Chapter 3 Reading PDF

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CHAPTER 3 Reading...

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CHAPTER 3 Reading & Questions 

Describe the final step in the adjusting process.

The final step is to create an adjusting journal entry to get from step 1 to step 2. 

A 12-month insurance policy was purchased on Dec. 1 for $3,600 and the Prepaid insurance account was increased for the payment. Demonstrate the required adjusting journal entry on Dec. 31 by selecting from the choices below.

Insurance expense would be debited for $300. 

Which of the following is (are) true regarding timeliness and the importance of periodic reporting? (Check all that apply.)

Useful information must reach decision makers frequently and promptly. The value of information is often linked to its timeliness. Businesses report financial information at regular intervals to ensure timeliness of data. 

$1,000 of supplies were purchased at the beginning of the month. $300 were used during the month. (The Supplies account was increased at the time of the initial purchase.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Supplies would be credited for $300. Supplies expense would be debited for $300. 

Accrual basis accounting is defined as: (Check all that apply.)

an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred. an accounting system which is consistent with generally accepted accounting principles. an accounting system that uses the matching principle to determine when to recognize revenues and expenses.

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Which of the following accounts is considered a prepaid expense?

Supplies 

The expense recognition (matching) principle aims to record expenses

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1 expenses , Correct

Unavailable (expenses/assets/liabilities) in the same accounting period as the revenues

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2 revenues , Correct

Unavailable (expenses/revenues/assets) that are earned as a result of those costs. This principle is a major part of the adjusting

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3

adjusting , Correct Unavailable (timing/adjusting/estimating) process. 

A plant asset can be defined by which of the following statements? (Check all that apply.)

It has a life within the business greater than one year or the current operating cycle, whichever is longer. It is reported on the balance sheet. It is a tangible long-term asset. Its original cost (minus any salvage value) is expensed over its useful life.



Place the steps in the adjusting process in the correct order in which they would be performed.



Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.)

They They They They



refer to cash received in advance of performing a service or product. are reported on a balance sheet. are a liability. are also called deferred revenues.

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a: (Check all that apply.)

debit to Insurance expense for $400. credit to Prepaid insurance for $400 

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Service revenue would be credited for $700. Unearned revenue would be debited for $700. 

$800 of supplies were purchased at the beginning of the month and the Supplies account was increased. As of the end of the period, $200 of supplies still remain. Which of the following is the correct adjusting entry?

Supplies expense would be debited for $600. 

Which of the accounts below are considered accrued expenses?

Wages expense, Interest expense 

Which of the following accounts would be considered a prepaid expense or prepaid asset account? (Check all that apply.)

Prepaid rent Supplies Prepaid insurance 

What is a plant asset?

A plant asset refers to a long-term tangible asset used to produce and sell products or services. 

Define the Salaries payable account by selecting the appropriate statement below.

It reports amounts owed to employees and is a liability.



Explain what unearned revenues are by choosing the correct statement below.

Unearned revenues refer to cash received in advance of providing a service or product. 

A company borrowed $4,000 from the bank at an interest rate of 9%. By the end of the accounting period, the loan had been outstanding for 30 days. Demonstrate the required adjusting entry by choosing the correct statement below.

Debit Interest expense for $30. 

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate what the correct adjusting entry should include by choosing the correct statement below.

Debit Unearned revenues for $400.



Explain your understanding of what an accrued expense is by selecting the statements below which are correct. (Check all that apply.)

Examples of accrued expenses are wages expense and interest expense. They are reported on an income statement. Adjustments involve increasing both an expense and a liability account. They refer to costs that are incurred in a period, but are both unpaid and unrecorded. 

McDarrel's records $500 of accrued salaries on December 31. Three days later, on January 3, total salaries of $4,000 (including the $500 accrued at year end) are paid. Demonstrate the required journal entry

on January 3 by selecting from the choices below. (Check all that apply.) Salaries expense would be debited for $3,500. Salaries payable will be debited for $500. Cash would be credited for $4,000 

Which of the following accounts is considered a prepaid expense?

Supplies 

Which of the following describes accrued revenue? (Check all that apply)

They refer to earnings which have been earned but not yet billed. They refer to revenues that are earned in a period, but have not been received and are unrecorded. The adjustment causes an increase in an asset account and an increase in a revenue account. Accounts receivable is usually increased when accruing revenues.

 It It It It

Which of the following describe the Salaries payable account? (Check all that apply.)

is increased with a credit. is reported on the balance sheet. is a liability account. reports amounts owed to employees. 

StoryBook Company provided services to several customers during the month of December. These services have not yet been paid by the customers. StoryBook should record the following adjusting entry at the end of December: (Select all that apply).

credit services revenue debit accounts receivable 

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest (expense/payable/receivable) expense Blank 1Blank 1 expense , Correct Unavailable account and (debit/credit) credit

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2 credit ,

Correct Unavailable the Interest payable

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3 payable ,

Correct Unavailable (expense/payable/receivable) account. 

For the current year, Bubbles Office Supply had earned $600 of interest on investments. As of December 31, none of this interest had been received or recorded. Demonstrate the required half of the adjusting entry by choosing the correct statement below.

Debit Interest receivable for $600. 

$1,000 of cash was received in advance of performing services. By the end of the period, $300 had not yet been earned. (The Unearned revenue account was increased at the time of the initial cash receipt.) Demonstrate the required adjusting journal entry by selecting from the choices below. (Check all that apply.)

Unearned revenue would be debited for $700. Service revenue would be credited for $700.  On December 28, I. Greasy Catering Company completed $600 of catering services. As of December 31, the customer had not been billed nor had the transaction been recorded. Demonstrate the required adjusting entry by choosing the correct statement below. Debit Accounts receivable for $600. 

Sheldon Company had $500 for one day of accrued salaries on December 31 of the prior year. On January 4 of the current year, total salaries for the five-day week are paid. The journal entry to record the payment of salaries on January 4 includes:

Debit to Salaries Payable for $500; Debit to Salaries Expense for $2,000 

Identify which group of accounts may require adjustments at the end of the accounting period.

Unearned revenue; Supplies; Prepaid rent 

Accrued revenue

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1 revenue , Correct Unavailable are

earned in a period that are both unrecorded and not yet received in cash. 

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.)

The adjusted trial balance generally has more accounts listed than the unadjusted trial balance. The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted. The adjusted trial balance is used to prepare financial statements. 

Chimney Sweeps provided chimney cleaning services to several clients during the month of February. Chimney's customers have not yet been billed. Chimney's customers owe $2,000 to Chimney. How will Chimney Sweeps record this transaction?

Debit accounts receivable and credit services revenue 

Review the following statements and determine which is (are) correct regarding an adjusted trial balance and how it is used In preparing financial statements. (Check all that apply.)

Financial statements are easier to prepare using the adjusted trial balance than the general ledger. The ending Retained Earnings account balance on the balance sheet is transferred from the statement of retained earnings. The adjusted trial balance includes all accounts and balances appearing in financial statements. The income statement is the first financial statement prepared after preparing the adjusted trial balance. 

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Interest receivable

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1

Interest receivable , Correct Unavailable (Unearned revenue/Accounts receivable/Cash/Interest receivable) account and credit Blank 2Blank 2 credit , Correct Unavailable (debit/credit) the Interest revenue

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3Blank

3 Interest revenue , Correct Unavailable (Cash/Accounts receivable/Interest revenue/Interest receivable) account.



Which of the following lists contains only temporary accounts?

Wages Expense; Income Summary; Dividends 

On December 27, a business completed a $400 service that had not yet been billed or recorded as of December 31. Demonstrate the required adjusting entry of the business by completing the following

sentence. The required adjusting entry would be to debit the Accounts receivable Blank 1Blank 1 Accounts receivable , Correct

Unavailable (Unearned revenue/Accounts receivable/Cash/Service revenue) account and credit

Blank 2Blank

2 credit , Correct

Unavailable (debit/credit) the Service revenue

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3 Service

revenue , Correct Unavailable (Unearned revenue/Accounts receivable/Cash/Service revenue) account.



Choose the statement below that explains what "closing" means.

Closing means to bring an account balance to zero.

Determine which of the following transactions may require adjustments. (Check all that apply.) An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. Equipment was purchased in the middle of the year. a 24-month insurance policy was prepaid Supplies were purchased at the beginning of the year, but not all were used. Six months of rent were paid in advance. 

Explain the difference between the unadjusted and the adjusted trial balance.

The adjusted trial balance is prepared after adjusting entries have been recorded and posted. Show your understanding of the steps involved in adjusting entries by placing the following steps in the correct order of preparation. 1. prepare an unadjusted trial balance 2. journalize and post adjusting entries 3. prepare an adjusted trial balance 4. prepare financial statements 

Which of the statements below describe(s) a temporary account? (Check all that apply.)

A temporary account has a balance for only one period. A temporary account is closed at the end of an accounting period.



Which of the statements below explains the accounting cycle?

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements. 

Closing means to transfer account balances from temporary

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1Blank

1 temporary , Correct Unavailable (asset/liability/permanent/temporary) accounts so that they will start with a zero Blank 2Blank 2 zero , Correct Unavailable (contra/larger/zero) balance at the beginning of the next period. 

Current items can be described as those expected to come due within one year

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1 year , Correct Unavailable (month/year) and

are listed in the order of how quickly

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2 quickly , Correct

Unavailable (quickly/slowly) they could be converted to or paid in cash.



Identify which group of accounts may require adjustments at the end of the accounting period.

Unearned revenue; Supplies; Prepaid rent 

A classified balance sheet has several categories for assets and liabilities including: (Check all that apply.)

Plant assets. Noncurrent (long-term) liabilities. Long-term investments. Current assets. 

Select the statement below that describes a post-closing trial balance.

It is a listing of all permanent accounts and their balances after closing. 

Which of the statements below is (are) correct regarding the accounting cycle? (Check all that apply.)

The accounting cycle contains 10 steps. The accounting cycle is a series of steps repeated each reporting period. The accounting cycle refers to steps followed by a company to prepare its financial statements.

The cycle contains steps for adjusting and closing accounts. 

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

Cash Office supplies Prepaid rent Accounts receivable 

Describe an unclassified balance sheet.

An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity. 

The following categories are on a classified balance sheet. List them in the order that they would appear.

1. Current assets 2. Long-term investments 3. Plant assets 4. Intangible assets 5. Current liabilites 6. Long-term liabilites 

A post-closing trial balance is a list of permanent

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1

permanent , Correct Unavailable (permanent/temporary) accounts and their balances from the ledger

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Unavailable(journal/ledger) after

2 ledger , Correct

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Unavailable (after/before) all closing

3 after , Correct

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4 closing , Correct

Unavailable (adjusting/closing) entries have been journalized and posted. 

Current assets are:

cash and other resources that are expected to be sold, collected or used within one year...