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Chapter 03 - Adjustments: Accruals and Deferrals
Copyright Cengage Learning. Powered by Cognero.
Page 81
Bloom's: Applying
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.03-02 - LO: 03-02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.07 - Adjusting Entries
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:31 PM
DATE MODIFIED:
10/16/2017 4:29 PM
192. At January 31, the end of the first month of the year, the usual adjusting entry transferring expired insurance to an
expense account is omitted. Which items will be incorrectly stated, because of the error, on (a) the income statement for
January and (b) the balance sheet as of January 31? Also indicate whether the items in error will be overstated or
understated.
ANSWER:
(a)
Insurance expense (or expenses) will be understated. Net income will
be overstated.
(b)
Prepaid insurance (or assets) will be overstated. Shareholders' equity
will be overstated.
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.03-05 - LO: 03-05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.07 - Adjusting Entries
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:31 PM
DATE MODIFIED:
10/16/2017 4:29 PM
193. At the end of April, the first month of the company's year, the usual adjusting entry transferring rent earned to a
revenue account from the unearned rent account was omitted. Indicate which items will be incorrectly stated, because of
the error, on (a) the income statement for April and (b) the balance sheet as of April 30. Also indicate whether the items
in error will be overstated or understated.
ANSWER:
(a)
Rent revenue (or revenues) will be understated. Net income will be
understated.
(b)
Stockholders' equity at the end of the period will be
understated. Unearned rent (or liabilities) will be overstated.
POINTS:
1
DIFFICULTY:
Bloom's: Remembering
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.03-05 - LO: 03-05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.07 - Adjusting Entries
ACCT.AICPA.FN.03 - Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:31 PM
Chapter 03 - Adjustments: Accruals and Deferrals
Copyright Cengage Learning. Powered by Cognero.
Page 85
ANSWER:
(1)
Assets at Dec. 31
would be
(2)
Liabilities at Dec. 31
would be
(3)
Net income for the ye
would be
(4)
Stockholders' equity
31
would be
POINTS:
1
DIFFICULT
Y:
Bloom's: Applying
Challenging
QUESTIO
N TYPE:
Subjective Short
Answer
HAS VARI
ABLES:
False
LEARNING
OBJECTI
VES:
FNMN.WAJO.19.03-
05 - LO: 03-05
DARDS:
Statements
ACCT.AICPA.FN.03 -
Measurement
BUSPROG: Analytic
DATE CRE
ATED:
7/22/2017 5:31 PM
DATE MO
DIFIED:
10/16/2017 4:33 PM
would be
(3)
Net income for the year
would be
$
$
$
$
(4)
Stockholders' equity at Dec. 31
would be
$
$
$
$
Error (a)
Error (b)
Over-
stated
Under-
stated
Over-
stated
Under-
stated
(1)
Assets at December 31
would be
$1,750
$ -0-
$ -0-
$525
(2)
Liabilities at Dec. 31
would be
$ -0-
$ -0-
$ -0-
$ -0-
(3)
Net income for the
year would be
$1,750
$ -0-
$ -0-
$525
(4)
Owner's equity at Dec.
31 would be
$1,750
$ -0-
$ -0-
$525
Error (a)
Error (b)
Over-
stated
Under-
stated
Over-
stated
Under-
stated
(1)
Assets at December 31
would be
$1,750
$ -0-
$ -0-
$525
(2)
Liabilities at Dec. 31
would be
$ -0-
$ -0-
$ -0-
$ -0-
(3)
Net income for the
year would be
$1,750
$ -0-
$ -0-
$525
(4)
Owner's equity at Dec.
31 would be
$1,750
$ -0-
$ -0-
$525
Copyright Cengage Learning. Powered by Cognero.
Page 86
201. Jordon James started JJJ Consulting on January 1. The following are the account balances at the end of the first
month of business, before adjusting entries were recorded:
Accounts Payable
$ 300
Accounts Receivable
750
Cash
6,300
Consulting Revenue
4,925
Equipment
7,000
Common Stock
15,000
Dividends
1,375
Prepaid Rent
4,000
Supplies
800
Adjustment data:
Supplies on hand at the end of the month, $200
Unbilled consulting revenue, $700
Rent expense for the month, $1,000
Depreciation on equipment, $90
(a) Prepare the required adjusting entries, adding accounts as needed.
(b) Prepare an adjusted trial balance for JJJ Consulting as of January 31.
ANSWER:
(a)
Supplies Expense
600
Supplies
600
Accounts Receivable
700
Consulting Revenue
700
Rent Expense
1,000
Prepaid Rent
1,000
Depreciation Expense
90
Accum. Depr.—
Equipment
90
(b)
JJJ Consulting
Adjusted Trial Balance
January 31
Accounts
Debit Balances
Credit Balances
Cash
6,300
Accounts Receivable
1,450
Supplies
200
Prepaid Rent
3,000
Equipment
7,000
Accumulated
Depreciation—Equipment
90
Accounts Payable
300
Common Stock
15,000
Dividends
1,375
Consulting Revenue
5,625
Chapter 03 - Adjustments: Accruals and Deferrals
Interest income
due on a note,
(k)
Dr. Asset
Cr. Revenue
Income Statement:
Revenues: (l)
Expenses: (m)
Net income: Understated
Balance Sheet:
Assets: (n)
Liabilities: (o)
Stockholders' equity: Understated
Accrued Expenses
Examples
Adjusting Entry
Financial Statement Impact if
Adjusting Entry is Omitted
Interest due on a
note payable,
(p)
(q)
Income Statement:
Revenues: No effect
Expenses: (r)
Net income: (s)
Balance Sheet:
Assets: (t)
Liabilities: Understated
Stockholders' equity: (u)
ANSWER:
(a)
Prepaid rent or Prepaid insurance
(b)
Overstated
(c)
Overstated
(d)
No effect
(e)
Fee or Magazine subscription received in
advance
(f)
Dr. Liability, Cr. Revenue
(g)
Understated
(h)
Understated
(i)
No effect
(j)
Understated
(k)
Services performed but not yet billed
(l)
Understated
(m)
No effect
(n)
Understated
