TOPIC 5 ADJUSTMENT AT THE END OF ACCOUNTING PERIOD

Orange County Shop follows the revenue recognition principle. Orange County services a bicycle on July 31. The customer picks up the bike on August 1 and mails the payment to Orange County on August 5. Orange County receives the check in the mail on August 6. When should Orange County show that the revenue was recognized?

• July 31

• August 1

• August 5

• August 6

A company spends $20 million dollars for an office building. Over what period should the cost be written off?

• When the $20 million is expended in cash.

• All in the first year.

• Over the useful life of the building.

• After $20 million in revenue is recognized.

A bakery shop makes a large sale for $1,400 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The bakery shop follows GAAP and applies the revenue recognition principle. When is the $1,400 considered to be recognized?

• December 5.

• December 10.

• November 30.

• December 1.

Expenses incurred but not yet paid or recorded are called

• prepaid expenses.

• accrued expenses.

• interim expenses.

• unearned expenses.

Prepaid expenses are

• paid and recorded in an asset account before they are used or consumed.

• paid and recorded in an asset account after they are used or consumed.

• incurred but not yet paid or recorded.

• incurred and already paid or recorded.

Unearned revenues are

• revenues for services already performed, and recorded as liabilities, before they are received.

• revenues for services performed but not yet received in cash or recorded.

• Revenues for services already performed and received in cash, and recorded as revenues when received.

• revenues not recorded as revenues until services are performed.

Depreciation expense for a period is the

• original cost of an asset – accumulated depreciation.

• book value of the asset ÷ useful life.

• portion of an asset’s cost that expired during the period.

• market value of the asset ÷ useful life

At December 31, 2020, before any year-end adjustments, Obama Company’s Insurance Expense account had a balance of $2,600 and its Prepaid Insurance account had a balance of $7,600. It was determined that $3,200 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be

• $2,600.

• $4,400.

• $3,200.

• $5,800.

The balance in the Prepaid Rent account before adjustment at the end of the year is $24,000, which represents three months’ rent paid on December 1. The adjusting entry required on December 31 is to

• debit Rent Expense, $16,000; credit Prepaid Rent $16,000.

• debit Rent Expense, $8,000; credit Prepaid Rent, $8,000.

• debit Prepaid Rent, $8,000; credit Rent Expense, $8,000.

• debit Prepaid Rent, $16,000; credit Rent Expense, $16,000.

Unearned revenue is classified as

• an asset account.

• a contra-revenue account.

• a liability account.

• a revenue account.