Chapter 3

Question 1

T or F: All adjusting entries are made at the beginning of an accounting period.

Answer 1

False.

Question 2

T or F: A company had no supplies available at the beginning of August. The company purchased $6,000 worth of supplies in August and recorded the purchase in the Supplies account. On August 31, the fiscal year-end, the physical count of supplies indicates the cost of unused supplies is $3,200. The adjusting entry would include a $2,800 debit to Supplies.

Answer 2

False

Question 3

T or F: A contra account is an account linked with another account, and is reported as an addition to the other account’s balance.

Answer 3

False.

Question 4

T or F: The expense recognition (matching) principle does not require that expenses be recorded in the same accounting period as the revenues that are recognized as a result of those expenses.

Answer 4

False.

Question 5

T or F: A company owes its employees $5,000 for the year ended December 31. It will pay employees on January 6 for the previous two weeks’ salaries. The year-end adjusting entry on December 31 will include a debit to Salaries Expense and a credit to Cash.

Answer 5

False.

Question 6

T or F: The expense recognition (matching) principle requires that expenses be recorded in the same accounting period as the revenues that are recognized as a result of those expenses.

Answer 6

True.

Question 7

An adjusting entry was made on year-end December 31 to accrue salary expense of $3,200. Assuming the company does not prepare reversing entries, which of the following entries would be prepared to record the $7,000 payment of salaries in January of the following year?

Answer 7

Account Title
Debit:
Salaries Payable 3,200
&
Salaries Expense 3,800
Credit:
Cash 7,000

Question 8

The correct adjusting entry for accrued and unpaid employee salaries of $8,100 on December 31 is:

Answer 8

Debit Salaries Expense, 8,100; credit Salaries Payable, 8,100.

Question 9

A company reported net income of $4,805 for October. Its net sales for October were $15,500. Its profit margin is:

Answer 9

31%

Profit Margin = Net Income/Net Sales

Profit Margin = $4,805/$15,500 = 0.31 = 31%

Question 10

Fragmental Company leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $1,000. Fragmental collected the entire $8,000 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made by Fragmental Company on December 31 would be:

Answer 10

A debit to Unearned Revenue and a credit to Rent Revenue for $3,000.

$8,000 × 3/8 = $3,000 earned by December 31.

Question 11

On July 1, a company paid the $3,960 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?$

Answer 11

$1,980

$3,960 × 6/12 = $1,980

Question 12

A company purchased a new delivery van at a cost of $58,000 on January 1. The delivery van is estimated to have a useful life of 4 years and a salvage value of $4,600. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the van during the first year ended December 31?

Answer 12

$13,350

[($58,000 − $4,600)/4 years] = $13,350

Question 13

A company’s Office Supplies account shows a beginning balance of $790 and an ending balance of $780. If office supplies expense for the year is $4,050, what amount of office supplies was purchased during the period?

Answer 13

$4,040

$790 + Supplies Purchased − $4,050 = $780

Supplies Purchased − $3,260 = $780

Supplies Purchased = $4,040

Question 14

On January 1, a company purchased a five-year insurance policy for $2,900 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

Answer 14

Debit Insurance Expense, $580; credit Prepaid Insurance, $580.

$2,900 × 1/5 = $580 per year.

Question 15

On October 1, Goodwell Company rented warehouse space to a tenant for $4,200 per month. The tenant paid five months’ rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Revenue account. The company’s annual accounting period ends on December 31. The year-end adjusting entry needed on December 31 is:

Answer 15

Debit Unearned Revenue, $12,600; credit Rent Revenue, $12,600.

$4,200 × 3 = $12,600

Question 16

Sanborn Company rents space to a tenant for $3,100 per month. The tenant has agreed to pay the November, December, and January rents in full on January 15. The adjusting entry for Sanborn on December 31 is:

Answer 16

Debit Accounts Receivable, $6,200; credit Rent Revenue, $6,200.

$3,100 × 2 = $6,200

Question 17

Prior to recording adjusting entries, the Office Supplies account had a $385 debit balance. A physical count of the supplies showed $100 of unused supplies available. The required adjusting entry is:

Answer 17

Debit Office Supplies Expense $285 and credit Office Supplies $285.

Question 18

On November 1, Jovel Company loaned another company $240,000 at a 9.0% interest rate. The note receivable plus interest will not be collected until March 1 of the following year. The company’s annual accounting period ends on December 31. The amount of interest revenue that should be reported in the first year is:

Answer 18

$3,600

$240,000 × 0.09 × 60/360 = $3,600

Question 19

A company had no office supplies available at the beginning of the year. During the year, the company purchased $300 worth of office supplies. On December 31, $90 worth of office supplies remained. How much should the company report as office supplies expense for the year?

Answer 19

$210

$300 − $90 = $210

Question 20

A company recorded 2 days of accrued salaries of $2,300 for its employees on January 31. On February 9, it paid its employees $8,800 for these accrued salaries and for other salaries earned through February 9. The January 31 and February 9 journal entries are:

Answer 20

Date Account Title
1/31 Salaries Expense Dr 2,300
Salaries Payable Cr 2,300

2/9 Salaries Expense Dr 6,500
Salaries Payable Dr 2,300
Cash Cr 8,800