Exam 3: Adjusting the Accounts

In a service-type business, revenue is considered earned

Cara, Inc. purchased a building on January 1, 2014 for ₤ 800,000. The useful life of the building is 10 years. The asset is reported on the December 31, 2014 statement of financial position at ₤ 720,000. What was the impact of the adjusting entry recorded by Cara, Inc.?

Trench and Fog Garment Company purchased equipment on June 1 for $108,000, paying $24,000 cash and signing a 6%, 2-month note for the remaining balance. The equipment is expected to depreciate $24,000 each year. Trench and Fog Garment Company prepares monthly financial statements. Instructions (a) Prepare the general journal entry to record the acquisition of the equipment on June 1st. (b) Prepare any adjusting journal entries that should be made on June 30th. (c) Show how the equipment will be reflected on Trench and Fog Garment Company's statement of financial position on June 30th.

Ramona's Music School borrowed $30,000 from the bank signing a 6%, 6-month note on November 1. Principal and interest are payable to the bank on May 1. If the company prepares monthly financial statements, what adjusting entry should the company make at November 30 with regard to the note (round answer to the nearest dollar)?

Pen & Stamp is a manufacturing company that specializes in writing instruments. The past year was a difficult one for the company, as it sought to retain its share in a market in which the largest competitors were also rapid innovators. Pen & Stamp introduced a new product late in the year, even though testing was not complete. It was a pen designed with two cartridges: one supplying ink and the other correction fluid. A person could then switch easily between writing and correcting errors. It was priced fairly high, and was never heavily advertised. Even so, the Correct-O-Pen, as the product was named, was an overwhelming success. The success of the product has Fran Henley, the manager of the New Products division, worried, however. She was concerned that quality problems would begin occurring, since the longevity of the pen and stability of the correction fluid formulation had not been tested. She did not want sales personnel to get the bonuses that appeared to be indicated, since they might aggressively promote a product that would fail in use. She preferred to complete testing of the pen first, so that more confidence could be placed in the results. Top management, however, declined the tests. Ms. Henley then instructed you, the accountant, not to prorate payroll taxes or rent expense for the rest of the year, but to show them as current expenses in total. In this way, the new product would appear to be only slightly profitable. Required: 1. Describe the alternatives that you as an accountant would have in this situation. 2. Indicate which alternative is best.

Mike Conway is a lawyer who requires that his clients pay him in advance of legal services rendered. Mike routinely credits Service Revenue when his clients pay him in advance. In June Mike collected $16,000 in advance fees and completed 75% of the work related to these fees. What adjusting entry is required by Mike's firm at the end of June?

In general, adjusting entries are required each time financial statements are prepared.

Information that is presented in a clear fashion, so that reasonably informed users of that information can interpret it is an example of

The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset.

Action Real Estate received a check for $24,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $24,000. Financial statements will be prepared on July 31. Action Real Estate should make the following adjusting entry on July 31:

An accounting period that is one year in length is referred to as a ______________ year.

Accrued revenues are

The revenue recognition principle dictates that revenue should be recognized in the accounting records

On January 1, Bit & Bridle, CPAs received an $18,000 cash retainer for services to be rendered ratably over the next 3 months. The full amount was credited to the liability account Unearned Revenue. Assuming that the revenue is earned equally over the 3-month period, what adjusting journal entry should be made at January 31?

Each of the following statements is justified by a fundamental quality or an enhancing quality of useful information. Write the letter in the blank next to each statement corresponding to the quality involved.

The revenue recognition principle dictates that revenue be recognized in the accounting period

Characteristics associated with relevant accounting information are

Management usually desires ________ financial statements and the taxing authorities require all businesses to file _________ tax returns.

223. Sail & Surf Cruises purchased a five-year insurance policy for its ships on April 1, 2014 for $80,000. Assuming that April 1 is the effective date of the policy, the adjusting entry on December 31, 2014 is

At March 1, Progressive Auto Inc. reported a balance in Supplies of $200. During March, the company purchased supplies for $750 and consumed supplies of $600. If no adjusting entry is made for supplies