71. The supplies account has a balance of $1,000 on January 1. During January, the company purchased
$25,000 of supplies on account and the liability was appropriately recorded. A count of supplies at the end of
January indicates a balance of $3,000. Which one of the following is a correct amount to be reported on the
company’s financial statements for the month ending January 31?
72. The asset account, Supplies, has a balance of $10,000 on January 1. During January, $22,000 of supplies
were purchased on account and the liability was appropriately recorded. A count of supplies at the end of
January indicates a balance of $2,000. What adjusting entry is necessary at January 31?
A. Supplies Expense 22,000
Supplies 20,000
Accounts Payable 2,000
73. Which one of the following adjustments decreases net income for the period?
74. What is the effect on the accounting equation when a company recognizes rent as earned that had previously
been received in advance from customers?
75. Failure to record accrued interest expense would result in which of the following?
76. Failure to record the earned portion of unearned revenue would result in which of the following?
77. Failure to record dividends paid would result in which of the following?
78. Failure to record the supplies used during the year would result in which of the following?
79. Failure to record amounts earned for services provided to customers but cash not yet received results in
which of the following?
80. Failure to record depreciation expense for the period results in which of the following?
81. The following data were taken from the Adjusted Trial Balance for April 30, 2012 for Mackenzie Company:
Accumulated depreciation-Trucks
$42,400
Prepaid rent
6,800
Supplies
850
Unearned fees
5,010
Retained earnings
?
Prepare a classified balance sheet.
82. The following revenue and expense account balances were taken from the Adjusted Trial Balance for Fraser
Services Co. for December 31, 2012:
$ 5,400
4,800
1,800
36,000
147,000
4,730
7,350
83,750
Prepare an income statement.
Service revenue
$147,000
Operating expenses:
Wages expense
$83,750
Rent expense
36,000
Utilities expense
7,350
Depreciation expense
5,400
Supplies expense
4,730
Insurance expense
4,800
Miscellaneous expense
1,800
Total operating expenses
143,830
Net loss
$ 3,170
Assets
Liabilities
Current assets:
Cash
$ 3,400
Current liabilities:
Supplies
Unearned fees
$ 5,010
Prepaid rent
6,800
Total current assets
$ 11,050
Property, plant, and equipment:
Capital stock
2,300
Trucks
$49,300
Retained earnings
10,640
Less accum. depreciation
(42,400)
Total property, plant
and equipment
6,900
83. Big Dog Company began operations on January 1, 2012. The accountant for Big Dog has recorded the
closing entries in the general journal at the company’s year-end, December 31, 2012. In addition, the closing
entries have been created in the computerized general ledger and the computer has generated a year-end trial
balance. Since the closing entries have already been posted, the income statement that the computer printed has
the proper account names, but all accounts have zero balances. In addition, the statement of retained earnings
shows net income and dividends equal to zero instead of the correct 2012 net income and dividends. As you
examine the general journal, you find the closing entries below:
Dec. 31
Sales
Revenue
125,000
Rent
Revenue
22,000
Retained Earnings
147,000
Retained
Earnings
78,400
Salaries and Wages Expense
45,000
Rent Expense
18,000
Utilities Expense
9,200
Supplies Expense
1,000
Insurance Expense
5,200
Retained
Earnings
22,000
Dividends
22,000
In good form, prepare a statement of retained earnings for the year ended December 31, 2012. The beginning balance of retained earnings is zero.
84. Idol Inc. paid salaries expense of $750,000 during 2012. However, additional salaries of $40,000 had been
earned by employees, but not paid or recorded at December 31, 2012, by Idol.
A)
What adjusting entry is necessary at December 31, 2012?
B)
Under which basis, cash, accrual, or both, would the adjustment in part A be prepared? Explain.
C)
Under the accrual basis of accounting, what is the total amount of salaries expense for the year ended December 31, 2012?
D)
Under the accrual basis of accounting, what is the total amount of salaries payable to be reported at December 31, 2012?
E)
Under the cash basis of accounting, what is the total amount of salaries expense for the year ending December 31, 2012?
F)
Under the cash basis of accounting, what is the total amount of salaries payable at December 31, 2012?
Statement of Retained Earnings
For the Year Ended December 31, 2012
Retained earnings, January 1, 2012
Add: Net income ($147,000 – $78,400)
68,600
Less: Dividends
(22,000)
Retained earnings, December 31, 2012
$46,600
$40,000
85. Republic Corporation purchased supplies at a cost of $12,215 during 2012. At January 1, 2012, supplies on
hand were $10,312. During the year, the company used $14,000 of supplies. Republic accounting year ends on
December 31.
A)
What adjusting entry is prepared at December 31, 2012?
B)
Under the accrual basis of accounting, how much is Supplies Expense for 2012?
C)
How much should be reported on the December 31, 2012, balance sheet for Supplies?
D)
What type of adjustment was made in part A?
Supplies
14,000
B)
$14,000
= $8,527
86. Liberty Inc. employs 15 workers in its manufacturing facility. Each employee is paid $22 per hour and
works 8 hours per day, Monday through Friday. Employees are paid every Wednesday for the previous Monday
through Friday workweek. The last payday was Wednesday, October 28.
A)
Compute the dollar amount of Liberty’s weekly payroll.
B)
Prepare the adjusting entry on Friday, October 30, the last day of Liberty’s fiscal period.
C)
What special precautions are necessary upon recording the payment of wages to employees on the next payday, November 4?
87. Hondo Corporation began operations on December 1, 2012, and immediately paid $60,000 for 6 months
rent in advance for the period beginning December 1, 2012. Hondo’s accounting period ends on December 31,
2012. Indicate how much will be reported for each of the following accounts on Hondo’s financial statements
for the period ending December 31, 2012. If the amount reported is zero, indicate so by writing $0, and explain
why zero is the appropriate amount.
A)
Rent Expense
B)
Rent Payable
C)
Rent Revenue
D)
Prepaid Rent
88. Pickering, Inc. borrowed $500,000 from BTL Bank on November 1, 2012. The terms of the loan (note) is
6% interest due in 6 months.
A)
Prepare the necessary journal entry on November 1, 2012 to record the loan.
B)
Prepare the necessary adjusting entry for this loan on December 31, 2012.
A)
Cash
500,000
Notes Payable
500,000
Interest Payable
5,000
A)
$10,000 ($60,000 Prepaid Rent / 6 Months)
B)
$0. Rent was paid in advance which means that no amount is owed at the end of the year
$0. Rent is an expense, or a cost to the company and does not create revenue.
D)
$50,000 ($60,000 – 10,000 expense = $50,000)
89. Money Corporation employs 20 workers in its retail service center. Each employee is paid wages of $15 per
hour and works an 8-hour workday, Monday through Friday. Employee wages are paid every Friday for the
workweek just ending. The last payday was Friday, December 26, on which day the employees were paid
through that date.
A)
Compute the dollar amount of the weekly payroll.
B)
Prepare the adjusting entry on Wednesday, December 31, the last day of Wood Corporation’s fiscal period.
90. On October 1, 2012, Westminister Corporation paid $24,000 to purchase two years of insurance coverage
for its retail shop. Westminister recorded the prepayment as an asset. Westminister prepares its adjusting entries
at year end December 31.
A)
What adjusting journal entry is necessary at December 31, 2012?
B)
How much will be reported on the balance sheet at December 31, 2012, for prepaid insurance?
C)
How much will be reported on the income statement for the year ended December 31, 2012, for insurance expense?
D)
If the adjustment in part A is not recorded, by what amount will net income be over or understated at December 31, 2012?
E)
What adjusting journal entry is necessary at December 31, 2013?
F)
How much will be reported on the balance sheet at December 31, 2013, for prepaid insurance?
G)
How much will be reported on the income statement for the year ended December 31, 2013, for insurance expense?
Wages Payable
7,200
91. Fashion Consultants purchased office supplies for its showroom during the month of May for $7,200. The
supplies were paid for during May. On May 1, the Supplies account had a balance of $800. On May 31, supplies
on hand amounted to $500.
A)
What adjusting journal entry is necessary at May 31st?
B)
How much will be reported on the balance sheet at May 31 for Supplies?
C)
How much will be reported on the income statement for the month of May for supplies expense?
D)
If the adjustment in part A is not recorded, by what amount will net income be over or understated at May 31?
Prepaid Insurance
3,000
$21,000
Prepaid Insurance
12,000
92. Zybo Incorporated operates a window washing business. The following amounts were taken from the
company’s unadjusted trial balance at December 31, 2012:
Prepaid rent
$ 12,000
Wages expense
145,600
Unearned rent revenue
15,000
Prepare any adjusting entries necessary at December 31, 2012, for each of the transactions that follow.
The rent collected in advance represents rent for the period of December 1, 2012, through January 31, 2013.
Rent Revenue
7,500
Wages Payable
4,400
93. What is the matching principle? How does it relate to the revenue recognition process?
Supplies
7,500
94. What are adjusting entries and what is their purpose?
95. What is the significance of the timing in which cash is paid or received as it relates to the adjusting
process?
96. Explain the differences between the cash and the accrual basis of accounting and how the adjusting process
fits in.
97. The ____________________ of accounting is a system in which revenues are recognized when payments
are received and expenses are recognized when payments are made.
98. The difference between accrual-based revenue and accrual-based expenses in the period the activity
occurred is called ____________________.
99. Under the ____________________ basis of accounting, revenues are recognized when earned and expenses
when incurred.
100. ____________________ is the allocation of the cost of a tangible, long-term asset over its useful life to
expense.
101. The names of the four major classifications of adjusting entries are ____________________,
____________________, ____________________, and ____________________.
102. The adjustment necessary to record the expense and the associated increase in the company’s liabilities is
classified as ____________________.
103. ____________________ is the name given to revenue, expense, and dividend accounts because they are
closed at the end of the period.
104. ____________________ are the journal entries made at the end of the accounting period to return the
balance in all temporary accounts to zero.