Quiz 2 (Chapter 34 I . Multiple Choices 1. Which of the following is the entry t
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Question
Quiz 2 (Chapter 34 I . Multiple Choices 1. Which of the following is the entry to be recorded by a law firm when it recelves a 52,000 retainer from a new client at the initial client meeting? a. Debit to Cash, $2.000, credit to Legal Fees Revenue, $2.000 b. Debit to Accounts Receivable, $2.000, credit to Legal Fees Revenue, $2,000. c. Debit to Uncarned Revenue, $2,000, credit to Legal Fees Revenue, $2,000 d. Debit to Cash, $2.000, credit to Unearned Revenue, $2.000 e. Debit to Uncarned Revenue, $2,000; credit to Cash, $2.000. During 2014, Cir'Co Inc. incurred operating expenses of $250,000, of which $150,000 was paid in cash; the balance will be paid in January 201S. Transaction analysis of opcrating espenses for 2014 should reflect only the following a. Decrease stockholders' equity, $150,000; decrease assets, $150,000. b. Decrease assets, $250,000; decrease stockholders' equity, $250,000. e. Decrease stockholders' equity, $250,000; decrease assets, $150,000; increase liabilities, $100,000 d. Decrease assets, $250,000: increase liabilities, $100,000: decrease stockholders' equity, S150,000. e. None of the above is correct. . Which of the following accounts would not appear in a closing entry? a. Salary Expense b. Interest Income c. Accumulated Depreciation d. Retained Earnings 4. Which account is least likely to appear in an adjusting journal entry? a. Interest Receivable b. Cash c. Property Tax Expense d.Salaries Payable 5. On October 1, 2014, the $12,000 premium on a one-year insurance policy for the building was paid and recorded as Prepaid Insurance. On December 31, 2014 (end of the accounting period), what adjusting entry is needed? a. Insurance Expense (+E) 2,000 c. Prepaid Insurance (+A) 3,000 Prepaid Insurance (-A) 2,000 Insurance Expense (-E) 3,000 b. Insurance Expense (+E) 3,000 d. Prepaid Insurance (+A) 9.000 Prepaid Insurance (-A) 3,000 Insurance Expense (-E) 9.000 6. On June 1, 2013, Oak Company signed a three-year $110,000 note payable with 9 percent interest. Interest is due on June 1 of each year beginning in 2014. What amount of interest expense should be reported on the income statement for the year ended December 31,2013? a. $5,250 b. $5,775 c. $4,950 d.$9,900 7·Failure to make an adjusting entry to recognize accrued salaries payable would cause which of the following? a. An understatement of expenses, liabilities, and stockholders' equity b. An understatement of expenses and liabilities and an overstatement of stockholders' equityExplanation / Answer
1. At the initial client meeting no services have yet have been provided and therefore, the cash received in the advance money for representing the client. Therefore, law firm will debit the cash as it has received and will credit the unearned revenue account as it is advance received from the customer for future services.
Cash..............2,000
TO Unearned Revenue......2,000
Correct Answer is D.
2. Operating expenses leads to the decrease in the net income of the company and as a result decrease in stockholder's equity. At the same time, cash is going out of business and same will be crediting and remaining amount is yet to be paid and will be considered as liability or obligation. Liability will increase.
Decrease in Stockholder's equity.........250,000
Decrease in Cash........150,000
Increase in Liabilities....100,000
Correct answer is C.
3. Closing entry is the year end entry used for closing the temporary accounts on income statement and tranferring amounts to permanent accounts like capital account or retained earnings. In the given question, accumulated depreciation account will not appear on closing entry as the same is not reported on income statement rather it is subtracted from adjusted basis of fixed assets held by the company. All other accounts appear in entry.
4. Cash account is least likely to appear in the adjusting entry as all the entries realted to receipts and disbursements of cash are recorded by the company on real time basiis and does not required any estimation of amounts. All other accounts are adjusted in final entry to conform to the accounting standards and principles but cash account is always effected as and when transaction happens.
5. On 31st December, company is required to book insurance expense pertaining to 3 months (Oct - Dec) by debiting the insurance expense account and crediting the outstanding prepaid insurance amount
Insurance expense = 12,000 / 12 * 3 = 3,,000
Insurance Expense (+E)........3,000
TO Prepaid Insurance (-A).......3,000
Correct answer is B.
6. Interest expense to be booked = 110,000 x 9% / 12 months x 7 months
= $5,775 (Correct answe is B)
7. If salaries payable is not booked then it means company has not booked it's salary expense and salary expense payable. Therefore, there is understatment of expenses and liablities. Moreover, due to less booked expenses, company is showing more income in the income statement and hence, overstatement of overall profits and stockholder's equity.
Correct answer is B.
8. Adjusted trial balance is the result of the summation of pre adjusted trial balance and adjusting entires passed. As a result, it shows the final closing figures of account heads in debit and credit format. Correct answer is C.
9. Correct answer is C. Dpereciation is due to wear and tear in the use of the asset. Book value of the asset decreases with the time as it is assumed to be used and wear out and is called to be depreciated. However, it is not necessary that the value of the building will decrease, even if market value of building increases it is required to be depreciaated in the books due to use and wear & tear.