Question 1

Accumulated depreciation is classified as a(n):

Accepted Answer

Accumulated depreciation is a contra-asset account, which reduces the value of the related asset on the balance sheet. It is not an expense account because it represents the decrease in value of the asset over time, not an actual expense. It is not an asset account because it does not represent something of value that the company owns, and it is not a liability account because it does not represent a debt or obligation owed by the company.

Question 2

What will be the result if the adjusting entry to record the current period's depreciation on equipment is not recorded?

Accepted Answer

The answer of What will be the result if the...

Question 3

Rover Ltd. had $8,200 of supplies on hand at the beginning of the month. A count at the end of the month indicated $1,350 of supplies were still on hand. The adjusting entry at year end would include a:

Accepted Answer

The answer of Rover Ltd. had $8,200 of supplies on...

Question 4

What effect does an accrued revenue adjustment have on a company's net income?

Accepted Answer

The answer of What effect does an accrued revenue adjustment...

Question 5

A journal entry contains a debit to an expense account and a credit to a payable account. This is an example of a(n):

Accepted Answer

This is an example of an accrued expense, where the expense has been incurred but not yet paid for, resulting in a credit to a payable account. The debit to the expense account represents the recognition of the expense in the accounting period it was incurred.

Question 6

Chance stables purchased a new baler as their annual equipment purchase. The baler was purchased for $10,000 down and a $50,000 note with an estimated life of 8 years. The baler will be worthless at the end of its life. The annual amount of depreciation on this equipment is:

Accepted Answer

The answer of Chance stables purchased a new baler as...

Question 7

What will be the result if no adjusting entry is made to record revenue earned during the current period when the cash was received in the last accounting period?

Accepted Answer

The answer of What will be the result if no...

Question 8

Allocating the cost of long-lived tangible assets used in the operations of a business is referred to as:

Accepted Answer

Depreciation is the process of allocating the cost of long-lived tangible assets used in the operations of a business over their estimated useful lives. This is done because the full cost of the asset is not considered an expense in the year it is purchased, but rather over the period of time that it is used.

Question 9

Honey Brown Inc. paid six months' rent in advance totalling $9,000. At the end of the first month, the adjusting entry would include a:

Accepted Answer

Since Honey Brown Inc. paid rent in advance for six months, the total rent paid would be $9,000. However, at the end of the first month, only one month has actually been used, so the adjusting entry would need to reflect that $1,500 of the prepaid rent has now been "used up" and should be expensed. Therefore, the entry would be a debit to Rent Expense for $1,500.

Question 10

On June 1, 2014, Destiny Ltd. received $3,600 for services to be performed evenly over the next twelve months. The adjusting entry on December 31, 2014, would include a:

Accepted Answer

The answer of On June 1, 2014, Destiny Ltd. received...

Question 11

Unearned Revenue is a(n):

Accepted Answer

Unearned Revenue is money received by a company before it has actually earned the revenue. It is considered a liability account because the company owes a product or service to the customer in exchange for the money received. The liability is reduced once the revenue is earned by delivering the product or providing the service.

Question 12

A journal entry contains a debit to the Cash account and a credit to the Unearned Service Revenue account. This is an example of a(n):

Accepted Answer

The debit to Cash indicates that cash has been received, while the credit to Unearned Service Revenue indicates that services have not yet been provided. This is an example of deferred revenue, where cash is received in advance for services that will be provided in the future.

Question 13

What is the liability called that arises from an expense that the business has incurred but has not yet paid?

Accepted Answer

The liability that arises from an expense that the business has incurred but has not yet paid is called an accrued expense. This is because the expense has been incurred but not yet paid, so it is still owed and therefore constitutes a liability for the business. Option A refers to a liability resulting from revenue received in advance, while option B refers to a type of asset that represents expenses paid in advance. Option C also refers to an asset that represents expenses paid in advance.

Question 14

An adjustment is made for an expense incurred prior to its payment. The adjustment is called a(n):

Accepted Answer

An accrued expense is an expense that has been incurred but not yet paid. Adjustments are made for accrued expenses to account for the expense in the period in which it was incurred, even if payment has not yet been made.

Question 15

Upper Canada Corp. bought $72,000 of equipment with an estimated service life of 4 years. The equipment will be worthless at the end of its life. The annual amount of depreciation on this equipment is:

Accepted Answer

To calculate the annual amount of depreciation, we divide the cost of the equipment by its estimated service life.

Annual depreciation = cost of equipment / service life

Annual depreciation = $72,000 / 4 years

Annual depreciation = $18,000

Therefore, the correct answer is A) $18,000.

Question 16

The adjusting entry made to record prepaid insurance that has expired during the period would include a debit to:

Accepted Answer

The adjusting entry to record expired prepaid insurance involves recognizing the portion of the prepaid amount that has been used up or expired as an expense. To record this expense, a debit is made to Insurance Expense.

Question 17

A journal entry contains a debit to an asset account and a credit to a revenue account. This is an example of a(n):

Accepted Answer

This is an example of accrued revenue because the asset account is being debited to show that the company has earned revenue, and the revenue account is being credited to record the increase in revenue. This means that the revenue has been earned but not yet received, hence it is accrued revenue.

Question 18

The adjusted trial balance serves as the basis for preparing:

Accepted Answer

The adjusted trial balance is prepared after adjusting entries have been made to the general ledger. It includes all accounts and their updated balances after adjustments. The adjusted trial balance is used as the basis for preparing both the balance sheet and the income statement. Therefore, the best choice is C - both the balance sheet and the income statement.

Question 19

Shaftebury Ltd. began operations and purchased $15,900 of supplies. By year end, $8,800 of supplies were still on hand. The adjusting entry at year end would include a:

Accepted Answer

The answer of Shaftebury Ltd. began operations and purchased $15,900...

Question 20

What effect does an accrued expense adjustment have on the financial statements?

Accepted Answer

The answer of What effect does an accrued expense adjustment...

Quiz 3: Accrual Accounting and the Financial Statements

Accumulated depreciation is classified as a(n) :