Exam 3: Measuring Business Income

Joan Miller owns an advertising agency. One of the adjustments her accountant made at the end of July was $360 for unpaid wages of the secretary. Joan Miller might ask, "Why go to the trouble of making this adjustment? Why worry about it? Doesn't everything come out in the end, when the secretary is paid in August? Because wages expense in total is the same for the two months, isn't the net income in total unchanged?" Give three reasons why adjusting entries can help Joan Miller assess the performance of her business. (Net income was $1,600.)

The recording of an expense could result in a corresponding increase in

An adjusted trial balance must be prepared before the adjusting entries can be recorded.

Which of the following accounts is a contra account?

In the space below, state whether each situation is a deferral or an accrual. ______a. Depreciation on machinery is $7,200 for the accounting period. ______b. Interest that has been incurred on a loan but that has not yet been paid or recorded is $675. ______c. Office supplies of $965 were on hand at the beginning of the period. Purchases of office supplies during the period totaled $640. At the end of the period, $120 in office supplies remained. ______d. Commissions amounting to $975 were earned but not yet collected by year end. ______e. Prepaid Rent had a $2,500 balance prior to adjustment. By year end, 50 percent had expired.

Which of the following accounts could increase as a result of adjusting entries?

The going concern assumption helps solve the

In applying the matching rule, revenue recognition should come before the matching (assignment) of expense.

A company's fiscal year need not correspond to the calendar year.

A customer's promise to pay for goods or services

Answer the following questions. (Show your work.) a. A machine was purchased on July 1, 2009. It had a cost of $36,000 and an estimated useful life of nine years with zero value at that time. What is the machine's carrying value after four years? b. On April 1, 2010, a company paid in advance $54,000 for three years' insurance. How much Prepaid Insurance remains on the balance sheet on December 31, 2010? c. A company began the year with $800 in supplies, purchased $2,000 in supplies, and ended the period with $600 in supplies. How much is Supplies Expense for the period? d. A company was paid $1,800 in advance for services to be performed. At year end, one-third had not yet been earned. How much in Service Revenue should be recorded?

Which of the following is not an application of accrual accounting?

A company's five-day weekly payroll of $890 is paid on Fridays. Assume that the last day of the month falls on Wednesday. Which of the following is the required adjusting entry for the month end?

The Store Supplies account had a $360 debit balance at the end of the accounting period before adjustment for supplies used, and an inventory of $80 of unused supplies was on hand. Which of the following is the required adjusting entry?

An adjusting entry can include a debit to a(n)

Wages Payable was $350 at the end of October and $280 at the end of November. Wages Expense for November was $2,000. How much cash was paid for wages during November?

As an asset's depreciation is recorded, its carrying value increases.

Prepare year-end adjusting entries for each of the following situations: a. The Store Supplies account showed a beginning debit balance of $400 and purchases of $2,800. The ending debit balance was $800. b. Depreciation on buildings is estimated to be $7,300. c. A one-year insurance policy was purchased for $2,400. Nine months have passed since the purchase. d. Accrued interest on notes payable amounted to $200. e. The company received a $9,600 advance payment during the year on services to be performed. By the end of the year, one-third of the services had been performed. f. Payroll for the five-day workweek, to be paid on Friday, is $10,000. The last day of the period is a Tuesday. g. Services totaling $920 had been performed but not yet billed or recorded.

When a direct cause-and-effect relationship cannot be established between revenues and costs, the costs are

In the journal provided, prepare year-end adjustments for the following situations. Omit explanations. a. Accrued interest on notes receivable is $105. b. Of the $12,000 received in advance of earning a service, one-third was still unearned by year end. c. Three years' rent, totaling $36,000, was paid in advance at the beginning of the year. d. Services totaling $5,300 had been performed, but not yet billed. e. Depreciation on trucks totaled $3,400 for the year. f. Supplies available for use totaled $690. However, by year end, only $100 in supplies remained. g. Payroll for the five-day work week, to be paid on Friday, is $30,000. Year end falls on a Monday.