FinancialAccounting-OP_YioY6nY-56

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15. 4.3 Which of these transactions requires an adjusting entry (debit) to Unearned Revenue?
A. revenue earned but not yet collected
B. revenue collected but not yet earned
C. revenue earned before being collected, when it is later collected
D. revenue collected before being earned, when it is later earned
16. 4.4 What critical purpose does the adjusted trial balance serve?
A. It proves that transactions have been posted correctly
B. It is the source document from which to prepare the financial statements
C. It shows the beginning balances of every account, to be used to start the new year’s records
D. It proves that all journal entries have been made correctly.
17. 4.4 Which of the following accounts’ balance would be a different number on the Balance Sheet than it
is on the adjusted trial balance?
A. accumulated depreciation
B. unearned service revenue
C. retained earnings
D. dividends
18. 4.5 On which financial statement would the Supplies account appear?
A. Balance Sheet
B. Income Statement
C. Retained Earnings Statement
D. Statement of Cash Flows
19. 4.5 On which financial statement would the Dividends account appear?
A. Balance Sheet
B. Income Statement
C. Retained Earnings Statement
D. Statement of Cash Flows
20. 4.5 On which financial statement would the Accumulated Depreciation account appear?
A. Balance Sheet
B. Income Statement
C. Retained Earnings Statement
D. Statement of Cash Flows
21. 4.5 On which two financial statements would the Retained Earnings account appear?
A. Balance Sheet
B. Income Statement
C. Retained Earnings Statement
D. Statement of Cash Flows
Questions
1. 4.1 Describe the revenue recognition principle. Give specifics.
2. 4.1 Describe the expense recognition principle (matching principle). Give specifics.
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3. 4.2 What parts of the accounting cycle require analytical processes, rather than methodical processes?
Explain.
4. 4.2 Why is the adjusting process needed?
5. 4.2 Name two types of adjusting journal entries that are commonly made before preparing financial
statements? Explain, with examples.
6. 4.2 Are there any accounts that would never have an adjusting entry? Explain.
7. 4.2 Why do adjusting entries always include both balance sheet and income statement accounts?
8. 4.2 Why are adjusting journal entries needed?
9. 4.3 If the Supplies account had an ending balance of $1,200 and the actual count for the remaining
supplies was $400 at the end of the period, what adjustment would be needed?
10. 4.3 When a company collects cash from customers before performing the contracted service, what is
the impact, and how should it be recorded?
11. 4.3 If the Prepaid Insurance account had a balance of $12,000, representing one year’s policy premium,
which was paid on July 1, what entry would be needed to adjust the Prepaid Insurance account at the end of
December, before preparing the financial statements?
12. 4.3 If adjusting entries include these listed accounts, what other account must be in that entry as well?
(A) Depreciation expense; (B) Unearned Service Revenue; (C) Prepaid Insurance; (D) Interest Payable.
13. 4.4 What is the difference between the trial balance and the adjusted trial balance?
14. 4.4 Why is the adjusted trial balance trusted as a reliable source for building the financial statements?
15. 4.5 Indicate on which financial statement the following accounts (from the adjusted trial balance) would
appear: (A) Sales Revenue; (B) Unearned Rent Revenue; (C) Prepaid Advertising; (D) Advertising Expense; (E)
Dividends; (F) Cash.
Exercise Set A
EA1. 4.2 Identify whether each of the following transactions, which are related to revenue recognition, are
accrual, deferral, or neither.
A. sold goods to customers on credit
B. collected cash from customer accounts
C. sold goods to customers for cash
D. collected cash in advance for goods to be delivered later
EA2. 4.2 Identify whether each of the following transactions, which are related to expense recognition, are
accrual, deferral, or neither.
A. paid an expense for the current month
B. prepaid an expense for future months
C. made a payment to reduce accounts payable
D. incurred a current-month expense, to be paid next month
Chapter 4 The Adjustment Process 267
EA3. 4.2 Identify which type of adjustment is indicated by these transactions. Choose accrued revenue,
accrued expense, deferred revenue, or deferred expense.
A. rent paid in advance for use of property
B. cash received in advance for future services
C. supplies inventory purchased
D. fees earned but not yet collected
EA4. 4.2 The following accounts were used to make year-end adjustments. Identify the related account that
is associated with this account (the other account in the adjusting entry).
A. Salaries Payable
B. Depreciation Expense
C. Supplies
D. Unearned Rent
EA5. 4.2 Reviewing insurance policies revealed that a single policy was purchased on August 1, for one
year’s coverage, in the amount of $6,000. There was no previous balance in the Prepaid Insurance account at
that time. Based on the information provided:
A. Make the December 31 adjusting journal entry to bring the balances to correct.
B. Show the impact that these transactions had.
EA6. 4.3 On July 1, a client paid an advance payment (retainer) of $5,000 to cover future legal services.
During the period, the company completed $3,500 of the agreed-on services for the client. There was no
beginning balance in the Unearned Revenue account for the period. Based on the information provided,
A. Make the December 31 adjusting journal entry to bring the balances to correct.
B. Show the impact that these transactions had.
EA7. 4.3 Reviewing payroll records indicates that employee salaries that are due to be paid on January 3
include $3,575 in wages for the last week of December. There was no previous balance in the Salaries Payable
account at that time. Based on the information provided, make the December 31 adjusting journal entry to
bring the balances to correct.
EA8. 4.3 Supplies were purchased on January 1, to be used throughout the year, in the amount of $8,500.
On December 31, a physical count revealed that the remaining supplies totaled $1,200. There was no
beginning of the year balance in the Supplies account. Based on the information provided:
A. Create journal entries for the original transaction
B. Create journal entries for the December 31 adjustment needed to bring the balances to correct
C. Show the activity, with ending balance
EA9. 4.3 Prepare journal entries to record the following business transaction and related adjusting entry.
A. January 12, purchased supplies for cash, to be used all year, $3,850
B. December 31, physical count of remaining supplies, $800
EA10. 4.3 Prepare journal entries to record the following adjustments.
A. Insurance that expired this period, $18,000
B. Depreciation on assets, $4,800
C. Salaries earned by employees but unpaid, $1,200
268 Chapter 4 The Adjustment Process
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EA11. 4.3 Prepare adjusting journal entries, as needed, considering the account balances excerpted from
the unadjusted trial balance and the adjustment data.
A. depreciation on fixed assets, $ 8,500
B. unexpired prepaid rent, $12,500
C. remaining balance of unearned revenue, $555
EA12. 4.4 Prepare an adjusted trial balance from the following adjusted account balances (assume
accounts have normal balances).
EA13. 4.4 Prepare an adjusted trial balance from the following account information, considering the
adjustment data provided (assume accounts have normal balances).
Adjustments needed:
Salaries due to administrative employees, but unpaid at period end, $2,000
Insurance still unexpired at end of the period, $12,000
Chapter 4 The Adjustment Process 269
EA14. 4.5 From the following Company A adjusted trial balance, prepare simple financial statements,as
follows:
A. Income Statement
B. Retained Earnings Statement
C. Balance Sheet
B Exercise Set B
EB1. 4.1 Identify whether each of the following transactions, which are related to revenue recognition, are
accrual, deferral, or neither.
A. provided legal services to client, who paid at the time of service
B. received cash for legal services performed last month
C. received cash from clients for future services to be provided
D. provided legal services to client, to be collected next month
EB2. 4.1 Identify whether each of the following transactions, which are related to expense recognition, are
accrual, deferral, or neither.
A. recorded employee salaries earned, to be paid in future month
B. paid employees for current month salaries
C. paid employee salaries for work performed in a prior month
D. gave an employee an advance on future wages
270 Chapter 4 The Adjustment Process
This OpenStax book is available for free at http://cnx.org/content/col25448/1.4
	Chapter 4. The Adjustment Process
	Questions
	Exercise Set A
	Exercise Set B