Which of the following state that the life of business can be divided into equal time periods?

(LO 1) What is the periodicity assumption?

(a)Companies should recognize revenue in the accounting period in which services are performed.
(b)Companies should match expenses with revenues.
(c)The economic life of a business can be divided into artificial time periods.
(d)The fiscal year should correspond with the calendar year.

(c)
The economic life of a business can be divided into artificial time periods.

The periodicity assumption states that the economic life of a business can be divided into artificial time periods. The other choices are incorrect because (a) this statement describes the revenue recognition principle, (b) this statement describes the expense recognition principle, and (d) the periodicity assumption states that the life of a business can be divided into artificial time periods, not that the fiscal year and calendar year must coincide.

(LO 1) Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)?

(a)Expense recognition principle.
(b)Historical cost principle.
(c)Periodicity principle.
(d)Revenue recognition principle.

(a)
Expense recognition principle.

The expense recognition principle dictates that efforts (expenses) be recorded with accomplishments (revenues). The other choices are incorrect because (b) the historical cost principle states that when assets are purchased, they should be recorded at cost; (c) the periodicity assumption states that the life of a business can be divided into artificial time periods; and (d) the revenue recognition principle states that revenue should be recorded in the period in which the performance obligation is satisfied.

(LO 1) What are the first step and the final step in the revenue recognition process?

(a)The first step is identify the contract with customers, and the final step is allocate the transaction price to the separate performance obligations.
(b)The first step is identify the separate performance obligations in the contract, and the final step is determine the transaction price.
(c)The first step is identify the contract with customers, and the final step is recognize revenue when each performance obligation is satisfied.
(d)The first step is determine the transaction price, and the final step is identify the separate performance obligations in the contract.

(c)
The first step is identify the contract with customers, and the final step is recognize revenue when each performance obligation is satisfied.

In the revenue recognition process, the first step is identify the contract with customers, and the final step is recognize revenue when each performance obligation is satisfied. The other choices are incorrect because the five steps in the process in order are (1) Identify the contract with customers, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the separate performance obligations, and (5) recognize revenue when each performance obligation is satisfied.

(LO 1) Which one of these statements about the accrual basis of accounting is false?

(a)Companies record events that change their financial statements in the period in which events occur, even if cash was not exchanged.
(b)Companies recognize revenue in the period in which the performance obligation is satisfied.
(c)This basis is in accordance with generally accepted accounting principles.
(d)Companies record revenue only when they receive cash and record expense only when they pay out cash.

(d)
Companies record revenue only when they receive cash and record expense only when they pay out cash.

If companies record revenue only when they receive cash and record expense only when they pay out cash, they are using the cash basis of accounting. The other choices are true statements about accrual-basis accounting.

(LO 1) Adjusting entries are made to ensure that:

(a)expenses are recognized in the period in which they are incurred.
(b)revenues are recorded in the period in which the performance obligation is satisfied.
(c)balance sheet and income statement accounts have correct balances at the end of an accounting period.
(d)All of the above.

(d)
All of the above.

Adjusting entries are made to ensure that expenses are recognized in the period in which they are incurred, that revenues are recorded in the period in which the performance obligation is satisfied, and that balance sheet and income statement accounts have correct balances at the end of an accounting period. Although choices (a), (b), and (c) are correct, choice (d) is the better answer.

(LO 2, 3) Each of the following is a major type (or category) of adjusting entry except:

(a)prepaid expenses.
(b)accrued revenues.
(c)accrued expenses.
(d)unearned expenses.

(d)
unearned expenses.

Unearned expenses are not a major type of adjusting entry. Choices (a) prepaid expenses, (b) accrued revenues, and (c) accrued expenses are all a major type of adjusting entry.

(LO 2) The trial balance shows Supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is:

(a)Supplies600 Supplies Expense 600
(b)Supplies750 Supplies Expense 750
(c)Supplies Expense750 Supplies 750
(d)Supplies Expense600 Supplies 600

(c)
Supplies Expense750 Supplies 750

The adjusting entry is to debit Supplies Expense for $750 ($1,350 − $600) and credit Supplies for $750. The other choices are therefore incorrect.

(LO 2) Adjustments for unearned revenues:

(a)decrease liabilities and increase revenues.
(b)increase liabilities and increase revenues.
(c)increase assets and increase revenues.
(d)decrease revenues and decrease assets.

(a)decrease liabilities and increase revenues.

Adjustments for unearned revenues decrease liabilities and increase revenues. The other choices are therefore incorrect.

(LO 2) Adjustments for prepaid expenses:

(a)decrease assets and increase revenues.
(b)decrease expenses and increase assets.
(c)decrease assets and increase expenses.
(d)decrease revenues and increase assets.

(c)
decrease assets and increase expenses.

Adjustments for prepaid expenses decrease assets and increase expenses. The other choices are therefore incorrect.

(LO 2) Queenan Company computes depreciation on delivery equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows:

(a)Depreciation Expense1,000 Accumulated Depreciation—Queenan Company 1,000
(b)Depreciation Expense1,000 Equipment 1,000
(c)Depreciation Expense1,000 Accumulated Depreciation—Equipment 1,000
(d)Equipment Expense1,000 Accumulated Depreciation—Equipment 1,000

(c)
Depreciation Expense1,000 Accumulated Depreciation—Equipment 1,000

The adjusting entry is to debit Depreciation Expense and credit Accumulation Depreciation—Equipment. The other choices are incorrect because (a) the contra asset account title includes the asset being depreciated, not the company name; (b) the credit should be to the contra asset account, not the asset; and (d) the debit should be to Depreciation Expense, not Equipment Expense.

(LO 3) Adjustments for accrued revenues:

(a)increase assets and increase liabilities.
(b)increase assets and increase revenues.
(c)decrease assets and decrease revenues.
(d)decrease liabilities and increase revenues.

(b)
increase assets and increase revenues.

When the adjustment is made for accrued revenues, an asset account (usually Accounts Receivable) is increased and a revenue account is increased. The other choices are therefore incorrect.

(LO 3) Colleen Mooney earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Colleen's employer at September 30 is:

(a)No entry is required.
(b)Salaries and Wages Expense400 Salaries and Wages Payable 400
(c)Salaries and Wages Expense400 Cash 400
(d)Salaries and Wages Payable400 Cash 400

(b)
Salaries and Wages Expense400 Salaries and Wages Payable 400

The adjusting entry should be to debit Salaries and Wages Expense $400 and credit Salaries and Wages Payable for $400. Choice (a) is incorrect because if an adjusting entry is not made, the amount of money owed (liability) that is shown on the balance sheet will be understated and the amount of salaries and wages expense will also be understated. Choices (c) and (d) are incorrect because adjusting entries never affect cash.

(LO 4) Which statement is incorrect concerning the adjusted trial balance?

(a)An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made.
(b)The adjusted trial balance provides the primary basis for the preparation of financial statements.
(c)The adjusted trial balance does not list temporary accounts.
(d)The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries.

(c)
The adjusted trial balance does not list temporary accounts.

The adjusted trial balance does list temporary accounts. The other choices are true statements about the adjusted trial balance.

(LO 4) Which account will have a zero balance after a company has journalized and posted closing entries?

(a)Service Revenue.
(b)Supplies.
(c)Prepaid Insurance.
(d)Accumulated Depreciation.

(a)
Service Revenue.

Service Revenue will have a zero balance after a company has journalized and posted closing entries. The other choices are incorrect because (b) Supplies is an asset, or permanent account, and will not be closed at the end of the year; (c) Prepaid Insurance is an asset, or permanent account, and will not be closed at the end of the year; and (d) Accumulated Depreciation is a contra asset account. Contra asset accounts are permanent accounts and are not closed at the end of the year.

(LO 4) Which types of accounts will appear in the post-closing trial balance?

(a)Permanent accounts.
(b)Temporary accounts.
(c)Expense accounts.
(d)None of the above.

(a)
Permanent accounts.

Permanent accounts are the only type of accounts that appear in the post-closing trial balance because they are not closed at the end of the accounting period. Choices (b) and (c) are temporary accounts. Choice (d) is wrong because there is a correct answer.

(LO 4) All of the following are required steps in the accounting cycle except:

(a)journalizing and posting closing entries.
(b)preparing an adjusted trial balance.
(c)preparing a post-closing trial balance.
(d)prepare financial statements from the unadjusted trial balance.

(d)
prepare financial statements from the unadjusted trial balance.

Financial statements are prepared from the adjusted trial balance, not the unadjusted trial balance. The other choices are incorrect because (a) journalizing and posting closing entries, (b) preparing an adjusted trial balance, and (c) preparing a post-closing trial balance are all required steps in the accounting cycle.

Indicate why adjusting entries are needed.
(LO1)The ledger of Dey Company includes the following accounts. Explain why each account may need adjustment.

(a)Supplies.
(b)Unearned Service Revenue.
(c)Salaries and Wages Payable.
(d)Interest Payable.

Solution
1.
(a)Supplies: to recognize supplies used during the period.(b)Unearned Service Revenue: to record revenue generated for services performed.(c)Salaries and Wages Payable: to recognize salaries and wages accrued to employees at the end of a reporting period.(d)Interest Payable: to recognize interest accrued but unpaid on notes payable.

Prepare adjusting entry for depreciation.
(LO2)At the end of its first year, the trial balance of Denton Company shows Equipment of $40,000 and zero balances in Accumulated Depreciation—Equipment and Depreciation Expense. Depreciation for the year is estimated to be $8,000. For Denton, (a) prepare the adjusting entry for depreciation at December 31, (b) post the adjustments to T-accounts, and (c) indicate the balance sheet presentation of the equipment at December 31.

Solution
2.(
a)Dec. 31Depreciation Expense8,000 Accumulated Depreciation—Equipment 8,000
(b)Depreciation Expense Accum. Depreciation—Equipment12/318,000 12/318,000
(c)Equipment$40,000 Less: Accumulated Depreciation—Equipment8,000$32,000

Prepare adjusting entries for accruals.
(LO3)You are asked to prepare the following accrued adjusting entries at December 31.
1.Services performed but not recorded are $4,200.
2.Utility expenses incurred but not paid are $660.
3.Salaries and wages earned by employees of $3,000 are unpaid.

Use the following account titles: Accounts Payable, Accounts Receivable, Service Revenue, Salaries and Wages Expense, Salaries and Wages Payable, and Utility Expense.

Solution
3.
Dec. 31 Accounts Receivable4,200 Service Revenue 4,200

31 Utility Expense660 Accounts Payable 660

31 Salaries and Wage Expense3,000 Salaries and Wages Payable 3,000

Analyze accounts in an unadjusted trial balance.
(LO1,2,3)The trial balance for Blair Company includes the following balance sheet accounts. Identify the accounts that may require adjustment. For each account that requires adjustment, indicate (a) the type of adjusting entry (prepaid expense, unearned revenue, accrued revenue, or accrued expense) and (b) the related account in the adjusting entry.

Accounts Receivable
Interest Payable
Supplies
Unearned Service Revenue
Prepaid Insurance

Solution
4.

Accounts Receivable
Accrued Revenue
Service Revenue

Interest Payable
Accrued Expense
Interest Expense

Supplies
Prepaid Expense
Supplies Expense

Unearned Service
Revenue
Unearned Revenue
Service Revenue

Prepaid Insurance
Prepaid Expense
Insurance Expense

Prepare an income statement from an adjusted trial balance.
(LO4)The adjusted trial balance of Harmony Company includes the following accounts at December 31, 2022: Cash $12,000, Retained Earnings $22,000, Dividends $3,000, Service Revenue $41,000, Rent Expense $900, Salaries and Wages Expense $6,000, Supplies Expense $700, and Depreciation Expense $1,800. Prepare an income statement for the year.

Solution
5.
Revenues
Service revenue
$41,000

Expenses
Salaries and wages expense
$6,000
Rent expense
900
Depreciation expense
1,800
Supplies expense
700
Total expenses
9,400

Net income
$31,600

Prepare closing entries from ledger balances.
(LO4)The ledger of Quintana Company contains the following balances: Retained Earnings $40,000, Dividends $3,000, Service Revenue $65,000, Salaries and Wages Expense $39,000, and Maintenance and Repairs Expense $9,000. Prepare the closing entries at December 31.

Solution
6.
Dec. 31 Service Revenue65,000 Income Summary 65,000
31 Income Summary48,000 Salaries and Wages Expense 39,000 Maintenance and Repairs Expense 9,000
31 Income Summary17,000 Retained Earnings 17,000
31 Retained Earnings3,000 Dividends 3,000

The difference between the balance of a plant asset account and the related accumulated depreciation account is termed

book value

The balance in the unearned revenue account before adjustment is $4,000. Unearned revenue of $3,000 has been earned. The adjusting entry done at the end of the month is

debit Unearned Revenue $3,000; credit Service Revenue $3,000.

Which of the following state that the life of business can be divided into equal time period?

Which of the following states that the life of a business can be divided into equal time period Mcq?

Which assumption in financial reporting dictates that the company is expected to operate long enough to carry out its objectives?