Accounting Chapter 3

On November 1, Rosebriar Apartments received $3,600 from a tenant for four month’s rent. The receipt was credited to Unearned Rent Revenue. What adjusting entry
Unearned rent revenue 1,800
Rent Revenue 1,800
Adjusted balance of Kittery National Company
Equipment…….. 90,000
Accumulated depreciation, equipment .. 12,000
Depreciation expense, equipment… 3,000

The book value of the equipment is:

78,000
Sullivan Inc, purchased supplies for 1,500 during 2012. At the year end, Sullivan had $400 of supplies left. The adjusting entry should
a. debit Supplies expense 1,100
b. credit supplies 400
c. debit supplies 400
d. debit supplies 1,100
a. debit supplies expense $1,100
The accountant for Zero corp. failed to make the adjusting entry to record depreciation for the current year. The effect of this error
assets, net income, and stockholders’ equity are all overstated
Interest earned on a note receivable at December 31 equals 225. What adjusting entry is required to accrue this interest?
Interest receivable 225
Interest revenue 225
If a real estate company fails to accrue commission revenue,
assets are understated, and net income is understated
cash basis
adjusting entries are not required for a business
The account Unearned Revenue is a
liability
Adjusting entries
are needed to measure the period’s net income or net loss, do not debit or credit cash, update the accounts
An adjusting entry that debits an expense and credits a liability is which type?
accrued expense
Current Ratio
total current assets/ total current liabilities
debt ratio
total liabilities/ total assets
net working capital
total current assets – total current liabilities
Total assets (of which 30% are current) 7,000
current liabilities 700
bonds payable (long-term) 1,300
retained earnings 3,800
total liabilities and stockholders equity 7,000

Current ratio at the end of the year?

3.0
Total assets (of which 30% are current) 7,000
current liabilities 700
bonds payable (long-term) 1,300
retained earnings 3,800
total liabilities and stockholders equity 7,000

Debt Ratio?

29%
On a trial balance, which of the following would indicate that an error has been made?
a. service revenue has a debit balance
b. accumulated depreciation has a credit balance
c. salary expense has a debit balance
d. all of the above
a. service revenue has a debit balance
The entry to close Management Fee Revenue would be which of the following?
Management Fee Revenue
Retained Earnings
Which of the following accounts is not closed?
accumulated depreciation
Fed Ex earns service revenue of 750,000 how does this transaction affect FedEx ratio
Improves both ratios
Suppose Red Hill Corporation borrows 10 million on a 10 year note payable. How does this transaction affect the Red Hills current ratio and debt ratio?
improves the current ratio and hurts the debt ratio
Under accrual accounting, revenue is recorded:
when the services are performed, regardless of when the cash is received
Under accrual accounting, the impact of a business transaction is recorded:
as it occurs
GAAP
requires accrual accounting
An expense incurred in 2011 is not paid until 2012. Using the accrual basis of accounting, the expense should appear on:
the 2011 income statement
If a real estate company fails to accrue commission revenue
assets are understated and net income us understated
why is accrual better
the accrual basis measure of net income is preferable because it accounts for revenues and expenses when they occur, not when they are received or paid in cash.
On December 15, 2012 a company received an order from a customer for services to be performed on December 28,2012. Due to a backlog of orders, the company does not perform the services until January 3, 2012. The customer pays for the services on January 6, 2013. The revenue principle requires the revenue to be recorded by the company on:
January 3,2013
The event that triggers revenue recognition for the sale of goods is the :
transfer of control of the goods to the purchaser
Which of the following is a true statement regarding expenses?
The expense recognition principle is also called the matching principle
The expense recognition principle includes two steps:
identify all the expenses incurred during the accounting period and measure the expenses and match them against the revenue earned
On November 1, Phillips Tool and Die Company paid six months insurance in advance totaling 9,000. An adjusted trial balance prepared on December 31 would include a balance in the Prepaid Insurance account of
6,000
The Unearned Rent account has a 6,000 credit balance in the unadjusted trial balance. There is a 1,000 debit adjustment to unearned rent. The adjusted trial balance will show Unearned Rent as a
5,000 credit balance
___ will be increased when a company receives cash before performing the services
Unearned sales revenue
A liability that arises from an expense that has not yet been paid is an
a. unearned expense
b. prepaid expense
c. accrued expense
d. accrued expense
c. accrued expense
Adjusting entries:
a. close the expense accounts
b. adjust unearned revenue
c. close the revenue accounts
d. adjust cash
b. adjust unearned revenue
close revenue account
service revenue
retained earnings
close expense account
retained earnings
expense(s)
close dividends
retained earnings
dividends
All of the following accounts will be closed except for
a. dividends
b. cash
c. utilities expense
d. service revenue
b. cash
only close accounts on the income statement since its new every month
To close the books of a company, you should:
debit each revenue account, credit each expense account, and credit the dividends account
net working capital
total current assets- total current liabilities
Which of the following transaction would be recorded under accrual accounting but NOT under cash basis accounting?
a. collecting cash from customers
b. borrowing money from the bank
c. purchasing of inventory on account
d. issuing stock of cash
e. none of the above
c. purchasing of inventory on account
Revenue previously recorded as unearned has now been earned:
net income overstated or understated?
Net income understated
Revenue has been earned but not yet billed:
net income overstated or understated?
net income understated
wages have been earned by the employees but have not yet been paid:
net income overstated or understated?
net income is overstated
Prepaid supplied have now been used:
net income overstated or understated?
Net income is overstated
Prepaid Insurance has expired:
net income overstated or understated?
Net income is overstated
Interest earned on a note receivable has not been recorded since it has not yet been received:
net income overstated or understated?
Net income is understated
Adjusting entries are:
prepaid at the end of the accounting period to update certain accounts
A company ___ will be increased when a company receives cash before performing the services
a. prepaid rent
b. accumulated depreciation
c. unearned sales revenue
d. accrued sales
e. none of the above
c. unearned sales revenue
The Houston Robot basketball team receives 5,000 for season tickets on august 1 by December 31, they have earned of the revenue. The adjusting entry to be made on December 31 by the Houston Robots includes a:
debit to Unearned Revenue of 2,000
A company started the year with $850 of supplies. During the year, the company purchased an additional $1,300 of supplies. There were $400 of supplies on hand at the end of the year. An adjusting entry prepared at the end of the accounting period includes a:
a. debit to supplies for 1750
b. debit to supplies for 1300
c. debit to supplies expense for 1750
d. debut to supplies expense for 1300
e. none of the above
c. debit to supplies expense for 1750