Question

Ex. 1
Sunkan Company prepares monthly financial statements. Below are listed some selected accounts and their balances on the September 30 trial balance before any adjustments have been made for the month of September.

SUNKAN COMPANY
Trial Balance (Selected Accounts)
September 30, 2014
  

   Debit     Credit
Supplies        $ 2,700
Prepaid Insurance        4,800
Equipment        16,200
Accumulated Depreciation—Equipment            $ 1,000
Unearned Rent Revenue            1,200

(Note: Debit column does not equal credit column because this is a partial listing of selected account balances.)

An analysis of the account balances by the company's accountant provided the following additional information:
1.   A physical count of office supplies revealed $1,000 on hand on September 30.
2.   A two-year life insurance policy was purchased on June 1 for $4,800.
3.   Office equipment depreciates $3,000 per year.
4.   The amount of rent received in advance that remains unearned at September 30 is $300.
Instructions:
Using the information given, prepare the adjusting entries that should be made by Sunkan Company on September 30.
222.   The following information is from the Income Statement of the Dirt Poor Laundry Service:
  
Revenues
   Service Revenue       $5,500
Expenses
   Salaries and Wages expense   $ 1,950
   Advertising expense    500
   Rent expense       300
   Supplies expense       200
   Insurance expense         100
   Total expenses            3,050
                   Net Income                        $2,450
       The entry to close the expense accounts includes a:
a.   credit to Income Summary for $3,050.
b.   debit to Income Summary for $3,050.
c.   debit to Salaries and Wages Expense for $1,950.
d.   credit to Retained Earnings for $3,050.

2.   The periodicity assumption states that:
a.   a transaction can only affect one period of time.
b.   estimates should not be made if a transaction affects more than one time period.
c.   adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations.
d.   the economic life of a business can be divided into artificial time periods.

       One of the accounting concepts upon which adjustments for prepayments and accruals are based is:
a.   expense recognition.
b.   cost.
c.   monetary unit.
d.   economic entity.

   4   An accounting time period that is one year in length is called:
a.   a fiscal year.
b.   an interim period.
c.   the time period assumption.
d.   a reporting period.

   5.   Adjustments would not be necessary if financial statements were prepared to reflect net income from:
a.   monthly operations.
b.   fiscal year operations.
c.   interim operations.
d.   lifetime operations.

   6.   Management usually wants ________ financial statements and the IRS requires all businesses to file _________ tax returns.
a.   annual, annual
b.   monthly, annual
c.   quarterly, monthly
d.   monthly, monthly

   7.   Expenses are recognized when:
a.   they contribute to the production of revenue.
b.   they are paid.
c.   they are billed by the supplier.
d.   the invoice is received.

   8.   Which of the following is not generally an accounting time period?
a.   A week.
b.   A month.
c.   A quarter.
d.   A year.

   9.   The revenue recognition principle dictates that revenue should be recognized in the accounting records:
a.   when cash is received.
b.   when the performance obligation is satisfied.
c.   at the end of the month.
d.   in the period that income taxes are paid.

   10.   In a service-type business, revenue is recognized:
a.   at the end of the month.
b.   at the end of the year.
c.   when the service is performed.
d.   when cash is received.

   11.   The expense recognition principle matches:
a.   customers with businesses.
b.   expenses with revenues.
c.   assets with liabilities.
d.   creditors with businesses.

   12.   The following is selected information from L Corporation for the fiscal year ending October 31, 2014.

Cash received from customers   $300,000
Revenue earned    390,000
Cash paid for expenses   170,000
Cash paid for computers on November 1, 2013 that will
            be used for 3 years  
48,000
Expenses incurred including any depreciation   216,000
Proceeds from a bank loan, part of which was used to
            pay for the computers  
100,000

Based on the accrual basis of accounting, what is L Corporation’s net income for the year ending October 31, 2014?
a.   $204,000
b.   $174,000
c.   $158,000
d.   $220,000

Answer 1

Answer to Question 1.

No.	Account Titles and Explanation	Debit	Credit
1.	Supplies Expense ($2,700 - $1,000)	1,700
	Supplies		1,700
	(Record Supplies used)
2.	Insurance Expense ($4,800 * 1/24)	200
	Prepaid Insurance		200
	(Record Insurance expense for the month)
3.	Depreciation Expense ($3,000 * 1/12)	250
	Accumulated Depreciation - Equipment		250
	(Record Depreciation Expense)
4.	Unearned Rent Revenue	900
	Rent Revenue ($1,200 - $300)		900
	(Record Rent Revenue earned)