LO1 EXERCISE 4.1 Accounting Terminology through Listed below are nine technical accounting terms used in this chapter: Unrecorded revenue Adjusting entries Accrued expenses Book value Matching principle Accumulated depreciation Unearned revenue Materiality Prepaid expenses LO9 Each of the following statements may or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer None" if the statement does not cor- rectly describe any of the terms. a. The net amount at which an asset is carried in the accounting records as distinguished from its market value. b. An accounting concept that may justify departure from other accounting principles for pur- poses of convenience and economy. c. The offsetting of revenue with expenses incurred in generating that revenue. d. Revenue earned during the current accounting period but not yet recorded or billed, which requires an adjusting entry at the end of the period. Entries made at the end of the period to achieve the goals of accrual accounting by recording revenue when it is earned and by recording expenses when the related goods and services are used. f. A type of account credited when customers pay in advance for services to be rendered in the future. g. A balance sheet category used for reporting advance payments of such items as insurance, rent, and office supplies. h. An expense representing the systematic allocation of an asset's cost over its useful life. e. L01 EXERCISE 4.2 Effects of Adjusting Entries through a. LOG b. LOS Security Service Company adjusts its accounts at the end of the month. On November 30, adjusting entries are prepared to record: Depreciation expense for November. Interest expense that has accrued during November. c. Revenue earned during November that has not yet been billed to customers. d. Salaries, payable to company employees, that have accrued since the last payday in November. The portion of the company's prepaid insurance that has expired during November. f. Earning a portion of the amount collected in advance from a customer, Harbor Restaurant. Indicate the effect of each of these adjusting entries on the major elements of the company's income statement and balance sheetthat is, on revenue, expenses, net income, assets, liabilities, and owners' equity. Organize your answer in tabular form, using the column headings shown and the symbols I for increase, D for decrease, and NE for no effect. The answer for adjusting entry a is provided as an example. e. Income Statement Balance Sheet Adjusting Entry Net Revenue - Expenses = Income NE 1 D Owners' Assets = Liabilities + Equity D NE D a LO1 through LOZ EXERCISE 4.5 Preparing Adjusting Entries to Accrue Revenue and Expenses for Which No Cash Has Been Received The geological consulting firm of Gilbert, Marsh, & Kester prepares adjusting entries on a monthly basis. Among the items requiring adjustment on December 31, 2011, are the following: 1. The company has outstanding a $50,000, 9 percent, two-year note payable issued on July 1, 2010. Payment of the $50,000 note, plus all accrued interest for the two-year loan period, is due in full on June 30, 2012. 2. The firm is providing consulting services to Texas Oil Company at an agreed-upon rate of $1,000 per day. At December 31, 10 days of unbilled consulting services have been provided. Prepare the two adjusting entries required on December 31 to record the accrued interest expense and the accrued consulting revenue earned. b. Assume that the $50,000 note payable plus all accrued interest are paid in full on June 30, 2012. What portion of the total interest expense associated with this note will be reported in the firm's 2012 income statement? Assume that on January 30, 2012, Gilbert, Marsh, & Kester receive $25,000 from Texas Oil Company in full payment of the consulting services provided in De per and January. What portion of this amount constitutes revenue earned in January? a. c
