25) What is the effect of the adjusting entry for Depreciation Expense?
A) It increases total liabilities and increases total expenses.
B) It increases total assets and increases total expenses.
C) It decreases total assets and increases total expenses.
D) It decreases total liabilities and increases total expenses.
26) On October 1, 2019 Ranger Service Company paid $5,000 in rent for the next five months, beginning
with October 2019. On that date, Ranger debited Prepaid Rent and credited Cash. If Ranger fails to make
an adjusting entry on December 31, 2019, indicate the effect on assets, liabilities, equity, and net income.
Understated, Overstated, No Effect
Assets
Liabilities
Equity
Net Income
Understated, Overstated, No Effect
Assets
Overstated
Liabilities
No Effect
Equity
Overstated
Net Income
Overstated
Diff: 2
LO: 3-5
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: What Is the Impact of Adjusting Entries on the Financial Statements? (H1)
27) During December 2018, April Service Company performed $1,500 of services, but as of December 31,
2018, the clients have not yet been billed. If April fails to make an adjusting entry on December 31, 2018,
indicate the effect on assets, liabilities, equity, and net income.
Understated, Overstated, No Effect
Assets
Liabilities
Equity
Net Income
Understated, Overstated, No Effect
Assets
Understated
Liabilities
No Effect
Equity
Understated
Net Income
Understated
Diff: 2
LO: 3-5
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: What Is the Impact of Adjusting Entries on the Financial Statements? (H1)
28) On December 31, 2019, $2,500 of salaries have been earned but not yet paid to employees. If the
business failed to make an adjusting entry on December 31, 2019, indicate the effect on assets, liabilities,
equity, and net income.
Understated, Overstated, No Effect
Assets
Liabilities
Equity
Net Income
Understated, Overstated, No Effect
Assets
No Effect
Liabilities
Understated
Equity
Overstated
Net Income
Overstated
29) On December 31, 2018, interest of $1,500 has accrued on a bank note. This interest payment is due on
January 20, 2019. If no adjusting entry is made on December 31, 2018, indicate the effect on assets,
liabilities, equity, and net income.
Understated, Overstated, No Effect
Assets
Liabilities
Equity
Net Income
Understated, Overstated, No Effect
Assets
No Effect
Liabilities
Understated
Equity
Overstated
Net Income
Overstated
Diff: 2
LO: 3-5
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: What Is the Impact of Adjusting Entries on the Financial Statements? (H1)
30) Why is it important for companies to record adjusting entries?
31) On September 28, 2018, Benson Consulting signs a contract with Commercial Cleaning Services.
Commercial Cleaning will provide 6 months of office cleaning services for $2,000 per month. Benson
Consulting pays $12,000 cash to Commercial Cleaning on September 28, 2018. Cleaning services will
begin on October 1, 2018. Complete the following requirements for Benson Consulting.
(1) Prepare the journal entries for September 28, 2018 and December 31, 2018 (the end of Benson’s fiscal
year). Make proper journal entries (omit explanations).
(2) If Benson fails to record the December 31, 2018 adjusting entry, what is the effect on net income,
income statement account(s) and balance sheet account(s)?
(3) Why is it important for companies to record adjusting entries?
32) On November 27, 2018, Metro Delivery Service Company signs a contract with Brooklyn Financial
Services Company. Metro Delivery Service will provide 3 months of local delivery services for $5,000 per
month. Brooklyn pays $15,000 cash to Metro on November 27, 2018. Delivery services will begin on
December 1, 2018. Complete the following requirements for Metro Delivery Services.
(1) Prepare the journal entries for November 27, 2018 and December 31, 2018 (the end of Metro’s fiscal
year). Make proper journal entries (omit explanations).
(2) If Metro fails to record the December 31, 2018 adjusting entry, what is the effect on net income,
income statement account(s) and balance sheet account(s)?
(3) Why is it important for companies to record adjusting entries?
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3.6 Learning Objective 3-6
1) A worksheet is an external document that forms a part of the financial statements.
2) A worksheet is an internal document that helps summarize data for the preparation of financial
statements.
3) The worksheet is not a journal, a ledger, or a financial statement.
4) The worksheet is a useful step in preparing adjusting entries and the unadjusted trial balance.
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Copyright © 2018 Pearson Education, Inc.
5) An internal document that helps summarize data for the preparation of financial statements is called a
________.
A) journal
B) ledger
C) worksheet
D) chart of accounts
6) The accounts that are used in a worksheet are taken from and listed in the same order as the ________.
A) balance sheet
B) audit report
C) journal
D) chart of accounts
7) To fill in the unadjusted trial balance columns in a worksheet, the account balances before adjustments
are copied directly from the ________.
A) ledger
B) adjusted trial balance
C) chart of accounts
D) balance sheet of previous year