Question 1

An asset account is debited when unearned revenue is recorded initially as a revenue.

Accepted Answer

Unearned revenue is initially recorded as a liability, not a revenue. When the revenue is earned, the unearned revenue account is debited and the revenue account is credited.

Question 2

Lynnwood Services prepaid 24 months of rent in advance on October 1, 2019. Lynnwood Services debited rent expense for the entire amount of $12,000. The adjusting entry on December 31, 2019, would include a:

Accepted Answer

The answer of Lynnwood Services prepaid 24 months of rent...

Question 3

When a prepaid expense is initially recorded as an expense, the adjusting entry has the following effect on net income:

Accepted Answer

The adjusting entry for a prepaid expense initially recorded as an expense will increase net income because it corrects the overstatement of expenses by recognizing the portion that should be recorded as an asset.

Question 4

When an unearned revenue is initially recorded as a revenue, the adjusting entry has the following effect on the financial statements:

Accepted Answer

The adjusting entry for unearned revenue initially recorded as revenue decreases revenue and owner's equity because it corrects the overstatement of revenue.

Question 5

On October 1 of the current year, Wood Services received $15,000 for services to be performed evenly over the next 12 months. Wood Services initially recorded the $15,000 as service revenue. The adjusting entry on December 31 of the current year will include a:

Accepted Answer

The adjusting entry should recognize the portion of revenue that has not yet been earned. By December 31, three months of services have been performed, so $3,750 (3/12 of $15,000) should be recognized as earned revenue. The remaining $11,250 is unearned and should be debited from service revenue to adjust it correctly.

Question 6

When a prepaid expense is initially recorded as an expense, the adjusting entry would include a:

Accepted Answer

When a prepaid expense is initially recorded as an expense, the adjusting entry corrects this by debiting the prepaid expense account (to increase the asset for the prepaid amount) and crediting the expense account (to decrease the expense). This adjustment ensures that the expense is recognized in the period in which it is incurred, aligning with the matching principle.

Question 7

On December 21, 2019, Mr. Bagger received and deposited $790 from a customer, Mrs. McCartney, who paid in advance of the work. He recorded the receipt by crediting a revenue account, Computer Service Fees Earned. As of December 31, none of the work had been completed. What, if any, is the required adjusting journal entry on December 31?

Accepted Answer

The revenue was recorded prematurely since no work was completed by December 31. The correct entry should move the amount from revenue to a liability account, Unearned Computer Service Fees, reflecting the obligation to perform the service.

Question 8

A liability account is credited when a prepaid expense is recorded initially as an expense.

Accepted Answer

When a prepaid expense is initially recorded, it is debited to a prepaid expense account (an asset account) and credited to cash or accounts payable, not a liability account.

Question 9

On April 1 of the current year, Wood Services received $15,000 for services to be performed evenly over the next 12 months. Wood Services initially recorded the $15,000 as service revenue. The adjusting entry on December 31 of the current year will include a:

Accepted Answer

The answer of On April 1 of the current year,...

Question 10

Lynnwood Services prepaid six months of insurance in advance on July 1, 2019. Lynnwood Services debited insurance expense for the entire amount of $12,000. The adjusting entry on December 31, 2019, would include:

Accepted Answer

The answer of Lynnwood Services prepaid six months of insurance...

Question 11

When an unearned revenue is initially recorded as a revenue, the adjusting entry would affect net income as follows:

Accepted Answer

When unearned revenue is incorrectly recorded as revenue, an adjusting entry must be made to correct this by decreasing revenue, which in turn decreases net income.

Question 12

Unearned revenue recorded initially as revenue is adjusted by debiting a liability account.

Accepted Answer

Unearned revenue is initially recorded as a liability, not revenue. When it is earned, it is then adjusted by debiting the liability account and crediting a revenue account.

Question 13

When a prepaid expense is initially recorded as an expense, the adjusting entry:

Accepted Answer

When a prepaid expense is initially recorded as an expense, the adjusting entry transfers the unused portion to an asset account. This corrects the initial entry by recognizing that the portion of the prepaid expense not yet consumed still holds future economic benefit and should be recorded as an asset.

Question 14

The balance in the Office Supplies account had a debit balance on January 1, 2019, that equalled the $240 of supplies on hand. During the year, the company purchased $4,200 of supplies that were debited to the Office Supplies Expense account. The proprietor estimates that the cost of supplies remaining on hand on December 31 is $960. What is the required adjusting journal entry on December 31?

Accepted Answer

The answer of The balance in the Office Supplies account...

Question 15

Table 3-2
The unadjusted trial balance of Danvon Collection Services at December 31, 2019 follows. Danvon records payments for insurance, rent and supplies to the expense accounts; and, cash received in advance from customers as revenue. $\begin{array}{llcc}
  \text {  } &\underline{\text { Debit}}&\underline{\text { Credit}}\
 \text {Cash  } &\$4,800\
 \text { Accounts receivable} &10,400\
 \text {Prepaid insurance  } &\
 \text {Prepaid rent  } &\
 \text { Office supplies } &\
  \text {Equipment  } &  16,500\
 \text {Accumulated amortization  } &&\$2,400\
 \text { Salaries payable } &\
 \text { Interest payable } &\
 \text { Unearned serv ice rev enue } &&600\
 \text {Note payable  } &&8,000\
  \text {Ted Danvon, capital  } &&18,200  \
 \text { Ted Danvon, withdrawals } &0\
 \text { Service revenue } &&42,500\
 \text {  Salaries expense} &20,500\
 \text {Amortization expense  } &\
 \text { Rent expense } &16,200\
  \text {  Insurance expense} & 2,200 \
 \text { Office supplies expense } &600\
 \text {Interest expense  } &\underline{500}&\underline{\quad\quad}\
&\$71,700&\$71,700
\end{array}$

-Refer to Table 3-2. Given the following information, prepare the necessary adjusting entries at year end, December 31, 2019, for Danvon Collection Services.
a)A count revealed that $100 of office supplies were still on hand at December 31, 2019.
b)The accountant has determined that the prepaid insurance balance at December 31, 2019, should be in the amount of $450.
c)The equipment is amortized at the rate of $200 per month.
d)The accountant has determined that the unearned service revenue balance at December 31, 2019 should be in the amount of $950.
e)Interest of $200 on the note payable has accrued to the end of the year.
f)Salaries accrued at December 31, 2019 amounted to $650.
g)The accountant has determined that the prepaid rent balance at December 31, 2019 should be in the amount of $100.

Accepted Answer

The answer of Table 3-2
The unadjusted trial balance of Danvon...

Question 16

Lawson Delivery initially records all prepaid expenses as expenses and all unearned revenues as revenues. Given the following information, prepare the necessary adjusting entries at year end, December 31, 2019.
a)On January 3, 2019, $3,500 of supplies were purchased. A count revealed $700 still on hand at December 31, 2019.
b)On January 4, 2019, a $3,150 payment was made to an insurance agency for two and a half years of insurance.
c)On June 30, 2019, received nine months' rent in advance from a tenant, $8,100.
d)On August 1, 2019, received six months' rent in advance from a tenant, $4,800.

Accepted Answer

The answer of Lawson Delivery initially records all prepaid expenses...

Question 17

When an unearned revenue is initially recorded as a revenue, the adjusting entry:

Accepted Answer

When an unearned revenue is initially recorded as a revenue, the adjusting entry corrects the mistake by transferring the unearned portion back to a liability account, recognizing that the revenue has not yet been earned and thus should not be reported as such.

Question 18

Sandhill Construction initially records all prepaid expenses as expenses and all unearned revenues as revenues. Given the following information, prepare the necessary adjusting entries at year end, December 31, 2019.
a)On January 3, 2019, $2,500 of supplies were purchased. A count revealed $300 still on hand at December 31, 2019.
b)On January 4, 2019, a $21,000 payment was made to an insurance agency for two and a half years of insurance.
c)On June 30, 2019, received nine months payment in advance from a customer, $16,200.
d)On August 1, 2019, received six months payment in advance from a customer, $9,600.

Accepted Answer

The answer of Sandhill Construction initially records all prepaid expenses...

Question 19

Given the following adjustment data, state whether the resulting adjustment will be a deferral or an accrual
-Recorded salaries earned by employees at end of month, payment to be made early next month.

Accepted Answer

This is an accrual because it involves recognizing expenses (salaries in this case) that have been incurred in the current period but the payment for which will be made in a future period.

Question 20

Given the following adjustment data, state whether the resulting adjustment will be a deferral or an accrual
-Recorded service revenue received in advance from clients.

Accepted Answer

The answer of Given the following adjustment data, state whether...

Quiz 3: Measuring Business Income: The Adjusting Process