Chapter 5

Question 1

Which of the following is not included in the three-line header of the worksheet?

a) the company name
b) the company address
c) the report title
d) the period covered

Answer 1

b) the company address

Question 2

The process of allocating the cost of a long-term asset as an expense of operations during the asset’s expected useful life is known as:

Answer 2

depreciation

Question 3

The account credited in the adjusting entry made to record the expiration of a portion of prepaid rent is the:

Answer 3

prepaid rent account

Question 4

Which of the following statements is not correct?

a) Generally accepted accounting principles require that the original cost of a long-term asset continue to appear in the asset account until the disposition of the asset.

b) The book value of a long-term asset is reduced each year as depreciation is recorded.

c)
Buildings and trucks are examples of long-term assets.

d) Salvage value is computed by subtracting the accumulated depreciation from the cost of a long-term asset.

Answer 4

d) Salvage value is computed by subtracting the accumulated depreciation from the cost of a long-term asset.

Question 5

The difference between the debit balance of the Equipment account and the credit balance of the Accumulated Depreciation—Equipment account is called the:

Answer 5

book value of an asset.

Question 6

An equal amount of depreciation is charged to each accounting period during the asset’s useful life under which method of depreciation?

Answer 6

straight-line

Question 7

Which of the following entries records the depreciation on equipment for the fiscal year-end adjustment?

a) debit Accumulated Depreciation and credit Depreciation Expense

b) debit Depreciation Expense and credit Equipment

c) debit Depreciation Expense and credit Accumulated Depreciation

d) debit Equipment and credit Depreciation Expense

Answer 7

c) debit Depreciation Expense and credit Accumulated Depreciation

Question 8

The Supplies account had a balance of $1,200 when a physical count indicated that supplies on hand totaled $250. What amount of supplies were used during the accounting period.

Answer 8

$950

$1,200 (beginning balance) − $250 (remaining at period-end) = $950 (used during the period)

Question 9

During its first year of business, XYZ Incorporated purchased $1,600 of supplies. By the end of the year, only $500 of supplies remain in the supply cabinet. Determine the amount to be reported in the Supplies account in the Adjusted Trial Balance section of the worksheet prepared on December 31.

Answer 9

$500

As $500 in supplies remain at the end of the period, the adjusted Supplies balance should be $500.

Question 10

On November 1, 20X1, Peaches Consulting Service paid $4,800 for 12 months of advance rent on its office space. The correct adjusting entry on December 31, 20X1, to show the amount of rent that had expired would be:

Answer 10

debit Rent Expense $800 and credit Prepaid Rent $800.

$4,800/12 months = $400 per month × 2 months = $800; The adjusting entry for Prepaid Rent must both increase Rent Expense (via a debit) and reduce Prepaid Rent (via a credit).

Question 11

On October 25, 20X1, the company paid $28,200 rent in advance for the six-month period November 20X1 through April 20X2. On December 31, 20X1, the adjustment for expired rent would include:

Answer 11

an $9,400 debit to Rent Expense.

$28,200/6 months = $4,700 per month; 4,700/month × 2 months = $9,400 rent expense as of 12/31/20X1

Question 12

On July 1, Sidney Consulting Services paid $18,000 for 12 months of advance rent on its office building. Select the adjusting entry made on December 31, to record the amount of rent that had expired during the year.

Answer 12

debit rent expense $9,000
credit prepaid rent $9,000

$18,000/12 months = $1,500 per month; $1,500 × 6 months = $9,000 prepaid rent expired at year-end; The adjusting entry for Prepaid Rent must both increase Rent Expense (via a debit) and reduce Prepaid Rent (via a credit).

Question 13

On September 1, 20X1, Carpet Kings purchased a one-year insurance policy for $960. The correct adjusting entry on December 31, 20X1, is:

Answer 13

debit Insurance Expense $320 and credit Prepaid Insurance $320.

$960/12 months = $80 per month × $4 months = $320; The adjusting entry for Prepaid Insurance must both increase Insurance Expense (via a debit) and reduce Prepaid Insurance (via a credit).

Question 14

Franklin Consulting purchased a machine for $6,000 on August 1, 20X1. The company expects the useful life of the machine to be 5 years and no salvage value is expected. If the company uses the straight-line method to depreciate the machine, what will be the depreciation adjustment for the year ending December 31, 20X1?

Answer 14

debit Depreciation Expense $500 and credit Accumulated Depreciation $500

($6,000 − $0)/60 months = $100 per month; 5 months × $100 = $500; The adjusting entry for depreciation must both increase Depreciation Expense (via a debit) and increase the contra-asset account Accumulated Depreciation (via a credit).

Question 15

On a worksheet, a net loss is:

Answer 15

recorded in the Balance Sheet Debit column.

Question 16

On a worksheet, the adjusted balance of the Supplies account is extended to:

Answer 16

the Balance Sheet Debit column.

Question 17

The unadjusted net income on the income statement was $22,600. After journalizing and posting the adjusting entries for expired insurance during the year of $850 and for supplies used during the year of $520, the adjusted net income is:

Answer 17

$21,230.

$22,600 unadjusted net income − $850 insurance expense − $520 supplies expense = $21,230 adjusted net income

Question 18

The unadjusted net income on the income statement was $41,800. After journalizing and posting the adjusting entry for the $600 of prepaid advertising that expired and $1,600 in supplies used during the year, the adjusted net income is:

Answer 18

$39,600

$41,800 unadjusted net income − $600 advertising expense − $1,600 supplies expense = $39,600 adjusted net income

Question 19

Accumulated Depreciation, Equipment, is shown as:

Answer 19

a deduction from assets on the Balance Sheet.

Question 20

Which of the following is not part of the permanent accounting record?

a) the worksheet

b) the general journal

c) the general ledger

d) the adjusting entries

Answer 20

the worksheet

Question 21

Which of the following is not a two-column section within the Worksheet?

a) Adjusted Trial Balance

b) Income Statement

c) Adjustments

d) Statement of Owner’s Equity

Answer 21

Statement of Owner’s Equity

Question 22

When a business experiences a Net Loss, within which two columns of the worksheet will the Net Loss amount be entered?

Answer 22

The Income Statement Credit column and the Balance Sheet Debit column

Question 23

Preparing the worksheet represents which step within the accounting cycle?

Answer 23

fourth

Question 24

For which of the following financial statements would figures be derived from both the Income Statement section of the worksheet and the Balance Sheet section of the worksheet?

a) Income Statement

b) Statement of Owner’s Equity

c) Balance Sheet

d) none of these

Answer 24

Statement of Owner’s Equity

Question 25

Which of the following financial statement figures is not found within the worksheet?

a) Beginning Owner’s Capital account balance

b) Accounts Payable balance

c) Owner’s Withdrawal account balance

d) Ending Owner’s Capital account balance

Answer 25

Ending Owner’s Capital account balance

Question 26

Which of the following statements regarding book value is accurate?

a) Book value is calculated by subtracting the Accumulated Depreciation balance for a given asset from the cost of the asset.

b) Book value is calculated by adding the Accumulated Depreciation balance for a given asset to the cost of the asset.

c) Book value and market value are typically equal.

d) Book value represents what the buyer will pay a willing seller for an asset.

Answer 26

a) Book value is calculated by subtracting the Accumulated Depreciation balance for a given asset from the cost of the asset.

Question 27

Which of the following is the correct formula for the straight-line method of depreciation?

Answer 27

(Cost − Salvage Value) / Estimated Useful Life

Question 28

Applebaum Company was formed at the beginning of the current year and purchased $1,200 of supplies during its first week of operations. At the end of the period, it is determined that only $300 of supplies remain in the office. What amount will be included within the adjusting entry for supplies?

Answer 28

$900

The adjusting entry for supplies accounts for the portion of the supplies that has been used during the period. We subtract the remaining supplies of $300 from the original purchase of $1,200 to determine that $900 of supplies have been used during the period, and therefore this amount will be included within the adjusting journal entry.

Question 29

Accumulated Depreciation − Equipment is what type of account?

Answer 29

Contra-asset account