3 - 38 CHAPTER 3 Adjusting the Accounts Note : All asterisked Questions , Exercises , and Problems relate to material in the appendices to the chapter . Questions 1 . 2 . How does the time period assumption affect an accountant's 17 . On January 9 , a company pays $5, 000 for salaries and wages of analysis of business transactions ? which $2, 000 was reported as Salaries and Wages Payable on Decem - b . Explain the terms fiscal year , calendar year , and interim periods . ber 31 . Give the entry to record the payment . 2 . Define two generally accepted accounting principles that relate to 18 . For each of the following items before adjustment , indicate the adjusting the accounts . type of adjusting entry ( prepaid expense , unearned revenue , accrued 3 . Susan Hardy , a lawyer , accepts a legal engagement in March , revenue , or accrued expense ) that is needed to correct the misstate- performs the work in April , and is paid in May . If Hardy's law firm ment . If an item could result in more than one type of adjusting entry* prepares monthly financial statements , when should it recognize indicate each of the types . revenue from this engagement ? Why ?\\ 2 . Assets are understated . d . Expenses are understated . . . Assets are overstated 4 . Why do accrual - basis financial statements provide more useful b . Liabilities are overstated . c . Liabilities are understated . f . Revenue is understated . information than cash - basis statements ? 5 . In completing the engagement in Question 3 , Hardy pays no costs 19 . One - half of the adjusting entry is given below . Indicate the account in March , $2,000 in April , and $2 . 500 in May ( incurred in April ) . title for the other half of the entry . How much expense should the firm deduct from revenues in the a . Salaries and Wages Expense is debited month when it recognizes the revenue ? Why ?` b . Depreciation Expense is debited . 6 . " Adjusting entries are required by the historical cost principle of C . Interest Payable is credited . accounting . " Do you agree ? Explain . d. Supplies is credited . 7 . Why may a trial balance not contain up - to- date and complete finan - e . Accounts Receivable is debited . cial information ? f. Unearned Service Revenue is debited . 8 . Distinguish between the two categories of adjusting entries , and 20 . " An adjusting entry may affect more than one balance sheet or identify the types of adjustments applicable to each category . income statement account . " Do you agree ? Why or why not ?" 9 . What is the debit / credit effect of a prepaid expense adjusting entry ? 21 . Why is it possible to prepare financial statements directly from 10 . " Depreciation is a valuation process that results in the reporting an adjusted trial balance ? of the fair value of the asset . " Do you agree ? Explain . * 22 . Dashan Company debits Supplies Expense for all purchases of 11 . Explain the differences between depreciation expense and accu - supplies and credits Rent Revenue for all advanced rentals . For each mulated depreciation . type of adjustment , give the adjusting entry . 12 . G . Phillips Company purchased equipment for $18 , 000 . By the * 23 . 2 . What is the primary objective of financial reporting ?! current balance sheet date , $6 , 000 had been depreciated . Indicate the b . Identify the characteristics of useful accounting information . balance sheet presentation of the data .\\ $ 24 . Dan Fineman , the president of King Company , is pleased . King 13 . What is the debit / credit efect of an unearned revenue adjusting substantially increased its net income in 2020 while keeping its unit in - ventory relatively the same . Howard Gross , chief accountant , cautions entry ? 14 . Whistler Corp . performed services for a customer but has not yet Dan , however . Gross says that since King changed its method of in - ventory valuation , there is a consistency problem and it is difficult to recorded payment , nor has it recorded any entry related to the work . determine whether King is better off . Is Gross correct ? Why or why not ? Which of the following accounts are involved in the adjusting entry :" ( a ) asset , ( b ) liability , ( C ) revenue , or ( d ) expense ? For the accounts * 25 . What is the distinction between comparability and consistency ?" selected , indicate whether they would be debited or credited in the * 26 . Describe the constraint inherent in the presentation of account - entry . ing information . 15 . A company fails to recognize an expense incurred but not paid . In - $ 27 . Quinn Becker is president of Better Books . She has no account - dicate which of the following accounts is debited and which is credited ing background . Becker cannot understand why fair value is not used in the adjusting entry : ( a ) asset , ( b ) liability , ( C ) revenue , or ( d ) expense . as the basis for all accounting measurement and reporting . Discuss . 16 . A company makes an accrued revenue adjusting entry for $900 * 28 . What is the economic entity assumption ? Give an example of its and an accrued expense adjusting entry for $700 . How much was net violation . income understated prior to these entries ? Explain . Brief Exercises Counts. Explain why each