Exam 3: The Adjusting Process

The liability created when a business collects cash from its customers before completing a service or delivering a product is called ________.

An expense that has been incurred but not yet paid is called a(n) ________.

Unearned revenue is recorded when ________.

During the accounting period, office supplies were purchased on account for $3,900. A physical count, on the last day of the accounting period, shows $1,600 of office supplies on hand. Supplies Expense for the accounting period is $3,100. What was the beginning balance of Office Supplies?

Sierra Event Planning Services records deferred expenses and deferred revenues using alternative treatments. It makes adjusting entries as needed to bring its books to the full accrual basis once a year at the end of the year. On December 15, it collected $4,000 from a customer in advance for a series of events that will start late December and end in March. At the end of the year, it had performed approximately 10% of the services for its customer. The adjusting entry on December 31 will include a debit to Service Revenue for $3,600.

Which of the following statements is true of accrual basis accounting?

The accountant of Zeus Legal Services failed to make an adjusting entry for supplies that had been used for the year. Assume the supplies were initially recorded as an asset. Which of the following statements is true?

The adjusted trial balance shows ________.

Wentlent Services Company records deferred expenses as expenses when payment is made in advance and deferred revenues as revenues when the payment is received in advance. At the end of the year, Wentlent Services Company makes the necessary adjustments based on accrual basis accounting. On July 1, it paid rent for an office in the amount of $24,000 for the period July 1 through June 30 of the following year. Provide the year-end adjusting entry for rent prepayment.

Which of the following accounts would be used under the accrual basis of accounting, but not under cash basis accounting?

The depreciation method that allocates an equal amount of depreciation each year is called the straight-line method.

An adjusting entry is completed ________.

On September 1, 2016, Joy Company paid $6,000 in advance for an eight-month rental space covering the period of September, 2016 through April 2017. The deferred expense was initially recorded as an asset. Joy Company makes adjusting entries once a year at year-end. The adjusting entry on December 31, 2016 would include a ________.

The accounting records of Marcus Service Company include the following selected, unadjusted balances at June 30: Accounts Receivable, $2,700; Office Supplies, $1,800; Prepaid Rent, $3,600; Equipment, $15,000; Accumulated Depreciation - Equipment, $1,800; Salaries Payable, $0; Unearned Revenue, $2,400; Office Supplies Expense, $2,800; Rent Expense, $0; Salaries Expense, $15,000; Service Revenue, $40,500. The following data developed for adjusting entries are as follows: a. Service revenue accrued, $1,400 b. Unearned Revenue that has been earned, $800 c. Office Supplies on hand, $700 d. Salaries owed to employees, $1,800 e. One month of prepaid rent has expired, $1,200 f. Depreciation on equipment, $1,500 Journalize the adjusting entries. Omit explanations.

Under cash basis accounting, revenue is recorded when it is earned, regardless of when cash is received.

In the case of deferred revenue, the adjusting entry at the end of the period includes a credit to Service Revenue. Assume the deferred revenue is initially recorded as a liability.

Williams Enterprises prepaid six months of office rent totaling $9,000 on October 1, 2017. Assuming Williams records deferred expenses using the alternative treatment, what would be the entry on October 1, 2017?

Accrued revenue represents the receipt of cash before the revenue has been earned.

The revenue recognition principle guides accountants in ________.

A business purchased equipment for $120,000 on January 1, 2017. The equipment will be depreciated over the five years of its estimated useful life using the straight-line depreciation method. The business records depreciation once a year on December 31. Which of the following is the adjusting entry required to record depreciation on equipment for the year 2017? (Assume the residual value of the acquired equipment to be zero.)