Question 1

Mary Benoit has performed $1,500 of CPA services for a client but has not billed the client as of the end of the accounting period. What is the effect of the adjustment Mary will make?

Accepted Answer

The correct adjustment is to increase Accounts Receivable, as Mary has earned the revenue but has not yet received payment, and to increase Service Revenue, as the services have been performed and thus revenue has been earned, even though it has not yet been billed.

Question 2

A bank customer received a loan for $13,000 in exchange for a 7-month, 9% note on October 1, 2018. The note is due on April 30, 2019. If the bank's accounting period ends on December 31 each year, how much interest revenue from this note should the bank recognize in the years 2018 and 2019?

Accepted Answer

The answer of A bank customer received a loan for...

Question 3

Phoenix Fitness Centers have 15,000 members whose monthly dues are $100 each. The company does not send individual bills to customers, who have until the 10th day of the month following the month of service to pay their monthly dues. On December 31 the company's records show that 7,000 customers have already paid their December dues, and the payments were properly recorded.
The adjusting entry to be recorded on December 31 will include:

Accepted Answer

DC) The 8,000 members who haven't paid their dues for December represent $800,000 in revenue (8,000 members x $100 each) that hasn't been received yet, so Accounts Receivable should be increased by this amount to reflect the owed dues.D) The 7,000 members who have paid their December dues represent $700,000 in revenue (7,000 members x $100 each) that has been received and properly recorded, which does not require an adjusting entry for Accounts Receivable as it's already accounted for. However, the choice is incorrect in the context of the question's requirement for an adjusting entry, indicating a misunderstanding in my explanation. The correct focus should be on the unrecorded revenue and receivables, not on what has already been recorded.

Question 4

On August 1 of the current year, Smith Company received $6,000 for legal services to be performed evenly throughout the next six months. The adjustment on December 31 of the current year would include:

Accepted Answer

Smith Company received $6,000 for services to be performed over six months, which means $1,000 of revenue is earned each month. By December 31, five months have passed, so $5,000 of the revenue has been earned, requiring an increase to Service Revenue of $5,000.

Question 5

At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was erroneously omitted. Which of the following statements is true?

Accepted Answer

Omitting the adjusting entry for accrued salaries results in not recording the salaries expense that has been incurred but not yet paid. This means the expenses for the year are understated because the salaries expense is lower than it should be. Consequently, net income would be overstated, liabilities would be understated (since the owed salaries are not recorded as a liability), and owner's equity would be overstated (since net income is part of owner's equity and it is overstated).

Question 6

The pre-adjustment net income for a company is $100,000. However, adjustments have not been made at the end of the period for accrued revenues of $2,700 and accrued expenses of $1,300. The correctly adjusted Net Income should be:

Accepted Answer

The correctly adjusted Net Income is calculated by adding the accrued revenues ($2,700) and subtracting the accrued expenses ($1,300) from the pre-adjustment net income ($100,000). This results in $100,000 + $2,700 - $1,300 = $101,400.

Question 7

Which one of the following adjustments increases net income for the period?

Accepted Answer

Recognition of rent that had been received in advance from customers increases net income for the period because it converts a liability (unearned revenue) into revenue, thus increasing net income.

Question 8

The Unearned Revenue account was not adjusted for work performed in the current period. What is the effect of this error?

Accepted Answer

Unearned Revenue is a liability account that represents revenue received but not yet earned. If it is not adjusted for work performed, the liabilities (Unearned Revenue) remain overstated because the amount should decrease as work is performed. Similarly, revenues will be understated because the revenue for the work performed has not been recognized.

Question 9

Failure to record an adjustment at the end of the period to record an accrued expense would cause:

Accepted Answer

Failing to record an accrued expense results in not recognizing an expense that has been incurred but not yet paid, leading to an understatement of expenses. Since the corresponding liability (the obligation to pay the expense) is also not recorded, liabilities are understated as well.

Question 10

NASCAR Mufflers pays employees each Friday for the five day work-week ending on that day. The company's normal gross weekly payroll is $3,600. If the last Friday of the month falls on January 25, what is the effect of the adjustment which should be made on January 31, the fiscal year end?

Accepted Answer

The answer of NASCAR Mufflers pays employees each Friday for...

Question 11

On January 18, 2018, MetroPlex paid $12,000 for a two-year insurance premium that covers February 1, 2018 through January 31, 2020. MetroPlex's year-end is March 31, 2018. 
a. What is the effect on the accounting equation on January 18, 2018?
b. What is the effect of the adjustment on the accounting equation on March 31, 2018 before the financial statements are prepared for the year ending March 31, 2018?

Accepted Answer

The answer of On January 18, 2018, MetroPlex paid $12,000...

Question 12

Sparkling Water offers pool and spa cleaning services to hotels and residential customers. Commercial (hotels) customers pay on a monthly contract basis, while residential customers pay an hourly rate based on services provided.
In July, Sparkling Water signed a 6-month contract with Hilton Holidays to provide pool and spa cleaning services for 3 hotel sites. The contract price of $24,000 was collected on July 1. The services will be provided evenly over the 6 months.
During July, Sparkling Water also provided 80 hours of residential pool services at $15 per hour. These services have not yet been billed to residential customers. The company uses the account, Fees Receivable, to reflect amounts due but not yet billed.
Determine the financial statement effect of each of the following transactions/adjustments:
a. The July 1 receipt of $24,000 cash related to the contract with Hilton Holidays.
b. Adjustment to be made on July 31 for the contract work performed for Hilton Holidays during the month.
c. The adjustment needed on July 31 to reflect the residential pool services performed during the month.

Accepted Answer

The answer of Sparkling Water offers pool and spa cleaning...

Question 13

The publisher of Business Today, a monthly business magazine, received $12,000 for three-year subscriptions on January 1.
Determine the financial statement effect of each of the following transactions/adjustments:
a. The cash receipt on January 1?
b. The adjustment needed on January 31 to recognize subscription revenue.

Accepted Answer

The answer of The publisher of Business Today, a monthly...

Question 14

Billingsley Brothers earns 6% annual interest on its $50,000 of investments. Interest is paid every six months on June 30 and December 31. 
a. If monthly financial statements are prepared, what adjustment should be made on January 31?
b. What effect does the adjustment have on the January 31 balance sheet?

Accepted Answer

The answer of Billingsley Brothers earns 6% annual interest on...

Question 15

Booker Company received an advance payment of $36,000 for a consulting contract during the year. The balance in the Unearned Consulting Fees account at the beginning of the year was $4,000. At the end of the year, $2,000 was still unearned. 
How much will Booker report as Consulting Revenue on its income statement for the year?

Accepted Answer

The answer of Booker Company received an advance payment of...

Question 16

The Cleaning Authority provides janitorial services for commercial customers. On December 31, 2018, the balance of the Common Stock and Retained Earnings accounts were $12,000 and $5,500, respectively. During 2019, the company issued $4,200 of stock, and paid $2,000 in dividends. The income statement resulted in a net income of $21,200. 
Prepare a 2019 statement of stockholders' equity for The Cleaning Authority.

Accepted Answer

The answer of The Cleaning Authority provides janitorial services for...

Question 17

Use BVD Corporation's year-end adjusted account balances to prepare the company's income statement for the year ended December 31, 2019.

Accepted Answer

The answer of Use BVD Corporation's year-end adjusted account balances...

Question 18

Use BVD Corporation's year-end adjusted account balances to prepare BVD's statement of stockholders' equity for 2019. There were no stock issuances or repurchases during 2019.

Accepted Answer

The answer of Use BVD Corporation's year-end adjusted account balances...

Question 19

Use BVD Corporation's year-end adjusted account balances to prepare BVD's balance sheet for December 31, 2019.

Accepted Answer

The answer of Use BVD Corporation's year-end adjusted account balances...

Question 20

Listed below are several accounts of Moyer Catering, Inc. Indicate with an X in the proper column whether (1) the account is permanent or temporary, (2) whether it is found on the balance sheet or income statement.

Accepted Answer

The answer of Listed below are several accounts of Moyer...

Quiz 3: Accrual Basis of Accounting

Mary Benoit has performed $1,500 of CPA services for a client but has not billed the client as of the end of the accounting period. What is the effect of the adjustment Mary will make?

A bank customer received a loan for $13,000 in exchange for a 7-month, 9% note on October 1, 2018. The note is due on April 30, 2019. If the bank's accounting period ends on December 31 each year, how much interest revenue from this note should the bank recognize in the years 2018 and 2019?

On August 1 of the current year, Smith Company received $6,000 for legal services to be performed evenly throughout the next six months. The adjustment on December 31 of the current year would include:

At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was erroneously omitted. Which of the following statements is true?

The pre-adjustment net income for a company is $100,000. However, adjustments have not been made at the end of the period for accrued revenues of $2,700 and accrued expenses of $1,300. The correctly adjusted Net Income should be:

Which one of the following adjustments increases net income for the period?

The Unearned Revenue account was not adjusted for work performed in the current period. What is the effect of this error?

Failure to record an adjustment at the end of the period to record an accrued expense would cause:

NASCAR Mufflers pays employees each Friday for the five day work-week ending on that day. The company's normal gross weekly payroll is $3,600. If the last Friday of the month falls on January 25, what is the effect of the adjustment which should be made on January 31, the fiscal year end?

Use BVD Corporation's year-end adjusted account balances to prepare the company's income statement for the year ended December 31, 2019.

Use BVD Corporation's year-end adjusted account balances to prepare BVD's statement of stockholders' equity for 2019. There were no stock issuances or repurchases during 2019.

Use BVD Corporation's year-end adjusted account balances to prepare BVD's balance sheet for December 31, 2019.

Listed below are several accounts of Moyer Catering, Inc. Indicate with an X in the proper column whether (1) the account is permanent or temporary, (2) whether it is found on the balance sheet or income statement.