Question 1

On January 1, 2022, Pulque Company purchased equipment for $51,000. The company is depreciating the equipment at the rate of $850 per month. The book value of the equipment at December 31, 2022 is

Accepted Answer

To find out the book value of the equipment at December 31, 2022, we need to calculate the depreciation expense for the year.

Depreciation expense for the year = $850/month x 12 months = $10,200

The book value of the equipment at December 31, 2022 is the original cost of $51,000 minus the accumulated depreciation of $10,200.

Book value = $51,000 - $10,200 = $40,800

Therefore, the correct answer is C.

Question 2

A business pays weekly salaries of $35,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on a Wednesday is

Accepted Answer

Since the fiscal period ends on a Wednesday, there are two days left in the workweek that will be paid on Friday. Therefore, the adjusting entry should be to debit Salaries and Wages Expense for two days' worth of salaries and credit Salaries and Wages Payable for the same amount. Since each day's salaries amount to $7,000 ($35,000 ÷ 5), two days' worth of salaries equal $14,000. Thus, the adjusting entry should be to debit Salaries and Wages Expense, $14,000 and credit Salaries and Wages Payable, $14,000.

Question 3

Tacoma Corporation purchased a one-year insurance policy in January 2022 for $57,000. The insurance policy is in effect from May 2022 through April 2023. If the company neglects to make the proper year-end adjustment for the expired insurance on December 31, 2022,

Accepted Answer

The insurance policy covers 12 months from May 2022 to April 2023. By December 31, 2022, 8 months of the policy have expired. The cost for these 8 months is (8/12) * $57,000 = $38,000. If the adjustment is not made, expenses are understated, leading to overstated net income and assets by $38,000.

Question 4

Can financial statements be prepared directly from the adjusted trial balance?

Accepted Answer

Adjusting entries have already been recorded in the general journal and posted to the ledger accounts, which means that the accounts are up-to-date and ready to be used in preparing financial statements.

Question 5

At March 1, 2022, Milo Corp. had supplies on hand of $600. During the month, Milo purchased supplies of $1,300 and used supplies of $1,400. The March 31 adjusting journal entry should include a

Accepted Answer

The adjusting entry should credit the supplies account for $1,400 to account for the supplies used during the month.

Question 6

Truffle Candies paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (29-31). Employees work 5 days a week and the company pays $1,800 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January?

Accepted Answer

The adjusting entry to accrue wages expense at the end of January will be:

Wages expense (accrued)                    $9,000
Wages payable                                         $9,000

The calculation is:
Number of working days in January (excluding paid days) = 3
Number of working days in a week = 5
Total number of working days in January = 23 (including paid days)
Total wages for January = 23 x 5 x $1,800 = $207,000
Wages paid in January = 26 x 1 x $1,800 = $46,800
Wages accrued at the end of January = $207,000 - $46,800 = $160,200

Therefore, the adjusting entry is necessary to record the accrued wages expense of $9,000 ($160,200 / 18 working days = $9,000 per day). The correct option is C.

Question 7

The time period assumption states that the economic life of a business can be divided into

Accepted Answer

The time period assumption states that the economic life of a business can be divided into artificial time periods, such as months, quarters, or years, for the purpose of reporting financial information. This allows for easier comparison of financial information over time and across businesses. The time periods are not necessarily equal or cyclical, and the assumption does not imply that the economic life of a business is perpetual.

Question 8

On January 1, 2023, Murphy Inc. purchased equipment for $38,400. The company is depreciating the equipment at the rate of $800 per month. At January 31, 2022, the balance in Accumulated Depreciation is

Accepted Answer

Since the equipment was purchased on January 1, 2023, there is no balance in Accumulated Depreciation as of January 31, 2022. The company will start depreciating the equipment from January 1, 2023, at the rate of $800 per month.

Therefore, the Accumulated Depreciation at January 31, 2022, which is one year before the purchase date, will be $10,400. (12 months x $800/month = $9,600 accumulated depreciation for 1 year + $800 depreciation for January 2022)

Question 9

The revenue recognition principle dictates that revenue should be recognized in the accounting period

Accepted Answer

The revenue recognition principle states that revenue should be recognized in the accounting period in which the performance obligation is satisfied, meaning when the goods or services are delivered to the customer and the customer obtains control and ownership of them. This is the most appropriate time to recognize revenue because it reflects when the company has fulfilled its obligations and earned the revenue. Revenue should not be recognized before or after it is earned, or based on when it is collected, as this could result in inaccurate financial statements.

Question 10

Which of the statements below is not true?

Accepted Answer

An adjusted trial balance is prepared after all transactions have been journalized and posted to the ledger, and after adjusting entries have been made.

Question 11

Petite Inc. pays its rent of $57,000 annually on January 1 and records the expenditure as an asset. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following will be true?

Accepted Answer

The omission of the adjusting entry means that the prepaid rent asset is not reduced by the rent expense for February, leading to an overstatement of assets by $4,750. Consequently, expenses are understated, causing net income and owner's equity to be overstated by $4,750.

Question 12

Salem Corporation purchased a one-year insurance policy in January 2022 for $51,000. The insurance policy is in effect from April 2022 through March 2023. If the company neglects to make the proper year-end adjustment for the expired insurance on December 31, 2022,

Accepted Answer

The insurance expense for the period from April to December 2022 is $38,250 (9 months of the policy). If not adjusted, this expense is not recognized, overstating net income and assets by this amount.

Question 13

Cornhusker Supplies Inc. purchased a 12-month insurance policy on March 1, 2022 for $2,640. At March 31, 2022, the adjusting journal entry to record expiration of this asset will include a

Accepted Answer

The adjusting journal entry to record the insurance policy's expiration will involve transferring a portion of the prepaid insurance amount to the insurance expense account, as the insurance policy's coverage will decrease.

Option A is incorrect because the payment for the insurance policy was made at the time of purchase, and there wouldn't be any payment transactions in the current entry.

Option B is also incorrect because the adjustment amount for insurance expense is calculated as follows:

($2,640 / 12 months) * 1 month = $220

Therefore, the entry should be a debit to insurance expense and a credit to prepaid insurance for $220, as shown in option C.

Option D is incorrect because there are no cash transactions that occurred during the current period.

Question 14

An adjusted trial balance

Accepted Answer

An adjusted trial balance is prepared after all adjustments have been made and is used to prove the equality of the total debit and credit balances of ledger accounts. It is not a required financial statement, but it is necessary to prepare financial statements.

Question 15

On January 1, 2023, Murphy Inc. purchased equipment for $38,400. The company is depreciating the equipment at the rate of $800 per month. At February 28, 2022, the book value of the equipment is

Accepted Answer

From January 1, 2023, to February 28, 2022, there are 13 months. Thus, the accumulated depreciation is 13 x $800 = $10,400. The book value of the equipment at February 28, 2022, is its original cost minus its accumulated depreciation, which is $38,400 - $10,400 = $27,200. Therefore, the correct answer is choice C.

Question 16

The time period assumption states

Accepted Answer

The time period assumption states that the life of a business can be divided into artificial time periods, such as months or years, and that useful reports covering those periods can be prepared. This assumption allows financial statements to be useful for decision making by providing relevant and timely information about the financial performance and position of a company over a specific period of time.

Question 17

The adjusted trial balance is prepared

Accepted Answer

The adjusted trial balance is prepared after adjusting entries have been journalized and posted. It is used to ensure that total debits still equal total credits after all adjusting entries have been made. This is done before the financial statements are prepared.

Question 18

Employees at Mango Corporation are paid $18,000 cash every Friday for working Monday through Friday. The calendar year accounting period ends on Tuesday, December 31. How much salaries and wages expense should be recorded three days later on January 2?

Accepted Answer

The amount of salaries and wages expense that should be recorded on December 31 is $360,000 ($18,000 per week x 20 weeks). Since the payment for the last week of the year will be paid on January 3 (the first Friday after December 31), no wage expense will occur on December 31. Therefore, the accrued salary expense for three days that have passed since December 31 is $10,800 ($18,000 x 3/5).

Question 19

At March 1, Payday Inc. reported a balance in Supplies of $250. During March, the company purchased supplies for $800 and consumed supplies of $700. If no adjusting entry is made for supplies

Accepted Answer

Without the adjusting entry, the expense for the consumed supplies ($700) is not recorded, leading to an overstatement of net income and, consequently, owner's equity.

Question 20

Blue Chip Investments purchased an 12-month insurance policy on May 31, 2022 for $3,480. The December 31, 2022 balance sheet would report Prepaid Insurance of

Accepted Answer

The 12-month insurance policy purchased on May 31, 2022 covers the period from May 31, 2022 to May 31, 2023. By December 31, 2022, six months of insurance coverage would have already been used up. Therefore, the amount of prepaid insurance as at December 31, 2022 would be for six months only, which can be calculated as follows:

Total cost of insurance for 12 months = $3,480
Cost of insurance for 6 months = $3,480/12 * 6 = $1,740

Therefore, the December 31, 2022 balance sheet would report Prepaid Insurance of $1,450 ($3,480 - $1,740). Therefore, the correct answer is C.

Quiz 5: Adjusting the Accounts and Preparing an Adjusted Trial Balance