Question 1

Adjusting entries are primarily needed for:

Accepted Answer

Adjusting entries are primarily needed for accrual accounting. This is because accrual accounting recognizes revenue and expenses when they are earned or incurred, regardless of when cash is actually received or paid. Adjusting entries are made at the end of an accounting period to ensure that revenues and expenses are properly recorded in the period in which they were earned or incurred. This helps to ensure the accuracy of financial statements and the completeness of financial data.

Question 2

The adjusting entry required when amounts previously recorded as unearned revenues are earned includes:

Accepted Answer

The answer of The adjusting entry required when amounts previously...

Question 3

Recording revenue earned, but not yet collected, from a customer is an example of:

Accepted Answer

Recording revenue earned, but not yet collected, from a customer is an example of an accrued receivable transaction. This means that the business has already provided the goods or services to the customer, but the payment is not yet received. It is different from unearned revenue, which is when a customer has paid in advance for goods or services that have not yet been provided.

Question 4

An example of a contra account is:

Accepted Answer

Accumulated depreciation is an example of a contra account because it is used to offset the balance of the related asset account (e.g. Property, Plant, and Equipment). As the asset depreciates over time, the accumulated depreciation account increases, reducing the overall net value of the asset.

Question 5

Which of the following accounts has a debit balance?

Accepted Answer

Bad debt expense is an expense account, and expense accounts typically have a debit balance.

Question 6

On December 31, 2009, Coolwear, Inc. had balances in its accounts receivable and allowance for uncollectible accounts of $48,400 and $0, respectively. No receivables were written off during the year. At the end of 2009, Coolwear estimated that $2,100 in receivables would not be collected. Bad debt expense for 2009 would be:

Accepted Answer

Bad debt expense is the amount estimated to be uncollectible. Since Coolwear estimated $2,100 would not be collected, the bad debt expense for 2009 is $2,100.

Question 7

A sale on account would be recorded by:

Accepted Answer

The answer of A sale on account would be recorded...

Question 8

The adjusting entry required to record accrued expenses includes:

Accepted Answer

Accrued expenses are expenses that have been incurred but not yet paid. Therefore, they represent a liability to the company since the company owes the expense in the future. The adjusting entry to record accrued expenses would include a debit to the expense account and a credit to the corresponding liability account. So, the correct choice is D, a credit to liability. Choices A and B are incorrect because cash is not involved in the recording of accrued expenses, and an asset would not be credited in this situation. Choice C is also incorrect because accrued expenses represent a liability, not an asset.

Question 9

Cal Farms reported supplies expense of $2,000,000 this year. The supplies account decreased by $200,000 during the year to an ending balance of $400,000. What was the cost of supplies the Cal Farms purchased during the year?

Accepted Answer

The cost of supplies purchased during the year can be calculated as beginning supplies balance + supplies purchased – ending supplies balance. Therefore, supplies purchased = ending supplies balance – beginning supplies balance + supplies expense = $400,000 - ($400,000 - $200,000) + $2,000,000 = $1,800,000. Therefore, the best choice is B.

Question 10

When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account:

Accepted Answer

When a tenant makes an end-of-period adjusting entry credit to the "Prepaid rent" account, they are recognizing that the prepaid rent has now been used up and needs to be expensed. Therefore, they would debit an expense account, such as "Rent expense," to recognize the expense and reduce the prepaid asset. They would not debit cash since this was already paid at the time the prepaid rent was recorded. They would also not debit a liability account since the liability was already reduced at the time the prepaid rent was recorded.

Question 11

Mary Parker Co. invested $15,000 in ABC Corporation and received capital stock in exchange. Mary Parker Co.'s journal entry to record this transaction would include a:

Accepted Answer

The answer of Mary Parker Co. invested $15,000 in ABC...

Question 12

Hughes Aircraft sold a four passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. The journal entry to record this sale would include a:

Accepted Answer

The answer of Hughes Aircraft sold a four passenger airplane...

Question 13

Accruals occur when cash flows:

Accepted Answer

Accruals occur when cash flows occur after revenue or expense recognition. This means that revenue or expenses have been recognized on the income statement, but cash payment or receipt has not yet occurred. Accruals are necessary for accurate financial reporting and matching expenses with the revenue they generate.

Question 14

Incurring an expense for advertising on account would be recorded by:

Accepted Answer

Incurring an expense for advertising would be recorded by debiting an expense account (such as Advertising Expense) and crediting either cash (if paid immediately) or accounts payable (if purchased on account). Therefore, the correct answer would be to debit an expense (choice C). Liabilities (choice A) and assets (choice B and D) would not be affected in this transaction.

Question 15

Which of the following accounts has a credit balance?

Accepted Answer

The answer of Which of the following accounts has a...

Question 16

Prepayments occur when:

Accepted Answer

Prepayments occur when cash flow precedes expense recognition. This means that the payment for goods or services is made in advance before the related expenses are recognized on the financial statements.

Question 17

Making insurance payments in advance is an example of:

Accepted Answer

Making insurance payments in advance is a prepaid expense transaction, as it represents an expense that has been paid for in advance and will be recognized as an expense in the future when the insurance coverage is actually used.

Question 18

When an employer makes an end-of-period adjusting entry with a debit to supplies expense, the usual credit entry is made to:

Accepted Answer

Since the adjusting entry involves a debit to supplies expense, which reduces the balance of supplies, the corresponding credit entry must be made to the supplies account to reflect the amount of supplies consumed during the period.

Question 19

When a magazine sells subscriptions to customers, it is an example of:

Accepted Answer

Selling subscriptions to customers is an example of unearned revenue transaction because the magazine has received payment but has not yet provided the service (delivering the magazine) to the customers. Therefore, the revenue is not yet earned and is considered a liability until the delivery is made.

Question 20

On December 31, 2009, the end of Larry's Used Cars first year of operations, the accounts receivable was $53,600. The company estimates that $1,200 of the year-end receivables will not be collected. Accounts receivable in the 2009 balance sheet will be valued at:

Accepted Answer

The accounts receivable balance at the end of the year is $53,600, but $1,200 of that is estimated to be uncollectible. Therefore, the accounts receivable that will be included in the balance sheet is $53,600 - $1,200 = $52,400. Therefore, option C is the correct answer.

Quiz 2: Review of the Accounting Process