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Exam 3: The Adjusting Process

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Question 21

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Classify the following items as: 1) prepaid expense, 2) unearned revenue, 3) accrued expense, or 4) accrued revenue. a) fees received but not yet earned b) fees earned but not yet received c) paid premium on a one-year insurance policy d) property tax owed to be paid beginning of next year

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a) 2) unearned reven...

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Question 22

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If the adjustment for depreciation for the year is inadvertently omitted, the assets on the balance sheet at the end of the period will be understated.

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B) False

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Question 23

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Generally accepted accounting principles require that companies use the of accounting.

For the year ending December 31, Orion, Inc. mistakenly omitted adjusting entries for $1,500 of supplies that were used, 2) unearned revenue of $4,200 that was earned, and 3) insurance of $5,000 that expired. For the year ending December 31, what is the effect of these errors on revenues, expenses, and net income?

Using accrual accounting, expenses are recorded and reported only

Prepaid rent, representing rent for the next six months' occupancy, would be reported on the tenant's balance sheet as an)

If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account, which of the following describes the effect of the credit portion of the entry?

Identify the effect a-h) that omitting each of the following items would have on the balance sheet. -Depreciation on equipment was not recorded.

Generally accepted accounting principles require accrual-basis accounting.

Complete the missing items in the Summary of Adjustments chart:

Fees payable would appear on the balance sheet as an)

Using accrual accounting, revenue is recorded and reported only

An adjusting entry would adjust revenue so it is reported when earned and not when cash is received.

Record journal entries for the following transactions. a) On December 1, $18,000 was received for a service contract to be performed from December 1 through April 30. b) Assuming the work is performed evenly throughout the contract period, prepare the adjusting journal entry on December 31.

Adjustments for accruals are needed to record a revenue that has been earned or an expense that has been incurred but not recorded.

For each of the following errors, considered individually, indicate whether the error would cause the adjusted trial balance totals to be unequal. If the error would cause the adjusted trial balance total to be unequal, indicate whether the debit or credit total is higher and by how much. a) The adjustment for unearned fees of $3,260 was journalized as a debit to Accounts Payable for $3,260 and a credit to Fees Earned of $3,260. b) The adjustment for supplies expense of $425 was journalized as a debit to Supplies Expense for $542 and a credit to Supplies for $425.

An example of deferred revenue is Unearned Rent.

The adjusted trial balance verifies that total debits equals total credits before the adjusting entries are prepared.

At January 31, the end of the first month of the year, the usual adjusting entry transferring expired insurance to an expense account is omitted. Which items will be incorrectly stated, because of the error, on a) the income statement for January and b) the balance sheet as of January 31? Also indicate whether the items in error will be overstated or understated.

How will the following adjusting journal entry affect the accounting equation? $\begin{array} { | c | r | r | } \hline \text { Unearned Subscriptions } & 11,500 & \\\hline \text { Subscriptions Earned } & & 11,500 \\\hline\end{array}$