Question

Which of the following is an example of an accural error?

a. failure to adjust Prepaid insurance to its proper balance at year end

b. failure to adjust Inventory to its proper balance at year end

c. failure to record depreciation at year end

d. none of the above

Please explain how you got the answer.

October 1, 2011, MarCo signs a one-year, 8% note payable for $10,000 with principle and interest due on Oct 1, 2012. It is Marco's only note outstanding. On October 1, 2012 when the note is paid, Marco debits Notes Payable and credits %10,800, the sum of principle and interest. The error is likely to be found because...

a. the bank reconciliation will be out of balance when the check clears

b. the trial balance will be out of balance by $800

c. the trial balance will show a balance in notes payable that is not normal

d. interest expense will be understated

Please explain how you got the answer.

While writing a check for $2,000 on April 25, 2012 for a computer purchased on December 25, 2011, you discover that when the purchase was made in December, the $2,000 had been credited to Notes Payable instead of Accounts Payable. If the books are closed, what single entry could you make?

a. Notes Payable 2000 (debit)

              Accounts Payable 2000 (credit)

b. Notes Payable 2000 (debit)

                Cash 2000 (credit)

c. Accounts Payable 2000 (debit)

                 Cash 2000 (credit)

d. Accounts Payable 2000 (debit)

               Notes Payable 2000 (credit)

Please explain how you got the answer.

Answer 1

1.a.failure to adjust prepaid insurance to its proper balance at year end.

Insurance expense accrues by the end of the year and has to be provided for by way of adjustment to prepaid insurance account.

Failure to adjust inventory or record depreciation will not result in accrual error.

2.C.the trail balance will show a balance in notes payabe that is not normal.

explanation:

the following should be the jorunal entry:

Notes payable a/c	10,000
Interest expense a/c	800
.............To Cash a/c		10,800

by debiting notes payable with 10,800 ,the existing credit of $10,000 will be wiped off and a new debit balance of $800 will be created due to the error.

Since this is the only notes payable , the $800 will be appearing as a debit balance in the trail balance.

But being a liability notes payable must be showing a credit balance.

But the debit balanc of $800 created due to error, will show a sign that there is some thing wrong in recording the entries.

3.a.Notes payable 2000 (debit)

..................To Accounts payable 2000 (credit)....

Notes payable is debited to nullify the effect of erroneous credit.

Accounts payable is credited , since it is to this account that tha amount orignally should have been credited.