Practice Midterm Quiz 10 Flashcards
- Which ONE of the following accounts typically has a DEBIT balance?
a. Long-term Debt
b. Capital Stock
c. Sales Revenue
d. Retained Earnings
e. Dividends
f. Unearned Service Revenue
- Solution = E. See MyEducator Topic 4 and associated Practice Problems (and solutions).
- Which ONE of the following accounts typically has a CREDIT balance?
a. Accounts Receivable
b. Cost of Goods Sold
c. Unearned Rent Revenue
d. Inventory
e. Prepaid Insurance Expense
- Solution = C. See MyEducator Topic 4 and associated Practice Problems (and solutions).
- Which ONE of the following statements best summarizes the REVENUE RECOGNITION PRINCIPLE?
a. Revenues are recognized in the period in which those costs provide benefit to the business.
b. Expenses are recognized in the period in which those costs provide benefit to the business.
c. Revenues are recognized in the period in which cash is received.
d. Revenues are recognized in the period in which they are earned.
e. Expenses are recognized in the period in which they are earned.
f. Expenses are recognized in the period in which cash is paid.
- Solution = D. See MyEducator Topic 4 and associated Practice Problems (and solutions).
- On May 1 of Year 1, the company paid $2,400 in advance for 2 years (24 months) of insurance, with the insurance period beginning on May 1 of Year 1. This was recorded as Prepaid Insurance – Which ONE of the following will be included in the ADJUSTING ENTRY necessary on December 31 of Year 1?
a. DEBIT to PREPAID INSURANCE for $2,400
b. CREDIT to CASH for $2,400
c. DEBIT to INSURANCE EXPENSE for $1,600
d. CREDIT to PREPAID INSURANCE for $800
e. CREDIT to INSURANCE EXPENSE for $800
- Solution = D. See MyEducator Topic 4 and associated Practice Problems (and solutions).
May 1
Prepaid Insurance 2,400
Cash 2,400
Dec 31
Insurance Expense 800
Prepaid Insurance 800
Expense: ($2,400 ÷ 24 months) × 8 months = $800
- On May 1 of Year 1, the company paid $2,400 in advance for 2 years (24 months) of insurance, with the insurance period beginning on May 1 of Year 1. This was recorded as Prepaid Insurance – Which ONE of the following will be included in the ADJUSTING ENTRY necessary on December 31 of Year 2? Note: Assume that the correct adjusting entry was made on December 31 of Year 1.
a. DEBIT to PREPAID INSURANCE for $1,200
b. CREDIT to CASH for $1,200
c. DEBIT to INSURANCE EXPENSE for $1,200
d. CREDIT to PREPAID INSURANCE for $400
e. CREDIT to INSURANCE EXPENSE for $400
- Solution = C. See MyEducator Topic 4 and associated Practice Problems (and solutions).
May 1 of Year 1
Prepaid Insurance 2,400
Cash 2,400
Dec 31 of Year 1
Insurance Expense 800
Prepaid Insurance 800
Expense: ($2,400 ÷ 24 months) × 8 months = $800
Dec 31 of Year 2
Insurance Expense 1,200
Prepaid Insurance 1,200
Expense: ($2,400 ÷ 24 months) × 12 months = $1,200
- On June 1, the company paid $1,200 in advance for 12 months of rent, with the rental period beginning on June 1. This $1,200 was recorded as Rent Expense. [Yes, they did it wrong, but we have to work with what they did.] As of the end of the year, no entry has yet been made to adjust the amount initially (incorrectly) recorded. – Which ONE of the following will be included in the ADJUSTING ENTRY necessary on December 31?
a. DEBIT to PREPAID RENT for $700
b. DEBIT to CASH for $700
c. DEBIT to RENT EXPENSE for $700
d. CREDIT to PREPAID RENT for $500
e. DEBIT to PREPAID RENT for $500
f. DEBIT to RENT EXPENSE for $500
- Solution = E. See MyEducator Topic 4 and associated Practice Problems (and solutions).
Rent Expense: ($1,200 ÷ 12 months) × 7 months = $700
Prepaid Rent: ($1,200 ÷ 12 months) × 5 months remaining for next year = $500
Currently, NO Prepaid Rent is recorded, and too much Rent Expense ($1,200) is recorded.
Prepaid Rent 500 Rent Expense 500
This puts $500 of Prepaid Rent on the books and REDUCES Rent Expense by $500 to the correct amount of $700 ($1,200 - $500).
- On October 1, the company received $2,400 in advance for 12 months of service to be provided, with the service period beginning on October 1. This $2,400 was recorded as Unearned Service Revenue. The service is provided evenly throughout the year. As of the end of the year, no entry has yet been made to adjust the amount initially recorded. – Which ONE of the following will be included in the ADJUSTING ENTRY necessary on December 31?
a. DEBIT to UNEARNED SERVICE REVENUE for $1,800
b. DEBIT to CASH for $1,800
c. DEBIT to SERVICE REVENUE for $1,800
d. CREDIT to SERVICE REVENUE for $600
e. CREDIT to UNEARNED SERVICE REVENUE for $600
f. CREDIT to CASH for $600
- Solution = D. See MyEducator Topic 4 and associated Practice Problems (and solutions).Unearned Service Revenue 600
Service Revenue 600
Revenue: ($2,400 ÷ 12 months) × 3 months = $600
- The company pays its workers every two weeks. As of December 31 of Year 1, the company’s workers have earned wages of $7,000 for which they have not yet been paid; they will not be paid these wages until January of next year. The correct adjusting entry was made. – On January 5 of Year 2, the company paid total wages to the employees of $10,000, of which $7,000 related to work performed last year. Which ONE of the following is included in the journal entry necessary on January 5 of Year 2 to record the payment of $10,000 in cash?
a. DEBIT to WAGES EXPENSE for $10,000
b. CREDIT to CASH for $7,000
c. CREDIT to WAGES PAYABLE for $7,000
d. DEBIT to WAGES PAYABLE for $7,000
e. DEBIT to CASH for $7,000
- Solution = D. See MyEducator Topic 4 and associated Practice Problems (and solutions).
Dec 31 of Year 1
Wages Expense 7,000
Wages Payable 7,000
Jan 5 of Year 2
Wages Expense 3,000
Wages Payable 7,000
Cash 10,000
- The company earns interest on various investment accounts. As of December 31 of Year 1, the company has earned interest revenue of $5,000 for which it has not yet received the cash; the company will not receive the cash until February of next year. The correct adjusting entry was made. – On February 28 of Yea 2, the company received a total of $7,000 in cash as interest on its various investment accounts. As mentioned above, some of that interest was actually earned last year. – Which ONE of the following is included in the journal entry necessary on February 28 of Year 2 to record the receipt of $7,000 in cash?
a. CREDIT to CASH for $7,000
b. DEBIT to INTEREST RECEIVABLE for $5,000
c. CREDIT to INTEREST RECEIVABLE for $5,000
d. DEBIT to INTEREST REVENUE for $2,000
e. CREDIT to INTEREST REVENUE for $5,000
- Solution = C. See MyEducator Topic 4 and associated Practice Problems (and solutions).
Dec 31 of Year 1
Interest Receivable 5,000
Interest Revenue 5,000
Feb 28 of Year 2
Cash 7,000
Interest Revenue 2,000
Interest Receivable 5,000
- Which ONE of the following is a NOMINAL account?
a. Accounts Payable
b. Capital Stock
c. Unearned Sales Revenue
d. Retained Earnings
e. Prepaid Rent Expense
f. Dividends
- Solution = F. See MyEducator Topic 4 and associated Practice Problems (and solutions).
Nominal accounts are all revenue, expense, and dividend accounts.
Unearned Sales Revenue is a liability account.
Prepaid Rent Expense is an asset account.
- The following end-of-year account balance information is from the accounting records of June Company.
Accounts Payable 120 Accounts Receivable 250 Cash 100 Contributed Capital 900 Cost of Goods Sold 1250 Dividends 60 Equipment 900 Insurance Expense 220 Inventory 800 Long-term Debt 1260 Prepaid Insurance Expense 50 Rent Revenue 100 Retianed Earnings (beginning) 225 Sales Revenue 1000 Unearned Rent Revenue 25
Which ONE of the following would appear in the closing entries for the year?
a. CREDIT to Cost of Goods Sold for $1,250
b. CREDIT to Sales Revenue for $1,000
c. DEBIT to Accounts Payable for $120
d. DEBIT to Dividends for $60
e. DEBIT to Contributed Capital for $900
f. CREDIT to Prepaid Insurance Expense for $50
g. DEBIT to Unearned Rent Revenue for $25
- Solution = A. See MyEducator Topic 4 and associated Practice Problems (and solutions).Sales Revenue 1,000
Rent Revenue 100
Retained Earnings 1,100Retained Earnings 1,470
Cost of Goods Sold 1,250
Insurance Expense 220Retained Earnings 60
Dividends 60
Balance sheet accounts are not closed.
- The following end-of-year account balance information is from the accounting records of June Company.
Accounts Payable 120 Accounts Receivable 250 Cash 100 Contributed Capital 900 Cost of Goods Sold 1250 Dividends 60 Equipment 900 Insurance Expense 220 Inventory 800 Long-term Debt 1260 Prepaid Insurance Expense 50 Rent Revenue 100 Retianed Earnings (beginning) 225 Sales Revenue 1000 Unearned Rent Revenue 25
Which ONE of the following would appear in the closing entries for the year?
a. CREDIT to Long-term Debt for $1,260
b. CREDIT to Rent Revenue for $100
c. DEBIT to Cash for $100
d. CREDIT to Dividends for $60
e. DEBIT to Insurance Expense for $220
f. CREDIT to Prepaid Insurance Expense for $50
g. DEBIT to Unearned Rent Revenue for $25
h. CREDIT to Cash for $100
- Solution = D. See MyEducator Topic 4 and associated Practice Problems (and solutions).Sales Revenue 1,000
Rent Revenue 100
Retained Earnings 1,100Retained Earnings 1,470
Cost of Goods Sold 1,250
Insurance Expense 220Retained Earnings 60
Dividends 60
Balance sheet accounts are not closed.
