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Assignment 5 Solution

The document contains multiple choice questions testing accounting concepts related to adjusting entries. Specifically, it addresses common accounting periods for businesses, the revenue recognition principle, calculating depreciation expense over the useful life of an asset, accrued expenses and revenues, prepaid expenses, and interest calculations for notes payable.

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Bracu 2023
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176 views

Assignment 5 Solution

The document contains multiple choice questions testing accounting concepts related to adjusting entries. Specifically, it addresses common accounting periods for businesses, the revenue recognition principle, calculating depreciation expense over the useful life of an asset, accrued expenses and revenues, prepaid expenses, and interest calculations for notes payable.

Uploaded by

Bracu 2023
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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MCQ:

Which of the following is not a common time period chosen by businesses as their accounting
period?
a. Daily
b. Monthly
c. Quarterly
d. Annually

The revenue recognition principle dictates that revenue should be recognized in the accounting
records
a. when cash is received.
b. when it is earned.
c. at the end of the month.
d. in the period that income taxes are paid.

A company spends $10 million dollars for an office building. Over what period should the cost be
written off?
a. When the $10 million is expended in cash
b. All in the first year
c. Over the useful life of the building
d. After $10 million in revenue is earned

Expenses sometimes make their contribution to revenue in a different period than when the
expense is paid. When wages are incurred in one period and paid in the next period, this often
leads to which account appearing on the balance sheet at the end of the time period?
a. Due from Employees b. Due to Employer
c. Wages Payable d. Wages Expense

A law firm received $2,000 cash for legal services to be rendered in the future. The full amount
was credited to the liability account Unearned Legal Fees. If the legal services have been
rendered at the end of the accounting period and no adjusting entry is made, this would cause
a. expenses to be overstated. b. net income to be overstated.
c. liabilities to be understated. d. revenues to be understated.

Quirk Company purchased office supplies costing $3,000 and debited Office Supplies for the full
amount. At the end of the accounting period, a physical count of office supplies revealed $1,200
still on hand. The appropriate adjusting journal entry to be made at the end of the period would
be
a. Debit Office Supplies Expense, $1,200; Credit Office Supplies, $1,200.
b. Debit Office Supplies, $1,800; Credit Office Supplies Expense, $1,800.
c. Debit Office Supplies Expense, $1,800; Credit Office Supplies, $1,800.
d. Debit Office Supplies, $1,200; Credit Office Supplies Expense, $1,200.

Nance Realty Company received a check for $15,000 on July 1 which represents a 6 month
advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full
$15,000. Financial statements will be prepared on July 31. Nance Realty should make the
following adjusting entry on July 31:
a. Debit Unearned Rent, $2,500; Credit Rental Revenue, $2,500.
b. Debit Rental Revenue, $2,500; Credit Unearned Rent, $2,500.
c. Debit Unearned Rent, $15,000; Credit Rental Revenue, $15,000.
d. Debit Cash, $15,000; Credit Rental Revenue, $15,000.
If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect will this
have on that month's financial statements?
a. Failure to make an adjustment does not affect the financial statements.
b. Expenses will be overstated and net income and owner's equity will be
understated.
c. Assets will be overstated and net income and owner's equity will be understated.
d. Assets will be overstated and net income and owner's equity will be overstated.

White Laundry Company purchased $7,500 worth of laundry supplies on June 2 and recorded the
purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $2,000 on
hand. The adjusting entry that should be made by the company on June 30 is
a. Debit Laundry Supplies Expense, $2,000; Credit Laundry Supplies, $2,000.
b. Debit Laundry Supplies Expense, $5,500; Credit Laundry Supplies, $2,000.
c. Debit Laundry Supplies, $5,500; Credit Laundry Supplies Expense, $5,500.
d. Debit Laundry Supplies Expense, $5,500; Credit Laundry Supplies, $5,500.

Kim Roberts has performed $500 of CPA services for a client but has not billed the client as of
the end of the accounting period. What adjusting entry must Kim make?
a. Debit Cash and credit Unearned Revenue
b. Debit Accounts Receivable and credit Unearned Revenue
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Unearned Revenue and credit Service Revenue

Kim Roberts, CPA, has billed her clients for services performed. She subsequently receives
payments from her clients. What entry will she make upon receipt of the payments?
a. Debit Unearned Revenue and credit Service Revenue
b. Debit Cash and credit Accounts Receivable
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Cash and credit Service Revenue

Clark Real Estate signed a four-month note payable in the amount of $10,000 on September 1.
The note requires interest at an annual rate of 12%. The amount of interest to be accrued at the
end of September is
a. $400. b. $100. c. $1,200. d. $300.
EXERCISES
Ex#1

Emeril Corporation encounters the following situations:


1. Emeril collects $1,000 from a customer in 2010 for services to be performed in 2011.
2. Emeril incurs utility expense which is not yet paid in cash or recorded.
3. Emeril’s employees worked 3 days in 2010, but will not be paid until 2011.
4. Emeril earned service revenue but has not yet received cash or recorded the transaction.
5. Emeril paid $2,000 rent on December 1 for the 4 months starting December 1.
6. Emeril received cash for future services and recorded a liability until the revenue was earned.
7. Emeril performed consulting services for a client in December 2010. On December 31, it billed
the client $1,200.
8. Emeril paid cash for an expense and recorded an asset until the item was used up.
9. Emeril purchased $900 of supplies in 2010; at year-end, $400 of supplies remain unused.
10. Emeril purchased equipment on January 1, 2010; the equipment will be used for 5 years.
11. Emeril borrowed $10,000 on October 1, 2010, signing an 8% one-year note payable.
Instructions
Identify what type of adjusting entry (prepaid expense, unearned revenue, accrued expense,
accrued revenue) is needed in each situation, at December 31, 2010.

Solution

1. No adjustment required. Because the unearned revenue will be


earned in 2011.
2. Accrued expense.
3. Accrued expense.
4. Accrued revenue.
5. Prepaid expense.
6. Unearned revenue.
7. It will be recorded in general journal. Because source document has
created on 31 Dec.
8. Prepaid expense.
9. Prepaid expense.
10. Prepaid expense.
11. Accrued expense.
Ex. 2
Match the statements below with the appropriate terms by entering the appropriate letter code in
the spaces provided.
TERMS:
A. Prepaid Expenses
B. Unearned Revenues
C. Accrued Revenues
D. Accrued Expenses
STATEMENTS:
1. A revenue not yet earned; collected in advance.
2. Office supplies on hand that will be used in the next period.
3. Interest revenue collected; not yet earned.
4. Rent not yet collected; already earned.
5. An expense incurred; not yet paid or recorded.
6. A revenue earned; not yet collected or recorded.
7. An expense not yet incurred; paid in advance.
8. Interest expense incurred; not yet paid.

Solution
1. B 5. D
2. A 6. C
3. B 7. A
4. C 8. D

Ex. 3

Solution:

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