75) Enoch, Inc. began operations on July 1, 2011. On August 1, it received $12,000 in advance
for services to be performed evenly over the next 12 months. How much of this revenue should
the company report on its income statement for the MONTH ended August 31, 2011?
A) $12,000
B) $1,000
C) $11,000
D) $5,000
76) Enoch, Inc. began operations on July 1, 2011. On August 1, it received $12,000 in advance
for services to be performed evenly over the next 12 months. How much unearned revenue
should the company report on its balance sheet at August 31, 2011?
A) $12,000
B) $1,000
C) $11,000
D) $5,000
77) Enoch, Inc. began operations on July 1, 2011. On August 1, it received $12,000 in advance
for services to be performed evenly over the next 12 months. How much of this revenue should
the company report on its income statement for the YEAR ended December 31, 2011?
A) $12,000
B) $1,000
C) $11,000
D) $5,000
78) Enoch, Inc. began operations on July 1, 2011. On August 1, it received $12,000 in advance
for services to be performed evenly over the next 12 months. How much unearned revenue
should the company report on its balance sheet at December 31, 2011?
A) $12,000
B) $1,000
C) $7,000
D) $5,000
79) Avatar, Inc. began operations on July 1, 2011. On August 1, it received $24,000 in advance
for services to be performed evenly over the next 12 months. How much of this revenue should
the company report on its income statement for the year ended December 31, 2012?
A) $0
B) $2,000
C) $14,000
D) $10,000
80) On January 1, 2011, We Haul, Inc. bought a $48,000 truck, which has no residual value and
an expected life of 6 years. How much depreciation expense should the company report for the
year ended December 31, 2011?
A) $8,000
B) $16,000
C) $24,000
D) $40,000
81) On January 1, 2011, We Haul, Inc. bought a $48,000 truck, which has no residual value and
an expected life of 6 years. How much depreciation expense should the company report for the
year ended December 31, 2012?
A) $8,000
B) $16,000
C) $24,000
D) $40,000
82) On January 1, 2011, We Haul, Inc. bought a $48,000 truck, which has no residual value and
an expected life of 6 years. How much accumulated depreciation should the company report at
December 31, 2012?
A) $8,000
B) $16,000
C) $24,000
D) $40,000
83) On January 1, 2010, We Haul, Inc. bought a $48,000 truck, which has no residual value and
an expected life of 6 years. How much accumulated depreciation should the company report at
December 31, 2012?
A) $8,000
B) $16,000
C) $24,000
D) $40,000
84) On January 1, 2010, We Haul, Inc. bought a $48,000 truck, which has no residual value and
an expected life of 6 years. What is the book value of the truck at December 31, 2010?
A) $48,000
B) $8,000
C) $24,000
D) $40,000
85) On January 1, 2010, We Haul, Inc. bought a $48,000 truck, which has no residual value and
an expected life of 6 years. What is the book value of the truck at December 31, 2011?
A) $48,000
B) $16,000
C) $32,000
D) $40,000
86) On January 1, 2010, We Haul, Inc. bought a $48,000 truck, which has no residual value and
an expected life of 6 years. What is the book value of the truck at December 31, 2012?
A) $48,000
B) $24,000
C) $32,000
D) $40,000
87) The Unearned revenue account represents the cash collected from customers in advance of
performing the service or delivering the goods.
88) Minks Stink, Inc. collected $12,000 in November 2012 from customers in exchange for a 12-
month subscription (starting in November) to its monthly magazine Minks Stink. The company
should report $12,000 of revenue on its income statement for the year ended December 31, 2012.
89) If a one-year insurance policy is purchased, an asset should be recorded.
90) The entry to record the purchase of a truck is to increase Truck expense and decrease Cash.
91) Depreciating an asset means recognizing the cost of the asset as an expense over more than
one accounting period.
92) Sure Safe, Inc. had prepaid insurance of $1,600 on January 1, 2011 from a 12-month
insurance policy purchased on March 1, 2010 for $9,600. On March 1, 2011, the company
bought more insurance coverage by paying $10,800 for a new one-year policy. The company’s
year ends on December 31, 2011 and all adjustments for the whole year are made on that date.
What amount should appear on the December 31, 2011 balance sheet as prepaid insurance? What
amount of insurance expense should be reported on the income statement for the year ended
December 31, 2011?
93) What is book or carrying value?
94) What is depreciation?
95) Explain the matching principle.
96) Toys for Boys, Inc. had prepaid insurance of $7,200 on January 1, 2011. This amount relates
to a 12-month insurance policy purchased on July 1, 2010 for $14,400. On July 1, 2011, Toys for
Boys purchased more insurance coverage by paying $9,000 for a new one-year policy. The
company’s year ends on December 31, 2011 and all adjustments for the whole year are made on
that date so that financial statements can be prepared. What amount should appear on the
December 31, 2011 balance sheet as prepaid insurance? What amount should be reported on the
year ended December 31, 2011 income statement as insurance expense?
97) Identify the effects of each of the following items on the accounting equation. Show the
correct dollar amount. Account titles are not required. The first entry has been done for you.
a. Prepaid rent used up, $400
b. Only $500 remains unearned of the $3,500 recognized as unearned revenue at the beginning
of the period
c. Of the $700 in office supplies on hand at the beginning of the period, only $100 remained at
the end of the period
d. Interest accrued but unpaid on a note payable amounts to $120
e. Depreciation of the long-term assets amounts to $12,000
f. Wages and salaries earned by employees but unpaid amount to $10,000
Item
Assets
Liabilities
Shareholders’ equity
Contributed
capital
Retained earnings
a.
(400)
(400)
b.
c.
d.
e.
f.
Item
Assets
Liabilities
Shareholders’ equity
a.
(400)
(400)
b.
c.
(600)
(600)
d.
(120)
e.
f.
98) Identify the effects of each of the following items on the accounting equation. Show the
correct dollar amount and write in the name of the account involved. The first entry has been
done for you.
a. Supplies used up during the period, $100
b. Prepaid rent used up during the period, $320
c. Interest accrued on a note payable but unpaid, $250
d. Depreciation on long-term assets, $6,000
e. The portion of unearned revenue that has been earned, $1,400
f. A $12,000, 12-month insurance policy was purchased 3 months ago. An end of the year
adjustment must be made
Assets
Liabilities
Shareholders’ equity
CC
Retained earnings
a.
(100) Supplies
(100) Supplies expense
b.
c.
d.
e.
f.
CC
Retained earnings
a.
(100) Supplies
(100) Supplies expense
depreciation
99) For each event, determine the amount of revenue to be recorded, even if $0, in May.
May
1.
In May, Tom contributed $8,000 in exchange for stock in
Tom’s Wear, Inc.
2.
In April, Tom’s Wear, Inc.’s customer ordered $1,000 of t-
shirts. In May, Tom’s Wear delivered the t-shirts and
received the cash upon delivery.
3.
In April, Tom’s Wear, Inc.’s customer ordered $2,000 of t-
shirts. Tom’s Wear delivered the t-shirts in May and
received $2,000 in June.
4.
In April, Tom’s Wear received $3,000 cash in advance for
t-shirts. $2,500 of the t-shirts were delivered on May 1. The
remaining $500 of t-shirts were delivered on June l.
100) For each event, determine the amount of expense to be recorded, even if $0, in May.
May
1.
In June, Tom’s Wear, Inc. received a $400 utility bill for
services provided in May. The bill was paid in June.
2.
In April, Tom’s Wear, Inc. paid $1,000 for an
advertisement that was run in May.
3.
In April, Tom’s Wear, Inc. paid a $100 dividend to its
owner, Tom.
4.
On April 1, Tom’s Wear, Inc. had no supplies. On April 30,
it purchased $500 of supplies on account. In May, $100 of
the supplies was used, and it paid the $500 owed for
supplies. In June, the remainder of the supplies was used.
5.
On April 30, Tom’s Wear, Inc. hired an employee for $500
per month to begin in May. The employee is paid on June 1
for the work performed in May.
6.
In April, Tom’s Wear, Inc. purchased $500 of t-shirts. The
t-shirts were sold in May and paid for in June.
101) Match the following terms with the appropriate definitions below. Definitions have not
been provided for all of these terms.
a. Cost
b. Residual value
c. Useful life
d. Depreciation
e. Accrued revenue
f. Accrued expense
g. Long-term asset
______ 1. The estimated length of time that a long-term asset is expected to benefit the company
that owns it
______ 2. The estimated amount a long-term asset will be worth at the end of its estimated useful
life
______ 3. An asset that is expected to be useful or beneficial for more than one accounting
period
______ 4. An allocation of a long-term asset’s cost to an expense account over the periods of
time when the asset is used
______ 5. The amount sacrificed in order to purchase an asset
Learning Objective 3-4
1) Which financial statement shows Revenues?
A) income statement
B) statement of changes in shareholders’ equity
C) statement of cash flows
D) balance sheet
2) Which financial statement shows Cash collected from customers?
A) income statement
B) statement of changes in shareholders’ equity
C) statement of cash flows
D) balance sheet
3) On January 1, Needem, Inc. borrows $10,000 and agrees to repay the loan plus 8% interest in
two years. If the proper adjustment is not made at the end of the first year, what will be wrong
with the financial statements?
A) Nothing will be wrong with the financial statements.
B) Cash will be overstated on the balance sheet.
C) Expenses will be overstated on the income statement.
D) Liabilities will be understated on the balance sheet.
4) Which financial statement shows accumulated depreciation?
A) income statement
B) balance sheet
C) statement of cash flows
D) statement of changes in shareholders’ equity
5) The bookkeeper of Dew Drop Inn forgets to record the adjusting entry for salaries earned but
not yet paid. As a result of this mistake ________.
A) total liabilities are too high
B) net income is too high
C) net income is too low
D) shareholders’ equity is too low
6) Miss Happ of Ace Electronics forgot to make the adjusting entry for depreciation on the
company’s equipment. As a result of this mistake ________.
A) total liabilities are too low
B) net income is too high
C) net income is too low
D) shareholders’ equity is too low
7) Miss Happ of Ace Electronics forgot to make the adjusting entry for supplies used during the
accounting period. As a result of this mistake ________.
A) total liabilities are too low
B) net income is too high
C) net income is too low
D) shareholders’ equity is too low
8) Miss Happ of Ace Electronics forgot to make the adjusting entry for prepaid insurance that
expired during the accounting period. As a result of this mistake ________.
A) total liabilities are too low
B) net income is too high
C) net income is too low
D) shareholders’ equity is too low
9) Which of the following accounts typically needs to be adjusted?
A) Cash
B) Land
C) Unearned revenue
D) Common stock
10) Adjustments are usually made ________.
A) in the accounting period during which deferrals are discovered
B) at the end of the accounting period after the financial statements are prepared
C) in the accounting period when accruals get too large
D) at the end of the accounting period before financial statements are prepared
11) Which financial statement shows Interest expense?
A) income statement
B) statement of changes in shareholders’ equity
C) statement of cash flows
D) balance sheet
12) Which financial statement shows Interest payable?
A) income statement
B) statement of changes in shareholders’ equity
C) statement of cash flows
D) balance sheet
13) Which financial statement shows Cash paid for interest?
A) income statement
B) statement of changes in shareholders’ equity
C) statement of cash flows
D) balance sheet
14) Which of the following statements best explains why adjustments need to be made at the end
of every accounting period?
A) Accountants like to do lots of unnecessary extra work.
B) Certain accounts may need to be updated at the end of the period because of the presence of
accruals and deferrals.
C) To correct errors made during the period.
D) Cash may be missing at the end of the period.
15) Adjusting entries are usually recorded at the beginning of every accounting period.
16) The purpose of adjusting entries is to update the account balances at the end of the period.
17) Adjusting entries always affect at least one balance sheet and one income statement account.
18) Adjusting entries cause changes in the balance sheet and statement of cash flows.
19) If supplies have been consumed during the period, but not adjusted at the end of the period,
expenses will be understated.
20) If supplies have been consumed during the period, but not adjusted at the end of the period,
cash will be understated.
21) Generally accepted accounting principles require the use of accrual accounting.
22) Cash flows from operating activities include cash received from customers for selling goods.
23) If an adjustment related to employee salaries has been made, you would expect to see the
Salaries payable account on the income statement.
24) If you see Salaries expense on the income statement, you know that an adjustment related to
accrual of employee salaries has been made.
25) Recording revenue before it is earned will overstate net income.
26) Assume Sundry, Inc. used cash to purchase $8,000 of supplies during the current year and
had $500 of the supplies left over unused at the end of the accounting period. How would this
information be reported on the financial statements of Sundry, Inc.?
The statement of cash flows:
The income statement:
The balance sheet:
27) Assume XYZ Co. used cash to purchase $500 of supplies during the current year and had
$200 of the supplies left over unused at the end of the accounting period. In the space provided
below, describe how this information would be reported on the financial statements of XYZ Co:
The statement of cash flows:
The income statement:
The balance sheet:
28) Where should a user of accounting information look to evaluate the operating performance of
an entity?
29) On October 1, 2011, Sammy Sosa Company borrowed $80,000 cash on an 8-month, 12 %
note payable. Interest on the note will be paid when the principal is repaid. On October 1, 2011,
the company used the cash to buy $80,000 of equipment. The equipment has a 5-year estimated
useful life and zero residual value. Use the space provided below to describe how these
transactions will be reported on the company’s financial statements for the year ended December
31, 2011.
The statement of cash flows:
The income statement:
The balance sheet:
30) Show the effects of each of the following items on assets, liabilities, and shareholders’
equity. Show the appropriate dollar amount using parentheses for negative amounts. Account
titles are not required. The first transaction has been done for you.
a. Earned $8,000 in sales revenues in the last week of the month but haven’t billed (invoiced) or
collected from the customers yet
b. Prepaid rent used up, $2,000
c. Of the $600 in office supplies on hand at the beginning of the period, only $50 remains on
hand at the end of the period.
d. Interest accumulated but unpaid on a note payable amounts to $300
e. Depreciation of the long-term assets amounts to $1,200
f. Wages and salaries earned by employees but unpaid amount to $5,000
Item
Assets
Liabilities
Shareholders’ equity
Contributed
capital
Retained earnings
Ex: a
+ 8,000
+ 8,000
b.
c.
d.
e.
f.
Item
Assets
Liabilities
Shareholders’ equity
Ex: a
+ 8,000
+ 8,000
b.
(2,000)
c.
d.
e.
(1,200)
f.
+ 5,000
31) Identify the effects of each of the following items of information on the accounting equation.
Show the correct dollar amount and name the accounts involved. The first transaction has been
done for you.
a. Supplies used up during the period, $56
b. Prepaid rent used up during the period, $120
c. Interest accrued on a note payable but unpaid, $203
d. Depreciation on long-term assets, $4,000
e. The portion of unearned revenue that has been earned, $1,000
f. A $12,000, 12-month insurance policy was purchased 7 months ago
Assets
Liabilities
Shareholders’ equity
CC
Retained earnings
a.
(56) Supplies
(56) Supplies expense
b.
c.
d.
e.
f.
Assets
CC
Retained earnings
a.
(56) Supplies
(56) Supplies expense
c.
32) Identify the effects of each transaction on the accounting equation by showing the correct
dollar amount and naming the accounts involved. The first transaction has been done for you.
Transaction Assets Liabilities Shareholders’ equity
Contributed
capital
Retained
earnings
a. The unadjusted balance of
supplies is $500. A count of
supplies reveals $100 unused as of
the end of the period.
(400)
Supplies
(400)
Supplies
expense
b. A 12-month insurance policy was
purchased 3 months ago for $16,000.
c. On the first day of the year, a
$150,000 long-term asset expected
to have a 5-year useful life was
purchased. The asset has an
estimated residual value of $10,000.
d. Sixty percent of the $50,000 in
unearned revenue is now earned.
e. Eight months ago the company
borrowed $90,000 from the bank and
agreed to pay 10% annual interest.
Interest and principal are not due
until the third month of next year.
b.
(4,000) Prepaid
c.
(28,000) Depreciation expense
e.
33) Data from the accounting system of Quiche and Tell, Inc. are provided below. All amounts
are before the current year’s adjustments are made. All adjustments are made at yearend.
Quiche and Tell, Inc.
Balance Sheet
December 31, 2011
Assets
Liabilities and shareholders’ equity
Cash
$350,000
Accounts payable
$15,000
Inventory
500,000
Salaries payable
50,000
Supplies
20,000
Notes payable
35,000
Prepaid rent
30,000
Contributed capital
1,000,000
Equipment
500,000
Retained earnings
200,000
Accumulated depreciation
(100,000)
Total liabilities and
Total Assets
1,300,000
shareholders’ equity
$1,300,000
Required:
Prepare the balance sheet after year-end adjustments given the following additional information.
a. A count of supplies reveals $4,000 on hand at the end of the year.
b. One-third of the prepaid rent was used up during the year.
c. One-fifth of the equipment is depreciated each year.
d. $40,000 of work for customers has been completed, but not yet billed or collected.
e. Salaries of $20,000 have been earned by employees but not yet paid.
f. The notes payable are for amounts borrowed on January 1 of this year at 12% interest.
34) On May 1, 2009 Canseco Oil Drilling Company paid $4,500,000 for a 3-year insurance
Answer: Quiche and Tell, Inc.
Assets
Liabilities and shareholders’ equity
Cash
$15,000
Accounts receivable
40,000
70,000
Inventory
35,000
Supplies
4,000
Prepaid rent
20,000
1,000,000
Equipment
Accum. depreciation
Total Assets
$1,214,000