978-1337398169 Test Bank Chapter 3 Part 9

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-

$525

(2)

Liabilities at Dec. 31

would be

$ -0-

(3)

Net income for the

year would be

$1,750

$ -0-

$525

(4)

Owner’s equity at Dec.

31 would be

$1,750

$ -0-

$525

Error (a)

Error (b)

Over-

stated

Under-

stated

Over-

stated

Under-

stated

(1)

Assets at December 31

would be

$1,750

$ -0-

$525

(2)

Liabilities at Dec. 31

would be

$ -0-

(3)

Net income for the

year would be

$1,750

$ -0-

$525

(4)

Owner’s equity at Dec.

31 would be

$1,750

$ -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

(o)

No effect

(p)

Unpaid wages

(r)

Understated

(s)

Overstated

(t)

No effect

(u)

Overstated

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