Exam 4: Accrual Accounting Concepts

The difference between unearned revenue and accrued revenue is that accrued revenue has been recorded and needs adjusting and unearned revenue has never been recorded.

Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause:

An adjusting entry to a prepaid expense is required to recognize expired expenses.

The policy at Adler Corporation is to expense all office supplies at the time of purchase. On the last day of the accounting period, there are $1,100 of unused office supplies on hand and the balance of supplies expense is $3,500. What should the accountant do?

State whether each situation is a prepaid expense (PE), unearned revenue (UR), accrued revenue (AR) or an accrued expense (AE). 1. Unrecorded interest on savings bonds is $245. 2. Property taxes that have been incurred but that have not yet been paid or recorded amount to $300. 3. Legal fees of $1,000 were collected in advance. By year end 60 percent were still unearned. 4. Prepaid insurance had a $500 balance prior to adjustment. By year end, 40 percent was still unexpired. 5. Unpaid salaries earned by year end but not yet paid or recorded amounted to $1,200.

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 Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause:

Unearned revenue is classified as a(n):

Karcan, Inc. purchased supplies costing ₤2,500 on January 1, 2014 and recorded the transaction by increasing assets. At the end of the year ₤1,100 of the supplies are still on hand. If Karcan, Inc. does not make the appropriate adjusting entry, what is the impact on its statement of financial position at December 31, 2014?

In the accounting cycle, closing entries are prepared before adjusting entries.

An architecture firm earned $2,000 for architecture services provided with the fee to be paid in the future. No entry was made at the time the service was provided. If the fee has not been paid by the end of the accounting period and no adjusting entry is made, this would cause:

Otto's Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized?

A liability-revenue relationship exists with:

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

The following accounts show balances on the adjusted trial balance. Which of these account balances will not appear the same on the balance sheet?

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

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be:

A review of the ledger of Wilde Co. at December 31, 2014, produces the following data pertaining to the preparation of annual adjusting entries: (a) Salaries and Wages Payable $0: Salaries are paid every Friday for the current week. Five employees receive a weekly salary of $800, and three employees earn a weekly salary of $700. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December. (b) Unearned Rent Revenue $58,000: The company had several lease contracts during the year as shown below: (c) Notes Receivable $90,000: This is a 6-month note, dated November 1, 2014, with a 6% interest rate. Instructions: Prepare the adjusting entries at December 31, 2014. Show all computations.

The following is selected information from L Corporation for the fiscal year ending October 31, 2014. Based on the accrual basis of accounting, what is L Corporation's net income for the year ending October 31, 2014?

The trial balance for Greenway Corporation appears as follows: If as of December 31, 2014, rent of $120 for December had not been recorded or paid, the adjusting entry would include a:

James & Younger Corporation purchased a one-year insurance policy in January 2013 for $48,000. The insurance policy is in effect from March 2013 through February 2014. If the company neglects to make the proper year-end adjustment for the expired insurance: