Exam 3: The Adjusting Process

Healthy Living, a diet magazine, collected $480,000 in subscription revenue on May 31st. Healthy Living earns a minimum of $351,000 from the buyers who are not the subscribers. Each subscriber will receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. By the end of December, what is the amount of Subscription Revenue that has been earned?

Robert Rogers, CPA, performed accounting services for a client in December. A bill was mailed to the client on December 30. Roberts received the client's check by mail on January 5. Which of the following accounts should appear on the income statement for the year ended December 31 as per the revenue recognition principle?

An adjusting entry that credits Salaries Payable is an example of a(n):

Luminous Electrical Repair performed services costing $8,000 on January 24 and invoiced the customer. Luminous received the $8,000 on January 31. Provide the journal entry on January 31 when the cash was received.

The accountant of Hobson Electrical Repair Company failed to make an adjusting entry to record $5,000 of unpaid salaries for the last two weeks of the year. Which of the following statements is true?

The assumption that the financial statements of a business can be prepared for specific periods is made by the:

Healthy Living, a diet magazine, collected $480,000 in subscription revenue on May 31. Healthy Living earns a minimum of $351,000 from the buyers who are not the subscribers. Each subscriber will receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. What is the balance in the Unearned Revenue account on December 31?

The matching principle states that:

Which of the following would result in an increase in income under the accrual method of accounting, but would not result in an increase in income under the cash basis accounting?

A company received $5,000 for 100 one-year subscriptions on July 1. The journal entry to record this cash receipt would include a:

The adjusted trial balance helps to identify:

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

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

A business acquired equipment for $150,000 on January 1, 2015. The equipment will be depreciated over five years of its 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 2015? (Assume the salvage value of the acquired equipment to be zero.)

On March 1, 2014, Nuggets Inc. paid $60,000 for office rent covering the three-month period ending May 31, 2014. Journalize the adjusting entry on March 31 by using the alternative treatment of prepaid expenses.

On January 1, Smith had a beginning balance in Unearned Revenue of $2,000. During January, he earned $1,000 of the unearned revenue. He also collected $6,000 from a new customer for services to be rendered the following month. At the end of January, the Unearned Revenue account had a balance of $6,000.

Patricia Event Planning Service records prepaid expenses and unearned revenues using the alternative treatments. Patricia makes adjusting entries as needed to bring her books to the full accrual basis once a year at the end of the year. On December 15, she collected $1,000 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, she rendered approximately 10% of the services for her customer. The adjusting entry on December 31 will include a debit to Service Revenue for $900.

The entry to record depreciation includes a credit to:

The accounting records of Patricia Event Planning Service include the following select unadjusted balances on December 31, 2014: Salaries Expense, $6,000; Service Revenue: $20,000; Unearned Revenue, $400; Supplies Expense, $600; Rent Expense, $300; Depreciation Expense-Equipment, $200. Later in December, she worked with a new client and provided event planning services for an upcoming event. When the event is complete in January, 2015, she will collect the full amount of $1,200 from her client. As of the end of December, 2015, she rendered one-third of the services covered by the contract. She made the accrual adjustments. The final adjusted balance of Service Revenue, as shown on the adjusted trial balance, should be a:

Under cash basis accounting, an expense is recorded only when cash is paid.