Quiz 3 Practice

25 July 2022
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What is the term used to describe the right side of a T-account? Multiple Choice Credit side Claims side Debit side Equity side
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Credit side Explanation The right side of an account is the credit side.
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Which of the following statements is true regarding a trial balance that balances? Multiple Choice All transactions have been properly recorded. There are no missing transactions. This equality can only be achieved after closing entries have been recorded and posted to the ledger accounts. The equality of debits and credits has been proven.
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The equality of debits and credits has been proven. Explanation The trial balance only proves the equality of debits and credits. It does not detect missing or incorrect entries that were recorded with equal debits and credits. If the debit total does not equal the credit total on the trial balance, adjusted trial balance, or post-closing trial balance, the accountant knows to search for an error.
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What is the term that is used to describe the difference between the total debit and credit amounts in a T-account? Multiple Choice Net income Trial balance Equality Account balance
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Account balance Explanation For any given account, the difference between the total debit and credit amounts is the account balance.
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Which of the following statements about debits is false? Multiple Choice Debits increase assets. Debits increase expenses. Debits decrease liabilities. Debits increase liabilities.
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Debits increase liabilities. Explanation Debits increase asset accounts; credits decrease asset accounts.Debits decrease liability and stockholders' equity accounts; credits increase liability and stockholders' equity accounts.
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Which of the following statements regarding credit entries is true? Multiple Choice Credits decrease liability accounts. Credits increase asset accounts. Credits increase the common stock account. Credits increase asset and common stock accounts, and decrease liability accounts.
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Credits increase the common stock account. Explanation Debits increase asset accounts; credits decrease asset accounts. Debits decrease liability and stockholders' equity accounts; credits increase liability and stockholders' equity accounts. Common Stock, a stockholders' equity account, is increased with a credit.
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What is the term used to describe the left side of a T-account? Multiple Choice Equity side Debit side Credit side Claims side
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Debit Side Explanation The left side of an account is the debit side.
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Which one of the following would not be included in a closing entry? Multiple Choice A credit to Rent Expense A debit to Unearned Revenue A debit to Service Revenue A credit to Dividends
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A debit to Unearned Revenue Explanation Closing entries move all current year data from the temporary accounts (revenues, expenses, and dividends) into the retained earnings account. The Unearned Revenue account is a liability account; it is not closed
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Which of the following accounts is increased with a debit? Multiple Choice Insurance expense Service revenue Accounts payable Common stock
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Insurance expense Explanation Debits increase asset accounts; credits decrease asset accounts. Debits decrease liability and stockholders' equity accounts; credits increase liability and stockholders' equity accounts. Debit entries increase expense accounts. Expenses, however, decrease stockholders' equity (retained earnings). Debiting an expense account, therefore, reduces stockholders' equity.
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Which of the following accounts is increased with a credit? Multiple Choice Accounts receivable Prepaid rent Common stock Dividends
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Common stock Explanation Debits increase asset accounts; credits decrease asset accounts. Debits decrease liability and stockholders' equity accounts; credits increase liability and stockholders' equity accounts. Salaries Payable, a liability account, and Common Stock, a stockholders' equity account, are increased with credits.
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Which account is increased by a credit? Multiple Choice Accounts Receivable Service Revenue Interest Expense Supplies
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Service Revenue Explanation Recognizing revenue earned for cash or on account increases both assets and stockholders' equity. The increase in assets (cash or accounts receivable) is recorded with a debit, and the increase in stockholders' equity (service revenue) is recorded with a credit.
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Benson Co. purchased land and paid the full purchase price in cash. Which of the following would be included in the journal entry necessary to record this event? Multiple Choice A debit to Land and a debit to Cash A debit to Cash and a credit to Land A credit to Land and a credit to Cash A debit to Land and a credit to Cash
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A debit to Land and a credit to Cash Explanation Land, an asset, is increased with a debit, and cash, another asset, is decreased with a credit.
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Which of the following statement is true regarding the trial balance? Multiple Choice Incorrectly recording a cash sale as a sale on account would not cause the trial balance to be out of balance. The income statement is prepared using the post-closing trial balance. A balance of debits and credits ensures that all transactions have been recorded correctly. Trial balances are only prepared at the end of an accounting period.
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Incorrectly recording a cash sale as a sale on account would not cause the trial balance to be out of balance. Explanation Even if the debit and credit totals on the trial balance are equal, there may be errors in the accounting records. For example, equal trial balance totals would not disclose errors like the following: failure to record transactions; misclassifications (such as debiting the wrong account); or incorrectly recording the amount of a transaction. The income statement is prepared using the adjusted trial balance.
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The Baker Company purchased $1,000 of supplies on account. How would this event be reflected in T-accounts? Multiple Choice On the right side of the Supplies T-account On the left side of the Supplies T-account On the left side of the Accounts Payable T-account On the right side of the Cash T-account
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On the left side of the Supplies T-account Explanation The purchase increased supplies, an asset account, and increased accounts payable, a liability account. Therefore, $1,000 will appear as a debit on the left side of the supplies T-account and as a credit on the right side of the accounts payable T-account.
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Which of the following accounts is decreased with a credit? Multiple Choice Unearned Revenue Prepaid Insurance Accounts Payable Service Revenue
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Prepaid Insurance Explanation Debits increase asset accounts; credits decrease asset accounts. Debits decrease liability and stockholders' equity accounts; credits increase liability and stockholders' equity accounts. Prepaid insurance, an asset account, is decreased with a credit.
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The following account balances were taken from the adjusted trial balance of Kendall Company: Revenues$22,400 Operating Expenses 15,000 Dividends 4,500 Retained Earnings 17,000 What is the Retained Earnings account balance that will be included on the post-closing trial balance? Multiple Choice $19,900 $7,400 $2,900 $24,400
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$19,900 Explanation Ending retained earnings = Beginning balance + Revenues βˆ’ Expenses βˆ’ Dividends Ending retained earnings = $17,000 + $22,400 βˆ’ $15,000 βˆ’ $4,500 = $19,900
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Which of the following errors would cause the debit side of a trial balance to be larger than the credit side? Multiple Choice Revenue earned on account was recorded with a debit to Cash and a credit to Revenue. Purchase of supplies on account was recorded with a credit to Supplies and a debit to Accounts Payable. Land purchased with cash was recorded with a debit to the Land account and a credit to Accounts Payable. None of these answer choices would cause the debit side of the trial balance to be larger than the credit side.
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None of these answer choices would cause the debit side of the trial balance to be larger than the credit side. Explanation Equal trial balance totals would not disclose errors in misclassifications; that is, debiting the wrong account or crediting the wrong account. Even though the balances in the individual accounts would be incorrect as a result of each of the errors described, the totals in the trial balance would be in balance.
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The employees of Able Company have worked the last two weeks of Year 1, but the employees' salaries have not been paid or recorded as of December 31, Year 1. The adjusting entry that Able should make to accrue these unpaid salaries on December 31, Year 1 is: Multiple Choice debit to Salaries Expense and credit to Cash. debit to Salaries Expense and credit to Salaries Payable. debit to Salaries Payable and credit to Salaries Expense. no entry is required until the employee is paid next period.
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debit to Salaries Expense and credit to Salaries Payable. Explanation Accruing salary expenses will increase Salaries Expense and increase Salaries Payable, a liability. The journal entry would be a debit to Salaries Expense and a credit to Salaries Payable.
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transaction has been recorded in the T-accounts of Gibbs Company as follows: Cash 1,500 | Unearned Revenue | 1,500 Which of the following could be an explanation for this transaction? Multiple Choice Cash has been paid out to a company that will provide future services to Gibbs Company. Gibbs has completed services for which they had earlier received cash in advance. Gibbs has provided services to a customer on account. Gibbs has received cash for service to be provided in the future.
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Gibbs has received cash for service to be provided in the future. Explanation Cash, an asset, has been increased with a debit, and unearned revenue, a liability, has been increased with a credit. This indicates that Gibbs has collected cash for services to be provided in the future.
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Which of the following accounts is decreased with a debit? Multiple Choice Accounts Receivable Accounts Payable Prepaid Rent Rent Expense
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Accounts Payable Debits increase asset accounts; credits decrease asset accounts. Debits decrease liability and stockholders' equity accounts; credits increase liability and stockholders' equity accounts. Accounts Payable, a liability account, is decreased with a debit.
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Which of the following statements is true? Multiple Choice Adjusting entries are recorded after the closing entries have been recorded. Equal totals in a trial balance guarantees that no errors were made in the recording process. Debits are equal to credits only after closing entries have been recorded. The balance in the retained earnings account in the trial balance will equal the retained earnings balance on the balance sheet only after closing entries have been posted to the general ledger.
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The balance in the retained earnings account in the trial balance will equal the retained earnings balance on the balance sheet only after closing entries have been posted to the general ledger. Explanation Every entry (not only closing entries) must include at least one debit to an account and at least one credit to an account. This system is called double-entry accounting. Adjusting entries are recorded before (rather than after) the closing entries are recorded. If the debit total does not equal the credit total on the trial balance, the accountant knows to search for an error. Even if the totals are equal, however, there may be errors in the accounting records. Prior to posting closing entries, the balance in the retained earnings account will be the balance at the beginning of the accounting period. Only after closing entries are posted will the trial balance reflect the same retained earnings account balance as the balance sheet.
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What effect will the following closing entry have on the retained earnings account? Service Revenue 18,800 | Interest Expense |750 Operating Expenses |15,500 Retained Earning |2,550 Multiple Choice Retained earnings will remain unchanged. Retained earnings will decrease by $2,550. Retained earnings will increase by $2,550. Retained earnings will be transferred to the income statement.
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Retained earnings will increase by $2,550. Explanation A credit to retained earnings of $2,550 (to close the service revenue, interest expense, and operating expenses accounts) will increase retained earnings by $2,550.
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The closing entry for the Dividends account would involve which of the following? Multiple Choice A credit to Retained Earnings A credit to Dividends A credit to Common Stock A credit to Cash
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A credit to Dividends Explanation The closing entry to move the balance of the dividends account to the retained earnings account would include a debit to retained earnings to decrease that account. The credit to the dividends account leaves a zero balance in that account.
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The following is a trial balance of Barnhart Company as December 31, Year 1: Account Title:Deb | Cred Cash12,500 | Accounts Receivable 3,250 | Accounts Payable | 2,800 Common Stock |6,600 Retained Earnings | 4,500 Service Revenue | 7,450 Operating Expenses 5,100 | Dividends 500 | Totals 21,350 | 21,350 What is the total amount of assets that will be reported on the balance sheet prepared as of December 31, Year 1? Multiple Choice $21,350 $12,500 $15,750 $23,200
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$15,750 Explanation The two asset accounts listed on the trial balance are Cash and Accounts Receivable. Total assets = $12,500 + $3,250 = $15,750
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Why are adjusting entries recorded at the end of the accounting period? Multiple Choice The Cash account must be adjusted for the effects of the daily transactions with customers and creditors. The company's accounts must be adjusted to ensure that debits are equal to credits prior to preparing the trial balance. Unrecorded accruals and deferrals must be recognized before the financial statements can be prepared. The data from the temporary accounts (revenues, expenses, and dividends) must be moved into the retained earnings account.
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Unrecorded accruals and deferrals must be recognized before the financial statements can be prepared. Explanation At the end of the accounting period, a company will have several unrecorded accruals and deferrals that must be recognized before the financial statements can be prepared. As a result, adjusting entries always involve (1) an asset or liability account and (2) a revenue or expense account.
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Which of the following accounts normally has a debit balance? Multiple Choice Prepaid insurance Unearned service revenue Accounts payable Common stock
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Prepaid Insurance Explanation Assets, such as prepaid insurance, normally have a debit balance; that is, debits increase those accounts. Liabilities, such as unearned revenue and accounts payable, normally have a credit balance; that is, credits increase those accounts. Stockholders' equity accounts, such as common stock, normally have a credit balance; that is, credits increase those accounts.
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Explain how the following general journal entry affects the accounting equation. Accounts receivable 500 | Service revenue | 500 Multiple Choice Both assets and stockholders' equity increase. Both liabilities and assets increase. Assets increase and stockholders' equity decreases. Liabilities increase and stockholders' equity decreases.
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Both assets and stockholders' equity increase. Explanation A debit to accounts receivable increases assets and a credit to service revenue increases stockholders' equity (retained earnings).
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On October 1, Year 1, Senegal Company paid $1,200 in advance for rent of office space for one year and recorded a journal entry debiting Prepaid Rent and crediting Cash for $1,200. On December 31, Year 1, the required adjusting entry was recorded. What are the adjusted account balances at December 31, Year 1? Multiple Choice Prepaid Rent, $300; Rent Expense, $900 Prepaid Rent, $1,200; Rent Expense, $0 Prepaid Rent, $0; Rent Expense, $1,200 Prepaid Rent, $900; Rent Expense, $300
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Prepaid Rent, $900; Rent Expense, $300 Explanation This is similar in concept to making a prepayment for insurance coverage. The monthly rent is $100 ($1,200 Γ· 12 months). By December 31, the company had rented (used) the office space for three months. The Prepaid Rent account has an adjusted balance of $900 ($1,200 βˆ’ $300). The Rent Expense account will reflect the rent for those three months of $300 ($100 Γ— 3).
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How would the trial balance column totals be affected if a $600 credit to Service Revenue was erroneously posted as a $600 debit to Salaries Expense? Multiple Choice The credit column of the trial balance would be $600 more than the debit column. The debit column of the trial balance would be $1,200 more than the credit column. The credit column of the trial balance would be $1,200 more than the debit column. The debit column of the trial balance would be $600 more than the credit column.
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The debit column of the trial balance would be $1,200 more than the credit column. Explanation The error would cause the debit column to be overstated by $600 and the credit column to be understated by $600. The difference between the two column totals would be $1,200.
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During a company's first year of operations, the asset account, Office Supplies, was debited for $2,300 for the purchases of supplies. At year-end, a physical count of the supplies on hand revealed that $825 of unused supplies were available for future use. How will the related adjusting entry affect the company's financial statements? Multiple Choice Expenses will increase and assets will decrease by $1,475. Assets and expenses will both increase by $825. Expenses and assets will both increase by $1,475. The related adjusting entry has no effect on net income or the accounting equation.
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Expenses will increase and assets will decrease by $1,475. Explanation The company used $1,475 ($2,300 βˆ’ $825) supplies during its first year of operations. The adjusting entry debiting supplies expense and crediting supplies will increase expenses and decrease assets by $1,475.
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The Wagner Company acquired $500,000 cash from the issue of common stock. How would this transaction be recorded in the company's T-accounts? Multiple Choice Cash 500,000 Common Stock 500,000 Common Stock 500,000 Cash 500,000 Common Stock 500,000 Retained Earnings 500,000 Retained Earnings 500,000 Common Stock 500,000
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Cash 500,000 Common Stock 500,000 Explanation The event increases cash, an asset account, and common stock, a stockholders' equity account. It is recorded as a debit in the Cash T-account and a credit to the Common Stock account.
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Bijan Corporation earned $4,000 of revenue that had been deferred. How would the related adjusting entry be recorded in the company's T-accounts? Multiple Choice Cash 4,000 | Unearned Revenue | 4,000 Cash 4,000 | Revenue | 4,000 Revenue 4,000 | Unearned Revenue | 4,000 Unearned Revenue 4,000 | Revenue | 4,000
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Unearned Revenue 4,000 | Revenue | 4,000 Explanation The adjusting entry decreases unearned revenue, a liability, and increases revenue. It is recorded as a debit to unearned revenue and a credit to the revenue account.
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A $200 credit to Interest Payable was instead recorded in error as a $200 credit to Cash in an adjusting entry, which has been posted to the ledger accounts. Which of the following is the result of this error? Multiple Choice The trial balance is out of balance by $200. Total assets are understated by $200. Net income is overstated by $200. Total liabilities are overstated by $200.
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Total assets are understated by $200. Explanation This misclassification (crediting the wrong account) will not cause the debit and credit totals on the trial balance to be out of balance. Crediting an asset (Cash) instead of crediting a liability (Interest Payable) would understate total assets and understate total liabilities. That error has no effect on net income.
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During Year 5, Magellan Corporation earned net income of $32,000 and paid cash dividends of $8,500 to its stockholders. Which of the following choices reflects the effect of closing entries on the company's financial statements? Multiple Choice The income statement will report net income of $23,500 after the closing entries have been posted to the ledger accounts. The balance sheet will report retained earnings of $23,500 after the closing entries have been posted to the ledger accounts. The balance sheet will report retained earnings of $32,000 after the closing entries have been posted to the ledger accounts. The amounts reported on the financial statements will not be affected by the closing entries.
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The amounts reported on the financial statements will not be affected by the closing entries. Explanation Closing entries are recorded after financial statements have been prepared. Therefore, they do not have any effect on the financial statements. The balance sheet will report retained earnings of $23,500 after the closing entries have been posted to the ledger accounts only if this is the company's first year of operations.
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A transaction has been recorded in the general journal of Manella Company as follows: Cash | 6,000 Unearned revenue 6,000 | Which of the following could be an explanation for this transaction? Multiple Choice Paid cash to a customer who requested a refund Received cash in advance for work to be performed in future months Recorded adjusting entry for work completed Received cash for services completed
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Received cash in advance for work to be performed in future months Explanation The debit to Cash increases this asset account and the credit to unearned revenue increases this liability account. That would be the journal entry recorded when cash is collected as an advance for work to be performed in the future.
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Kincaid Company provided consulting services of $2,500 to a customer who paid $1,300 and promised to pay the remainder next month. Which of the following journal entries correctly records this transaction? Multiple Choice Cash 1,300 | Accounts payable 1,200 | Consulting revenue | 2,500 Cash 1,300 | Accounts receivable 1,200 | Consulting revenue |2,500 Cash 1,300 | Consulting revenue | 1,300 Consulting revenue 2,500 | Cash | 1,300 Accounts receivable | 1,200
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Cash 1,300 | Accounts receivable 1,200 | Consulting revenue | 2,500 Explanation The company would record an increase in cash (a debit) of $1,300, an increase in accounts receivable (a debit) of $1,200, and an increase in revenue (a credit) of $2,500.
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Fitzpatrick Company had $500 of accrued salary expenses that will be paid during the following accounting period. How would the related adjusting entry be recorded in the company's T-accounts? Multiple Choice Salaries Expense 500 | Cash | 500 Cash 500 | Salaries Expense | 500 Salaries Expense 500 | Salaries Payable | 500 Salaries Payable 500 | Salaries Expense | 500
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Salaries Expense 500 | Salaries Payable | 500 Explanation The required adjusting entry increases liabilities by crediting salaries payable and increases expenses by debiting salaries expense.
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On November 1, Year 1, Shumate Company paid $1,200 in advance for an insurance policy that covered the company for six months. Which of the following will be included in the adjustment required on December 31, Year 1? Multiple Choice A debit to Prepaid Insurance for $400 A credit to Prepaid Insurance for $400 A debit to Insurance Expense for $1,200 A credit to Insurance Expense for $1,200
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A credit to Prepaid Insurance for $400 Explanation TThe monthly insurance cost is $200 ($1,200 Γ· 6 months). By December 31, Year 1 the company had used the insurance coverage for two months. The Insurance Expense account must be increased with a debit for $400 ($200 Γ— 2) and the Prepaid Insurance account must be decreased with a credit for the same amount.
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On August 1, Year 1, Benjamin and Associates collected $18,000 in advance for legal services to be rendered for one year. Which of the following entries reflect the end-of-the-year adjustment to reflect revenue earned? Multiple Choice Cash 7,500 | Revenue | 7,500 Accounts receivable 6,000 | Revenue | 6,000 Cash 18,000 | Unearned revenue | 10,500 Revenue | 7,500 Unearned revenue 7,500 | Revenue | 7,500
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Unearned revenue 7,500 | Revenue | 7,500 The adjusting entry will increase revenue and decrease unearned revenue, a liability. The journal entry would be a debit to unearned revenue and a credit to revenue. $18,000 Γ· 12 months = $1,500 per month. August through December is five months. $1,500 Γ— 5 = $7,500.