ANSWER THE TWO MULTIPLE CHOICE QUESTIONS
QS 3 12A Preparing adjusting entries LO C3, P4
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Calvin Consulting initially records prepaid and unearned items in income statement accounts. Given this company’s accounting practices, which of the following applies to the preparation of adjusting entries at the end of its first accounting period?
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The cost of unused office supplies is recorded with a debit to Supplies Expense and a credit to Office Supplies. |
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Unearned fees (on which cash was received in advance earlier in the period) are recorded with a debit to Consulting Fees Earned and a credit to Unearned Consulting Fees. |
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Earned but unbilled (and unrecorded) consulting fees are recorded with a debit to Unearned Consulting Fees and a credit to Consulting Fees Earned. |
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Unpaid salaries are recorded with a debit to Prepaid Salaries and a credit to Salaries Expense.
AND
| The following information is taken from Brooke Company’s unadjusted and adjusted trial balances. |
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Unadjusted |
Adjusted |
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Debit |
Credit |
Debit |
Credit |
| Prepaid insurance |
$ |
4,100 |
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$ |
3,700 |
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| Interest payable |
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$ |
0 |
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$ |
800 |
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| Given this information, which of the following is likely included among its adjusting entries? |
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A $400 debit to insurance expense and an $800 debit to interest payable. |
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A $400 debit to insurance expense and an $800 debit to interest expense. |
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A $400 credit to prepaid insurance and an $800 debit to interest payable.
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AND
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In its first year of operations, Roma Co. earned $45,000 in revenues and received $37,000 cash from these customers. The company incurred expenses of $25,500 but had not paid $5,250 of them at year end. The company also prepaid $6,750 cash for expenses that would be incurred the next year. Calculate the first year’s net income under both the cash basis and the accrual basis of accounting.
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