ࡱ> =?:;<%` \HbjbjNN 46,,\@xxxxxxxؒؒؒؒlDDooo$nhֳ`%xRooRR%xx:RxxR:k,xx 0WtTؒp CP0R6^66xPo"ooo%%oooRRRR$ d4s4sxxxxxx Exam 1 Review Which amount is least likely to appear in an adjusting journal entry? Cash Interest Receivable Income tax Expense Salaries Payable On December 31, an adjustment is made to reduce unearned revenue and report (earned) revenue. How many accounts will be included in this adjusting entry? None One Two Three An adjusting journal entry to recognize accrued salaries payable would cause which of the following? A decrease in assets and stockholders equity A decrease in assets and liabilities An increase in expenses, liabilities, and stockholders equity An increase in expenses and liabilities and a decrease in stockholders equity Assume the balance in Prepaid Insurance is $2,500 but it should be $1,500. The adjusting journal entry should include which of the following? Debit to Prepaid Insurance for $1,000 Credit to insurance expense for $1,000 Debit to Insurance expense for $1,000 Debit to insurance expense for $1,500 Assume a company receives a bill for $10,000 for advertising done during the current year. If this bill is not yet recorded at the end of the year, what will the adjusting journal entry include? Debit to Advertising expense of $10,000 Credit to advertising expense of $10,000 Debit to accrued liabilities of $10,000 Need more information to determine Northwest Airlines provided flights this month for customer who paid cash last month for tickets. Revenue has been earned, asset has been used up Revenue has been earned, liability has been fulfilled Expense has been incurred, liability has been fulfilled Expense has been incurred, asset has been acquired Abercrombie received telephone bill for services this month, which must be paid next month. Expense has been incurred, liability has been incurred Expense has been incurred, asset has been used up Revenue has been earned, liability has been incurred Revenue has been earned, asset has been acquired GSD+M completed work on an advertising campaign that will be collected next month. Revenue has been earned, asset has been used up Expense has been incurred, liability as been fulfilled Revenue has been earned, asset has been acquired Revenue has been earned, liability has been fulfilled Which of the following is true? FASB creates SEC GAAP creates FASB SEC creates CPA FASB creates GAAP As a rule accounting rules are called? FASB SEC GAAP CPA Contributed Capital is An asset reported on the balance sheet Revenue reported on the income statement Stockholders equity reported on the balance sheet Liability reported on the balance sheet What is the government agency that supervises the work of the FASB and PCAOB? SEC GAAP CPA SOX Buying and selling productive resources with long lives is a(n) Operating activity Investing activity Financing activity Selling activity A company was recently formed with $60,000 cash contributed to the company by stockholders. The company then borrowed $20,000 from a bank and bought $5,000 supplies on account. The company also purchased $30,000 of equipment by paying $10,000 and issuing a note for the remainder. What is the amount of total assets to be report on the balance sheet? $95,000 $105,000 $110,000 None of the above Which account does not have a normal credit balance? Wages Payable Notes Payable Unearned Revenue Prepaid Insurance At the beginning of June, Florida Flippers paid a total of $6,000 cash for insurance for the months of June, July, and August. What amount of expense should be recognized at the end of June? $6000 $4000 $2000 None In June, Florida Flippers paid $4,000 in wages to employees who worked in June. What amount of expense should be recognized at the end of June? $2000 $4000 $0 $1000 Which of the following accounts is least likely to be debited when revenue is recorded? Accounts Payable Accounts Receivable Cash Unearned Revenue During 2006, PacSun, incurred expenses of $250,000. $50,000 was paid in cash and the balance will be paid Jan 2007. In addition PacSun signed a $50,000 note payable on December 31 to be paid in Feb 2007. What would be the effect on the accounting equation? Decrease in assets $50,000, increase in liabilities $250,000 and decrease in SE $250,000 No effect on assets; increase liabilities $250,000, decrease SE $250,000 Decrease assets $100,000; increase liabilities $250,000; decrease equity $250,000 Increase assets $100,000; increase liabilities $250,000; decrease equity $150,000 At the end of the accounting period Dec 31, 2009 PacSun had $3000 wages expense which had not been paid or recorded. Therefore, the 09 adjusting entry should be $3,000 decrease to an expense account and decrease to a liability account $3,000 increase to an expense account and decrease to an asset account $3,000 increase to a liability account and increase to an expense account $1000 increase to a liability account and decrease to an asset account The asset account has a beginning balance of $10,000 and PacSun purchased a new truck for $26,000. If the ending balance of assets was $31,000 much of the truck did they pay in cash? $10,000 $5,000 $26,000 $36,000 Which group of accounts contains only those that normally have debit balance? Retained earnings, cost of sales, wages expense Prepaid expenses, wages payable, and contributed capital Cash, utilities expense, accounts receivable Utilities expense, unearned revenue, prepaid expenses Which of the following transactions would cause retained earnings to increase? Collection of a customers account Loan from a bank Sale of service to a customer Wage costs owed to employees Expenses are defined as Increases in net assets as a result of ongoing operations Increases in net assets as a result of peripheral transactions Decreases in net assets as a result of ongoing operations Decreases in net assets as a result of peripheral transactions The assumption that the long life of a company can be reported in shorter time periods is Unit of Measure principle Continuity assumption Separate-entity assumption Time period assumption Failure to make an adjusting entry to recognize wages expense would cause An understatement of liabilities, and overstatement of net income and stockholders equity An overstatement of liabilities and stockholders equity and an understatement of net income No effect on assets, liabilities, net income, or stockholders equity An overstatement of liabilities, net income, and stockholders equity None of the above Which of the following is not a liability Accounts payable Retained earnings Notes payable Unearned revenue Company A bought $200 worth of supplies on account. The effect on the fundamental accounting model was Assets and stockholders equity each increased by $200 Assets increased by $200, and Liabilities decreased by $200 Assets and Liabilities both increased by $200 No effect Company B received $100,000 cash invested by its owners. The effect on the accounting equation would be Assets and liabilities each increased by $100,000 Assets and revenues each increased by $100,000 Stockholders Equity and revenues each increased by $100,000 Stockholders Equity and assets each increase by $100,000 Which of the following groups has primary responsibility for information contained in the financial statements? The companys auditors The companys investors The SEC The companys management One of the disadvantages of a corporation when compared to a partnership is that The stockholders have limited liability The stockholders are treated as separate legal entity from the corporation The corporation and its stockholders are subject to double taxation The corporation must account for the businesss transactions separate and apart from those of the owners. On November 1, 2006 PacSun paid $6000 for a two-year insurance policy on the building. The accounting period ends December 31. At the end of 2006, the financial statements should report Prepaid insurance $6,000, Insurance Expense, $0 Prepaid Insurance $0, Insurance Expense $6000 Prepaid Insurance $21, Insurance Expense $5979 Prepaid Insurance $5500, Insurance Expense $500 An example of an investing transaction would be Purchasing equipment for cash Buying inventory from a supplier on credit Selling stock to investors for cash All of the above Revenue is always recognized when Expenses are paid Cash is collected It is earned The end of the period arrives Accumulated Depreciation is a(n) Liability Asset Contra-asset Revenue Analyzing and Recording Adjusting Journal Entries 36. Brokeback Towing Company is at the end of its accounting year, December 31, 2008. The following data that must be considered were developed from the companys records and related documents: On July 1, 2008 a three year insurance premium on equipment in the amount of $600 was paid and debited in full to Prepaid Insurance on that date. Coverage began on July 1 At the end of 2008, the unadjusted balance in the Office Supplies account was $1000. A physical count of supplies on December 31, 2008 indicated supplies costing $300 were still on hand. On December 31, 2008, YYs Garage completed repairs on one of Brokebacks trucks at a cost of $800. The amount is not yet recorded. It will be paid during January 2009. In December the 2008 property tax bill for $1600 was received from the city. The taxes, which have not been recorded, will be paid on February 15, 2009. On December 31, 2008 the company completed a contract for an out-of-state company for $7,900 payable by the customer within 30 days. No cash has been collected and no journal entry has been made for this transaction. On July 1, 2008 the company purchased a new hauling van. Depreciation for July-December 2008, estimated to total $2,750 has not been recorded. As of December 31, the company owes interest of $500 on a bank loan taken out on October 1, 2008. The interest will be paid when the loan is repaid on September 30, 2009. No interest has been recorded yet. Indicate the financial statement effects (amount and direction) of each adjusting entry. Use + for increase, - for decrease, and NE for no effect. Provide an appropriate account name for any revenue and expense effects. (In would be a good idea to write out the adjusting entries first on the back of the sheet) TransactionAssetsLiabilitiesStockholders Equitya.( 100NEInsurance expense (+E) ( 100b.c.d.e. f. g. h.  PA4-2 Req. 1 Assets=Liabilities+Stockholders Equitya.Prepaid insurance(100=Insurance expense (+E)(100 b.Supplies(700=Supplies expense (+E)(700c.=Accrued liabilities+800Repairs and maintenance expense (+E)(800d.=Property tax payable+1,600Property tax expense (+E)(1,600e.Accounts receivable+7,900=Service revenue (+R)+7,900f.Accumulated depreciation (+xA)(2,750=Depreciation expense (+E)(2,750g.=Interest payable+500Interest expense (+E)(500 Req. 2 a.dr. Insurance expense (+E, (SE) 100 cr. Prepaid insurance ((A) 100$600 36 months x 6 months of coverage. This entry reduces the asset (prepaid insurance) because part of it has been used and only $500 represents future benefits (an asset) to the company. b.dr. Supplies expense (+E, (SE) 700 cr. Supplies ((A) 700The supplies account is decreased (credited) to record the use of supplies during the year because this expense was incurred in 2008, calculated as Unadjusted balance of $1,000 Ending balance of $300.c.dr. Repairs and maintenance expense (+E, (SE) 800 cr. Accrued liabilities (+L) 800Repairs and maintenance expense is increased (debited) because this expense was incurred in 2008. A liability (accrued liabilities) is credited because this amount is owed but will not be paid until 2009. PA4-2 (continued) d.dr. Property tax expense (+E, (SE) 1,600 cr. Property tax payable (+L) 1,600Property tax expense is increased (debited) because this expense was incurred in 2008. A liability (property tax payable) is credited because this amount is owed but will not be paid until 2009.e.dr. Accounts receivable (+A) 7,900 cr. Service revenue (+R, +SE)  7,900This entry records an asset for the amount due from customers and recognizes the revenue because it was earned in 2008.f.dr. Depreciation expense (+E, (SE) 2,750 cr. Accumulated depreciation (+xA, (A) 2,750To record depreciation on van for six months (amount is given).g.dr. Interest expense (+E, (SE) 500 cr. Interest payable (+L) 500 Fuglys annual accounting year ends on June 30. It is June 30, 2008, and all of the 2008 entries except the following adjusting journal entries have been made: The company earned service revenue of $2000 on a special job that was completed June 29, 2008. Collection will be made during July 2008; no entry has been recorded On March 31, 2008, Fugly paid a six-month premium for property insurance in the amount of $3,200 for coverage starting on that date. Cash was credited and prepaid insurance was debited for this amount. At June 30, 2008 wages of $900 were earned by employees but not yet paid. The employees will be paid on the next payroll date, which is July 15, 2008 On June 1, 2008, Fugly collected two months maintenance revenue of $450. At that date, Fugly debited Cash and credited unearned maintenance revenue for $450. Depreciation of $1500 must be recognized on a service truck purchased on July 1, 2007 Cash of $4,200 was collected on May 1, 2008, for services to be rendered evenly over the next year beginning on May 1. Unearned service revenue was credited when the cash was received The company owes interest of $600 on a bank land taken out on February 1, 2008. The interest will be paid when the loan is repaid on January 31, 2009. Indicate the financial statement effects (amount and direction) of each adjusting entry. Use + for increase, - for decrease, and NE for no effect. Provide an appropriate account name for any revenue and expense effects. (In would be a good idea to write out the adjusting entries first on the back of the sheet) TransactionAssetsLiabilitiesStockholders Equitya. b. c. d.e.f.g.PB4-2 Req. 1 Assets=Liabilities+Stockholders Equitya.Accounts receivable+2,000=Service revenue (+R)+2,000 b.Prepaid insurance(1,600=Insurance expense (+E)(1,600c.=Wages payable+900Wages expense (+E)(900d.=Unearned maintenance revenue(225Maintenance revenue (+R)+225e.Accumulated depreciation (+xA)(1,500=Depreciation expense (+E)(1,500f.=Unearned service revenue(700Service revenue (+R)+700g.=Interest payable+600Interest expense (+E)(600Req. 2 a.dr. Accounts receivable (+A) 2,000 cr. Service revenue (+R, +SE) 2,000This entry records an asset for the amount due from customers and recognizes revenue because it was earned during the fiscal year.b.dr. Insurance expense (+E, (SE) 1,600 cr. Prepaid insurance ((A) 1,600$3,200 6 months x 3 months of coverage. This entry reduces the asset (prepaid insurance) because part of it has been used and the remaining $1,600 represents future benefits (an asset) to the company.c.dr. Wages expense (+E, (SE) 900 cr. Wages payable (+L) 900Wage expense is increased (debited) because this expense was incurred. A liability (wages payable) is credited because this amount is owed to the employees.d.dr. Unearned maintenance revenue ((L) 225 cr. Maintenance revenue (+R, +SE) 225$450 2 months x 1 month. This entry reduces (debits) the liability for the amount earned and records the revenue.e.dr. Depreciation expense (+E, (SE) 1,500 cr. Accumulated depreciation (+xA, (A) 1,500To record depreciation for the truck for the year (amount is given).PB4-2 (continued) f.dr. Unearned service revenue ((L) 700 cr. Service revenue (+R, +SE) 700To recognize revenue earned during the year, $4,200 12 months x 2 months.g.dr. Interest expense (+E, (SE) 600 cr. Interest payable (+L) 600To accrue interest expense incurred but not paid.h.dr. Income tax expense (+E, (SE) 9,000 cr. 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