Exam 3: The Adjusting Process

A business purchased equipment for $150,000 on January 1, 2019. 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 the equipment for the year 2019? (Assume the residual value of the acquired equipment to be zero.)

If a company is using accrual basis accounting, when should it record revenue?

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.

On January 1, Unearned Revenue of Commercial Plumbing Services, Inc. had a beginning balance of $1,800. During January, the company earned $500 of the deferred revenue. The company also collected $5,000 from a new customer for services to be performed the following month. At the end of January, the Unearned Revenue account should have a balance of $5,000.

Mercury, Inc. sells tickets in advance for its weekly productions and records the proceeds as Unearned Revenue. At the end of each month, the company makes an adjusting entry to account for the tickets used during the month (ticket revenue.) On March 1, the Unearned Revenue account had a credit balance of $2,000. During March, Mercury sold 300 tickets at $20 each, and 250 tickets were used during the month. What is the balance in Unearned Revenue at the end of March?

The accountant for Main Street Jewelry Repair Services, Inc. forgot to make an adjusting entry for Depreciation Expense for the current year. Which of the following is an effect of this error?

The adjusted trial balance is prepared after the adjustments have been journalized and posted.

Williams Enterprises prepaid eight months of office rent totaling $9,000 on October 1, 2019. Assuming Williams records deferred expenses using the alternative treatment, what would be the entry on October 1, 2019?

The accountant for Diamond Jewelry Repair Services, Inc. forgot to make an adjusting entry for Depreciation Expense for the current year. Which of the following is an effect of this error?

On March 1, 2018, LeClaire, Inc. paid $60,000 for office rent covering the three-month period ending May 31, 2018. Journalize the adjusting entry on March 31 by using the alternative treatment of deferred expenses. Omit explanation.

Watson Tax Planning Service has the following plant assets: Communications Equipment: Cost, $6,880 with useful life of eight years; Furniture: Cost, $22,800 with useful life of 12 years; and Computer: Cost, $13,600 with useful life of four years. (Assume residual value of all the assets is zero.) Watson's monthly depreciation expense calculated using the straight-line method is ________. (Round any intermediate calculations to two decimal places, and your final answer to the nearest cent.)

If net income is overstated, equity will be understated.

There is a natural link between some expenses and revenues.

Laramie, Inc. signed a contract with a service provider for security services at a rate of $310 per month for the period of January through June. Laramie, Inc. will pay the service provider the entire amount at the end of June. Laramie, Inc. makes adjusting entries each month. During the month of June, it should record total security expense of $620.

What type of account is Prepaid Rent, and what is its normal balance?

Sail Away, a cruise industry magazine, collected $480,000 in subscription revenue in May. 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 basis of accounting. Prepare the adjusting entry needed on June 30. (Ignore explanation). Assume the magazine initially records a liability for the subscription revenue.

Dress Designers, Inc. has entered into a contract to design 50 new dresses for a customer. It will collect a total of $42,000 after the design services are complete. Dress Designers started design work on June 1. As of June 30, it finished 10 of the 50 designs. The company will make an adjusting entry at the end of June to accrue $10,500 of service revenue.

The following extract was taken from the worksheet of Special Events Bakers for the year 2019. For the above information, determine the amount of Depreciation Expense for the equipment used in the business.

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

An accrual adjusting entry records an expense after the cash is paid, or it records revenue before the cash is received.