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Exam 3: Adjustments: Accruals and Deferrals

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Question 21

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Which of the following is not true regarding depreciation?

A) depreciation allocates the cost of a fixed asset over its estimated life.
B) depreciation expense reflects the decrease in market value each year.
C) depreciation is an allocation not a valuation method.
D) depreciation expense does not measure changes in market value.

E) All of the above
F) A) and C)

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Question 22

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If the effect of the debit portion of an adjusting entry is to increase the balance of an asset account, which of the following describes the effect of the credit portion of the entry?

A) increases the balance of a revenue account
B) decreases the balance of a liability account
C) increases the balance of an expense account
D) decreases the balance of a revenue account

E) C) and D)
F) B) and D)

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Question 23

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Two income statements for Danielle's Design Services are shown below: ​ (a) Prepare a vertical analysis of Danielle's Design Services income statements. (b) What types of trends are indicated: favorable or unfavorable? (c) What other information would enhance the analysis?

The unexpired insurance at the end of the fiscal period represents

An adjusting entry to accrue an incurred expense will affect total liabilities.

The matching principle requires expenses be recorded in the same period that the related revenue is recorded.

Accumulated depreciation is reported on the income statement.

Supplies are recorded as assets when purchased. Therefore, the credit to Supplies in the adjusting entry is for the amount of supplies

The estimated amount of depreciation on equipment for the current year is $5,300. Journalize the adjusting entry to record the depreciation.

Adjusting entries affect at least one

Softex and Sanibel Solutions are manufacturers of cotton products. Their income statements for a current year are below.

Smokey Company purchases a one-year insurance policy on July 1 for $3,600. The adjusting entry on December 31 is

Adjusting entries affect only expense and asset accounts.

Zoey Bella Corp. has a payroll of $10,000 for a five-day workweek. Its employees are paid each Friday for the five-day workweek. Prepare the adjusting entry on December 31 assuming the year ends on Thursday. ​

If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account, which of the following describes the effect of the credit portion of the entry?

For the year ending December 31, Orion, Inc. mistakenly omitted adjusting entries for $1,500 of supplies that were used, (2) unearned revenue of $4,200 that was earned, and (3) insurance of $5,000 that expired. For the year ending December 31, what is the effect of these errors on revenues, expenses, and net income?

The financial statements are prepared from the unadjusted trial balance.

If the adjustment of the unearned rent account at the end of the period to recognize the amount of rent earned is inadvertently omitted, the net income for the period will be understated.

Accumulated Depreciation and Depreciation Expense are classified, respectively, as

Which of the following is not a characteristic of the accrual basis of accounting?