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Learning Objective 02-03 Analyze and record transactions using journal entries.
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[The following information applies to the questions displayed below.]
 
After determining the dual effect of external events on the accounting equation, the transaction is recorded in a journal. A journal is a chronological list of transactions in debit/credit form.

 
Which of the following is not a source document?
 
 Sales invoices
 Customer checks
 Newspaper advertisements
Bills from suppliers
   
The payment of utilities for the period would have what effect on the accounting equation?
 
    Assets increase; liabilities increase.
    Assets decrease; owners’ equity decreases.
    Liabilities increase; owners’ equity decreases.
    Liabilities decrease; ownership equity increases.
   
The purchase of supplies on account would be recorded in a journal entry with a:
 
    Debit to Supplies
    Credit to Cash
    Debit to Accounts Payable
    Credit to Supplies
   
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Learning Objective 02-04 Post the effects of journal entries to general ledger accounts and prepare an unadjusted trial balance.
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[The following information applies to the questions displayed below.]
 
The next step in the processing cycle is to periodically transfer, or post,
the debit and credit information from the journal to individual general ledger accounts.
A general ledger is simply a collection of all of the company’s various accounts.
Each account provides a summary of the effects of all events and transactions on that individual account.
The process of entering items from the journal to the general ledger is called posting. An unadjusted trial balance is then prepared.
 
On October 1st, a company received $30,000 in cash and a building worth $200,000, and in return,
issued common stock to an investor. Create the complete journal entry and post to the appropriate T-accounts.
 

 
Post the entry appropriate T-accounts.
 

   
A trial balance can best be explained as a list of:
 
    The balance sheet accounts used to show the equality of the accounting equation.
    All accounts and their balances at a particular date.
    Revenue, expense, and dividend accounts used to show the balances of the components of retained earnings.
    The income statement accounts used to calculate net income.
   
Which of the following statements regarding adjusting entries is correct?
 
    Adjusting entries are recorded for all external transactions.
    Adjusting entries are recorded to make sure all cash inflows and outflows are recorded in the current period.
    After adjusting entries, all temporary accounts should have a balance of zero.
    Adjusting entries are needed because we use accrual-basis accounting.
   
A characteristic of an accrued expense is:
 
    Cash is paid, but an expense is never recorded.
    An expense is recognized, but the cash payment is never paid.
    Cash payment occurs before expense recognition.
    The expense is recognized before the payment of cash.
   
Learning Objective 02-06 Record adjusting journal entries in general journal format, post entries, and prepare
an adjusted trial balance.
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[The following information applies to the questions displayed below.]
 
Adjusting entries are recorded in the general journal and posted to the ledger accounts at the end of any period
when financial statements must be prepared for external use. After these entries are posted to the general ledger
accounts, an adjusted trial balance is prepared.
 
Adjusting entries do not need to be posted to the general ledger.
 
True
False
   
An adjusted trial balance is a:
 
    Trial balance adjusted for cash-basis accounting.
    List of all accounts and their balances after closing entries.
    List of all accounts and their balances before adjusting entries.
    List of all accounts and their balances after adjusting entries.
   
Which statement does not report financial data over a period of time?
 
    Income Statement
    Statement of Stockholders’ Equity
    Balance Sheet
    Statement of Cash Flows
   
Learning Objective 02-08 Explain the closing process.
[The following information applies to the questions displayed below.]
 
At the end of the fiscal year, a final step in the accounting processing cycle, closing, is required.
The closing process serves a dual purpose:
(1) the temporary accounts (revenues, expenses. and dividends) are reduced to zero balances, ready to measure activity in the upcoming accounting period,
and (2) these temporary account balances are closed (transferred) to retained earnings to reflect the changes that have occurred in that account during the period.
After the entries are posted to the general ledger accounts, a post-closing trial balance is prepared.
 
The purpose of closing entries is to transfer:
 
    Cash to the owners of the company
    Assets and liabilities when operations are discontinued.
    Balances in temporary accounts to a permanent account
    Inventory to customers
   
The type of system that integrates the information of departments and functions of a company into a single computer system is called a(n)
 
Electronic Data Processing system.
Accounting Data system.
Enterprise Resource Planning (ERP) system.
   
Which of the following are economic events? (Select all that apply.).
 
A proposal to purchase $1,000 of inventory from supplier.
The payment of employee salaries for the week.
Borrowing $10,000 from the bank.
   
Which of the following steps occurs only at the end of the year?
 
Obtain information about external transactions from source documents.
Record adjusting entries and post to the general ledger accounts.
Close the temporary accounts to retained earnings.
Prepare the financial statements.
   
Which of the following is the correct formula to calculate cost of goods sold?
 
Ending inventory + purchases - beginning inventory
Beginning inventory - purchases + ending inventory
Beginning inventory + purchases - ending inventory
Beginning inventory + ending inventory – purchases
   
Adjusting entries are recorded:
 
when the financial statements are prepared
after closing entries have been prepared
at the beginning of an accounting period
after the financial statements have been prepared  
True or false:
The objective of an Enterprise Resource Planning (ERP) system is to create a customized software program that integrates the
information of departments and functions of a company into a single computer system.
 
True
False
   
One of the purposes of adjusting entries is to
 
record all external transactions at the end of the year.
ensure debits equal credits.
make assets equal liabilities plus owners' equity.
recognize all revenues earned during the period.
   
A(n) ___ event is any event that directly affects the financial position of the company. (Enter one word per blank)
Economic
   
Adjusting journal entries are necessary for three situations: deferrals, accruals, and ___. (Enter only one word.)
Estimates
   
Click and drag on elements in order
Place the steps at the end of the accounting period in the correct order.
 

   
Prepayments occur when:
 
manufactured goods await quality control inspections.
cash flow precedes expense or revenue recognition.
customers are unable to pay the full amount due when goods are delivered.
sales are delayed pending credit approval.
   
Millburg Corp. uses the periodic inventory method. Millburg's beginning inventory is $10,000.
During the year, Millburg purchases $8,000 of inventory. Ending inventory is $5,000. Cost of goods sold is
 
$13,000.
$18,000.
$7,000.
$3,000.
 
Beginning balance $10,000 + $8,000 purchases - $5,000 ending inventory = $13,000 cost of goods sold.
   
Prepaid expenses are:
 
expenses paid at the time incurred.
expensed in a later period than cash was paid.
expenses incurred before cash is paid.
   
Entries made at the end of the accounting period before the financial statements are prepared are called ___ entries. (Enter only one word.)
adjusting  
The contra account used to record depreciation is ___ depreciation. (Enter only one word.)
Accumulated
   
Adjusting entries help a company accurately measure (Select all that apply.)
 
the cash received and paid during the year.
revenues and expenses for the period.
the company's financial performance.
   
The normal balance in a contra asset account is
 
debit
either debit or credit
credit
   
Adjusting journal entries are necessary for three situations: deferrals, ___ , and estimates. (Enter only one word.)
Accruals
   
A deferred revenue liability appears on the balance sheet for.
 
revenue earned before cash is collected.
cash received at the same time revenue is earned.
cash received before revenue is earned.
   
Which of the following are examples of prepayments?
 
Purchasing supplies that will be used later.
Revenue collected when it is earned.
Expense paid when it is incurred.
   
To record an adjusting entry when deferred revenue is recognized:
 
deferred revenue is debited.
revenue is credited.
revenue is debited.
deferred revenue is credited.
   
Prepaid expenses are the cost of ___ acquired in one accounting period and ___ in a future period. (Enter one word per blank.)
Assets
Expensed  
Accruals involve transactions where the cash outflow or inflow takes place in a period ______ expense or revenue recognition.
 
before
after
the same as
   
The balance sheet account that depreciation is recorded to is:
 
accumulated depreciation
depreciation expense
plant and equipment
   
Expenses incurred in one accounting period and paid for in a future accounting period are ___ liabilities.
(Enter only one word.)
Accrued
   
The normal balance of the contra asset accumulated depreciation account is a(n) ____ . (Enter one word per blank)
Credit
   
True or false: The stated interest rate on debt instruments is always stated as an annual rate.
True
   
Deferred revenue is a(n):
 
revenue on the income statement
expense on the income statement
asset on the balance sheet
liability on the balance sheet
   
Interest earned, but not yet received is an example of:
 
an accrued expense
a prepaid expense
an accrued receivable
   
On October 1, Year 1, Swift Corporation received $1,200 from customers for services to be performed evenly over the next 12 months.
Swift recorded the original transaction in a balance sheet account. The adjusting journal entry on December 31, Year 1,
will include which of the following entries?
 
Debit revenue $300.
Credit to revenue $1,200.
Debit to deferred revenue $300.
Credit deferred revenue $1,200.
   
How are items classified on the income statement?
 
current and noncurrent
assets and liabilities
operating and nonoperating
operating, investing, and financing
   
Recognizing revenue before cash flow is an example of:
 
an accrual adjusting entry.
a prepayment adjusting entry.
an estimate adjusting entry.
   
The process in which temporary accounts are reduced to zero balances and transferred to retained earnings is the ______ process.
 
closing
zero
adjusting
opening
   
Accrued liabilities are costs incurred in an accounting period:
 
before a cash payment
after a cash payment
at the same time of a cash payment
   
___ basis accounting measures income based on accomplishments and resource sacrifices during the period. (Enter only one word.)
Accrual
   
___ basis accounting measures the difference between cash receipts and cash disbursements during a reporting period. (Enter only one word.)
Cash
   
On July 1, Perry Company signed a note with principal of $80,000 and a stated interest rate of 4%.
The principal and interest are due on April 1 of the following year. Perry will accrue interest on December 31st of
 
$4,800
$3,200
$0
 
$1,600  
An accrued receivable occurs when revenue is earned:
 
at the same time as cash flow
before cash flow
after cash flow
   
The components of the income statement are usually classified as: (Select all that apply.)
 
financing items
operating items
investing items
non-operating items
   
The first step in the closing process is to reduce the balances in the temporary accounts to zero. The second step is to transfer the effects of step 1 to which account?
 
retained earnings
cash
common stock
dividends
   
Accrual accounting measures:
 
the difference between cash receipts and cash disbursements
an entity's accomplishments and resource sacrifices during the period
net income relative to timing of cash movement
   
Exercise 2-3 (Algo) T-accounts and trial balance [LO2-4]
The following transactions occurred during March 2021 for the Wainwright Corporation. The company owns and operates a wholesale warehouse.
 
Issued 49,000 shares of common stock in exchange for $490,000 in cash.
Purchased equipment at a cost of $59,000. $19,500 cash was paid and a notes payable to the seller was signed for the balance owed.
Purchased inventory on account at a cost of $116,000. The company uses the perpetual inventory system.
Credit sales for the month totaled $215,000. The cost of the goods sold was $89,000.
Paid $6,900 in rent on the warehouse building for the month of March.
Paid $7,900 to an insurance company for fire and liability insurance for a one-year period beginning April 1, 2021.
Paid $89,000 on account for the merchandise purchased in 3.
Collected $74,000 from customers on account.
Recorded depreciation expense of $2,900 for the month on the equipment.
 
Post the above transactions to the below T-accounts. Assume that the opening balances in each of the accounts is zero.
Prepare a trial balance from the ending account balances.
Post the above transactions to the below T-accounts. Assume that the opening balances in each of the accounts is zero.
(Enter the number of the transaction in the column next to the amount.)
 
 
 

 

 
Prepare a trial balance from the ending account balances.

   
Exercise 2-13 (Algo) Closing entries [LO2-8]
American Chip Corporation’s reporting year-end is December 31. The following is a partial adjusted trial balance as of December 31, 2021.
 

Account Title	Debits			Credits
Retained earnings					97,000
Sales revenue					920,000
Interest revenue					6,000
Cost of goods sold		505,000
Salaries expense		160,000
Rent expense		32,000
Depreciation expense		47,000
Interest expense		6,700
Insurance expense		7,700

 
Required:
Prepare the necessary closing entries at December 31, 2021.
(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
 

   
Exercise 2-15 (Algo) Cash versus accrual accounting; adjusting entries [LO2-5, 2-6, 2-9]
The Righter Shoe Store Company prepares monthly financial statements for its bank.
The November 30 and December 31, 2021, trial balances contained the following account information:
 

	Nov. 30			Dec. 31
	Dr.	Cr.		Dr.	Cr.
Supplies	2,800			4,300
Prepaid insurance	7,300			5,150
Salaries payable		16,500			16,300
Deferred rent revenue		4,600			2,300

 
The following information also is known:
The December income statement reported $3,300 in supplies expense.
No insurance payments were made in December.
$16,500 was paid to employees during December for salaries.
On November 1, 2021, a tenant paid Righter $6,900 in advance rent for the period November through January. Deferred rent revenue was credited.
 
Required:
1. Using the above information for December, complete the T-accounts below. The beginning balances should be the balances as of November 30.
2. Using the above information, prepare the adjusting entries Righter recorded for the month of December.
 
 
Exercise 2-16 (Algo) External transactions and adjusting entries [LO2-3, 2-6]
The following transactions occurred during 2021 for the Beehive Honey Corporation:
 

Feb.		1		Borrowed $20,000 from a bank and signed a note. Principal and interest at 9% will be paid on January 31, 2022.
Apr.		1		Paid $5,200 to an insurance company for a two-year fire insurance policy.
July		17		Purchased supplies costing $3,600 on account. The company records supplies purchased in an asset account. At the year-end on December 31, 2021, supplies costing $1,650 remained on hand.
Nov.		1		A customer borrowed $8,400 and signed a note requiring the customer to pay principal and 7% interest on April 30, 2022.

 
Required:
1. Record each transaction in general journal form.
2. Prepare any necessary adjusting entries at the year-end on December 31, 2021.
     No adjusting entries were recorded during the year for any item.
 
Record each transaction in general journal form.
(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
 
 

 
Prepare any necessary adjusting entries at the year-end on December 31, 2021.
No adjusting entries were recorded during the year for any item.
(Do not round intermediate calculations.
If no entry is required for a particular transaction/event, select,
"No journal entry required" in the first account field.)
 

  Problem 2-3 (Algo) Adjusting entries [LO2-6]
Pastina Company sells various types of pasta to grocery chains as private label brands.
The company’s reporting year-end is December 31. The unadjusted trial balance as of December 31, 2021, appears below.
 

Account Title	Debits			Credits
Cash		37,200
Accounts receivable		43,600
Supplies		3,300
Inventory		63,600
Notes receivable		23,600
Interest receivable		0
Prepaid rent		2,000
Prepaid insurance		7,800
Office equipment		94,400
Accumulated depreciation					35,400
Accounts payable					34,600
Salaries payable					0
Notes payable					53,600
Interest payable					0
Deferred sales revenue					3,800
Common stock					83,400
Retained earnings					37,500
Dividends		7,600
Sales revenue					164,000
Interest revenue					0
Cost of goods sold		88,000
Salaries expense		20,700
Rent expense		12,800
Depreciation expense		0
Interest expense		0
Supplies expense		2,900
Insurance expense		0
Advertising expense		4,800
Totals		412,300			412,300

 
Information necessary to prepare the year-end adjusting entries appears below.
 
·         Depreciation on the office equipment for the year is $11,800.
·         Employee salaries are paid twice a month, on the 22nd for salaries earned from the 1st through the 15th,
·         and on the 7th of the following month for salaries earned from the 16th through the end of the month.
·         Salaries earned from December 16 through December 31, 2021, were $1,500.
·         On October 1, 2021, Pastina borrowed $53,600 from a local bank and signed a note.
The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years.
·         On March 1, 2021, the company lent a supplier $23,600 and a note was signed requiring principal,
and interest at 8% to be paid on February 28, 2022.
·         On April 1, 2021, the company paid an insurance company $7,800 for a one-year fire insurance policy.
The entire $7,800 was debited to prepaid insurance.
·         $800 of supplies remained on hand at December 31, 2021.
·         A customer paid Pastina $1,200 in December for 1,608 pounds of spaghetti to be delivered in January 2022.
Pastina credited deferred sales revenue.
·         On December 1, 2021, $2,000 rent was paid to the owner of the building.
The payment represented rent for December 2021 and January 2022, at $1,000 per month.
The entire amount was debited to prepaid rent.
 
Required:
Prepare the necessary December 31, 2021, adjusting journal entries.
(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
 
 
 
 
Problem 2-8 (Algo) Adjusting entries [LO2-6]
Excalibur Corporation sells video games for personal computers.
The unadjusted trial balance as of December 31, 2021, appears below.
December 31 is the company’s reporting year-end. The company uses the perpetual inventory system.
 

Account Title	Debits				Credits
Cash		23,800
Accounts receivable		33,000
Supplies		0
Prepaid rent		0
Inventory		70,000
Office equipment		68,625
Accumulated depreciation						10,500
Accounts payable						26,600
Salaries payable						3,500
Notes payable						35,000
Common stock						85,000
Retained earnings						13,175
Dividends		7,000
Sales revenue						185,000
Cost of goods sold		100,000
Interest expense		0
Salaries expense		32,850
Rent expense		14,500
Supplies expense		2,500
Utilities expense		6,500
Totals		358,775				358,775

Information necessary to prepare the year-end adjusting entries appears below.
 
·         The office equipment was purchased in 2019 and is being depreciated using the straight-line method over
an nine-year useful life with no salvage value.
·         Accrued salaries at year-end should be $5,250.
·         The company borrowed $35,000 on September 1, 2021. The principal is due to be repaid in 12 years.
Interest is payable twice a year on each August 31 and February 28 at an annual rate of 12%.
·         The company debits supplies expense when supplies are purchased. Supplies on hand at year-end cost $550.
·         Prepaid rent at year-end should be $1,500.

Required:
Prepare the necessary December 31, 2021, adjusting entries.
(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
Do not round intermediate calculations.)
 
 
Problem 2-13 (Static) Worksheet [Appendix 2A]
Excalibur Corporation sells video games for personal computers.
The unadjusted trial balance as of December 31, 2021, appears below.
December 31 is the company's reporting year-end. The company uses the perpetual inventory system.
 

Account Title	Debits		Credits
Cash	23,300
Accounts receivable	32,500
Supplies	0
Prepaid rent	0
Inventory	65,000
Office equipment	75,000
Accumulated depreciation			10,000
Accounts payable			26,100
Salaries payable			3,000
Notes payable			30,000
Common stock			80,000
Retained earnings			22,050
Dividends	6,000
Sales revenue			180,000
Cost of goods sold	95,000
Interest expense	0
Salaries expense	32,350
Rent expense	14,000
Supplies expense	2,000
Utility expense	6,000
Totals	351,150		351,150

Information necessary to prepare the year-end adjusting entries appears below.
The office equipment was purchased in 2019 and is being depreciated using the ten useful life with no salvage value.
Accrued salaries at year-end should be $4,500.
The company borrowed $30,000 on September 1, 2021. The principal is due to be repaid in 10 years.
Interest is payable twice a year on each August 31 and February 28 at an annual rate of 10%.
The company debits supplies expense when supplies are purchased. Supplies on hand at year-end cost $500.
Prepaid rent at year-end should be $1,000.

1. Complete the worksheet below.
2-a. Use the information in the worksheet to prepare an income statement for 2021.
2-b. Use the information in the worksheet to prepare a statement of shareholders’ equity for 2021.
2-c. Use the information in the worksheet to prepare a balance sheet as of December 31, 2021.
3. Prepare the necessary closing entries assuming that adjusting entries have been correctly posted to the accounts.
 





   
Exercise 2-18 (Algo) Cash versus accrual accounting [LO2-9]
Stanley and Jones Lawn Service Company (S&J) maintains its books on a cash basis.
However, the company recently borrowed $170,000 from a local bank,
and the bank requires S&J to provide annual financial statements prepared on an accrual basis.
During 2021, the following cash flows were recorded:
   

Cash collected for: Services to customers				$	390,000
Cash paid for:
Salaries	$	187,000
Supplies		32,000
Rent		16,000
Insurance		6,000
Miscellaneous		27,000			268,000
Net operating cash flow				$	122,000

  
You are able to determine the following information about accounts receivable, prepaid expenses, and accrued liabilities:
 

	January 1, 2021			December 31, 2021
Accounts receivable	$	39,000		$	30,500
Prepaid insurance		0			2,700
Supplies		1,700			1,850
Accrued liabilities (for miscellaneous expenses)		3,100			4,200

  
In addition, you learn that the bank loan was dated September 30, 2021, with principal and interest at 6% due in one year.
Depreciation on the company’s equipment is $17,000 for the year.
  
Required:
Prepare an accrual basis income statement for 2021. (Ignore income taxes.)
 
When a business makes an end-of-period adjusting entry with a debit to supplies expense, the usual credit entry is made to:
Supplies
   
The income statement summarizes the operating activity of a company at a particular point in time.
Top of Form
False Bottom of Form
  An economic resource of an entity is:
 
    A revenue.
    An asset.
    A liability.
    A contra asset until used.  
Dave's Duds reported cost of goods sold of $2,000,000 this year.
The inventory account increased by $220,000 during the year to an ending balance of $595,000.
What was the cost of merchandise that Dave's purchased during the year?
 
    $2,595,000.
    $2,220,000.
    $1,405,000.
    $1,780,000.
 
Explanation

Inventory
Opening Bal.	375,000	2,000,000	To cost of goods sold
Purchases	?
Ending Bal.	595,000

Purchases = $2,000,000 − $375,000 + $595,000 = $2,220,000
   
Fink Insurance collected premiums of $18,200,000 from its customers during the current year.
The adjusted balance in the Deferred premiums revenue account increased from $5.0 million to $10.0 million dollars during the year.
What is Fink's revenue from insurance premiums recognized for the current year?
 
    $23,200,000.
    $13,200,000.
    $18,200,000.
    $8,200,000.
 
Explanation

Cash collections	$	18,200,000
Deduct Increase in deferred premiums revenue		(5,000,000	)
Insurance premium revenue	$	13,200,000

   
Carolina Mills purchased $270,000 in supplies this year.
The supplies account increased by $13,000 during the year to an ending balance of $67,000.
What was supplies expense for Carolina Mills during the year?
 
    $309,000.
    $231,000.
    $257,000.
    $283,000.
 
Explanation

Supplies
Bal.	54,000
	270,000	?
Bal.	67,000

Supplies expense = $54,000 + $270,000 − $67,000 = $257,000
   
On December 31, 2020, Coolwear, Inc. had a balance in its prepaid insurance account of $50,400. During 2021, $88,000 was paid for insurance.
At the end of 2021, after adjusting entries were recorded, the balance in the prepaid insurance account was $43,000. Insurance expense for 2021 was:
 
    $95,400.
    $138,400.
    $88,000.
    $7,400.
 
Explanation
Insurance expense = $50,400 + $88,000 − $43,000 = $95,400
  Carolina Mills purchased $270,000 in supplies this year.
The supplies account increased by $10,000 during the year to an ending balance of $66,000.
What was supplies expense for Carolina Mills during the year?
 
    $300,000.
    $280,000.
    $260,000.
    $240,000.
 
Explanation

Supplies
Bal.	56,000
	270,000		?
Bal.	66,000

Supplies expense = $56,000 + $270,000 – $66,000 = $260,000
   
On September 1, 2021, Fortune Magazine sold 600 one-year subscriptions for $81 each.
The total amount received was credited to Deferred subscription revenue.
What is the required adjusting entry at December 31, 2021?
Multiple Choice
 
    Deferred subscription revenue       48,600              
         Subscription revenue                                16,200
         Prepaid subscriptions                              32,400
 
    Deferred subscription revenue     16,200            
         Subscription revenue                              16,200
 
    Deferred subscription revenue       16,200            
         Subscription payable                               16,200
 
    Deferred subscription revenue       32,400              
         Subscription revenue                               32,400
 
Explanation

Entry on 9/1:	Cash	48,600
	Deferred subscription revenue		48,600

Amount recorded as revenue: $48,600 × 4/12 (4 months expired) = $16,200
   
The Marchetti Soup Company entered into the following transactions during the month of June:
(1) purchased inventory on account for $180,000 (assume Marchetti uses a perpetual inventory system);
(2) paid $47,000 in salaries to employees for work performed during the month;
(3) sold merchandise that cost $134,000 to credit customers for $235,000;
(4) collected $215,000 in cash from credit customers; and
(5) paid suppliers of inventory $160,000.

Post the above transactions to the below T-accounts. Assume that the opening balances in each of the accounts is zero except for cash,
accounts receivable, and accounts payable that had opening balances of $68,500, $50,000, and $29,000, respectively.
(Enter the transaction number in the column next to the amount.)
 

 
Making insurance payments in advance is an example of:
 
    An accrued receivable transaction.
    An accrued liability transaction.
    A deferred revenue transaction.
    A prepaid expense transaction.
   
After an unadjusted trial balance is prepared, the next step in the accounting processing cycle is the preparation of financial statements.
False
   
The balance in retained earnings at the end of the year is determined by retained earnings at the beginning of the year:
 
    Plus revenues, minus liabilities.
    Plus accruals, minus deferrals.
    Plus net income, minus dividends.
    Plus assets, minus liabilities.
   
The employees of Neat Clothes work Monday through Friday.
Every other Friday the company issues payroll checks totaling $40,000. The current pay period ends on Friday, July 3.
Neat Clothes is now preparing quarterly financial statements for the three months ended June 30.
What is the adjusting entry to record accrued salaries at the end of June?
 
    Salaries expense      8,000    
         Salaries payable              8,000
 
    Salaries expense     28,000              
         Salaries payable             28,000
 
    Salaries expense      28,000              
    Prepaid salaries       12,000              
         Salaries payable              40,000
 
    Prepaid salaries       12,000              
         Salaries payable              12,000
 
Explanation
Amount accrued: $40,000 × 7/10 (7 days of 10 days to be paid) = $28,000
   
Somerset Leasing received $55,200 for 12 months' rent in advance. How should Somerset record this transaction?
 
    Prepaid rent            55,200              
            Rent expense              55,200
 
    Cash             55,200              
             Deferred rent revenue                       55,200
 
    Interest expense      55,200              
             Interest payable                                  55,200
 
    Salaries expense      55,200              
            Salaries payable                                  55,200
 
On December 31, 2021, the end of Larry's Used Cars' first year of operations, the accounts receivable was $54,100.
The company estimates that $2,500 of the year-end receivables will not be collected. Accounts receivable in the 2021 balance sheet will be valued at:
 
    $2,500.
    $56,600.
    $54,100.
    $51,600.
 
Explanation
Accounts receivable = $54,100 − $2,500 = $51,600
   
On September 15, 2021, Oliver's Mortuary received a $3,600,
nine-month note bearing interest at an annual rate of 8% from the estate of Jay Hendrix for services rendered.
Oliver's has a December 31 year-end. What adjusting entry will the company record on December 31, 2021?
 
    Interest receivable             204       
             Interest revenue                     204
 
    Interest receivable             84         
             Interest revenue                    84
 
    Interest receivable             84         
              Notes receivable                    84
 
    Interest receivable             288       
              Interest revenue                    84
             Cash                             204
 
Explanation
Accrued interest revenue: $3,600 × 8% × 3.5/12 = $84
   
The adjusting entry required when amounts previously recorded as deferred revenues are recognized includes:
 
    A debit to a liability.
    A debit to an asset.
    A credit to a liability.
    A credit to an asset.
   
Somerset Leasing received $12,000 for 12 months' rent in advance. How should Somerset record this transaction?
 
    Prepaid rent            12,000              
             Rent expense              12,000
 
    Cash                         12,000              
 Deferred rent revenue                      12,000
 
    Interest expense      12,000              
Interest payable                      12,000
 
    Salaries expense      12,000              
Salaries payable                      12,000
   
A company has a fiscal year-end of December 31:
(1) on October 1, $17,000 was paid for a one-year fire insurance policy;

(2) on June 30 the company advanced its chief financial officer $15,000; principal and interest at 5% on the note are due in one year; and

(3) equipment costing $65,000 was purchased at the beginning of the year for cash. Depreciation on the equipment is $13,000 per year.

Prepare the necessary adjusting entries at December 31 for each of the above items.
(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
 

 
Explanation
Insurance expense = $17,000 × 3/12 = $4,250
Interest receivable = $15,000 × 5% × 6/12 = $375