Use the following information to answer questions 1 - 6:
A company borrowed $100,000 on December 1 by signing a six-month note that specifies interest at an annual percentage rate (APR) of 12%. No interest or principal payment is due until the note matures on May 31. The company prepares financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be entered in the company's records.
1. What date should be used to record the December adjusting entry?
A company borrowed $100,000 on December 1 by signing a six-month note that specifies interest at an annual percentage rate (APR) of 12%. No interest or principal payment is due until the note matures on May 31. The company prepares financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that should be entered in the company's records.
1. What date should be used to record the December adjusting entry?
Answer
2. How many accounts are involved in the adjusting entry?
Answer
3. What is the name of the account that will be debited?
Answer
4. What is the name of the account that will be credited?
Answer
5. What is the amount of the debit and the credit?
Answer
6. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?
Answer
Use the following information to answer questions 7 - 12:
A bank lent $100,000 to a customer on December 1 that required the customer to pay an annual percentage rate (APR) of 12% on the amount of the loan. The loan is due in six months and no payment of interest or principal is to be made until the note is due on May 31. The bank prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that the bank will be making for its accounting records.
7. What date should be used to record the December adjusting entry?
Answer
8. How many accounts are involved in the adjusting entry?
Answer
9. What is the name of the account that should be debited?
Answer
10. What is the name of the account that should be credited?
Answer
11. What is the amount of the debit and the credit?
Answer
12. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?
Answer
Use the following information to answer questions 13 - 18:
On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the current asset Prepaid Insurance and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that will be written by the company.
13. What date should be used to record the December adjusting entry?
Answer
14. How many accounts are involved in the adjusting entry?
Answer
15. What is the name of the account that will be debited?
Answer
16. What is the name of the account that will be credited?
Answer
17. What is the amount of the debit and the credit?
Answer
18. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?
Answer
Use the following information to answer questions 19 - 24:
On December 1, your company paid its insurance agent $2,400 for the annual insurance premium covering the twelve-month period beginning on December 1. The $2,400 payment was recorded on December 1 with a debit to the income statement account Insurance Expense and a credit to the current asset Cash. Your company prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that will be written by the company.
19. What date should be used to record the December adjusting entry?
Answer
20. How many accounts are involved in the adjusting entry?
Answer
21. What is the name of the account that will be debited?
Answer
22. What is the name of the account that will be credited?
Answer
23. What is the amount of the debit and the credit?
Answer
24. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?
Answer
Use the following information to answer questions 25 - 30:
On December 1, XYZ Insurance Co. received $2,400 from your company for the annual insurance premium covering the twelve-month period beginning on December 1. XYZ Insurance Co. recorded the $2,400 receipt as of December 1 with a debit to the current asset Cash and a credit to the current liability Unearned Revenues. XYZ Insurance Co. prepares monthly financial statements at the end of each calendar month. The following questions pertain to the adjusting entry that will be written by the XYZ Insurance Co.
25. What date should be used to record the December adjusting entry?
Answer
26. How many accounts are involved in the adjusting entry?
Answer
27. What is the name of the account that will be debited?
Answer
28. What is the name of the account that will be credited?
Answer
29. What is the amount of the debit and the credit?
Answer
30. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?
Answer
Use the following information to answer questions 31 - 36:
On December 1, your company began operations. On December 3 it purchased $1,500 of supplies and recorded the transaction with a debit to the current asset Supplies and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company.
31. What date should be used to record the December adjusting entry?
Answer
32. How many accounts are involved in the adjusting entry?
Answer
33. What is the name of the account that will be debited?
Answer
34. What is the name of the account that will be credited?
Answer
35. What is the amount of the debit and the credit?
Answer
36. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?
Answer
Use the following information to answer questions 37 - 42:
On December 1, your company began operations. On December 4 it purchased $1,500 of supplies and recorded the transaction with a debit to the income statement account Supplies Expense and a credit to the current liability Accounts Payable. Your company prepares monthly financial statements at the end of each calendar month. At the end of the day on December 31, your company estimated that $700 of the supplies were still on hand in the supply room. The following questions pertain to the adjusting entry that should be entered by your company.
37. What date should be used to record the December adjusting entry?
Answer
38. How many accounts are involved in the adjusting entry?
Answer
39. What is the name of the account that will be debited?
Answer
40. What is the name of the account that will be credited?
Answer
41. What is the amount of the debit and the credit?
Answer
42. What would be the effect on the financial statements if the company fails to make the adjusting entry on December 31?
Answer
43. A common characteristic of an adjusting entry is that it involves a balance sheet account and an
__________
account. 44. Adjusting entries are usually dated the last day of the accounting period and they convert accounts from the cash basis of accounting to the
__________
basis of accounting. 45. Company S received money in advance of providing services to Company P. The money received before it is earned is an increase to Company S's asset account Cash. The amount unearned should also be reported as
Another Asset
A Liability
Revenues
46. It is acceptable that some adjusting entries contain estimated amounts.
True
False
47. Adjusting entries are often categorized into two groups:
__________
and deferrals. 48. An adjusting entry to record interest expense incurred by a company but not yet included in its accounting records is categorized as a(n).
Accrual
Deferral
49. An adjusting entry to adjust the amounts already recorded in the asset account Supplies and in the income statement account Supplies Expense is categorized as a(n).
Accrual
Deferral
50. A law firm has received $10,000 for services to be performed in the future. In which category would you put the entry to adjust the accounts involved (Service Revenues and Unearned Revenues)?
Accrual
Deferral
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