| e. | None of these answer choices is correct. 3) Magic Corp. purchased new equipment during the year but neglected to record depreciation. What is the effect of this omission on each of the named accounts? Accumulated Retained Depreciation Depreciation Earnings Expense | a. | Understated Overstated Understated | | b. | Understated No effect Overstated | | c. | Overstated Understated Understated | | d. | Overstated No effect Overstated | | e. | Overstated Understated Overstated | 4) The Supplies account balance at the beginning of the period was $6,600. Supplies totaling $12,825 were purchased during the period and debited to Supplies . A physical count shows $3,825 of Supplies at the end of the period. The proper journal entry at the end of the period | a. | debits Supplies and credits Supplies Expense for $9,000. | | b. | debits Supplies Expense and credits Supplies for $12,825. | | c. | debits Supplies and credits Supplies Expense for $15,600. | | d. | debits Supplies Expense and credits Supplies for $15,600. | | e. | None of these choices are correct. | 4) Malcolm Corporation purchased an insurance policy for three years beginning January 1, Year 2, and recorded the $6,000 premium in the Prepaid Insurance account. What adjusting entry is required to reflect the proper balances, in the insurance-related accounts at year-end, on December 31, Year 2? | a. | Insurance Expense 2,000 Prepaid Insurance 2,000 | | b. | Prepaid Insurance 2,000 Insurance Expense 2,000 | | c. | Insurance Expense 4,000 Prepaid Insurance 4,000 | | d. | Prepaid Insurance 4,000 Insurance Expense 4,000 | | e. | Insurance Expense 6,000 Prepaid Insurance 6,000 | 5) Andrews Corporation's liability account balances at June 30, 2013, included a 10 percent note payable. The note is dated October 1, 2011, and carried an original principal amount of $600,000. The note is payable in three equal annual payments of $200,000 plus interest. The first interest and principal payment was made on October 1, 2012. In Andrews June 30, 2013, balance sheet, what amount should be reported as Interest Payable for this note? | a. | $10,000 | | b. | $15,000 | | c. | $30,000 | | d. | $45,000 | | e. | None of these answers is correct. | 6) Llama Company signed a new $36,000 three-year lease beginning October 1, Year 1, for a storage facility for holding merchandise inventory. On October 1, Year 1, Llama Company recorded the first year's payment of $12,000 in the Prepaid Rent account. There was no balance in the Prepaid Rent account prior to this entry. Llama Company records adjustments only at the calendar year end. At December 31, Year 1, the adjusting entry needed to accurately reflect the correct balances in the Prepaid Rent and Rent Expense accounts would be to debit: | a. | Prepaid Rent for $12,000 and credit Rent Expense for $12,000 | | b. | Rent Expense for $12,000 and credit Prepaid Rent for $12,000 | | c. | Prepaid Rent for $3,000 and credit Rent Expense for $3,000 | | d. | Rent Expense for $3,000 and credit Prepaid Rent for $3,000 | | e. | Prepaid Rent for $9,000 and credit Rent Expense for $9,000 | |
