| | | Debiting Accounts Payable and crediting Revenue when billing a customer Question 3 Your employer has a MondayFriday workweek; the 5-day payroll totals $20,000 each week. In 20X1, December 31 is a Thursday. Just before closing the books, you realize that no adjusting entry was made. If no correcting entry is recorded, | | | liabilities will be understated and net income will be understated | | | | liabilities will be overstated and net income will be understated | | | | liabilities will be overstated and net income will be overstated | | | | everything will be fine. The original adjusting entry was unnecessary and no correction needs to be made. | | | | liabilities will be understated and net income will be overstated Question 4 On November 1, 20X3, your calendar year company receives $40,000 for space it is subletting for 5 months (November 1, 20X3 through March 31, 20X4). The $40,000 was recorded as revenue. On December 31, 20X3, you discover that an adjusting entry was never made. To correct this error you must: | | | wait until the end of the 5-month period | | | | debit Rent Revenue for $24,000; credit Unearned Rent for $24,000 | | | | debit Unearned Rent for $24,000; credit Rent Revenue for $24,000 | | | | debit Rent Revenue for $16,000; credit Unearned Rent for $16,000 | | | | debit Unearned Rent for $16,000; credit Rent Revenue for $16,000 Question 5 Your company purchases $3,000 of supplies, recording them as expenses. At year end, a physical count shows $1,800 of supplies on hand. The year-end adjusting entry debits Supplies for $1,200 and credits Supplies Expense for $1,200. The correcting entry will: | | | debit Supplies for $1,800; credit Supplies Expense for $1,800 | | | | debit Supplies for $600; credit Supplies Expense for $600 | | | | not be necessary | | | | debit Supplies Expense for $600; credit Supplies for $600 | | | | debit Supplies Expense for $1,800; credit Supplies for $1,800 Question 6 On November 1, 20X3, your calendar year company receives $40,000 for space it is subletting for 5 months (November 1, 20X3 through March 31, 20X4). The $40,000 was recorded as a liability. On December 31, 20X3, you discover that an adjusting entry was never made. To correct this error you must: | | | debit Rent Revenue for $16,000; credit Unearned Rent for $16,000 | | | | debit Rent Revenue for $24,000; credit Unearned Rent for $24,000 | | | | debit Unearned Rent for $16,000; credit Rent Revenue for $16,000 | | | | wait until the end of the 5-month period | | | | debit Unearned Rent for $24,000; credit Rent Revenue for $24,000 Question 7 On November 1, 20X3, your calendar year company receives $40,000 for space it is subletting for 5 months (November 1, 20X3 through March 31, 20X4). The $40,000 was recorded as revenue. On December 31, 20X3, you discover that an adjusting entry was never made. If you fail to make the correcting entry, | | | liabilities will be understated and net income will be understated | | | | liabilities will be overstated and net income will be understated | | | | the financial statements will be accurate because an adjusting entry was not necessary | | | | liabilities will be overstated and net income will be overstated | | | | liabilities will be understated and net income will be overstated Question 8 Your calendar year company completes a $6,000 job, which has not been recorded or received. If you discover before the books are closed that no adjusting entry was made, your correcting entry will: | | | debit Accounts Receivable for $6,000; credit Revenue for $6,000 | | | | debit cash for $6,000; credit Revenue for $6,000 | | | | debit Cash for $6,000; credit Accounts Receivable for $6,000 | | | | debit Revenue for $6,000; credit Account Receivable for $6,000 | | | | not be necessary because an entry is not required until the cash is received Question 9 Your employer has a MondayFriday workweek; the 5-day payroll totals $35,000 each week. In 20X2, December 31 is a Tuesday. One of your assistants made the adjusting entry by debiting Salaries Expense and crediting Salaries Payable for $21,000. Your correcting entry will: | | | debit Salaries Expense for $7,000; credit Salaries Payable for $7,000 | | | | debit Salaries Payable for $14,000; credit Salaries Expense for $14,000 | | | | debit Salaries Expense for $14,000; credit Salaries Payable for $14,000 | | | | not be necessary because the original adjusting entry was done correctly | | | | debit Salaries Payable for $7,000; credit Salaries Expense for $7,000 Accrual and deferral errors: | | | affect the income statement only | | | | affect the balance sheet only | | | | affect both the income statement and the balance sheet | | | | can affect different statements; it depends on the type of the error Question 11 On November 1, 20X8, your calendar year company pays $1,200 for 12 months insurance, recording it as an asset. Just before closing the books, you realize that no adjusting entry was made. The correcting entry will: | | | debit an asset account for $200; credit an expense account for $200 | | | | debit an expense account for $1,000; credit an asset account for $1,000 | | | | debit an expense account for $200; credit an asset account for $200 | | | | debit an asset account for $1,000; credit an expense account for $1,000 | | | | Not be necessary Question 12 On November 1, 20X8, your calendar year company pays $1,200 for 12 months insurance, recording it as an expense. Just before closing the books, you realize that no adjusting entry was made. The correcting entry will: | | | debit Insurance Expense for $200; credit Prepaid Insurance for $200 | | | | not be necessary | | | | debit Prepaid Insurance for $1,000; credit Insurance Expense for $1,000 | | | | debit Insurance Expense for $1,000; credit Prepaid Insurance for $1,000 | | | | debit Prepaid Insurance for $200; credit Insurance Expense for $200 If you fail to accrue revenue, | | | assets will be understated and net income will be understated | | | | assets will be overstated and net income will be overstated | | | | assets will be understated and net income will be overstated | | | | the balance sheet will be accurate, but the income statement will be understated | | | | assets will be overstated and net income will be understated | | | | the income statement will be accurate, but the balance sheet will be understated Question 14 Your company purchased $2,000 of supplies and recorded the amount as an asset. At year end, a physical count shows $700 of supplies on hand. Before closing the books, it is discovered that an adjusting entry was never made. If no correcting entry is made, | | | the income statement will be accurate, but the balance sheet will be understated | | | | assets will be understated and net income will be understated | | | | the balance sheet will be accurate, but the income statement will be understated | | | | assets will be overstated and net income will be understated | | | | assets will be overstated and net income will be overstated | | | | assets will be understated and net income will be overstated Question 15 On March 31, 20X8, your calendar year company takes out a 3-year insurance policy with a premium of $5,000 per year. The entire $15,000 is paid in advance on March 31, 20X8 and is recorded as prepaid insurance. On December 31, 20X8, you discover that the adjusting entry debited Insurance Expense for $5,000 and credited Prepaid Insurance for $5,000. Your correcting journal entry will: | | | debit Prepaid Insurance for $3,750; credit Insurance Expense for $3,750 | | | | debit Prepaid Insurance for $1,250; credit Insurance Expense for $1,250 | | | | debit Insurance Expense for $1,250; credit Prepaid Insurance for $1,250 | | | | debit Insurance Expense for $3,750; credit Prepaid Insurance for $3,750 | | | | debit Prepaid Insurance for $5,000; credit Insurance Expense for $5,000 | | | | not be necessary because the original adjusting entry was correct Question 16 On November 1, 20X3, your calendar year company receives $40,000 for space it is subletting for 5 months (November 1, 20X3 through March 31, 20X4). The $40,000 was recorded as Rent Revenue. On December 31, 20X3, you discover the following adjusting entry: Rent Revenue 32,000 Unearned Rent 32,000 To correct this error you must: | | | debit Rent Revenue for $8,000; credit Unearned Rent for $8,000 | | | | debit Rent Revenue for $16,000; credit Unearned Rent for $16,000 | | | | debit Unearned Rent for $16,000; credit Rent Revenue for $16,000 | | | | debit Unearned Rent for $8,000; credit Rent Revenue for $8,000 Question 17 On March 1, 20X1, your calendar year company borrows $10,000. Terms require repayment of principal and annual interest of 9% after 4 years. At year-end 20X1, an adjusting entry accrues $550 interest expense. If you discover the error before the books are closed, what is the correcting entry? | | | debit Interest Payable for $200; credit Interest Expense for $200 | | | | debit Interest Expense for $350; credit Interest Payable for $350 | | | | debit Interest Expense for $200; credit Interest Payable for $200 | | | | debit Interest Expense for $550; credit Interest Payable for $550 | | | | debit Interest Payable for $350; credit Interest Expense for $350 | | | | debit Interest Payable for $550; credit Interest Expense for $550 Question 18 On March 31, 20X8, your calendar year company takes out a 3-year insurance policy with a premium of $4,000 per year. The entire $12,000 is paid in advance and is recorded as prepaid insurance. At year-end 20X8, you discover that the adjusting entry debits Insurance Expense for $4,000 and credits Prepaid Insurance for $4,000. If you do not correct this, | | | assets will be overstated and net income will be understated | | | | everything will be fine. Since the original adjusting entry was correct, no correction needs to be made. | | | | assets will be overstated and net income will be overstated | | | | assets will be understated and net income will be understated | | | | assets will be understated and net income will be overstated Question 19 On November 1, 20X3, your calendar year company receives $40,000 for space it is subletting for 5 months (November 1, 20X3 through March 31, 20X4). The $40,000 was recorded as a liability. On December 31, 20X3, you discover that an adjusting entry was never made. If you fail to make the correcting entry, | | | liabilities will be understated and net income will be overstated | | | | liabilities will be overstated and net income will be overstated | | | | liabilities will be understated and net income will be understated | | | | liabilities will be overstated and net income will be understated | | | | the financial statements will be accurate because an adjusting entry was not necessary Question 20 On September 1, 20X8, your calendar year company pays $2,400 for 12 months insurance, recording the amount as an expense. Just before closing the books, you realize that no adjusting entry was recorded. Without it, | | | assets will be understated and net income will be overstated | | | | assets will be overstated and net income will be overstated | | | | assets will be overstated and net income will be understated | | | | the financial statements will be accurate because no adjusting entry was necessary | | | | assets will be understated and net income will be understated | | | | | | | | | | | | | | | | | | |
