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Exam 3: The Adjusting Process

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Question 81

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Identify the effect (a through h) that omitting each of the following items would have on the balance sheet. -No adjustment was made for supplies used up during the month.

A) Assets and owner's equity overstated
B) Assets and owner's equity understated
C) Assets overstated and owner's equity understated
D) Assets understated and owner's equity overstated
E) Liabilities and owner's equity overstated
F) Liabilities and owner's equity understated
G) Liabilities overstated and owner's equity understated
H) Liabilities understated and owner's equity overstated

I) C) and E)
J) A) and H)

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Question 82

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Under the accrual basis, some accounts in the ledger require updating at the end of the period. Discuss the three main reasons for this updating and give an example of each.

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Some expenses are not recorded daily. Fo...

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Question 83

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A business pays biweekly salaries of $20,000 every other Friday for a 10-day period ending on that day. The last payday of December is Friday, December 27. Assume the next pay period begins on Monday, December 30, and the proper adjusting entry is journalized at the end of the fiscal period (December 31) . The entry for the payment of the payroll on Friday, January 10, includes a

On January 2, Dog Mart prepaid $30,000 rent for the year and recorded the prepayment in an asset account. Prepare the January 31 adjusting entry for rent expense.

Identify the effect (a through h) that omitting each of the following items would have on the balance sheet. -Property taxes are paid annually. The estimated monthly amount for the taxes was not recorded.

Prepaid advertising, representing payment for the next quarter, would be reported on the balance sheet as

The following adjusting journal entry does not include an explanation. Select the best explanation for the entry.

(a) Explain the differences between accrued revenues and unearned revenues. (b) Explain the differences between accrued expenses and prepaid expenses. (c) Give an example of each.

What effect will this adjustment have on the accounting records? $\begin{array} { | c | r | r | } \hline \text { Unearned Fees } & 6,375 & \\\hline \text { Fees Earned } & & 6,375 \\\hline\end{array}$

Depreciation on equipment for the year is $6,300. (a) Record the journal entry if the company prepares adjustments once a year. (b) Record the journal entry if the company prepares adjustments on a monthly basis.

The cost of office supplies to be used in future periods is ordinarily shown on the balance sheet as

Match the type of account (a through e) with the business transactions that follow. -Received payment covering a six-month magazine subscription.

Adjusting journal entries are dated on the last day of the period.

An adjusting entry to accrue an incurred expense will affect total liabilities.

Prepare adjusting entries for the following transactions: (a)The beginning balance of the supplies account was $245. During the month the company bought additional supplies in the amount of $735. At the end of the month a physical inventory showed $343 of unused supplies. (b)The company has a 12% note payable in the amount of $17,000 due in six months. The interest expense of $170 for the month has not been recorded. (c)The company has two employees. The manager is paid on the fifteenth of every month for work performed during the first half of the month and on the first of the following month for the work performed during the second half of the month. His monthly salary is $5,500. The other employee is paid $650 for each five-day work week (Monday-Friday). The last day of the month fell on Thursday. (d)The unearned fees account shows a balance of $46,000. According to the manager 60% of that amount has been earned. (e)At the end of the month $5,700 of services had been performed but not yet billed.

The revenue recognition principle states that revenue should be recorded in the same period as the cash is received.

At the end of the current year, fees of $3,700 have been earned but have not been billed to clients. Journalize the adjusting entry to record the accrued fees.

The system of accounting where revenues are recorded when they are earned and expenses are recorded when they are incurred is called the cash basis of accounting.

The type of account and normal balance of Unearned Consulting Fees would be

Match the type of account (a through e) with the business transactions that follow. -Annual depreciation on equipment, recorded on a monthly basis.