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Exam 3: The Adjusting Process

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Question 1

Multiple Choice

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The account type and normal balance of Prepaid Expense is

A) revenue, credit
B) expense, debit
C) liability, credit
D) asset, debit

E) A) and B)
F) A) and C)

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Question 2

Multiple Choice

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A business pays biweekly salaries of $20,000 every other Friday for a ten-day period ending on that day. The last payday of December is Friday, December 27. Assume the next pay period begins on Monday, December 30 and the proper adjusting entry is journalized at the end of the fiscal period December 31) . The entry for the payment of the payroll on Friday, January 10 includes a

A) debit to Salary Expense of $16,000
B) debit to Salary Expense of $4,000
C) credit to Salary Payable of $16,000
D) credit to Salary Payable of $4,000

E) A) and B)
F) A) and C)

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Question 3

Essay

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The supplies account had a beginning balance of $1,750. Supplies purchased during the period totaled $3,500. At the end of the period before adjustment, $350 of supplies were on hand. Prepare the adjusting entry for supplies.

Identify the effect a-h) that omitting each of the following items would have on the balance sheet. -Wages are paid every Friday for the 5-day work week. The month ended on Monday and no adjustment was recorded.

The net book value of a fixed asset is determined by the original cost

The adjusting entry to adjust supplies was omitted at the end of the year. This would affect the income statement by having

Indicate with a Yes or No whether or not each of the following accounts would, under normal circumstances, require an adjusting entry. 1. Cash 2. Prepaid Expenses 3. Depreciation Expense 4. Accounts Payable 5. Accumulated Depreciation 6. Equipment

If the adjustment to recognize expired insurance at the end of the period is inadvertently omitted, the assets at the end of the period will be understated.

On December 15, Great Designs Company hired an independent contractor for a project. The contractor completed the project on December 29 and submitted an invoice for $2,425 which was due on January 15. The amount was duly paid on January 15. a) Prepare the journal entry or entries necessary to record these transactions. b) Explain why you prepared this/these journal entries.

The updating of accounts is called the adjusting process.

Explain the difference between accrual basis accounting and cash basis accounting.

Revenues and expenses should be recorded in the same period to which they relate.

Accrued expenses are ordinarily reported on the balance sheet as

On November 15, Great Designs Company purchased an advertising campaign for the month of December. Great Designs paid cash of $2,700 in advance. The advertising campaign ran in December. a) Prepare all necessary journal entries for the advertising campaign for November and December. b) Explain why you prepared this/these journal entries.

At the end of the fiscal year, the following adjusting entries were omitted: a) No adjusting entry was made to transfer the $1,750 of prepaid insurance from the asset account to the expense account. b) No adjusting entry was made to record accrued fees of $525 for services provided to customers. Assuming that financial statements are prepared before the errors are discovered, indicate the effect of each error, considered individually, by inserting the dollar amount in the appropriate spaces. Insert "0" if the error does not affect the item.

What effect will this adjusting journal entry have on the accounting records? $\begin{array} { | c | l | l | } \hline \text { Supplies Expense } & 760 & \\\hline \text { Supplies } & & 760 \\\hline\end{array}$

On January 2, Safe Motorcycling Monthly received a check for $72 from a subscriber for a 12-month subscription. The January issue was mailed on January 15. Prepare the necessary entries for the month of January.

Match the type of account a-e) with the business transactions that follow. -Retainer fee received from a client for future legal representation.

The unearned rent account has a balance of $72,000. If $18,000 of the $72,000 is unearned at the end of the accounting period, the amount of the adjusting entry is

Jordon James started JJJ Consulting on January 1. The following are the account balances at the end of the first month of business, before adjusting entries were recorded: $\begin{array} { | l | c | } \hline \text { Accounts Payable } & \$ 300 \\\hline \text { Accounts Receivable } & 750 \\\hline \text { Cash } & 6,300 \\\hline \text { Consulting Revenue } & 4,925 \\\hline \text { Equipment } & 7,000 \\\hline \text { Common Stock } & 15,000 \\\hline \text { Dividends } & 1,375 \\\hline \text { Frepaid Rent } & 4,000 \\\hline \text { Supplies } & 800 \\\hline\end{array}$ Adjustment data: Supplies on hand at the end of the month, $200 Unbilled consulting revenue, $700 Rent expense for the month, $1,000 Depreciation on equipment, $90 a) Prepare the required adjusting entries, adding accounts as needed. b) Prepare an adjusted trial balance for JJJ Consulting as of January 31.