Exam 3: Adjusting the Accounts

Mother Hips Garment Company purchased equipment on June 1 for $90,000, paying $20,000 cash and signing a 9%, 2-month note for the remaining balance. The equipment is expected to depreciate $18,000 each year. Mother Hips 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 Mother Hips Garment Company's balance sheet on June 30th.

The expense recognition principle attempts to match ______________ with ______________.

An adjusting entry recording accrued salaries for a period indicates that Salaries Expense has been ________________ but has not yet been ________________ or recorded.

Management usually desires ________ financial statements and the IRS requires all businesses to file _________ tax returns.

New Slang Pest Control has the following balances in selected accounts on December 31, 2017. Accounts Receivable \ 0 Accumulated Depreciation - Equipment 0 Equipment 6,650 Interest Payable 0 Notes Payable 20,000 Prepaid Insurance 2,220 Salaries and Wages Payable 0 Supplies 2,940 Unearned Service Revenue 30,000 All of the accounts have normal balances. The information below has been gathered at December 31, 2018. 1. Depreciation on the equipment for 2018 is $1,300. 2. New Slang Pest Control borrowed $20,000 by signing a 10%, one-year note on July 1, 2018. 3. New Slang Pest Control paid $2,220 for 12 months of insurance coverage on October 1, 2018. 4. New Slang Pest Control pays its employees total salaries of $11,000 every Monday for the preceding 5-day week (Monday-Friday). On Monday, December 27, 2018, employees were paid for the week ending December 24, 2018. All employees worked the five days ending December 31, 2018. 5. New Slang Pest Control performed disinfecting services for a client in December 2018. The client will be billed $3,200. 6. On December 1, 2018, New Slang Pest Control collected $30,000 for disinfecting processes to be performed from December 1, 2018, through May 31, 2018. 7. A count of supplies on December 31, 2018, indicates that supplies of $850 are on hand. Instructions Prepare in journal form with explanations, the adjusting entries for the seven items listed for New Slang Pest Control.

For each of the following oversights, state whether total assets will be understated (U), overstated (O), or no affect (NA). _____ 1. Failure to record revenue recognized but not yet received. _____ 2. Failure to record expired prepaid rent. _____ 3. Failure to record accrued interest on the bank savings account. _____ 4. Failure to record depreciation. _____ 5. Failure to record accrued wages. _____ 6. Failure to record the recognized portion of unearned revenues.

Prepare adjusting entries for the following transactions. Omit explanations. 1. Depreciation on equipment is $900 for the accounting period. 2. There was no beginning balance of supplies and purchased $500 of supplies during the period. At the end of the period $150 of supplies were on hand. 3. Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $400 was unexpired.

Live Wire Hot Rod Shop follows the revenue recognition principle. Live Wire services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Live Wire on August 5. Live Wire receives the check in the mail on August 6. When should Live Wire show that the revenue was recognized?

An expense is recorded under the cash basis only when

Which of the following is in accordance with generally accepted accounting principles?

The balance in the Prepaid Rent account before adjustment at the end of the year is $21,000, which represents three months' rent paid on December 1. The adjusting entry required on December 31 is to

Pavement Company purchased a truck from Bee Thousand Corp. by issuing a 6-month, 8% note payable for $90,000 on November 1. On December 31, the accrued expense adjusting entry is a. No entry is required. b. Interest Expense 7,200 Interest Payable 7,200 c. Interest Expense 3,600 Interest Payable 3,600 d. Interest Expense 1,200 Interest Payable 1,200

Revenue recognition fraud is

The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same.

The time period assumption is used under

Accounting time periods that are one year in length are referred to as interim periods.

As prepaid expenses expire with the passage of time, the correct adjusting entry will be a

Under accrual-basis accounting

Scotsman Company prepares monthly financial statements. Below are listed some selected accounts and their balances in the September 30 trial balance before any adjustments have been made for the month of September. (Note: Debit column does not equal credit column because this is a partial listing of selected account balances) An analysis of the account balances by the company's accountant provided the following additional information: 1. A physical count of supplies revealed $1,000 on hand on September 30. 2. A two-year life insurance policy was purchased on June 1 for $4,800. 3. Equipment depreciated $3,000 per year. 4. The amount of rent received in advance that remains unearned at September 30 is $500. Instructions Using the above additional information, prepare the adjusting entries that should be made by Scotsman Company on September 30.

On December 31, 2018, Fashion Nugget Company prepared an income statement and balance sheet and failed to take into account three adjusting entries. The incorrect income statement showed net income of $35,000. The balance sheet showed total assets, $115,000; total liabilities, $45,000; and stockholders' equity, $70,000. The data for the three adjusting entries were: (1) Depreciation of $10,000 was not recorded on equipment. (2) Wages amounting to $7,000 for the last two days in December were not paid and not recorded. The next payroll will be in January. (3) Rent of $12,000 was paid for two months in advance on December 1. The entire amount was debited to Rent Expense when paid. Instructions Complete the following tabulation to correct the financial statement amounts shown (indicate deductions with parentheses):