as an asset.

Accepted Answer

Supplies Expense = $1,500 + $5,500 - $600 = $6,400

Question 19

The asset account, Office Supplies had a beginning balance of $5,400. During the accounting period, office supplies were purchased, on account, for $5,400. A physical count, on the last day of the accounting period, shows $2,300 of office supplies on hand. What is the amount of Supplies Expense for the accounting period?
A) $5,400
B) $2,300
C) $8,500
D) $3,100

Accepted Answer

C)
Office Supplies:
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Question 20

A company received $5,000 for 100 one-year subscriptions on July 1. The journal entry to record this cash receipt would include a ________. The company uses a liability account for revenue received in advance.
A) credit to Accounts Payable for $5,000
B) debit to Prepaid Expenses for $5,000
C) credit to Unearned Revenue for $5,000
D) debit to Note Payable for $5,000

Accepted Answer

The company received revenue in advance, which means they have not yet earned it. Therefore, the journal entry should include a credit to an unearned revenue liability account. Option A) Accounts Payable is incorrect as the company didn't receive an invoice or owe any money to anyone. Option B) Prepaid Expenses is incorrect as this is an asset account that is used for expenses paid in advance. Option D) Note Payable is incorrect as it represents a loan that must be repaid with interest, which isn't relevant in this case.

Quiz 3: The Adjusting Process

Harvard Financial Services purchased computers that are to be used in its consultancy services. Based on the matching principle, what account, other than Computers, should appear on the balance sheet as of December 31, 2016?

Prepaid Insurance is an asset account that appears on the balance sheet.

The sum of all the depreciation expenses recorded to date for a depreciable asset is called residual value.

In the case of a deferred expense, the adjusting entry required at the end of a period will consist of a credit to the Prepaid Expense account. Assume the deferred expense was initially recorded as an asset.

Unearned Revenue is a(n) account and carries a normal balance.

Holland Company purchased manufacturing equipment for $10,920. It has an estimated useful life of seven years and no residual value. The company should record depreciation expense of $80 per month. (Assume that the company uses the straight-line method.)

The depreciation method that allocates an equal amount of depreciation each year is called the straight-line method.

Kittery Services purchased computers that are to be used in its consultancy services. Based on the matching principle, the related account that should appear on the income statement for the year ended December 31, 2016 is ________.

The following Office Supplies account information is available for Able Company: From the above information, calculate the amount of office supplies purchased.

In the case of a deferred expense, the adjusting entry required at the end of a period will consist of a debit to the Prepaid Expense account. Assume the deferred expense was initially recorded as an asset.

Prepaid Rent is an expense account that appears on the income statement.

A contra account's normal balance (debit or credit) is the opposite of the normal balance of the related account.

Contra asset accounts, such as Accumulated Depreciation, always have normal debit balances.

A company received $5,000 for 100 one-year subscriptions on July 1. The journal entry to record this cash receipt would include a ________. The company uses a liability account for revenue received in advance.