Chapter 3: The Adjusting Process
118.
Which of the following is an example of an accrued expense?
a.
Salary owed but not yet paid
b.
Fees received but not yet earned
c.
Supplies on hand
d.
A two-year premium paid on a fire insurance policy
119.
The net book value of a fixed asset is determined by the original cost
a.
less accumulated depreciation
b.
less depreciation expense
c.
less accumulated depreciation plus depreciation expense
d.
plus accumulated depreciation
120.
The balance in the supplies account before adjustment at the end of the year is $6,250. The proper adjusting
entry
if the amount of supplies on hand at the end of the year is $1,500 would be
a.
debit Supplies, $1,500; credit Supplies Expense, $1,500
b.
debit Supplies Expense, $4,750; credit Supplies, $4,750
c.
debit Supplies Expense, $1,500; credit Supplies, $1,500
d.
debit Supplies, $4,750; credit Supplies Expense, $4,750
Chapter 3: The Adjusting Process
121.
The net income reported on the income statement is $58,000. However, adjusting entries have not been made at
the end of the period for supplies expense of $2,200 and accrued salaries of $1,300. Net income, as corrected,
is
a. $56,700
b. $58,000
c. $55,800
d. $54,500
122.
At the end of the fiscal year, the usual adjusting entry to Prepaid Insurance to record expired insurance
was
omitted. Which of the following statements is true?
a.
Total assets at the end of the year will be understated.
b.
Owner’s equity at the end of the year will be understated.
c.
Net income for the year will be overstated.
d.
Insurance Expense will be overstated.
123.
At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of
the
following statements is true?
a.
Total assets will be understated at the end of the current year.
b.
The balance sheet and income statement will be misstated but the statement of owner’s equity will be
correct
for the current year.
c.
Net income will be overstated for the current year.
d.
Total liabilities and total assets will be understated.
Chapter 3: The Adjusting Process
124.
At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted.
Which
of the following statements is true?
a.
Salary Expense for the year was understated.
b.
The total of the liabilities at the end of the year was overstated.
c.
Net income for the year was understated.
d.
Owner’s equity at the end of the year was understated.
125.
The adjusting entry to adjust supplies was omitted at the end of the year. This would affect the income
statement
by having
a.
expenses understated and therefore net income overstated
b.
revenues understated and therefore net income understated
c.
expenses understated and therefore net income understated
d.
expenses overstated and therefore net income understated
126.
Which of the accounts below would most likely appear on an adjusted trial balance but probably would not
appear
on the trial balance?
a.
Fees Earned
b.
Accounts Receivable
c.
Unearned Fees
d.
Depreciation Expense
Chapter 3: The Adjusting Process
127.
Which of the accounting steps in the accounting process below would be completed last?
a.
preparing the adjusted trial balance
b.
posting
c.
preparing the financial statements
d.
journalizing
128.
When is the adjusted trial balance prepared?
a.
Before adjusting journal entries are posted
b.
After adjusting journal entries are posted.
c.
After the adjusting journal entries are journalized
d.
Before the adjusting journal entries are journalized.
129.
What is the purpose of the adjusted trial balance?
a.
to verify that all of the adjusting entries have been posted
b.
to verify that the net income (loss) is correctly reported
c.
to verify that no adjusting journal entry has been omitted.
d.
to verify that the debits and credits balance
Chapter 3: The Adjusting Process
130.
All of the following statements regarding vertical analysis are true except:
a.
Vertical analysis may be prepared for several periods to analyze changes in relationships over time.
b.
In a vertical analysis of a balance sheet, each asset item is stated as a percent of total assets.
c.
In a vertical analysis of an income statement, each item is stated as a percent of total expenses.
d.
Major differences between a company’s vertical analysis and industry averages should be investigated.
131.
Two income statements for Toby Sam Enterprises are shown below:
Toby Sam Enterprises
Income Statement
For the Years 2 and 1 Ending December 31
Year 2
Year 1
Fees earned
$674,350
$520,600
Operating expenses
472,045
338,390
Operating income
$202,305
$182,210
Prepare a vertical analysis of Toby Sam Enterprises income statements. Has operating income increased or
decreased as a percentage of revenue?
a.
Yes, increased by 5%. b. Yes, increased by 111%.
c. No, decreased by 5%. d. No, decreased by 111%
Chapter 3: The Adjusting Process
132.
For the year ending December 31, Orion, Inc. mistakenly omitted adjusting entries for $1,500 of supplies that
were
used, (2) unearned revenue of $4,200 that was earned, and (3) insurance of $5,000 that expired. For the
year
ending December 31, what is the effect of these errors on revenues, expenses, and net income?
a.
Revenues are overstated by $4,200. b. Net income is overstated by $2,300.
c. Expenses are overstated by $6,500. d. Expenses are understated by $3,500.
133.
A business pays bi-weekly salaries of $20,000 every other Friday for a ten-day period ending on that day. The
adjusting entry necessary at the end of the fiscal period ending on the second Wednesday of the pay period
includes
a
a.
debit to Salary Expense of $8,000. b. debit to Salaries Payable of $8,000
c. credit to Salary Expense of $16,000 d. credit to Salaries Payable of $16,000
134.
A business pays bi-weekly salaries of $20,000 every other Friday for a ten-day period ending on that day. The
last
payday of December is Friday, December 27. Assuming the next pay period begins on Monday, December
30 and
the proper adjusting entry is journalized at the end of the fiscal period (December 31). The entry for the
payment
of the payroll on Friday, January 10 includes a
a.
debit to Salary Expense of $16,000 b. debit to Salary Expense of $4,000
c. credit to Salary Payable of $16,000 d. credit to Salary Payable of $4,000
Chapter 3: The Adjusting Process
135.
Explain the difference between accrual basis accounting and cash basis accounting.
136.
Indicate with a Yes or No whether or not each of the following accounts would, under normal
circumstances,
require an adjusting entry.
1.
Cash
2.
Prepaid Expenses
3.
Depreciation Expense
4.
Accounts Payable
5.
Accumulated Depreciation
6.
Equipment
Chapter 3: The Adjusting Process
137.
Classify the following items as: (1) prepaid expense, (2) unearned revenue, (3) accrued expense, or (4)
accrued
revenue.
a)
Fees received but not yet earned
b)
Fees earned but not yet received
c)
Paid premium on a one-year insurance policy
d)
Property tax owed to be paid beginning of next year
138.
Zoey Bella Corp. has a payroll of $10,000 for a five-day workweek. Its employees are paid each Friday for
the
five-day workweek. The adjusting entry on December 31 assuming the year ends on Thursday would be:
Date
Post Ref
Debit
Credit
Chapter 3: The Adjusting Process
139.
A one-year insurance policy was purchased on June 1 for $2,400. The adjusting entry on December 31 would be:
Date
Post Ref
Debit
Credit
140.
Depreciation on an office building is $2,800. The adjusting entry on December 31 would be:
Date
Post Ref
Debit
Credit
Chapter 3: The Adjusting Process
141.
Gizmo Inc. purchased a one-year insurance policy on October 1 for $1,800. The adjusting entry on December
31
would be:
Date
Post Ref
Debit
Credit
142.
The supplies account had a beginning balance of $1,750. Supplies purchased during the period totaled $3,500.
At
the end of the period before adjustment, $350 of supplies were on hand. Prepare the adjusting entry for
supplies.
Chapter 3: The Adjusting Process
143.
On January 1, DogMart Company purchased a two-year liability insurance policy for $22,800 cash. The
purchase
was recorded to Prepaid Insurance. Prepare the January 31 adjusting entry.
144.
DogMart Company records depreciation for equipment. Depreciation for the period ending December 31 is
$1,400
for office equipment and $2,650 for production equipment. Prepare two entries to record the
depreciation.
Chapter 3: The Adjusting Process
145.
On March 1, a business paid $3,600 for a twelve-month liability insurance policy. On April 1, the same
business
entered into a two-year rental contract for equipment at a total cost of $18,000. Determine the
following amounts:
(a)
insurance expense for the month of March
(b)
prepaid insurance as of March 31
(c)
equipment rent expense for the month of April
(d)
prepaid equipment rental as of April 30
146.
On January 1, the Newman Company estimated its property tax to be $5,100 for the year.
(a)
How much should the company accrue each month for property taxes?
(b)
Calculate the balance in Property Tax Payable as of August 31.
(c)
Prepare the adjusting journal entry for the month of September.
Chapter 3: The Adjusting Process
147.
On January 1, Power House Co. prepays the year’s rent, $10,140. Prepare the journal entry by recording the
prepayment to an asset account.
148.
Record journal entries for the following:
(a)
On December 1, $18,000 was received for a service contract to be performed from December 1 through
April
30.
(b)
If the service work for this contract is performed evenly and on a regular basis throughout this period,
prepare
the adjusting journal entry on December 31.
149.
On December 31, the balance in the office supplies account is $1,385. A count shows $435 worth of supplies
on
hand. Prepare the adjusting entry for supplies.
Chapter 3: The Adjusting Process
150.
Depreciation on equipment for the year is $6,300.
(a)
Record the journal entry if the company adjusts its account once a year.
(b)
Record the journal entry if the company adjusts its account on a monthly basis.
151.
The company determines that the interest expense on a note payable for period ending December 31 is $775.
This
amount is payable on January 1. Prepare the journal entries required on December 31 and January 1.
152.
On January 2, Dog Mart prepaid $30,000 rent for the year and recorded the prepayment in an asset account.
Prepare the January 31 adjusting entry for rent expense.
Chapter 3: The Adjusting Process
153.
The prepaid insurance account had a beginning balance of $6,600 and was debited for $2,300 of premiums
paid
during the year. Journalize the adjusting entry required at the end of the year assuming the amount of
unexpired
insurance related to future periods is $4,100.
154.
The balance in the unearned fees account, before adjustment at the end of the year, is $10,250. Journalize
the
adjusting entry required if the amount of unearned fees at the end of the year is $3,125.
155.
At the end of the current year, $3,700 fees have been earned but have not been billed to clients. Journalize the
adjusting entry to record the accrued fees.
Chapter 3: The Adjusting Process
156.
Ski Master Company pays weekly salaries of $18,000 on Friday for a five-day week ending on that day.
Journalize
the necessary adjusting entry at the end of the accounting period, assuming that the period ends on
Wednesday.
157.
The estimated amount of depreciation on equipment for the current year is $5,300. Journalize the adjusting entry
to
record the depreciation.
158.
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.
Chapter 3: The Adjusting Process
At the end of April, the first month of the 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.
BUSPROG: Analytic
159.
Salaries of $6,400 are paid for a five-day week on Friday. Prepare the adjusting journal entry that is required if
the
month ends on Thursday.
160.
Accrued salaries of $600 owed to employees for December 29, 30, and 31 are not taken into consideration in
preparing the financial statements for the year ended December 31. Indicate which items will be erroneously
stated, because of the error, on (a) the income statement for the year and (b) the balance sheet as of December
31.
Also indicate whether the items in error will be overstated or understated.
Chapter 3: The Adjusting Process
161.
For the year ending December 31, Beard Clinical Supplies Co. mistakenly omitted adjusting entries for (1)
$9,800 of
unearned revenue that was earned, (2) earned revenue that was not billed of $10,200, and (3) accrued
wages of $7,000. Indicate the combined effect of the errors on (a) revenues, (b) expenses, and (c) net income.
162.
For each of the following errors, considered individually, indicate whether the error would cause the adjusted
trial
balance totals to be unequal. If the error would cause the adjusted trial balance total to be unequal, indicate
whether
the debit or credit total is higher and by how much.
a)
The adjustment for unearned fees of $3,260 was journalized as a debit to
Accounts
Payable for $3,260 and a credit to Fees Earned of $3,260.
b)
The adjustment for supplies expense of $425 was journalized as a debit to
Supplies
Expense for $542 and a credit to Supplies for $425.
Chapter 3: The Adjusting Process
163.
On January 1, Great Designs Company had a debit balance of $1,450 in the office supplies account. During the
month, Great Designs purchased $115 and $160 of office supplies and journalized them to the asset account
upon
purchasing. On January 31, an inspection of the office supplies cabinet shows that only $350 of office
supplies
remains. Prepare the January 31 adjusting entry for office supplies.
Chapter 3: The Adjusting Process
164.
Listed below are accounts to use for transactions (a) through (j), each identified by a number. Following this
list
are the transactions. You are to indicate for each transaction the accounts that should be debited and
credited by
placing the account number(s) in the appropriate box.
1.
Accounts Payable
2.
Accounts Receivable
3.
Accumulated Depreciation – Office Equipment
4.
Building
5.
Capital Stock
6.
Cash
7.
Depreciation Expense – Office Equipment
8.
Dividends
9.
Insurance Expense
10.
Insurance Payable
11.
Interest Expense
12.
Interest Payable
13.
Interest Receivable
14.
Land
15.
Notes Payable
16.
Office Supplies
17.
Office Supplies Expense
18.
Owner Capital
19.
Prepaid Insurance
20.
Service Revenue
21.
Unearned Service Revenue
22.
Utilities Expense
23.
Utilities Payable