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Exam 3: Adjusting the Accounts

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Question 131

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The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.

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Question 132

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The adjusting entry at the end of the period to record an expired cost may be different depending on whether the cost was initially recorded as an asset or an expense.

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Question 133

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New Slang Pest Control has the following balances in selected accounts on December 31, 2017. $\begin{array} { l r } \text { Accounts Receivable } & \$ 0 \\\text { Accumulated Depreciation - Equipment } & 0 \\\text { Equipment } & 6,650 \\\text { Interest Payable } & 0 \\\text { Notes Payable } & 20,000 \\\text { Prepaid Insurance } & 2,220 \\\text { Salaries and Wages Payable } & 0 \\\text { Supplies } & 2,940 \\\text { Unearned Service Revenue } & 30,000\end{array}$ All of the accounts have normal balances. The information below has been gathered at December 31, 2018. 1. Depreciation on the equipment for 2018 is $1,300. 2. New Slang Pest Control borrowed $20,000 by signing a 10%, one-year note on July 1, 2018. 3. New Slang Pest Control paid $2,220 for 12 months of insurance coverage on October 1, 2018. 4. New Slang Pest Control pays its employees total salaries of $11,000 every Monday for the preceding 5-day week (Monday-Friday). On Monday, December 27, 2018, employees were paid for the week ending December 24, 2018. All employees worked the five days ending December 31, 2018. 5. New Slang Pest Control performed disinfecting services for a client in December 2018. The client will be billed $3,200. 6. On December 1, 2018, New Slang Pest Control collected $30,000 for disinfecting processes to be performed from December 1, 2018, through May 31, 2018. 7. A count of supplies on December 31, 2018, indicates that supplies of $850 are on hand. Instructions Prepare in journal form with explanations, the adjusting entries for the seven items listed for New Slang Pest Control.

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be

Elliott Smith is a lawyer who requires that his clients pay him in advance of legal services rendered. Elliott routinely credits Service Revenue when his clients pay him in advance. In June Elliott collected $15,000 in advance fees and completed 70% of the work related to these fees. What adjusting entry is required by Elliott's firm at the end of June?

Characteristics associated with relevant accounting information are

Mother Hips Garment Company purchased equipment on June 1 for $90,000, paying $20,000 cash and signing a 9%, 2-month note for the remaining balance. The equipment is expected to depreciate $18,000 each year. Mother Hips Garment Company prepares monthly financial statements. Instructions (a) Prepare the general journal entry to record the acquisition of the equipment on June 1st. (b) Prepare any adjusting journal entries that should be made on June 30th. (c) Show how the equipment will be reflected on Mother Hips Garment Company's balance sheet on June 30th.

The time period assumption is used under

Which of the following statements concerning accrual-basis accounting is incorrect?

For accounting purposes, business transactions should be kept separate from the personal transactions of the owners of the business.

The balance in the supplies account on June 1 was $5,200, supplies purchased during June were $3,500, and the supplies on hand at June 30 were $3,000. The amount to be used for the appropriate adjusting entry is

The time period assumption states that the business will remain in operation for the foreseeable future.

The following is selected information from Motley Corporation for the fiscal year ending October 31, 2018. Based on the accrual basis of accounting, what is Motley Corporation's net income for the year ending October 31, 2018?

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

At March 1, Psychocandy Inc. reported a balance in Supplies of $200. During March, the company purchased supplies for $750 and consumed supplies of $800. If no adjusting entry is made for supplies

The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that

153. Sebadoah is a barber who does his own accounting for his shop. When he buys supplies he routinely debits Supplies Expense. Sebadoah purchased $1,500 of supplies in January and his inventory at the end of January shows $300 of supplies remaining. What adjusting entry should Sebadoah make on January 31?

The following ledger accounts are used by the Sebastopol Dog Track: Instructions For each of the following transactions below, prepare the journal entry (if one is required) to record the initial transaction and then prepare the adjusting entry, if any, required on September 30, the end of the fiscal year. (a) On September 1, paid rent on the track facility for three months, $210,000. (b) On September 1, sold season tickets for admission to the racetrack. The racing season is year-round with 25 racing days each month. Season ticket sales totaled $900,000. (c) On September 1, borrowed $350,000 from First National Bank by issuing a 9% note payable due in three months. (d) On September 5, programs for 20 racing days in September, 25 racing days in October, and 15 racing days in November were printed for $3,600. (e) The accountant for the concessions company reported that gross receipts for September were $150,000. Ten percent is due to the track and will be remitted by October 10.

The time period assumption is often referred to as the expense recognition principle.

Teenage Fanclub Printings sold annual subscriptions to their magazine for $30,000 in December, 2017. The magazine is published monthly. The new subscribers received their first magazine in January, 2018. 1. What adjusting entry should be made in January if the subscriptions were originally recorded as a liability? 2. What amount will be reported on the January 2018 balance sheet for Unearned Subscription Revenue?