Chapter 3/The Adjusting Process
Chapter 3 The Adjusting Process OBJECTIVES
Obj Obj 1 Obj Obj 2 Obj Obj 3 Obj Obj
Desc Descri ribe be the the nat natur uree of of the the adjus adjusti ting ng pro proces cess. s. Jour Journal naliz izee entri entries es for for accoun accounts ts requ requir irin ing g adjus adjustm tment ent.. Summ Summar ariz izee the the adju adjust stme ment nt proc proces ess. s. !rep !repar aree an an adj adjus uste ted d tri trial al bala balanc nce. e.
QUESTION !I"
True # $a%se No& No& O' O'je ject cti( i(ee "i)) "i))ic icu% u%t* t* No& No& + . 3 0 2 , / +1 ++ +. +3 + ++0 +2
"3#"1 "3#"1 "3#"1 "3#"1 "3#"1 "3#"1 "3#"1 "3#"1 "3#"1 "3#"1 "3#"1 "3#"1 "3#"1 "3#"1 "3#"1 "3#"1 "3#"2
$oderate %as& $oderate $oderate $oderate $oderate %as& %as& $oderate $oderate $oderate $oderate $oderate %as& $oderate %as& $oderate
+, +/ .1 .+ .. .3 . ..0 .2 ., ./ 31 3+ 3. 33 3
4atching No& No& O' O'je ject cti( i(ee "i)) "i))ic icu% u%t* t* No& No& + . 3
"3#"1 "3#"1 "3#"1
$oderate $oderate $oderate
0
O'je O' ject cti( i(ee
"i)) "i))ic icu% u%t* t* No& No&
O'je O' ject cti( i(ee
"i)) "i))ic icu% u%t* t*
"3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2
$oderate $oderate $oderate $oderate $oderate %as& $oderate $oderate $oderate $oderate $oderate %as& %as& $oderate $oderate %as& Difficult
"3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"3 "3#"3 "3#"3 "3#"3 "3#"3 "3#"3 "3#" "3#"
Difficult Difficult Difficult Difficult Difficult Difficult %as& Difficult Difficult Difficult Difficult %as& $oderate %as& %as&
O'je O' ject cti( i(ee
"i)) "i))ic icu% u%t* t* No& No&
O'je O' ject cti( i(ee
"i)) "i))ic icu% u%t* t*
"3#"1 "3#"1 "3#"1
$oderate $oderate $oderate
"3#"1 "3#"1
Difficult Difficult
330 32 3, 3/ 1 + . 3 0 2 , /
2 ,
119
120
'hapter
3()he *djusting !rocess
$ultiple 'hoice No& No& O' O'je ject cti( i(ee "3#"1 + "3#"1 . "3#"1 3 "3#"1 "3#"1 "3#"1 0 "3#"1 2 "3#"1 , "3#"1 / "3#"1 +1 "3#"1 ++ "3#"1 +. "3#"1 +3 "3#"1 + "3#"1 +"3#"1 +0 "3#"1 +2 "3#"1 +, "3#"1 +/ "3#"1 .1 "3#"1 .+ "3#"1 .. "3#"1 .3 "3#"1 . "3#"1 ."3#"2 .0 "3#"2 .2 "3#"2 .,
"i)) "i))ic icu% u%t* t* No& No&
O'je O' ject cti( i(ee
"i)) "i))ic icu% u%t* t* No& No&
O'je O' ject cti( i(ee
"i)) "i))ic icu% u%t* t*
$oderate $oderate $oderate $oderate $oderate Difficult Difficult Difficult Difficult Difficult Difficult Difficult $oderate $oderate %as& Difficult %as& $oderate $oderate %as& $oderate $oderate Difficult $oderate Difficult Difficult $oderate $oderate
"3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2
Difficult Difficult Difficult $oderate Difficult Difficult %as& $oderate %as& $oderate $oderate Difficult $oderate %as& %as& %as& $oderate %as& $oderate %as& %as& %as& %as& %as& %as& %as& %as& %as&
"3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"3 "3#"3 "3#"3 "3#"3 "3#"3 "3#" "3#" "3#" "3#"
%as& $oderate $oderate $oderate $oderate $oderate $oderate %as& %as& $oderate %as& Difficult %as& %as& Difficult $oderate $oderate $oderate Difficult Difficult Difficult Difficult $oderate $oderate $oderate $oderate
O'je O' ject cti( i(ee
"i)) "i))ic icu% u%t* t* No& No&
O'je O' ject cti( i(ee
"i)) "i))ic icu% u%t* t*
"3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2
%as& $oderate $oderate $oderate %as& $oderate %as& $oderate %as& %as&
"3#"2 "3#"2 "3#"2 "3#"3 "3#"3 "3#"3 "3#"3 "3#"3 "3#"3 "3#"
%as& %as& %as& $oderate Difficult $oderate $oderate Difficult %as& %as&
./ 31 3+ 3. 33 3 330 32 3, 3/ 1 + . 3 0 2 , / -1 -+ -. -3 - --0
E5ercise#Other No& No& O' O'je ject cti( i(ee "i)) "i))ic icu% u%t* t* No& No& + . 3 0 2 , / +1
"3#"1 "3#"1 "3#"1 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2 "3#"2
%as& %as& %as& $oderate $oderate %as& $oderate $oderate $oderate %as&
++ +. +3 + ++0 +2 +, +/ .1
-2 -, -/ 01 0+ 0. 03 0 000 02 0, 0/ 21 2+ 2. 23 2 220 22 2, 2/ ,1 ,+ ,.
.+ .. .3 . ..0 .2 ., ./ 31
Chapter 3/The Adjusting Process Process
Pro'%e6 No& No& O' O'je ject cti( i(ee "i)) "i))ic icu% u%t* t* No& No& + . 3
"3#"1 "3#"2 "3#"2 "3#"2
$oderate Difficult Difficult Difficult
0 2 ,
O'je O' ject cti( i(ee
"i)) "i))ic icu% u%t* t* No& No&
"3#"2 "3#"2 "3#"2 "3#"2
Difficult $oderate $oderate $oderate
/ +1 ++ +.
O'je O' ject cti( i(ee
"i)) "i))ic icu% u%t* t*
"3#"2 "3#"3 "3#"3 "3#" "3#"2+ 2+"3 "3#" #"
Difficult Difficult $oderate Dif Difficu ficult lt
121
Chapter 37The Adjusting Process T!UE#$A8SE
1.
)he s&stem s&stem of accounti accounting ng ,here re-enues re-enues are recorded recorded ,hen ,hen the& are earned earned and and epenses epenses are recorded ,hen the& are a re incurred is called the cash basis of accounting. accou nting. D0/ $oderate OJ "3#"1 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2.
)he accrual accrual basis basis of accounti accounting ng requires requires re-enue re-enue be be recorded recorded ,hen ,hen cash cash is recei-ed recei-ed from from customers. D0/ %as& OJ "3#"1 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 3. 4enerall& 4enerall& accepted accepted accountin accounting g principl principles es require require accrual#basi accrual#basiss account accounting. ing. D0/ $oderate OJ "3#"1 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement .
)he re-enue re-enue recogni recognition tion concept concept states states that re-enue re-enue should should be recorded recorded in the same period period as the cash is recei-ed. D0/ $oderate OJ "3#"1 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 5.
)he matching matching concept concept requires requires epense epensess be recorde recorded d in the the same same period period that the related related re-enue is recorded. D0/ $oderate OJ "3#"1 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 6.
)he financial financial statements statements measure measure precisel& precisel& the the financial financial conditi condition on and results results of operation operationss of a business. D0/ $oderate OJ "3#"1 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 7. !rep !repai aid d 8ent 8ent is is a def defer erre red d epen epense se.. D0/ %as& OJ "3#"1 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
122
'hapter
3()he *djusting !rocess
. *n eam eample ple of deferr deferred ed re-e re-enue nue is :nearne :nearned d 8ent. 8ent. D0/ %as& OJ "3#"1 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 9.
*ccruals *ccruals are are needed needed ,hen ,hen an unrecorded unrecorded epense epense has been been incurre incurred d or an unrecorde unrecorded d re-enue has been earned. D0/ $oderate OJ "3#"1 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 1". 0f the debit portion portion of an adjusting adjusting entr& is to an asset account; account; then the credit portion portion must be to a liabilit& account. D0/ $oderate OJ "3#"1 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 11. !roper reporti reporting ng of re-enues re-enues and epenses in in a period is due to the accounti accounting ng period concept. D0/ $oderate OJ "3#"1 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 12. 8e-enue recognit recognition ion concept requires requires that the reportin reporting g of re-enue be included in the period period ,hen cash for the ser-ice is recei-ed. D0/ $oderate OJ "3#"1 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 13. 8e-enues 8e-enues and epenses epenses should be recorded recorded in the same same period period in ,hich the& relate. relate. D0/ $oderate OJ "3#"1 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 1. )he matching matching concept concept supports supports matching matching epenses ,ith ,ith the related related re-enues. re-enues. D0/ %as& OJ "3#"1 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 15. %-en though 4**! 4**! requires requires the accrual accrual basis of accounting; accounting; some businesse businessess prefer using using the cash basis of accounting. D0/ $oderate OJ "3#"1 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 16. )he updating updating of accounts accounts is called called the the adjusting adjusting process. process. D0/ %as& OJ "3#"1 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 17. *djusting *djusting entries entries are made made at the end of an accounting accounting period to to adjust accounts accounts on the balance sheet. D0/ $oderate OJ "3#"2 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
Chapter 3/The Adjusting Process Process
123
1. *djusting *djusting entries entries affect affect onl& epense epense and asset asset accounts. accounts. D0/ $oderate OJ "3#"2 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 19. *n adjusting adjusting entr& ,ould ,ould adjust adjust re-enue so it is is reported reported ,hen earned earned and not ,hen cash is recei-ed. D0/ $oderate OJ "3#"2 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2". *n adjusting adjusting entr& ,ould ,ould adjust adjust an epense account account so the epense epense is reported reported ,hen incurred. D0/ $oderate OJ "3#"2 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 21. *n adjusting adjusting entr& to accrue accrue an incurred epense epense ,ill affect affect total liabilit liabilities. ies. D0/ $oderate OJ "3#"2 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 22. )he difference difference bet,een bet,een deferred deferred re-enue and accrued accrued re-enue is that accrued accrued re-enue has been recorded and needs adjusting and deferred re-enue has ne-er been recorded. D0/ $oderate OJ "3#"2 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 23. Deferrals Deferrals are recorded recorded transactio transactions ns that dela& the recogniti recognition on of an epense or re-enue. D0/ %as& OJ "3#"2 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2. *djustment *djustmentss for accruals accruals are needed needed to record a re-enue re-enue that has been earned earned or an epense epense that has been incurred but not recorded. D0/ $oderate OJ "3#"2 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 25. *n unearned unearned re-enue re-enue is a liabili liabilit& t&.. D0/ $oderate OJ "3#"2 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 26. )he s&stematic s&stematic allocatio allocation n of land
124
'hapter
3()he *djusting !rocess
2. )he *ccumul *ccumulated ated Depreciati Depreciation75;""". >75;""". *ssumi *ssuming ng annual depreciati depreciation on of >2;5""; the boo= -alue of the building one &ear later is >77;5"". D0/ $oderate OJ "3#"2 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 32. * contra contra asset asset account for for ?and ,ill normall normall& & appear in the balance balance sheet. sheet. D0/ $oderate OJ "3#"2 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 33. Depreciati Depreciation on %pense is reported reported on the balance sheet as an addition addition to the related related asset. D0/ %as& OJ "3#"2 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 3. * compan& compan& pa&s >12;""" >12;""" for t,el-e t,el-e month;""" and credit !repaid 8ent; >;""". D0/ Difficult OJ "3#"2 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 35. * compan& compan& pa&s >2" for a &earl& trade trade magazine on *ugust 1. )he )he adjusting adjusting entr& on December 31 is debit :nearned Subscription 8e-enue; >1"" and credit Subscription 8e-enue; >1"". D0/ Difficult OJ "3#"2 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 36. * compan& depreciates its equipment >35" a &ear. &ear. )he adjusting adjusting entr& for December 31 is debit Depreciation %pense; >35" and credit %quipment; >35". D0/ Difficult OJ "3#"2 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
Chapter 3/The Adjusting Process Process
125
37. * compan& compan& pa&s an emplo&ee emplo&ee >1;""" >1;""" for a fi-e da& ,or= ,or= ,ee=; $onda& # /rida& /rida&.. )he adjusting entr& on December 31; ,hich is a @ednesda&; @ednesda&; is debit @ages @ages %pense; >2"" > 2"" and credit @ages @ages !a&able; >2"". D0/ Difficult OJ "3#"2 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 3. * compan& compan& pa&s >5;6"" >5;6"" for t,o season season tic=ets tic=ets on September September 1. 0f >1;"" >1;"" is earned b& December 31; the adjusting entr& made at that time is debit 'ash; >1;"" and credit )ic=et 8e-enue; >1;"". D0/ Difficult OJ "3#"2 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 39. * compan& compan& does not realize realize that the last t,o da&;""". )he amount of the journal entr& required to record insurance epense ,ill be >2;5"" if the amount of unepired insurance applicable to future periods is >1;5"". D0/ Difficult OJ "3#"2 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 1. )he mar=et mar=et -alue of a fied asset asset is reflecte reflected d in the alance Sheet Sheet after the proper proper adjustment is made. D0/ %as& OJ "3#"2 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2. 0f the adjustment adjustment for accrued accrued salaries salaries at the end of the period is inad-ertentl inad-ertentl& & omitted; both both liabilities and o,ner
126
'hapter
3()he *djusting !rocess
5. 0f the adjustment adjustment for depreciati depreciation on for the &ear is inad-ertentl inad-ertentl& & omitted; the assets assets on the balance sheet at the end of the period ,ill be understated. D0/ Difficult OJ "3#"3 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 6. *djusting *djusting journal journal entries entries are are dated on the last last da& of the the period. period. D0/ %as& OJ "3#"3 ANS9 ) *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 7. & ignoring ignoring and not posting the adjustin adjusting g journal entries entries to the appropriate appropriate accounts; accounts; net income ,ill al,a&s be o-erstated. D0/ $oderate OJ "3#"3 ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement . )he financial financial statements statements are prepared prepared from the unadjust unadjusted ed trial balance. balance. D0/ %as& OJ "3#" ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 9. )he heading heading of an adjusted adjusted trial balance balance contains contains the heading heading A/or the $onth $onth %nded December 31; 2"".A D0/ %as& OJ "3#" ANS9 / *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
Chapter 3/The Adjusting Process Process
127
4ATC:IN
Match these type of accounts with the following business transactions. a. !rep !repai aid d ep epen ense se b. *ccrued epense c. :near :nearne ned d re-e re-enu nuee d. *ccr *ccrue ued d re-en re-enue ue
1. 2. 3. . 5. 6. 7. .
Ser-ic Ser-ices es pro-id pro-ided ed b& an att attorn orne& e& that that ha-e ha-e not been been recor recorded. ded. !aid !aid for for one one &ea &earB rBss insu insura ranc ncee poli polic& c& 8etain 8etainage age receirecei-ed ed b& the client client for for future future legal legal repre represen sentat tation ion.. *nnual *nnual prop propert ert& & taes taes that that are are paid paid at the end end of the &ear &ear %lec %lectr tric ic bill bill to be paid paid net net mo mont nth h !aid !aid for a magazi magazine ne subsc subscrip riptio tion n for the net net 6 months months 8ecei8ecei-ed ed pa&ment pa&ment for for a magazi magazine ne subscr subscript iption ion for for the net net 6 months months !ro-ided !ro-ided tutoring tutoring for for a student; student; in-oice in-oice to be sent sent at the the beginning beginning of the the net month month to the the parent for pa&ment.
1. ANS9 D D0/ $oderate OJ "3#"1 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2. ANS9 * D0/ $oderate OJ "3#"1 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 3. ANS9 ' D0/ $oderate OJ "3#"1 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement . ANS9 D0/ $oderate OJ "3#"1 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 5. ANS9 D0/ $oderate OJ "3#"1 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 6. ANS9 * D0/ $oderate OJ "3#"1 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 7. ANS9 ' D0/ $oderate OJ "3#"1 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement . ANS9 D D0/ $oderate OJ "3#"1 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
128
'hapter
3()he *djusting !rocess
4U8TIP8E C:OICE
1.
)he re-e )he re-enu nuee rec recogn ognit itio ion n conc concep eptt a. is in not in in conflict conflict ,ith ,ith the cash method method of accounti accounting ng b. determines ,hen re-enue is credited to a re-enue account c. states states that re-enue re-enue is not recorded recorded until until the cash is recei-ed recei-ed d. controls controls all re-enue re-enue reporting reporting for the the cash basis basis of accounting accounting D0/ $oderate OJ "3#"1 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2.
)he mat )he match chiing conc concep eptt a. addresses addresses the relation relationship ship bet,een bet,een the journal journal and the balance balance sheet b. determines ,hether the normal balance of an account is a debit or credit c. requires requires that the dollar dollar amount of debits debits equal the dollar amount amount of credits credits on a trial trial balance d. determines that epenses related to re-enue be reported at the the same time the re-enue is reported D0/ $oderate OJ "3#"1 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 3.
:sing :sing accrua accruall account accounting ing;; re-enue re-enue is recor recorded ded and and report reported ed onl& onl& a. ,hen cash is recei-e recei-ed d ,ithout regard regard to ,hen the ser-ice ser-icess are rendered rendered b. ,hen the ser-ices are rendered ,ithout regard to ,hen cash is recei-ed c. ,hen cash is is recei-ed recei-ed at the time time ser-ices ser-ices are rendered rendered d. if cash is is recei-ed recei-ed after after the ser-ices ser-ices are are rendered rendered D0/ $oderate OJ "3#"1 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement .
:sing :sing accrua accruall account accounting ing;; epenses epenses are are record recorded ed and repor reported ted onl& onl& a. ,hen the& the& are incurre incurred; d; ,hether ,hether or not not cash is is paid b. ,hen the& are incurred and paid at the same time c. if the& the& are paid before before the& are are incurred incurred d. if the& the& are paid paid after after the& are are incurred incurred D0/ $oderate OJ "3#"1 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 5.
One of the accounti accounting ng concepts concepts upon ,hich ,hich deferrals deferrals and accrual accrualss are based is a. mat matchin ching g b. cost c. price# price#lele-el el adjus adjustm tment ent d. cons conser er-a -ati tism sm D0/ $oderate OJ "3#"1 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
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6.
0f the effect effect of the the debit debit portion portion of an adjust adjusting ing entr& entr& is to to increase increase the the balance balance of an epense epense account; ,hich of the follo,ing describes the effect of the credit portion of the entr&C a. decreases decreases the balance balance of an stoc=holders stoc=holdersBB equit& equit& account account b. increases the balance of an liabilit& account c. increases increases the the balance balance of an asset asset account account d. decreases decreases the balance balance of an epense epense account account D0/ Difficult OJ "3#"1 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 7.
0f the effect effect of the the credit credit portion portion of an an adjusting adjusting entr& entr& is to increase increase the the balance balance of a liabil liabilit& it& account; ,hich of the follo,ing describes the effect of the debit portion of the entr&C a. increases increases the the balance balance of a contra contra asset asset account account b. increases the balance of an asset account c. decreases decreases the balance balance of an stoc=holders stoc=holdersBB equit& equit& account account d. increases increases the the balance balance of an epense epense account account D0/ Difficult OJ "3#"1 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement .
)he primar& primar& differen difference ce bet,een bet,een deferred deferred and accrued accrued epenses epenses is is that that deferred deferred epense epensess ha-e a. been incurre incurred d and accrued accrued epense epensess ha-e not b. not been incurred and accrued epenses ha-e been incurred c. been recorded recorded and accrued accrued epenses epenses ha-e ha-e not been incurre incurred d d. not been recorded recorded and and accrued accrued epenses ha-e ha-e been incurre incurred d D0/ Difficult OJ "3#"1 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 9.
!rior !rior to to the adju adjusti sting ng proce process; ss; accrued accrued epen epenses ses ha-e ha-e a. not &et been incurre incurred; d; paid; paid; or recorde recorded d b. been incurred; not paid; but ha-e been recorded c. been incurre incurred; d; not paid; and and not recorded recorded d. been paid paid but ha-e ha-e not &et been been incurred incurred D0/ Difficult OJ "3#"1 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 1". !rior to the adjust adjusting ing process; process; accrued accrued re-enue has a. been earn earned ed and cash cash recei recei-ed -ed b. been earned and not recorded as re-enue c. not been been earned earned but but recorded recorded as re-enue re-enue d. not been recorded recorded as re-enue re-enue but cash cash has been been recei-ed recei-ed D0/ Difficult OJ "3#"1 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
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11. Deferr Deferred ed epe epense nsess ha-e ha-e a. not &et been recorded recorded as epenses epenses or paid paid b. been recorded as epenses and paid c. been incurr incurred ed and and paid paid d. not &et &et been been recorded recorded as epenses epenses D0/ Difficult OJ "3#"1 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 12. Deferred Deferred re-enue re-enue is re-enue re-enue that that is is a. earned and the the cash cash has been recei-e recei-ed d b. earned but the cash has not been recei-ed c. not earned earned and the cash cash has not been been recei-ed recei-ed d. not earned earned but the cash cash has been recei-ed recei-ed D0/ Difficult OJ "3#"1 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 13. *djust *djusting ing entrie entriess are are a. the same same as corre correcti cting ng entrie entriess b. needed to bring accounts up to date and match re-enue and epense ep ense c. optional optional under general generall& l& accepted accepted accounting accounting principle principless d. rarel& rarel& needed needed in large large companies companies D0/ $oderate OJ "3#"1 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 1. *djusting *djusting entries entries affe affect ct at least one a. income income statement statement account account and and one balance balance sheet sheet account account b. re-enue and the di-idend account c. asset and one stoc=hol stoc=holdersB dersB equit& equit& account account d. re-enue re-enue and one capital capital stoc= account D0/ $oderate OJ "3#"1 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 15. )he general general term emplo&ed emplo&ed to indicate indicate an epense epense that has not been paid paid and has not &et been recognized in the accounts b& a routine entr& is a. capit pital b. deferral c. accrual d. in-e in-ent ntor or& & D0/ %as& OJ "3#"1 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
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16. @hich @hich of the the foll follo,i o,ing ng is not a characteristic of accrual basis of accountingC a. 8e-enues 8e-enues and epenses epenses are reported reported in the period period in ,hich cash is recei-e recei-ed d or paid b. 8e-enues are reported in the income statement in the period in ,hich the& are earned c. Support Supportss the match matching ing conce concept pt d. *ll are correc correct. t. D0/ Difficult OJ "3#"1 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 17. 4enerall& 4enerall& accepted accepted accounting accounting principles principles requires requires that companies companies use the of accounting. a. cash cash basi basiss b. deferral basis c. accr accrua uall basi basiss d. accou account nt basi basiss D0/ %as& OJ "3#"1 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 1. @hich of the the follo,ing follo,ing supports supports the accrual accrual basis of accounti accountingC ngC a. re-enu re-enuee recogni recogniti tion on concept concept b. cash concept c. matc matchi hing ng con conce cept pt d. re-enue re-enue recogniti recognition on and matchin matching g concepts concepts D0/ $oderate OJ "3#"1 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 19. )he cash basis basis of accounting accounting records records re-enues re-enues and epenses epenses ,hen the cash is is echanged echanged ,hile the accrual basis of accounting a. records records re-enues re-enues ,hen the& the& are earned earned and epenses epenses ,hen the& the& are paid paid b. records re-enues and epenses ,hen the& are incurred. c. records records re-enues re-enues ,hen cash is recei-ed recei-ed and epenses epenses ,hen ,hen the& are incurred. incurred. d. records records re-enues re-enues and epenses epenses ,hen the compan& compan& needs to appl& appl& for a loan. D0/ $oderate OJ "3#"1 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2". & matching matching re-enues re-enues and epenses epenses in the the same period period in ,hich ,hich the& incur incur a. net income income or loss ,ill al,a&s al,a&s be underest underestimat imated. ed. b. net income or loss ,ill al,a&s be o-erestimated. c. net income income or loss ,ill ,ill be properl& properl& reported reported on the income stateme statement nt d. net income income or loss loss ,ill ,ill not be determin determined. ed. D0/ %as& OJ "3#"1 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
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21. *ll adjusting adjusting entrie entriess al,a&s al,a&s in-ol-e in-ol-e a. onl& onl& income income stateme statement nt accounts accounts.. b. onl& balance sheet accounts. c. the the cash cash acc accou ount nt.. d. at least one income income statemen statementt account and one balance balance sheet account. account. D0/ $oderate OJ "3#"1 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 22. !repaid !repaid epenses epenses are are e-entua e-entuall& ll& epected epected to a. become epenses epenses ,hen ,hen their their future future economic economic -alue epires. epires. b. become re-enues ,hen ser-ices are performed. c. become epenses epenses in the period period ,hen ,hen the& are paid. paid. d. become re-enues re-enues ,hen ,hen the liabili liabilit& t& is no longer longer o,ed. o,ed. D0/ $oderate OJ "3#"1 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 23. @hich of the the follo,ing follo,ing is considered considered to be unearned unearned re-enueC re-enueC a. 'oncert 'oncert tic=ets tic=ets sold for tonightB tonightBss performance. performance. b. 'oncert tic=ets sold &esterda& on credit. c. 'oncert 'oncert tic=ets tic=ets that ,ere not sold sold for the current current performa performance. nce. d. 'oncert 'oncert tic=ets tic=ets sold for net monthBs monthBs performance. performance. D0/ Difficult OJ "3#"1 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2. @hich of of the follo,i follo,ing ng is an an eample eample of accrued accrued re-enueC re-enueC a. S,imming S,imming pool cleaning cleaning that has has been for three three months in in ad-ance. b. S,imming pool cleaning that has been pro-ided but has not been billed or paid. c. *n agreement agreement has been signed signed for s,immin s,imming g pool cleaning cleaning for the net three three months. months. d. S,imming S,imming pool cleaning cleaning that has has been pro-ided pro-ided and paid on the same same da&. da&. D0/ $oderate OJ "3#"1 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 25. @hich of the the follo,ing follo,ing is considered considered to be an accrued accrued epenseC epenseC a. * computer technician has installed the latest latest soft,are updates and ,as paid on the same da&. b. * computer technician technician has been paid in ad-ance to install soft,are updates as the& become a-ailable. c. * computer technician has just signed an agreement ,ith &ou regarding pricing for future ,or=. d. * computer technician has installed the latest latest soft,are updates; updates; but &ou ha-e not recei-ed their in-oice for pa&ment. D0/ Difficult OJ "3#"1 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
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26. @hich @hich account account ,oul ,ould d normall normall& & not require an adjusting entr&C a. @ages ages %p %pen ense se b. *ccounts 8ecei-able c. *ccumu *ccumulat lated ed Depreci Depreciati ation on d. 'api 'apita tall Sto Stoc= c= D0/ Difficult OJ "3#"2 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 27. @hich one of the the accounts belo, belo, ,ould li=el& li=el& be included included in an accrual accrual adjusting adjusting entr&C a. 0nsu 0nsura ranc ncee %pens %pensee b. !repaid 8ent c. 0nte 0ntere rest st %pen %pense se d. :near :nearne ned d 8en 8entt D0/ $oderate OJ "3#"2 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2. @hich one of the follo,ing follo,ing accounts accounts belo, ,ould ,ould li=el& be included included in a deferral deferral adjusting adjusting entr&C a. 0nte 0ntere rest st 8e-e 8e-enu nuee b. :nearned 8e-enue c. Sala Salari ries es !a&ab !a&able le d. *ccount *ccountss 8ece 8ecei-a i-able ble D0/ $oderate OJ "3#"2 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 29. )he balance balance in the prepaid prepaid rent account before before adjustme adjustment nt at the end of the &ear is >15;"""; >15;"""; ,hich represents three months< rent paid on December 1. )he adjusting entr& required on December 31 is a. debit 8ent 8ent %pense; %pense; >5;"""E credit credit !repai !repaid d 8ent; >5;""" >5;""" b. debit !repaid 8ent; >1";"""E credit 8ent %pense; >5;""" c. debit 8ent 8ent %pense; %pense; >1";"""E >1";"""E credit credit !repaid !repaid 8ent; >5;""" >5;""" d. debit !repaid !repaid 8ent; 8ent; >5;"""E >5;"""E credit credit 8ent %pense; %pense; >5;""" >5;""" D0/ Difficult OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 3". )he balance in the office office supplies supplies account on June 1 ,as >5;2""; supplies supplies purchased purchased during during June ,ere >2;5""; and the supplies on hand at June 3" ,ere >2;""". )he amount to be used for the appropriate adjusting entr& is a. >;5"" b. >2;5"" c. >9;7"" d. >5;7 5;7"" D0/ Difficult OJ "3#"2 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
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31. @hat is the the proper adjustin adjusting g entr& at June 3"; the the end of the fiscal fiscal &ear; &ear; based on a prepaid prepaid insurance account balance before adjustment; >15;5""; and unepired amounts per anal&sis of policies; >;5""C a. debit 0nsurance 0nsurance %pense; %pense; >;5""E >;5""E credit credit !repaid 0nsuranc 0nsurance; e; >;5"" b. debit 0nsurance %pense; >15;5""E credit !repaid 0nsurance; >15;5"" c. debit !repaid !repaid 0nsurance; 0nsurance; >11;5""E >11;5""E credit credit 0nsurance 0nsurance %pense; %pense; >11;5"" >11;5"" d. debit 0nsurance 0nsurance %pense; %pense; >11;"""E >11;"""E credit !repaid !repaid 0nsurance; 0nsurance; >11;""" D0/ Difficult OJ "3#"2 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 32. )he entr& to adjust adjust for the the cost of supplies supplies used during during the accounting accounting period period is a. Supplies Supplies %pense; %pense; debitE debitE Supplies; Supplies; credit credit b. 'apital Stoc=; debitE Supplies; credit c. *ccounts *ccounts !a&able; !a&able; debitE debitE Suppli Supplies; es; credit credit d. Supplies; Supplies; debitE debitE credit 'apital 'apital Stoc= Stoc= D0/ $oderate OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 33. * business business pa&s ,ee=l& ,ee=l& salaries salaries of >2";""" on /rida& /rida& for a fi-e#da& ,ee= ,ee= ending on that da&. )he adjusting entr& necessar& at the end of the fiscal period ending on o n )hursda& is a. debit Salarie Salariess !a&able; !a&able; >16;"""E >16;"""E credit credit 'ash; >16;""" >16;""" b. debit Salar& %pense; >16;"""E credit Di-idends; >16;""" c. debit Salar& Salar& %pense; %pense; >16;"""E credit credit Salaries Salaries !a&able; !a&able; >16;""" >16;""" d. debit Dra,in Dra,ing; g; >16;"""E >16;"""E credit credit 'ash; 'ash; >16;""" >16;""" D0/ Difficult OJ "3#"2 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 3. )he balance balance in the prepaid prepaid insurance insurance account before before adjustmen adjustmentt at the end of the &ear is >1";""". 0f the additional data for the adjusting entr& is F1G Athe amount of insurance epired during the &ear is >;5"";A as compared to additional data stating F2G Athe amount of unepired insurance applicable to a future period is >1;5"";A for the adjusting entr& a. the debit and credit credit amount amount for F1G ,ould ,ould be the same as F2G F2G but the accounts accounts ,ould be different b. the accounts for F1G ,ould be the same as the accounts for F2G but the amounts ,ould be different c. the accounts accounts and amounts amounts ,ould ,ould be the same same for both both F1G and F2G F2G d. there is not enough enough information information gi-en to determin determinee the correct accounts accounts and amounts D0/ Difficult OJ "3#"2 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
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35. )he difference difference bet,een bet,een the balance of a fied asset asset account and the related related accumulated accumulated depreciation account is termed a. hist histor oric ical al cos costt b. contra asset c. boo= boo= -alu -aluee d. mar= mar=et et -alu -aluee D0/ %as& OJ "3#"2 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 36. )he adjusting adjusting entr& to record record the depreciation depreciation of equipment equipment for the fiscal fiscal period is a. debit Depreci Depreciation ation %penseE %penseE credit credit %quipment %quipment b. debit Depreciation %penseE credit *ccumulated Depreciation c. debit *ccumul *ccumulated ated DepreciationE DepreciationE credit credit Depreciation Depreciation %pense %pense d. debit %quipme %quipmentE ntE credit credit Depreciat Depreciation ion %pense %pense D0/ $oderate OJ "3#"2 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 37. *s time passes; passes; fied assets assets other than than land lose their their capacit& to pro-ide useful ser-ices. )o account for this decrease in usefulness; the cost of fied assets is s&stematicall& allocated to epense through a process called a. equipme equipment nt alloca allocatio tion n b. depreciation c. accum accumul ulat atio ion n d. matc matchi hing ng D0/ %as& OJ "3#"2 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 3. )he entr& to adjust adjust the accounts accounts for ,ages ,ages accrued accrued at the end of the accounting accounting period period is a. @ages !a&able; !a&able; debitE @ages @ages 0ncome; 0ncome; credit credit b. @ages 0ncome; debitE @ages @ages !a&able; credit c. @ages !a&able; !a&able; debitE @ages @ages %pense; %pense; credit d. @ages %pense; %pense; debitE @ages @ages !a&able; !a&able; credit D0/ $oderate OJ "3#"2 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 39. )he supplies supplies account account has a balance of >1;""" >1;""" at the beginning beginning of the &ear and and ,as debited debited during the &ear for >2;""; representing the total of supplies purchased during the &ear. &ear. 0f >75" of supplies are on hand at the end of the &ear; the supplies epense to be reported on the income statement for the &ear is a. >75" b. >3;55" c. >3;"" d. >3;" 3;"5" D0/ $oderate OJ "3#"2 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
136
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". * compan& compan& purchases purchases a one#&ear insurance insurance polic& polic& on June 1 for >". )he adjusting adjusting entr& on December 31 is a. debit 0nsurance 0nsurance %pense; %pense; >35" and credit credit !repaid !repaid 0nsurance; 0nsurance; >35" b. debit 0nsurance %pense; >2" and credit !repaid 0nsurance; >2" c. debit 0nsurance 0nsurance %pense; %pense; >9"; >9"; and credit !repaid !repaid 0nsurance 0nsurance;; >9". d. debit !repaid !repaid 0nsuranc 0nsurance; e; >72"; and credit credit 'ash; 'ash; >72" D0/ Difficult OJ "3#"2 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 1. 0f the prepaid prepaid rent account account before before adjustment adjustment at the end of the month month has a debit balance balance of >1;6""; representing a pa&ment made on the first da& of the month; and if the monthl& rent ,as >""; the amount of prepaid rent that ,ould appear on the balance sheet at the end of the month; after adjustment; is a. >"" b. >"" c. >2;"" d. >1;6 1;6"" D0/ $oderate OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2. Depreciati Depreciation on %pense and *ccumulated *ccumulated Depreciation Depreciation are classified; classified; respecti-el& respecti-el&;; as a. epense epense;; contr contraa asse assett b. asset; contra liabilit& c. re-e re-enu nue; e; asse assett d. contra contra asset asset;; epens epensee D0/ %as& OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 3. )he t&pe of account account and normal normal balance of *ccumulated *ccumulated Depreciat Depreciation ion is a. asse asset; t; cred credit it b. asset; debit c. contra contra asset; asset; credit credit d. contra contra asse asset; t; debit debit D0/ %as& OJ "3#"2 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement . )he t&pe of account account and normal normal balance balance of of :nearned :nearned 8ent is a. re-e re-enu nue; e; cre credi ditt b. epense; debit c. liabil liabilit& it&;; credi creditt d. liabil liabilit& it&;; debit debit D0/ %as& OJ "3#"2 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
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5. Data for an adjustin adjusting g entr& described described as Aaccrued Aaccrued ,ages; ,ages; >2;"2"A means means to debit a. @ages %pense %pense and credit credit @ages @ages !a&able !a&able b. @ages !a&able and credit @ages @ages %pense c. *ccounts *ccounts 8ecei-able 8ecei-able and credit credit @ages @ages %pense %pense d. Dra,ing Dra,ing and credit credit @ages !a&able !a&able D0/ $oderate OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 6. Supplies Supplies are recorded recorded as assets ,hen purchased. purchased. )herefo )herefore; re; the credit credit to supplies in the adjusting entr& is for the amount of supplies a. that that are in in the endin ending g balance balance b. purchased c. used d. either either used used or rema remaini ining ng D0/ %as& OJ "3#"2 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 7. 0f there is a balance balance in the prepaid rent account account after adjusting adjusting entries entries are made; it represents represents aFnG a. defe deferrral ral b. accrual c. re-enue d. liab liabil ilit it& & D0/ $oderate OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement . 0f there is a balance balance in the unearned subscriptio subscriptions ns account after after adjusting adjusting entries entries are made; it represents aFnG a. defe deferrral ral b. accrual c. epen pense d. re-e re-enu nuee D0/ %as& OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 9. )he cost of office office supplies supplies to be used in future periods periods is ordinaril& ordinaril& sho,n on the balance balance sheet as aFnG a. stoc=ho stoc=holde ldersB rsB equit& equit& b. asset c. cont contra ra ass asset et d. liab liabil ilit it& & D0/ %as& OJ "3#"2 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
138
'hapter
3()he *djusting !rocess
5". @hich of the the follo,ing follo,ing is an eample eample of a prepaid prepaid epenseC epenseC a. Supp Suppllies ies b. *ccounts 8ecei-able c. :nearn :nearned ed Subsc Subscrip riptio tions ns d. :near :nearne ned d /ees /ees D0/ %as& OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 51. )he unepired unepired insurance insurance at the the end of the fiscal fiscal period period represe represents nts a. an acc accru rued ed ass asset et b. an accrued liabilit& c. an acc accru rued ed epe epens nsee d. a defe deferre rred d epen epense se D0/ %as& OJ "3#"2 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 52. *ccrued *ccrued re-enues re-enues ,ould ,ould appear on the balance balance sheet sheet as a. assets b. liabilities c. stoc=ho stoc=holde ldersB rsB equit& equit& d. prep prepai aid d epens epenses es D0/ %as& OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 53. !repaid !repaid ad-ertising; ad-ertising; representi representing ng pa&ment for the net quarter quarter;; ,ould be reported on the balance sheet as aFnG a. asset b. liabilit& c. cont contra ra ass asset et d. epe epens nsee D0/ %as& OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 5. :nearned :nearned rent; representi representing ng rent for the net si months< months< occupanc& occupanc&;; ,ould be reported reported on the landlord
Chapter 3/The Adjusting Process Process
139
55. *ccrued *ccrued epenses epenses are ordinaril ordinaril& & reported reported on the balance balance sheet as as a. assets b. liabilities c. fie fied d asse assets ts d. prep prepai aid d epens epenses es D0/ %as& OJ "3#"2 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 56. /ees recei-a recei-able ble ,ould ,ould appear on the balance balance sheet sheet as aFnG a. asset b. liabilit& c. fie fied d ass asset et d. unear unearne ned d re-enue re-enue D0/ %as& OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 57. )he general general term emplo&ed emplo&ed to indicate indicate a dela& of the recognit recognition ion of an epense alread& alread& paid or of a re-enue alread& recei-ed is a. depr deprec ecia iati tion on b. deferral c. accrual d. in-e in-ent ntor or& & D0/ %as& OJ "3#"2 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 5. )he adjusting adjusting entr& for rent rent earned that is currentl& currentl& recorded recorded in the unearned unearned rent account is a. :nearned :nearned 8ent; 8ent; debitE debitE 8ent 8ent 8e-enue; 8e-enue; credit credit b. 8ent 8e-enue; debitE :nearned 8ent; credit c. :nearned :nearned 8ent; 8ent; debitE debitE !repaid !repaid 8ent; 8ent; credit credit d. 8ent %pense; %pense; debitE debitE :nearne :nearned d 8ent; credit credit D0/ $oderate OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 59. @hich of of the follo,i follo,ing ng pairs pairs of accounts accounts could could not appear in the same adjusting ad justing entr&C a. Ser-ice Ser-ice 8e-enue 8e-enue and :nearned :nearned 8e-enue 8e-enue b. 0nterest 0ncome and 0nterest %pense c. 8ent 8ent %pense %pense and and !repa !repaid id 8ent 8ent d. Salaries Salaries !a&able !a&able and and Salaries Salaries %pense %pense D0/ $oderate OJ "3#"2 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
140
'hapter
3()he *djusting !rocess
6". )he unearned unearned rent account account has a balance balance of >";""". 0f >3;""" >3;""" of the >";""" >";""" is unearned unearned at the end of the accounting period; the amount of the adjusting entr& is a. >3;""" b. >";""" c. >37; 37;""" d. >3; >3;"" """ " D0/ $oderate OJ "3#"2 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 61. )he follo,ing follo,ing adjustin adjusting g journal entr& entr& ,as found found on page of the journal. journal. Select the the best eplanation for the entr&. entr&. :nearned 8e-enue /ees earned CCCCCCCCCCCCCCCC a. b. c. d. ANS9 *) *)
;5"" ;5""
8ecord 8ecord pa&me pa&ment nt of fees fees earn earned ed 8ecord fees earned at the end of the month 8ecord fees fees that ha-e ha-e not been been earned at the the end of the the month 8ecord the pa&ment pa&ment of of fees fees to be earned. earned. D0/ $oderate OJ "3#"2 **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
62. )he follo,ing follo,ing adjustin adjusting g journal entr& entr& ,as found found on page of the journal. journal. Select the the best eplanation for the entr&. entr&. Supplies %pense Su Supplies CCCCCCCCCCCCCCCC a. b. c. d. ANS9 *) *)
36" 3 6"
*djust *djust supplies supplies in-entor& in-entor& to to actual actual 8ecord purchase of supplies *djust *djust sup suppli plies es epen epense se 8ecord 8ecord sale sale of of suppli supplies es * D0/ $oderate OJ "3#"2 **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
63. )he follo,ing follo,ing adjustin adjusting g journal entr& entr& ,as found found on page of the journal. journal. Select the the best eplanation for the entr&. entr&. @ages %pense @ages !a&able CCCCCCCCCCCCCCCC
2;555 2;555
Chapter 3/The Adjusting Process Process
a. b. c. d. ANS9 *) *)
8ecord 8ecord the the pa&me pa&ment nt of ,ages ,ages 8ecord ,ages to be paid this month 8ecord 8ecord ,age ,agess paid paid in ad-an ad-ance ce 8ecord ,ages ,ages epense epense incurred incurred and to to be paid net month month D D0/ $oderate OJ "3#"2 **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
6. @hat affect affect ,ill ,ill this adjustme adjustment nt ha-e on the accounting accounting recordsC recordsC :nearned 8e-enue /ees earned a. b. c. d. ANS9 *) *)
;5"" ;5""
0ncr 0ncrea ease se net net incom incomee 0ncrease re-enues reported for the period Decrea Decrease se liabil liabiliti ities es *ll *ll are are true true.. D D0/ %as& OJ "3#"2 **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
65. @hat affect affect ,ill this this adjusting adjusting journal journal entr& ha-e on the accounting accounting recordsC Supplies %pense Su Supplies a. b. c. d. ANS9 *) *)
67 6 7
0ncr 0ncrea ease se inco income me Decrease net income Decr Decrea ease se epe epens nses es 0ncr 0ncrea ease se asset assetss D0/ %as& OJ "3#"2 **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
66. @hat affect affect ,ill the follo,in follo,ing g adjusting adjusting journal entr& entr& ha-e on the accounting accounting recordsC Depreciation %pense *ccumulated Depreciation a. b. c. d. ANS9 *) *)
0ncr 0ncrea ease se net net incom incomee 0ncrease re-enues Decr Decrea ease se epe epens nses es Decrea Decrease se net net boo= boo= -alue -alue D D0/ $oderate OJ "3#"2 **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
1;5"" 1;5""
11
142
'hapter
3()he *djusting !rocess
67. Ho, ,ill the follo,in follo,ing g adjusting adjusting journal entr& entr& affect affect the accounting accounting equationC. equationC. :nearned Subscriptions Subscriptions earned a. b. c. d. ANS9 *) *)
12;""" 12;"""
0ncrease 0ncrease assets assets;; increas increasee re-enues re-enues 0ncrease liabilities; increase re-enues Decrease Decrease liabili liabilities ties;; increase increase re-enues re-enues Decrease Decrease liabilit liabilities; ies; decrease decrease re-enues re-enues ' D0/ %as& OJ "3#"2 **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
6. @hich of the the follo,ing follo,ing is not true regardi regarding ng Depreciati DepreciationC onC a. Depreciati Depreciation on allocates allocates the cost of a fied asset o-er its estima estimated ted life. b. Depreciation epense reflects the decrease in mar=et -alue each &ear. c. Depreciati Depreciation on is an allocatio allocation n not a -aluation -aluation method. method. d. Depreciati Depreciation on epense does not not measure measure changes in mar=et mar=et -alue. D0/ Difficult OJ "3#"2 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 69. )he account account t&pe t&pe and normal normal balance balance of !repaid !repaid %pense %pense is is a. re-e re-enu nue; e; cre credi ditt b. epense; debit c. liabil liabilit& it&;; credi creditt d. asse asset; t; debi debitt D0/ %as& OJ "3#"2 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 7". )he account t&pe t&pe and normal normal balance of *ccumulated *ccumulated Depreciat Depreciation ion is a. re-e re-enu nue; e; cre credi ditt b. epense; debit c. asse asset; t; cred credit it d. asse asset; t; debi debitt D0/ %as& OJ "3#"2 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 71. @hich of the the follo,ing follo,ing is an eample eample of an accrued accrued epenseC epenseC a. Salar& Salar& o,ed o,ed but but not not &et paid paid b. /ees recei-ed but not &et earned c. Suppl Supplie iess on on hand hand d. * t,o#&ear t,o#&ear premium premium paid paid on a fire insurance insurance polic& polic& D0/ Difficult OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
Chapter 3/The Adjusting Process Process
13
72. )he net boo= boo= -alue -alue of a fied fied asset asset is determ determined ined b& a. Original Original cost less accumul accumulated ated depreciat depreciation ion b. Original cost less depreciation epense c. Original Original cost less accumulat accumulated ed depreciation depreciation plus depreciati depreciation on epense d. Original Original cost plus plus accumulat accumulated ed depreciation depreciation D0/ $oderate OJ "3#"2 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 73. )he balance balance in the supplies supplies account; account; before adjustmen adjustmentt at the end of the &ear is >625. >625. )he proper adjusting entr& if the amount of supplies on hand at the end of the &ear is >325 ,ould be a. debit 'ash >325; credit credit Supplies Supplies >325 b. debit Supplies %pense >3""; credit Supplies >3"" c. debit Supplie Suppliess %pense>325; %pense>325; credit credit Supplies Supplies >325 d. debit Supplies Supplies >3""; >3""; credit credit Supplies Supplies %pense %pense >3"" D0/ $oderate OJ "3#"2 ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 7. )he net income reported reported on the income statemen statementt is >9";""". Ho,e-er Ho,e-er;; adjusting adjusting entries ha-e not been made at the end of the period for supplies epense of >2;7"" and accrued salaries of >1;3"". et income; as corrected; is a. >7; 7;3"" b. >9";""" c. >; ;7"" d. >6; >6;"" """ " D0/ $oderate OJ "3#"3 ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 75. *t the end of the fiscal &ear; the the usual adjusting adjusting entr& to !repaid 0nsurance to record epired insurance ,as omitted. @hich of the follo,ing statements is trueC a. )otal assets assets at the end of the &ear &ear ,ill be understat understated. ed. b. Stoc=holdersB equit& at the end of the &ear ,ill be understated. c. et income income for the &ear &ear ,ill be o-erstated o-erstated.. d. 0nsurance 0nsurance %pense %pense ,ill be o-erstat o-erstated. ed. D0/ Difficult OJ "3#"3 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
144
'hapter
3()he *djusting !rocess
76. *t the end of the fiscal &ear; &ear; the usual adjusting adjusting entr& for depreciat depreciation ion on equipment equipment ,as omitted. @hich of the follo,ing statements is trueC a. )otal assets assets ,ill be understated understated at the end of the current &ear. &ear. b. )he balance sheet and income statement ,ill be misstated but the statement of retained earnings ,ill be correct co rrect for the current &ear &ea r. c. et income income ,ill be be o-erstated o-erstated for the the current current &ear. &ear. d. )otal liabilities liabilities and total total assets ,ill be understated. D0/ Difficult OJ "3#"3 ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 77. *t the end of the fiscal &ear; &ear; the usual adjusting adjusting entr& for accrued accrued salaries salaries o,ed to emplo&ees ,as omitted. @hich of the follo,ing statements is trueC a. Salar& Salar& %pense %pense for the the &ear ,as ,as understat understated. ed. b. )he total of the liabilities at the end of the &ear ,as o-erstated. c. et income income for for the the &ear ,as underst understated. ated. d. Stoc=holders Stoc=holdersBB equit& equit& at the end of the &ear ,as understated understated.. D0/ Difficult OJ "3#"3 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 7. )he adjusting entr& to adjust supplies supplies ,as omitted omitted at the end of the &ear. &ear. )his ,ould effect the income statements b& ha-ing a. epenses epenses understated understated and therefor thereforee net income o-erstat o-erstated ed b. re-enues understated and therefore net income understated c. epenses epenses understated understated and therefor thereforee net income understa understated ted d. epenses epenses o-erstated o-erstated and therefore therefore net income understat understated ed D0/ Difficult OJ "3#"3 ANS9 * *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 79. @hich of the the accounts belo, belo, ,ould appear appear on an adjusted adjusted trial balance balance but probabl& probabl& ,ould not appear on the trial balanceC a. /ees /ees %arn %arned ed b. *ccounts 8ecei-able c. :nea :nearn rned ed /ee /eess d. Deprec Depreciat iation ion %pe %pense nse D0/ $oderate OJ "3#" ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement ". @hich of the accounting accounting steps steps in the accounting accounting process belo, belo, ,ould be completed completed lastC a. preparing preparing the the adjusted adjusted trial trial balance balance b. posting c. preparing preparing the financial financial statements statements d. jour journal naliz izin ing g D0/ $oderate OJ "3#" ANS9 ' *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
Chapter 3/The Adjusting Process Process
15
1. @hen is is the adjusted adjusted trial trial balance balance preparedC preparedC a. efore efore adjusting adjusting journal journal entri entries es are posted posted b. *fter adjusting journal entries are posted. c. *fter the the adjusting adjusting journal journal entries entries are are journalized journalized d. efore efore the adjusting adjusting journal journal entries entries are journalize journalized. d. D0/ $oderate OJ "3#" ANS9 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2. @hat is is the purpose purpose of of the adjust adjusted ed trial trial balanceC balanceC a. to -erif& -erif& that all all of the adjustin adjusting g entries entries ha-e been posted posted b. to -erif& that the net income Iloss is correctl& correctl& reported c. to -erif& -erif& that no adjust adjusting ing journal journal entr& entr& has been omitted omitted.. d. to -erif& -erif& that the the debits debits and credits credits balance balance D0/ $oderate OJ "3#" ANS9 D *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement E;E!CISE#OT:E!
1. %plain %plain the diffe difference rence bet,een bet,een accrual accrual basis basis accountin accounting g and cash cash basis basis accounting accounting.. ANS9 *ccrual basis accounting reports re-enues and epenses in the period in ,hich the e-ent happened regardless is cash ,as echanged at the time. 'ash basis accounting reports re-enues and epenses ,hen cash is recei-ed or paid. D0/ %as& OJ "3#"1 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2.
0ndicate 0ndicate ,ith ,ith a Kes Kes or o ,hether ,hether or not not each of the follo,i follo,ing ng accounts accounts normall& normall& require requiress an adjusting entr&. entr&.
1. 'ash 2. !repaid %penses 3. Depreciation %pense . *ccounts !a&able 5. *ccumulated Depreciation 6. %quipment ANS9 1. o 2. Kes 3. Kes . Kes 5. Kes 6. o D0/ %as& OJ "3#"1 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement )O! %ample %ercise 3#1
146
'hapter
3.
'lassif& 'lassif& the the follo,in follo,ing g items items as F1G F1G prepaid prepaid epense; epense; F2G unearned unearned re-enue; re-enue; F3G F3G accrued accrued epense; or FG accrued re-enue.
3()he *djusting !rocess
FaG /ees recei-ed but not &et earned. FbG /ees earned but not &et recei-ed. FcG *ccumulated depreciation. FdG !ropert& ta accrual ANS9 FaG unearned re-enue FbG accrued re-enue FcG prepaid epense FdG accrued epense D0/ %as& OJ "3#"1 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement )O! %ample %ercise 3#2 .
%mplo&ees %mplo&ees at $#'orp $#'orp earn >5"" per per da&. da&. )he& are paid paid each /rida& /rida& for a fi-e#da& fi-e#da& ,or=,ee=. )he adjusting entr& on December 31; 2""7 assuming the &ear ends on $onda& ,ould be "ate "escription Post "e'it Credit !e)
ANS9 "ate
12(31("5
"escription
Post !e)
@ages %pense @ages !a&able
D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
"e'it
Credit
5 " " ." " 5"".""
Chapter 3/The Adjusting Process Process
5.
17
*n insurance insurance polic& polic& ,as ,as purchased purchased on *pril 1; 2""7 for for >2;""."". >2;""."". *t the end of the the &ear; &ear; >"" ,as deemed epired. )he adjusting entr& on December 31; 2""7 ,ould be "ate
"escription
Post !e)
"e'it
Credit
ANS9 "ate
"escription
12(31("5
Post !e)
"e'it
0nsurance %pense !repaid 0nsurance
Credit
" " ." " "".""
D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 6.
Depreciati Depreciation on on Office Office %quipment %quipment is >;7""."". >;7""."". )he )he adjusti adjusting ng entr& entr& on December December 31; 2""7 2""7 ,ould be "ate
"escription
Post !e)
"e'it
Credit
ANS9 "ate
12(31("5
"escription
Depreciation %pense *ccumulated Depreciation# Office %quipment
Post !e)
"e'it
Credit
;7"".""
;7"".""
148
'hapter
3()he *djusting !rocess
D0/ %as& OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 7.
* one#&ear one#&ear insurance insurance polic& polic& ,as ,as purchased purchased on *pril 1; 2""7 for for >2;""."". >2;""."". )he )he adjusting adjusting entr& on December 31; 2""7 ,ould be "ate "escription Post "e'it Credit !e)
ANS9 "ate
12(31("7
"escription
Post !e)
0nsurance %pense !repaid 0nsurance
"e'it
Credit
1;""."" 1;"".""
D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement .
)here ,as a >1;5"" balance balance in the supplies supplies account account at the beginnin beginning g of the the period. period. During During the period; the supplies account ,as increased b& >3;""" for supplies purchased. *t the end of the period before adjustment; >55" of supplies ,ere on hand. Journalize the necessar& adjusting entr&. entr&. ANS9 Supplies %pense 3;95" Su Supplies 3 ;95" D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 9.
On Januar& Januar& 1st 1st etSolut etSolutions ions purchas purchased ed t,o &ear liabil liabilit& it& insuran insurance ce polic& polic& for >3";"""."" >3";"""."" pa&ing cash at the time of purchase. )his -alue ,as recorded to !repaid 0nsurance. 0n the space belo, ,rite the adjusting entr& for Januar& 31st. ANS9 Jan 31 0nsurance %pense 1;25"."" !repaid 0nsurance 1;25"."" *djusting entr& # 0nsurance ep F>3";"""."" ( 2 monthsG
Chapter 3/The Adjusting Process Process
19
D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 1". )he compan& records records depreciati depreciation on to Office %quipment %quipment and !roduction !roduction %quipment %quipment.. Depreciation for the period ending December 31st are >2;1""."" for Office %quipment and >3;95"."" for !roduction %quipment. 8ecord these declarations to separate epense and accumulated depreciation accounts for maimum detail. ANS9 Dec 31st Depreciation %pense # Office %quipment 2;1""."" *ccumulated De Depreciation # Office %q %quipment 2;1""."" Dec 31s 31stt
Depreci eciation % %pense # !r !roduct uction %qui quipment 3;95"." "."" *ccumulated De Depreciation # !roduction %q %quipment
3;95".""
& utilizing separate epense accounts greater anal&sis can be accomplished on the cost co st of production and the cost of general and administrati-e issues. D0/ %as& OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 11. On $a& 1 a business business paid >;"" for t,el-e t,el-e month month liabilit& liabilit& insurance insurance polic&. polic&. )hen; on June 1 the same business entered into a t,o &ear rental contract for equipment for >12;""". Determine the follo,ing amounts FaG prepaid insurance as of $a& 31 FbG insurance epense for for the month of June FcG prepaid equipment rental as of June 3" FdG equipment rent epense for the month of June ANS9 FaG >;"" FbG >"" FcG >11;5"" FdG >5"" D0/ %as& OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 12. 0n the &ear 2""7; 2""7; the compan& is estimat estimating ing its propert& propert& ta to be >3;6"" >3;6"" for the &ear. &ear. FaG Ho, much much shou should ld the the compan& compan& accr accrue ue each each month month for for proper propert& t& taes taesCC FbG @hat is the the amount amount that the !ropert !ropert& & )a )a *ccrual *ccrual account account ,ill ,ill ha-e ha-e at the the end of Jul& 2""7C FcG !repar !reparee the adjus adjustin ting g journal journal entr& entr& for for the the month month of Octo October ber 2""7. 2""7.
150
'hapter
3()he *djusting !rocess
ANS9 FaG >3"" FbG >2;1"" FcG !ropert& )a %pense 3 "" !ropert& )a *ccrual 8ecord !ropert& )a *ccrual for the month of October
3" "
D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 13. On Januar& 1st etSolut etSolutions ions prepa&s prepa&s the &earBs &earBs rent; >1;"""."" >1;"""."" to its landlord. landlord. 0n the space belo, ,rite the journal entr& for the pa&ment of the annual rent utilizing a asset account. ANS9 Jan 1 !repaid 8ent 1;"""."" 'ash 1;"""."" !repaid annual rent and capitalized the -alue. D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 1. On December December 1; 2""7; >7;5"" ,as recei-e recei-ed d for ser-ices ser-ices to be performed performed from Decembe Decemberr 1; 2""7 until $a& 31; 2"". $a=e the December 31; 2""7 adjusting journal entr& if the :nearned /ees at the end of December 2""7 ,as >;2"". ANS9 :nearned /ees 3;3"" /ees %arned 3 ;3" " D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 15. On December December 31st the accounts of etSolut etSolutions ions sho, >1;5"."" >1;5"."" in the Office Office Supplies Supplies account. *n inspection of the supplies loc=er sho,s onl& >3"."" ,orth of supplies. @rite @rite the adjusting entr&. entr&. ANS9 Dec 31st Office Supplies %pense 1;51"."" Office Supplies 1;51"."" D0/ %as& OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
Chapter 3/The Adjusting Process Process
151
16. Depreciati Depreciation on on equipmen equipmentt for the &ear &ear is >2"". FaG 8ecord the journal entr& if the compan& adjusts its account once a &ear. FbG 8ecord the journal entr& if the compan& adjusts its account on a monthl& basis. ANS9 FaG Depreciation %pense 2 "" *ccumulated Depreciation#%quipment 2 "" FbG Depreciation %pense *ccumulated Depreciation#%quipment
2 "" 2" "
D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 17. )he compan& compan& determines determines that the interes interestt epense on a note pa&able pa&able for period period ending ending December 31st is >655."". )his amount is pa&able on Januar& 1st. @rite the t,o journal entries associated ,ith this information. ANS9 Dec 31st 0nterest %pense 65 5 ."" 0nterest !a&able 655."" Jan 1st
0nterest !a&able 'ash
6 5 5 ." " 655.""
D0/ %as& OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 1. On Januar& 2nd etSolutions etSolutions prepaid >1;"""."" rent for the &ear. &ear. @rite @rite the adjusting adjusting entr& for rent epense on Januar& 31st 31 st in the space belo,. ANS9 Jan 31 8ent %pense 1;5""."" !repaid 8ent 1;5""."" *djusting entr& # 8ent # >1;"""."" ( 12 months. D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 19. )he prepaid prepaid insurance insurance account had a beginning beginning balance balance of >7;9"" and ,as ,as debited debited for >;9"" of premiums paid during the &ear. Journalize the adjusting entr& required at the end of the &ear assuming the amount of unepired insurance related to future periods is >5;6"". >5;6" ". ANS9 0nsurance %pense 7;2"" !repaid 0nsurance 7 ;2"" 0nsurance epired.
152
'hapter
3()he *djusting !rocess
D0/ %as& OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement )O! %ample %ercise 3#3 2". )he balance balance in the unearned unearned fees account; account; before adjustme adjustment nt at the end of the &ear; &ear; is >12;3"". Journalize the adjusting entr& required if the amount of unearned fees at the end of the &ear is >3;"". ANS9 :nearned /ees ;5 "" /ees %arned ;5" " D0/ %as& OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement )O! %ample %ercise 3# 21. *t the end of the current current &ear; &ear; >;"" fees ha-e ha-e been earned but ha-e ha-e not been billed billed to clients. Journalize the adjusting entr& to record the accrued fees. ANS9 *ccounts 8ecei-able ;"" /ees %arned ;" " D0/ %as& OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement )O! %ample %ercise 3#5 22. 8oller 8oller S=ates 'ompan& 'ompan& pa&s ,ee=l& ,ee=l& salaries salaries of >15;""" >15;""" on /rida& for a fi-e#da& fi-e#da& ,ee= ,ee= ending on that da&. Journalize the necessar& adjusting entr& at the en d of the accounting period; assuming that the period ends on )uesda&. )uesda&. ANS9 Salaries %pense 6;""" Salaries !a&able 6 ;" "" D0/ %as& OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement )O! %ample %ercise 3#6 23. )he estimated estimated amount amount of depreciati depreciation on on equipment for for the current current &ear is >6;7"". >6;7"". Journalize the adjusting entr& to record the depreciation. d epreciation. ANS9 Depreciation %pense 6;7"" *ccumulated Depreciation 6 ;7" " Depreciation on equipment D0/ %as& OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement )O! %ample %ercise 3#7
Chapter 3/The Adjusting Process Process
153
2. *t Januar Januar& & 31; the end end of the the first first month of the &ear; the usual adjusting entr& transferring epired insurance to an epense account is omitted. @hich items ,ill be incorrectl& stated; because of the error; on FaG the income statement for Januar& Januar& and FbG the balance sheet as of Januar& 31C *lso indicate ,hether the items in error ,ill be o-erstated or understated. ANS9 FaG 0nsurance 0nsurance epense epense For epensesG epensesG ,ill be understa understated. ted. et income income ,ill ,ill be o-erstated. FbG !repaid !repaid insurance insurance For assetsG assetsG ,ill ,ill be o-erstat o-erstated. ed. Stoc=holde Stoc=holdersB rsB equit& equit& ,ill be be o-erstated. D0/ $oderate OJ "3#"3 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 25. *t the end of June; the first first month of the &ear; &ear; the usual adjusting adjusting entr& transferring transferring rent earned to a re-enue account from the unearned rent account ,as omitted. 0ndicate ,hich items ,ill be incorrectl& stated; because of the error; on FaG the income statement for June and FbG the balance sheet as of June 3". *lso indicate ,hether the items in error ,ill be o-erstated or understated. ANS9 FaG 8ent re-enue re-enue For re-enues re-enuesGG ,ill ,ill be underst understated. ated. et et income income ,ill ,ill be be understat understated. ed. FbG 8etained 8etained earnings earnings at the end of the period period ,ill ,ill be understat understated. ed. :nearned :nearned rent rent For For liabilitiesG ,ill be o-erstated. D0/ Difficult OJ "3#"3 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 26. Salaries of >3;5"" are paid for a fi-e#da& ,ee= on /rida&. /rida&. )he month ended on )uesda&. )uesda&. !repare the adjusting journal entr&. entr&. ANS9 Salaries %pense 1;"" Salaries !a&able 1 ; " " D0/ $oderate OJ "3#"3 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 27. *ccrued *ccrued salaries salaries of >25 >25 o,ed to emplo&ees emplo&ees for for December December 29; 3"; and 31 31 are not ta=en into consideration in preparing the financial statements for the &ear ended December 31. 0ndicate ,hich items ,ill be erroneousl& stated; because of the error; on FaG the income statement for the &ear and FbG the balance b alance sheet as of December 31. 31 . *lso indicate ,hether the items in error ,ill be o-erstated or understated. ANS9 FaG Salar& Salar& epense epense For epensesG epensesG ,ill be underst understated. ated. et income ,ill be o-erstated. FbG Salaries Salaries pa&able pa&able For liabilitie liabilitiesG sG ,ill ,ill be understat understated. ed. 8etained 8etained earnings earnings ,ill ,ill be o-erstated.
154
'hapter
3()he *djusting !rocess
D0/ $oderate OJ "3#"3 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 2. On Januar& Januar& 1st; etSoluti etSolutions ons had a debit balance balance of >1;25"."" >1;25"."" in the Office Office Supplies Supplies account. During the month; etSolutions purchased >25."" and >61"."" of office supplies and journalized them to the Office Supplies asset account upon purchasing. On Januar& 31st an inspection of the office supplies cabinet sho,s that onl& >1"."" of Office Supplies remains in the loc=er. @rite @rite the Januar& Janu ar& 31st adjusting entr& for Office Supplies in the space belo,. belo,. ANS9 Jan 31 Office Supplies %pense 1;295."" Office Supplies 1;295."" *djusting entr& # Office Supplies eginning balance !lus purchases
>1;25"."" >25."" 61".""
*-ailable ?ess ending balance !eriod epense
55."" 2;1"5."" 1"."" >1;295.""
D0/ Difficult OJ "3#"3 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 29. /or the &ear ending ending December 31; 2""; $edical $edical 'o. mista=enl& mista=enl& omitted omitted adjusting adjusting entries entries for F1G >7;"" of unearned re-enue that ,as earned; F2G earned re-enue that ,as not billed of >9;5""; and F3G accrued ,ages of >5;""". 0ndicate the combined effect of the errors on FaG re-enues; FbG epenses; and FcG net income for 2"". ANS9 FaG 8e-enues ,ere understated b& >17;3"". FbG %penses ,ere understated b& >5;""" FcG et income ,as understated b& >12;3"". D0/ %as& OJ "3#"3 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement )O! %ample %ercise 3# 3". /or each of the follo,ing errors; considered considered indi-iduall&; indi-iduall&; indicate ,hether the error ,ould cause the adjusted trial balance totals to be b e unequal. 0f the error ,ould cause cau se the adjusted trial balance total to be unequal; indicate ,hether the debit or credit total is higher and b& ho, much. FaG )he adjus adjustme tment nt for unea unearne rned d fees of of >2;56" >2;56" ,as jour journal nalize ized d as a debit to to *ccounts !a&able for >2;56" and a credit to /ees earned of >2;56". FbG )he adjust adjustment ment for supplies supplies epense epense of >76 >76 ,as journalize journalized d as a debit debit to Supplies %pense for >76 and a credit to Supplies for >76.
Chapter 3/The Adjusting Process Process
ANS9 FaG )he tota totals ls are are equal equal e-en e-en though though the the debit debit sho should uld ha-e been made made to :near :nearned ned /ees instead of *ccounts !a&able. FbG FbG )hee debi )h debitt tot total al ec ecee eeds ds the the cre credi ditt tot total al b& b& >27" >27"..
D0/ %as& OJ "3#" *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement )O! %ample %ercise 3#9 P!OB8E4
1.
%pl % plai ain n the the dif differe ference nce bet, bet,ee een n
FaG *ccrued re-enues and unearned re-enues. FbG *ccrued epenses and prepaid epenses. FcG 4i-e an eample of each. ANS9 FaG *ccrue *ccrued d re-enu re-enues es are are serser-ice icess that that ha-e ha-e been been propro-ide ided d but not &et billed billed and the cash pa&ment for these ser-ices has not been recei-ed. :nearned re-enues are pa&ments ha-e been recei-ed for ser-ices to be pro-ided in the future. FbG *ccrue *ccrued d epens epenses es are are epe epense nsess that that ha-e ha-e incur incurred red but but ha-e ha-e not been been paid paid or recorded in the accounting records. !repaid epenses are epenses that ha-e been paid for and ha-e economic benefits in future accounting periods. FcG *ccr *ccrue ued d rere-en enue uess # FLar FLariied eam eampl ples es ,il ,ill be gi-e gi-en n b& b& stu stude dent ntssG :nearned re-enues # FLaried FLaried eamples ,ill be gi-en b& studentsG *ccrued epenses # FLaried FLaried eamples ,ill be gi-en b& studentsG !repaid epenses # FLaried FLaried eamples ,ill be gi-en b& studentsG D0/ $oderate OJ "3#"1 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
155
156
'hapter
2.
/or each each of the follo follo,in ,ing; g; journal journalize ize the the necessar necessar& & adjusti adjusting ng entr& entr& FaG
FbG
FcG
FdG
3()he *djusting !rocess
* business business pa&s pa&s ,ee=l& ,ee=l& salaries salaries of >15;""" >15;""" on on /rida& /rida& for for a fi-e#da& fi-e#da& ,ee= ,ee= ending on that da&. Journalize the necessar& adjusting entr& at the end of the fiscal period; assuming that the fiscal period ends F1G on @ednesda&; @ednesda&; F2G on )hursda&. )he balance balance in the the prepaid prepaid insuran insurance ce account account before before adjustment adjustment at at the the end of the &ear is >1;""". Journalize the adjusting entr& required under each of the follo,ing alternati-es F1G the amount of insurance epired during the &ear is >;5""; F2G the amount of unepired insurance applicable to a future period is >1;5"". On Jul& Jul& 1 of of the the curren currentt &ear &ear; a busine business ss pa&s pa&s >36;" >36;""" "" to the cit cit& & for lice license nse taes for the coming fiscal &ear. )he same business is also required to pa& an annual propert& ta at the end of the &ear. )he estimated amount of the current &ear3;2"". >3;2" ". F1G Journalize the t,o adjusting entries required to bring the accounts affected b& the taes up to date as of Jul& 31. F2G @hat is the amount of ta epense epe nse for Jul&C )he estim estimate ated d deprecia depreciatio tion n on equipme equipment nt for the the &ear &ear is >2;""" >2;"""..
ANS9 FaG F1G Salar& %pense Salaries !a&able
F2G Salar& %pense Salaries !a&able FbG
FcG
9;""" 9;""" 12;""" 12;"""
F1G 0nsurance %pense !repaid 0nsurance
;5""
F2G 0nsurance %pense !repaid 0nsurance
12;5""
F1G )aes %pense !repaid ?icense )aes )aes %pense !ropert& )aes !a&able
;5""
12;5"" 3;""" 3;""" 3;2"" 3;2""
F2G >6;2"" F>3;""" M >3;2""G FdG
Depreciation %pense *ccumulated Depreciation # %quipment
D0/ Difficult OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
2;""" 2;"""
Chapter 3/The Adjusting Process Process
3.
On o-ember o-ember 1st clients clients of etSolut etSolutions ions prepai prepaid d >2;25"."" >2;25"."" for ser-ices ser-ices to be pro-ided pro-ided in in the future at a rate of >5"."" >5" ."" per hour. FaG FaG Jour Journa nali lize ze the the rec recei eipt pt of of thi thiss cash cash.. FbG *s of o-ember o-ember 3"th 3"th etSolut etSolutions ions sho,s that 15 hours hours of of ser-ices ser-ices ha-e been been pro-ided on this agreement. Journalize the recognition of this determination. FcG Determ Determine ine the the -alue -alue of unearne unearned d fees obli obligat gation ion in hours hours and and dollar dollars. s.
ANS9 FaG o- 1st
'ash
2;25"."" :nearned Ser-ice /ees
FbG o- 3"th
:nearned Ser-ice /ees Ser-ice /ees
FcG )he original prepaid fees # o-ember ser-ice fees earned alance of unearned ser-ice fees
2;25"."" 75 " ."" 75".""
>2;25"."" 75"."" >1;5"".""
( >5"."" per hour N
5 hours 15 hours 3" hours
D0/ Difficult OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement .
157
/or each each of the follo, follo,ing; ing; journal journalize ize the the adjusti adjusting ng entr& entr& on Januar& Januar& 31st. 31st. FaG )he comp compan& an& incur incurss a !a&r !a&roll oll !a&abl !a&ablee of >5"."" >5"."" per per ,ee= ,ee=da& da& of of opera operati tions ons.. )he $onda&s of Januar& are the 3rd; the 1"th; the 17th; the 2th; and the 31st. !a&da&s are e-er& other /rida& ,ith pa&da&s of Januar& 7th 21st and /ebruar& th for the t,o ,ee=s ending end ing that date. )he /rida&; Januar& 21st pa&da& is complete and paid ,ith no continuing for,ard pa&roll liabilit&. liabilit&. @rite @rite the adjusting entr& for Januar& 31st in the space belo, FbG
)he comp compan& an& pa&s pa&s pa&r pa&roll oll obli obligat gation ionss on /ebru /ebruar& ar& th. th. o o re-ers re-ersing ing entr entries ies ha-e been made. 8ecord the pa&roll obligations of /ebruar& and ,rite the journal entr& to pa& pa&roll on /ebruar& th in the space belo,
FcG
)he compan& compan& has fied fied asse assets ts that that sched schedule uled d depre deprecia ciati tion on is is >5;" >5;""" "" annually. @rite @rite the adjusting entr& to recognize the monthly depreciation for Januar& in the space belo,
FdG
)he comp compan& an&BBs Offic Officee Suppli Supplies es accoun accountt sho,s sho,s a debi debitt balanc balancee of >2;62 >2;625."" 5."".. *n inspection of the office supplies loc=er on Januar& 31st re-eals onl& >965."" ,orth of supplies. @rite @rite the adjusting entr& for Office Supplies in the space belo,
158
'hapter
3()he *djusting !rocess
ANS9 FaG Jan 31
!a&roll %pense 2;7""."" !a&roll !a&able 2;7""."" *djusting %ntr& # !a&roll # >5"."" 6 da&s $onda&; Januar& 2th through /rida& Januar& 2th # 5 da&s >5"."" N >2;25"."" $onda&; Januar& 31st # 1 da& >5" N >5"."" !a&roll !a&able for Januar& 2 through Januar& 31 N >2;25"."" M >5"."" N >2;7"".""
FbG
FcG
/eb
Jan 31
!a&roll %pense 1;""."" !a&roll !a&able 2;7""."" 'ash !a&roll paid on /eb ,ith Jan obligations
;5"".""
Depreciation %pense 3;75"."" *ccumulated Depreciation *djusting %ntr& # Depreciation
3;75".""
*nnual depreciation $onths in a &ear $onthl& depreciation FdG
Jan 31
>5;"""."" 12 >3;75".""
Office Supplies %pense Office Supplies *djusting %ntr& Office Supplies *ccount unt debit balance nce >2; >2;625." 5."" ?ess loc=er contents > 9 6 5 ." " !eriod epense >1;66".""
D0/ Difficult OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
1;66"."" 1;66".""
Chapter 3/The Adjusting Process Process
5.
159
On December December 15th 15th etSolu etSolutions tions contacts contacts an independent independent contrac contractor tor to to help ,ith a project. project. )he contractor completes the project on December 29th and submits an in-oice for >2;75"."" ,hich requires pa&ment on Januar& 15th. FaG @rite @rite all of the journal entries necessar& for this series series of e-ents. FbG %plain; briefl&; briefl&; ,h& &ou ,rote this(these journal entries. ANS9 FaG Dec 29th !rofessional Ser-ices %pense 2;75"."" *ccounts !a&able 2;75"."" Jan 15th
FbG
*ccounts !a&able 'ash
2;75"."" 2;75".""
)he first first journal journal entr& entr& is required required to place the cost cost or epense epense of the independent contractor to the correct period for ,hich the ser-ices ,ere recei-ed. )his journal entr& created an epense in DecemberBs 0ncome Statement and a liabilit& on DecemberB December Bs alance Sheet. )he second ,as to pa& the contractor ,hen the pa&ment ,as due. )his remo-ed the liabilit& b& resol-ing it ,ith a cash pa&ment. )his journal entr& en tr& did not affect Januar&Bs Januar&Bs income statement.
D0/ Difficult OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 6.
On o-ember o-ember 15th etSolu etSolutions tions purchases purchases an ad-ertising ad-ertising campaign campaign for the month month of December. December. etSolutions paid cash of >1;25."" to attain the best pricing a-ailable. FaG @rite @rite all necessar& journal entries for this situation situation through December 31st. FbG %plain; briefl&; briefl&; ,h& &ou ,rote this(these journal entries. ANS9 FaG o- 15th !repaid *d-ertising 1;25."" 'ash 1;25."" Dec 31st
FbG
*d-ertising %pense !repaid *d-ertising
1;25."" 1;25.""
:nder :nder the the match matching ing conce concept; pt; char chargin ging g the *d-ert *d-ertisi ising ng %pen %pense se accou account nt in o-ember ,ould ha-e placed that cost into the ,rong period since the campaign ,as to run in December. )he correct journal entr& creates an asset; !repaid *d-ertising; for o-ember. o-ember. )he December 31st entr& recognizes the period epense and eliminates the prepaid asset.
D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
160
'hapter
3()he *djusting !rocess
7.
On Januar& Januar& 2nd 2nd 8eading 8eading Delight Delight $onthl $onthl& & recei-es recei-es a chec= for for >2 from a subscribe subscriberr that is purchasing a 12 month subscription. )he Januar& issue ,ill be mailed on Januar& 15th. @rite @rite the t,o Januar& journal entries and Fbriefl&G justif& &our use of dates. ANS9 Jan 2nd 'ash 2."" :nearned Subscriptions 2."" Jan 15th; date obligation is actuall& met or Jan 31st as an adjusting entr& :nearned Subscriptions 2."" Subscriptions 8e-enues
2.""
)he second entr& can be accomplished at one of t,o points # as a recurring; adjusting entr& dated Januar& 31st or on Januar& 15th 15 th ,hen the monthl& obligation is made. Discipline must be eercised to preclude ma=ing an entr& on Januar& 15th and Januar& 31st. D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement . Journalize Journalize in a t,o t,o column column journal journal the adjusti adjusting ng entries entries require required d at Decembe Decemberr 31; 2"". 2"". Omit eplanations. 1. 2.
/ees accrued but unbilled are >6;""". )he supplies account balance on December 31 is >6;2"". )he supplies on hand are >1;15". 3. @ages accrued but not paid are >;6"". . Depreciation of office equipment is >3;2"". 5. 8ent epired during &ear; >9;3"". "ate "escription Post "e'it Credit !e)
Chapter 3/The Adjusting Process Process
ANS9 "ate
Dec 31
Dec 31
Dec 31
Dec 31
Dec 31
"escription
Post !e)
*ccounts 8ecei-able 8e 8e-enues
6 ;" " "
Supplies %pense Su Supplies
5 ;"5"
@ages %pense @ages !a&able
;6 " "
Depreciation %pense *ccumulated Depreciation
3 ;2 ""
8ent %pense !repaid 8ent D0/ $oderate OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 9.
"e'it
Credit
6 ;"""
5 ;" 5"
;6""
3 ;2" " 9 ;3"" 9 ;3" "
!repar !reparee the foll follo,i o,ing ng adjust adjustmen ments ts in good good journa journall entr& entr& format format.. FaG
FbG
FcG
FdG FeG
)he begi beginni nning ng balan balance ce of the Suppli Supplies es accou account nt ,as ,as >315. >315. Duri During ng the the mont month h the compan& bought additional supplies in the amount of >3". *t the end of the month a ph&sical in-entor& sho,ed >56 of unused supplies. )he comp compan& an& has has a ote ote !a&abl !a&ablee in the amou amount nt of of >1";"" >1";""" " at an *!8 of 12P. 12P. )he note ,ill be paid at the end of 6 months. )he interest epense for the month needs to be recorded. )here )here are are t,o t,o empl emplo&ee o&eess at the orth orth !ar= !ar= Store. Store. One is is a manag manager er that that gets gets paid on the 15th of e-er& month for his ,or= during the first part of the month and on the 1st of the follo,ing month for the second part of the month. His monthl& salar& is >2;5"". )he other emplo&ee is an administrati-e assistant ,ho gets a ,ee= pa& of >5". )he last da& of the month fell on )hursda&. )hursda&. )he unea unearne rned d re-enu re-enuee accoun accountt sho,s sho,s a bala balance nce of of >35;""" >35;""".. *ccordi *ccording ng to the the manager 6"P of that amount has been earned. *t the the end end of the mon month th >;" >;"" " of ser-ic ser-ices es had had been been perf perform ormed ed but but not not &et &et billed.
161
162
'hapter
3()he *djusting !rocess
ANS9 FaG Supplies %pense Supplies FbG 0nterest %pense 0nterest !a&able FcG @ages and Salar& %pense @ages and Salar& !a&able FF>2;5"" (2GMF>5"(5QGG FdG :nearned 8e-enues /ees %arned F>35;""" Q 6"PG FeG *ccounts 8ecei-able /ees %arned
57 7 57 7 1" " 1 "" 1;61" 1 ;61 " 21;""" 2 1 ;" " " ;"" ;" "
D0/ Difficult OJ "3#"2 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 1". *t the end of the fiscal &ear; &ear; the follo,ing follo,ing adjusting adjusting entries entries ,ere omitted omitted FaG
o adjusti adjusting ng entr& entr& ,as ,as made made to transfer transfer the the >2;5"" >2;5"" of of prepaid prepaid insurance insurance from the asset account to the epense account. FbG o adjusti adjusting ng entr& entr& ,as ,as made made to record record accrued accrued fees fees of >75" for for ser-ice ser-icess pro-ided to customers.
*ssuming that financial statements are prepared before the errors are disco-ered; indicate the effect of each error; considered indi-iduall&; indi-iduall&; b& inserting the dollar amount in the appropriate spaces. 0nsert A"A if the error does not affect the item. %rror FaG O-er# :nder# stated stated F1G
F2G
F3G
FG
%rror FbG O-er# :nder# stated stated
*ssets at at De December 31 31 ,ould be
>
>
>
>
?iabilities at Dec. 31 31 ,ould be
>
>
>
>
et income for the &ear ,ould be
>
>
>
>
8etained earnings ngs at Dec. 31 ,ould be
>
>
>
>
Chapter 3/The Adjusting Process Process
163
ANS9
F1G
F2G
F3G
FG
%rror FaG O-er# :nder# stated stated
%rror FbG O-er# :nder# stated stated
*ssets at at De December 31 31 ,ould be
>2;5""
> #"#
> #"#
> 75"
?iabilities at Dec. 31 31 ,ould be
> #"#
> #"#
> #"#
> #"#
et income for the &ear ,ould be
>2;5""
> #"#
> #"#
> 75"
8eta etained ned earn arnings ngs at Dec. 31 ,ould be
>2;5""
> #"#
> #"#
>7 5"
D0/ Difficult OJ "3#"3 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement 11. On June 3"; a business estimate estimatess depreciation depreciation on equipment equipment used during the first first &ear of operations to be >1;5"". FaG Journalize the adjusting entr& required as of June 3". 3 ". FbG 0f the adjusting entr& in FaG ,ere omitted; ,hich items ,ould be erroneousl& stated on F1G the income statement for the &ear and F2G the balance sheet as of June 3"C ANS9 FaG Depreciation %pense 1;5"" *ccumulated Depreciation # %quipment 1 ;5 " " FbG FbG
F1G F1G F2G
Depr Deprec ecia iati tion on ep epens ensee ,oul ,ould d be und under erst stat ated ed.. et et inc incom omee ,oul ,ould d be o-erstated. *ccumulated *ccumulated depreciati depreciation on ,ould ,ould be understated understated;; and total assets assets ,ould ,ould be o-erstated. 8etained earnings ,ould be o-erstated.
D0/ $oderate OJ "3#"3 *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
164
'hapter
3()he *djusting !rocess
12. Journalize Journalize the si entries entries that adjust adjust the accounts accounts at December 31. One of the accounts accounts ,as affected b& t,o different adjusting entries.
'ash *ccounts 8ecei-able Supplies !repaid 0nsurance %quipment *ccumulated Depreciation @ages !a&able :nearned /ees 'apital Stoc= /ees %arned @ages %pense Supplies %pense 0nsurance %pense Depreciation %pense )otal
:nadjusted )rial alance 3;""" 3";""" 1;7"" 2;""" 9;"""
*djusted )rial alance 3;""" 3";5"" 1" " " " 9;""" 1;5"" ;""" 1;5"" 2";""" 67;"""
6;""" 2";""" 62;""" 2;3""
;"""
ANS9 *ccounts 8ecei-able /ees %arned
;"""
6;3"" 1;6"" 1;6"" 1;5"" 9;"""
5 "" 5 ""
Supplies %pense Su Supplies
1;6""
0nsurance %pense !repaid 0nsurance
1;6""
Depreciation %pense *ccumulated Depreciation
1;5""
:nearned /ees /ees %arned
;5""
@ages %pense @ages !a&able
;"""
D0/ Difficult OJ "3#"2 + "3#" *) *) **'S *nal&tic *nal&tic + *0'!* *0'!* /#$easurement /#$easurement
9;"""
1 ;6" "
1 ;6" "
1 ;5""
;5""
;"""
