Question 1

Robert Rogers, CPA, performed accounting services for a client in December. A bill was mailed to the client on December 30. Roberts received the client's check by mail on January 5. Which of the following accounts should appear on the income statement for the year ended December 31 as per the revenue recognition principle?

Accepted Answer

The revenue recognition principle states that revenue should be recognized when the goods or services are delivered, regardless of when payment is received. In this case, Robert Rogers performed accounting services in December, so the revenue should be recognized in December, regardless of when the client paid. Therefore, the correct account to appear on the income statement for the year ended December 31 would be Service Revenue.

Question 2

Robert Rogers, CPA, performed accounting services for a client in December. A bill was mailed to the client on December 30. Roberts received a check by mail on January 5. As per the revenue recognition principle, the related account that should appear on the balance sheet as of December 31 is:

Accepted Answer

The revenue recognition principle states that revenue should be recognized when it is earned, regardless of when payment is received. In this case, Robert performed accounting services in December, which means that the revenue was earned in December, and thus it should be recorded as accounts receivable as of December 31.

Question 3

Robert Rogers, CPA, owns a computer that is used in his consultancy services. As per the matching principle, the related account that should appear on the balance sheet as of December 31, 2014 is:

Accepted Answer

The matching principle requires that expenses be matched with the related revenues in the same accounting period. While the computer is used to generate service revenue, the related account that should appear on the balance sheet as of December 31, 2014 is Accumulated Depreciation, which reflects the portion of the cost of the computer that has been recognized as an expense over time.

Question 4

In the case of unearned revenue, the adjusting entry at the end of the period includes a credit to Service Revenue. Assume the unearned revenue is initially recorded as a liability.

Accepted Answer

The adjusting entry for unearned revenue includes a credit to Service Revenue, which reduces the liability of unearned revenue and recognizes it as revenue earned during the period.

Question 5

On January 1, Smith had a beginning balance in Unearned Revenue of $2,000. During January, he earned $1,000 of the unearned revenue. He also collected $6,000 from a new customer for services to be rendered the following month. At the end of January, the Unearned Revenue account had a balance of $6,000.

Accepted Answer

The answer of On January 1, Smith had a beginning...

Question 6

Robert Rogers, CPA, owns a computer that is used in his consultancy services. As per the matching principle, the related account that should appear on the income statement for the year ended December 31, 2014 is:

Accepted Answer

The matching principle states that expenses incurred to generate revenues should be recognized in the same period as the revenues they helped to generate. In this case, Robert Rogers, CPA, used a computer to provide consulting services, which generated Service Revenue. Therefore, the related account that should appear on the income statement is Depreciation Expense, as it represents the cost of using the computer to generate the Service Revenue.

Question 7

Smith signed a contract with a service provider for security services at a rate of $250 per month for the period of January through June. He will pay the service provider the entire amount at the end of June. Smith makes adjusting entries each month. During the month of June, Smith should have recorded total security expense of $500.

Accepted Answer

Smith should have recorded a total security expense of $1,500 ($250 per month for 6 months) by the end of June. If he only recorded $500 in June, he did not properly adjust his expenses for the prior months, resulting in an understatement of expenses.

Question 8

The employees of Robert Rogers, CPA, worked on the last two weeks of December, 2014. They received their paychecks on January 2. Which of the following accounts should appear on the income statement for the year ended December 31, 2014, as per the matching principle?

Accepted Answer

The matching principle requires that expenses incurred in a period should be recognized in the same period in which the related revenue is recognized. Since the employees worked in December, their salaries should be recognized as an expense in the same period. Therefore, Salary Expense should appear on the income statement for the year ended December 31, 2014. Prepaid Expense represents an advance payment made before receiving goods or services, Salaries Payable is a liability account that represents the amount of salaries owed to employees but not yet paid, and Unearned Revenue is a liability account that represents advanced payment received for goods or services that are yet to be delivered. None of these accounts would be appropriate to appear on the income statement for the year ended December 31, 2014.

Question 9

Unearned Revenue is classified as a(n)________ account.

Accepted Answer

Unearned revenue represents the receipt of payment from a customer for goods or services that have not yet been provided. Therefore, it is considered a liability because the company has an obligation to provide the goods or services in the future in exchange for the payment received.

Question 10

Smith owns manufacturing equipment that was bought for $12,600. It has an estimated useful life of 7 years. Smith should record depreciation expense of $100 per month.

Accepted Answer

To calculate the monthly depreciation expense, divide the cost of the equipment by its useful life in months: $12,600 / (7 years * 12 months) = $150 per month, not $100.

Question 11

In the case of unearned revenue, the adjusting entry at the end of the period includes a debit to Service Revenue. Assume the unearned revenue is initially recorded as a liability.

Accepted Answer

The adjusting entry for unearned revenue involves debiting the Unearned Revenue liability account and crediting the Service Revenue account to recognize the revenue earned during the period.

Question 12

Healthy Living, a diet magazine, collected $480,000 in subscription revenue on May 31. Healthy Living earns a minimum of $351,000 from the buyers who are not the subscribers. 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. What is the balance in the Unearned Revenue account on December 31?

Accepted Answer

Unearned Revenue = Subscription Revenue - Revenue EarnedRevenue Earned = Subscription Revenue / Number of MonthsRevenue Earned = $480,000 / 12 = $40,000 per monthUnearned Revenue = $480,000 - ($40,000 * 7) = $200,000

Question 13

On January 1, Smith had $2,000 of supplies on hand. During January, Smith purchased $4,000 worth of new supplies. At the end of the month, a count revealed $1,000 worth of supplies remaining on the shelves. The adjustment entry needed will include a debit to Supplies Expense of $5,000. The supplies were initially recorded as an asset.

Accepted Answer

The supplies were initially recorded as an asset, but since the count revealed $1,000 worth of supplies remaining on the shelves at the end of the month, the actual amount of supplies used or consumed during the month was $5,000 ($2,000 beginning balance + $4,000 purchased - $1,000 ending balance). This means that Supplies Expense needs to be debited for $5,000 to reflect the expense incurred in using/consuming the supplies during the month.

Question 14

Healthy Living, a diet magazine, collected $480,000 in subscription revenue on May 31st. Healthy Living earns a minimum of $351,000 from the buyers who are not the subscribers. 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. By the end of December, what is the amount of Subscription Revenue that has been earned?

Accepted Answer

By the end of December, 7 months of subscription revenue have been earned (June to December). The total subscription revenue is $480,000 for 12 months, so the earned revenue is ($480,000 / 12) * 7 = $280,000.

Question 15

Argyle Designs has entered into a contract to design 20 new dresses for a customer. It will collect a total of $40,000 after the design services are complete. Argyle started design work on June 1. As of June 30, Argyle finished 4 of the 20 designs. Argyle will make an adjusting entry at the end of June to accrue $10,000 of service revenue.

Accepted Answer

The answer of Argyle Designs has entered into a contract...

Question 16

The contra asset accounts, like Accumulated Depreciation, always have normal debit balances.

Accepted Answer

Contra asset accounts like Accumulated Depreciation have normal credit balances. This is because they are meant to offset the balance of the related asset account, which has a normal debit balance.

Question 17

On January 1, 2014, Smith had a beginning balance in Prepaid Insurance Expense of $1,200. On February 1, 2014, Smith paid an annual insurance premium in the amount of $4,800. On February 28, 2014, the balance in Prepaid Insurance is $2,000. The prepaid expense was initially recorded as an asset.

Accepted Answer

The balance in Prepaid Insurance on February 28, 2014, should be $5,200, not $2,000, if the prepaid expense was initially recorded as an asset. The $1,200 beginning balance plus the $4,800 payment minus the expense for January and February ($800) should result in a balance of $5,200.

Question 18

Smith borrowed $21,000 on a one year Note payable with an interest rate of 10% per year on June 1. He will repay the principal and interest at the end of the one-year period. Smith makes accrual adjustments at the end of each month. He should record interest expense of $2,100 on June 30.

Accepted Answer

Smith should record interest expense for one month, not the entire year. The interest for one month is $175 ($21,000 * 10% / 12).

Question 19

The employees of Robert Rogers, CPA, worked the last two weeks of December. They received their paychecks on January 2. Which of the following accounts should appear on the balance sheet as of December 31 as per the matching principle?

Accepted Answer

According to the matching principle, expenses should be recorded in the period they are incurred. Since the employees worked in December, the salary expense should be recognized in December, and the corresponding liability, Salaries Payable, should appear on the balance sheet as of December 31.

Question 20

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

Accepted Answer

The answer of The following information is available for Able...

Quiz 3: The Adjusting Process