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Adjusting Entry Identification Chapter 4

Which of the following would not be considered an adjusting entry?

  1. Debit insurance expense, credit prepaid insurance
  2. Debit unearned revenue, credit revenue
  3. Debit accounts payable, credit cash
  4. Debit accounts receivable, credit service revenue

Closing Journal Accounts Chapter 4

Which account would not appear in a closing journal entry?

  1. Depreciation expense
  2. Cost of Goods Sold
  3. Rent receivable
  4. Dividends
  5. Service revenue

Revenue Journal Entry Chapter 4

Which account is least likely to be debited when revenue is earned?

  1. Unearned revenue
  2. Cash
  3. Accounts Receivable
  4. Accounts Payable

Revenue Recognition Chapter 4

On December 15, Year 1, a company receives an order from a customer for services to be performed on December 28, Year 1. Due to a backlog of orders, the company does not the perform the services until January 3, Year 2. The company sends a bill to the customer on January 4, Year 2 and the customer pays for the services on January 10, Year 2. When should revenue be recorded by the company, assuming the accrual method of accounting?

  1. Dec. 15, Year 1
  2. Dec. 28, Year 1
  3. Jan. 3, Year 2
  4. Jan. 4, Year 2
  5. Jan. 10, Year 2

Adjusting Entry - Salaries Payable Chapter 4

Salaries payable at the end of the period was $500. Salary expense for the period was $1,100 and $1,400 was paid to employees in cash.

What was salaries payable at the beginning of the period?

800

Adjusting Entry - Wage Expense Chapter 4

A company operates five days per week with a daily payroll of $6,000. Employees are paid every Friday. The last day of the accounting period is Thursday, October 31. What is the amount of Wage Expense to be recorded on the next payday, Friday, November 1?

  1. $0
  2. $30,000
  3. $24,000
  4. $12,000
  5. $6,000

Closing Process Chapter 4

After the closing process is complete, which of the following is false?

  1. All accounts with a non-zero balance will be shown on the balance sheet.
  2. The net income or net loss and the dividends for the period have been transferred to the retained earnings account
  3. All temporary accounts have a zero balance
  4. None of the above are false

Prepaid Rent Chapter 4

A company’s prepaid rent account showing the beginning and ending balances for Year 1 is shown below:
Prepaid Rent
6500
       
7100
The Year 1 income statement reported $8,000 in rent expense. How much cash was paid for rent in Year 1?
  1. $7,400
  2. $5,600
  3. $7,100
  4. $8,600
  5. None of the above

Revenue Recognition Chapter 4

An advertising agency receives a $10,000 cash deposit from a client on February 15th for an advertising campaign which will begin in March. Which of the following statements is true for the agency (which uses accrual accounting)?

  1. A liability will be reported on the balance sheet at the end of February
  2. A prepaid asset will be reported on the balance sheet at the end of February
  3. Revenue will be recorded and reported on the income statement for February
  4. Cash from operations will be reported on the statement of cash flows in March
  5. All of the above are true

Adjusting Journal Entries Chapter 4

Unadjusted Trial Balance
December 31, Year 1
Debits Credits
Cash 33,900
Accounts Receivable 18,700
Supplies 1,800
Prepaid advertising 900
Equipment 15,000
Accounts Payable 1,200
Unearned Service Revenue 3,000
Common stock 24,000
Retained Earnings 11,200
Service Revenue 76,000
Salaries Expense 41,000
Rent expense 3,600
Utilities 500
115,400 115,400
Additional Information:
  1. Of the balance in the unearned service revenue accounts, $400 had not been earned by year end.
  2. On 12/1/Y1, the company rented office space for $1,200 per month for three months and paid the entire $3,600 in cash.
  3. On December 1, Year 1, the company paid $900 for six months of advertising.
  4. A count of supplies on December 31, Year 1 showed $200 of supplies still on hand.
  5. The equipment was purchased on Jan. 1, Year 1. The useful life is estimated to be 10 years. Straight-line depreciation is used and no salvage value is expected.
  6. As of 12/31/Y1, salaries of $800 had been earned by employees but still not be paid until 1/1/Y2.

A. Record the necessary adjusting journal entries.
B. Determine net income after adjustments.
Journal Entry 1
Unearned Revenue 2,600
Revenue 2,600
Journal Entry 2
Prepaid Rent 2,400
Rent Expense 2,400
Journal Entry 3
Advertising Expense 150
Prepaid Advertising 150
Journal Entry 4
Supplies Expense 1,600
Supplies 1,600
Journal Entry 5
Depreciation Expense 1,500
Accumulated Depreciation 1,500
Journal Entry 6
Salary Expense 800
Salary Payable 800

Net Income is 31,850

Adjusting Journal Entries Chapter 4

Unadjusted Trial Balance
December 31
Debits Credits
Cash 7,100
Accounts Receivable 6,200
Supplies 1,200
Accounts Payable 1,500
Notes Payable 6,000
Unearned Revenue 400
Common Stock 2,600
Retained Earnings 1,900
Dividends 600
Revenues 10,200
Salaries Expense 5,100
Rent expense 2,400
22,600 22,600

Additional Information:

  1. Supplies used during the year totaled $750.
  2. Of the balance in the Unearned Revenue account, 60% had been completed.
  3. Accrued salaries at December 31 were $900
  4. On December 1, the company prepaid $2,400 for 4 months of rent. This transaction was recorded with a debit to Rent Expense
  5. The note is a 6-month, 4% loan obtained from the bank on November 1.

Required:

  1. Prepare all necessary adjusting entries as of December 31. (There are 5 of them.)
  2. Determine Net Income for the year ending December 31.
Journal Entry 7
Supplies Expense 750
Supplies 750
Journal Entry 8
Unearned Revenue 240
Revenue 240
Journal Entry 9
Salary Expense 900
Salary Payable 900
Journal Entry 10
Prepaid Rent 1,800
Rent Expense 1,800
Journal Entry 11
Interest Expense 40
Interest Payable 40

Net Income is 3,050

The Effect of Transactions Chapter 4

For each transaction listed, determine the effect on the February financial statements. Indicate + for increase, or – for decrease. Leave the cell blank if there is no effect.

Balance Sheet Income Statement
Transaction Assets Liabilities SHE Revenue Expenses Net Income
1 Paid wages earned in January — —
2 Prepaid rent expired — — + —
3 Performed service which customer had paid for in January — + + +
4 Collected on credit sales made in Jan.
5 Depreciation on equipment was recorded — — + —
6 Hired a new manager and signed a contract to pay her $60,000 per year.
7 Dividends were declared an immediately paid — —
8 Purchased shares of another company’s stock for cash
9 Performed a service for a customer, collected three fourths in cash and balance on account. + + + +
10 Purchased a patent, paying cash
11 Incurred expenses, paid four-fifths in cash and put the balance on account — + — + —

When You Forget to do Adjusting Entries Chapter 4

For each of the following independent situations, determine the effect of ignoring the required 12/31 year-end adjusting entry. Would assets, liabilities, and equity be understated (U) or overstated (O) if the entry is not made? If there would be no effect, leave the cell blank.

Assets Liability Equity
Cash was received on Dec. 1 when a 2-year lease was signed. Rent revenue was credited on that date. — +
Interest is incurred but not yet paid on a long-term note payable — +
Equipment with a 5-year life has been used 1 year — +
One-half of a prepaid insurance policy has expired + +

Year End Closing & Account Classification Chapter 4

The following accounts reflect the correct Year 1 year-end balances after adjustment but before closing.


Accumulated depreciation 225 Accounts payable 52
Accounts receivable 280 Cash 76
Common stock 100 Cost of goods sold 420
Depreciation expense 60 Dividends 20
Equipment 600 Interest expense 4
Inventory 90 Note payable, due 8/1/Y4 63
Prepaid rent 10 Rent expense 40
Retained earnings, 1/1/Y1 400 Salary expense 125
Sales revenue 855 Unearned revenue 30
  1. Determine total assets
  2. Determine total liabilities
  3. What are retained earnings on the Dec. 31, Year 1 balance sheet?
  4. Prepare the correct entry to close the Income Summary accounts.
1. Total assets - 831
2. Total liabilities - 145
3. What are retained earnings on the Dec. 31, Year 1 balance sheet? - 586

4. Closing the Income Summary Accounts:

Step 1: Close revenue and expenses to Income Summary

Income Summary
Depreciation Expense 60
855 Sales Revenue
COGS 420
Interest Expense 4
Rent 40
Salary Expense 125
206 Net Income

Step 2: Close Income Summary and Dividends to RE

Retained Earnings
400 Opening Balance
206 Income Summary
Dividends 20
586 Ending Balance