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9) The unadjusted trial balance of Albert Business Consulting at December 31, 2018, and the data for the
adjustments follow:
Albert Business Consulting
Unadjusted Trial Balance
December 31, 2018
Balance
Account Title
Debit
Credit
Cash
$22,000
Accounts Receivable
12,000
Prepaid Insurance
7,500
Office Supplies
6,000
Land
18,000
Accounts Payable
15,000
Salaries Payable
5,000
Unearned Revenue
9,000
Common Stock
30,000
Retained Earnings
6,000
Dividends
5,000
Service Revenue
24,500
Salaries Expense
15,000
Advertising Expense
4,000
Totals
$89,500
$89,500
Albert is preparing financial statements for the year ending December 31, 2018.
Adjustment data at December 31 follows:
a. Albert pays its employees each Friday. December 31, 2018 falls on a Monday. The employees will
earn $1,250 for the five-day work week.
b. On August 31, 2018, Albert agreed to provide consulting services to Smith Company for 6 months,
beginning on September 1, 2018, at $1,500 per month. Smith paid $9,000 on August 31, 2018. Albert
treats deferred revenues initially as liabilities.
c. Albert prepaid 6 months of business insurance on September 30, 2018. The insurance begins on
October 1. Albert treats deferred expenses initially as assets.
d. On December 31, 2018, Albert received a bill for the November and December advertising in a local
newspaper, $800. This bill will be paid on its due date, which is January 10, 2019.
e. As of December 31, 2018, Albert had performed services for Alliance Company for $5,000. The
invoice will be sent on January 5, 2019 and payment is due on January 15, 2019. Albert received the
payment on its due date.
Requirement
1. Prepare the adjusting journal entries at December 31, 2018.
2. Prepare the adjusted trial balance at December 31, 2018. Include a proper heading.
1) If a company fails to make an adjusting entry for accrued revenues, the net income will be overstated.
2) Adjusting entries do not update balance sheet accounts.
3) Adjusting entries are completed to ensure that all income statement accounts for the accounting period
examined have been recorded and to update the balance sheet accounts.
4) If a company fails to make an adjusting entry for deferred expense, the assets will be overstated.
Assume the deferred expense is initially recorded as an asset.
5) If a company fails to make an adjusting entry to record accrued expenses, the liabilities and net income
will be overstated.
6) Since net income increases the equity account Retained Earnings, if net income is understated, then
equity will also be understated.
7) If net income is overstated, equity will be understated.
8) The accountant for Barnes Auto Repair, Inc. failed to make an adjusting entry to record $5,000 of
unpaid salaries for the last two weeks of the year. Which of the following is an effect of this omission?
A) The net income will be overstated.
B) The total assets will be understated.
C) The net income will be understated.
D) The total assets will be overstated.
9) Financial statements are prepared from the balances in a(n) ________.
A) general journal
B) chart of accounts
C) unadjusted trial balance
D) adjusted trial balance
10) All of the accounts and the account balances of a company appear on the ________.
A) statement of retained earnings
B) balance sheet
C) adjusted trial balance
D) income statement
11) The accountant of Reliable Consulting, Inc. failed to make an adjusting entry to record $6,000 for
unearned service revenues that were earned before the end of the fiscal year. Assume the company
initially recorded a liability. Which of the following statements is true?
A) The total liabilities will be overstated.
B) The total liabilities will be understated.
C) The total assets will be overstated.
D) The total assets will be understated.
12) The accountant for Eagle Financial Services, Inc. failed to make an adjusting entry to record $3,000 of
telephone expenses for the last two months of the year. Which of the following statements is true?
A) The total liabilities will be overstated.
B) The total liabilities will be understated.
C) The total assets will be overstated.
D) The total assets will be understated.
13) The accountant of Residential Architectural Services failed to make an adjusting entry to record $7,000
of depreciation expense. Which of the following statements is true?
A) The total liabilities will be overstated.
B) The equity will be understated.
C) The total assets will be overstated.
D) The total assets will be understated.
14) The accountant of Newton Legal Services failed to make an adjusting entry for supplies that had been
used for the year. Assume the supplies were initially recorded as an asset. Which of the following
statements is true?
A) The total liabilities will be overstated.
B) The equity will be understated.
C) The total assets will be overstated.
D) The total assets will be understated.
15) The accountant of Omega, Inc. failed to make an adjusting entry to record $6,000 of unearned service
revenue that has now been earned. Assume the deferred revenue was initially recorded as a liability.
Which of the following statements is true?
A) The total revenue will be overstated.
B) The total revenue will be understated.
C) The total expenses will be overstated.
D) The total expenses will be understated.
16) The accountant for Watson Electrical Repair, Inc. failed to make an adjusting entry to record $5,000 of
unpaid salaries for the last two weeks of the year. Which of the following statements is true?
A) The total revenue will be overstated.
B) The total revenue will be understated.
C) The total expenses will be overstated.
D) The total expenses will be understated.
17) The accountant of Peyton Financial Services failed to make an adjusting entry to record $7,000 of
depreciation expense. Which of the following statements is true?
A) The total revenue will be overstated.
B) The total revenue will be understated.
C) The total expenses will be overstated.
D) The total expenses will be understated.
18) Metro Event Planning Services collects fees from its customers in advance. On January 1, 2019, the
balance of its Unearned Revenue account was $4,000 (CR). During January and February, the company
collected $2,000 and $600 as advance fees. During the two-month period, it performed services of $5,500
related to the deferred revenue. What is the balance in Unearned Revenue at the end of February?
A) debit balance of $4,000
B) credit balance of $4,000
C) debit balance of $1,100
D) credit balance of $1,100
19) Salaries are $5,000 per week for five working days and are paid weekly at the end of the day on
Fridays. The end of the month falls on a Thursday. The accountant for Sunset, Inc. made the appropriate
accrual adjustment and posted it to the ledger. The balance of Salaries Payable, as shown on the adjusted
trial balance, will be a ________. (Assume that there was no beginning balance in the Salaries Payable
account.)
A) credit balance of $4,000
B) debit balance of $1,000
C) debit balance of $4,000
D) credit balance of $1,000
20) The accounting records for Social Event Planning Services include the following select unadjusted
balances on December 31, 2018: Salaries Expense, $6,000; Service Revenue: $18,000; Unearned Revenue,
$400; Supplies Expense, $600; Rent Expense, $300; Depreciation Expense—Equipment, $200.
During December, the company worked with a new client and provided event planning services for an
upcoming event. It will receive the full amount of $1,800 when the event is completed in January 2019. As
of the end of December 2018, it performed one-third of the services covered by the contract. The company
made the accrual adjustments. The balance of Service Revenue, as shown on the adjusted trial balance,
should be a ________.
A) debit balance of $19,800
B) credit balance of $18,000
C) debit balance of $1,800
D) credit balance of $18,600
21) On the first day of January, Builders, Inc. borrowed $1,000 on a one-year note payable bearing interest
at 7% per year. The note specifies that principal and interest must be paid in full at the end of the one-
year period. On June 30, the adjusted trial balance will show Interest Payable of ________.
A) $35 credit
B) $35 debit
C) $70 credit
D) $70 debit
22) At the end of the current year, the accountant for Computer Graphics, Inc. forgot to make an adjusting
entry to accrue Wages Payable for the company's employees for the last week in December. The wages
will be paid to the employees in January. Which of the following is an effect of this error?
A) Net income is overstated.
B) Liabilities are overstated.
C) Net income is understated.
D) Expenses are overstated.
23) The accountant for Diamond Jewelry Repair Services, Inc. forgot to make an adjusting entry for
Depreciation Expense for the current year. Which of the following is an effect of this error?
A) Revenues are understated.
B) Total assets are understated.
C) Net income is overstated.
D) Total liabilities are understated.
24) The accountant for Main Street Jewelry Repair Services, Inc. forgot to make an adjusting entry for
Depreciation Expense for the current year. Which of the following is an effect of this error?
A) Total assets are understated.
B) Revenues are overstated.
C) Total assets are overstated.
D) Net income is understated.
