Question

1.Some accounts need to be adjusted because

(a) they are not up to date at the time financial statements are prepared.

(b) there are always errors made in recording transactions.

(c) there are never enough accounts to record all the transactions.

(d) management can't decide what they want to report.

2. Equipment costing $6,000 had a useful life of five years. The adjusting journal entry to record the depreciation for one month would consist of

(a) a debit to Depreciation Expense for $100 and a credit to Accumulated Depreciation—Equipment for $100.

(b) a debit to Depreciation Expense for $1,200 and a credit to Equipment for $1,200.

(c) a debit to Depreciation Expense for $100 and a credit to Equipment for $100.

(d) a credit to Depreciation Expense for $100 and a debit to Accumulated Depreciation—Equipment for $100.

3. At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true?

(a) Liabilities at the end of the year are understated.

(b) Salary Expense for the year is overstated.

(c) Shareholders’ equity at the end of the year is understated.

(d) Assets at the end of the year are understated.

Answer 1

Answer :

1. Option - A, they are not up to date at the time financial statements are prepared.

Explanation :

The main purpose of adjustments are to update accounts to reflect the correct and true values to be reported in financial statements. Adjustment is also required because many transactions affect more than one time period.

2. Option - A, a debit to Depreciation Expense for $100 and a credit to Accumulated Depreciation—Equipment for $100.

Explanation :

Depreciation for the year = $6,000 / 5 years = $1,200

Depreciation for 1 month = $1,200 / 12 months = $100

Journal entry is

Depreciation Expense A/c Dr $100

...........Accumulated Depreciation—Equipment $100

3. Option - A, Liabilities at the end of the year are understated.

Explanation :

Adjusting entry for accrued salaries owed to employees are :

Salary expense A/c

.........Accrued salary expense

If accrued salary expense is omitted to record then it understates current liabilities.