BAT4M0

Chapter 3 Questions
Name:
1. Explain the terms fiscal year, calendar year, and interim periods.

2. Name the three GAAPs that relate to adjusting the accounts.

3. Pierce Dussault, a lawyer, accepts a legal engagement in March, performs the

work in April, and is paid in May. If Dussaults law firm prepares monthly financial
statements, when should it recognize revenue from this engagement? Why?

4. In completing the work for the job in question 3, Dussault incurred $2,000 worth
of expense in March, related to the job, and $2,500 in April. How much expense
should be deducted from revenue in the month the revenue is recognized? Why?

5. Why do accrual basis financial statements provide more useful information than
cash basis statements?

6. Adjusting entries are needed to respect the cost principle of accounting. Do

you agree? Explain.

7. According to what you learned in this chapter, why might a trial balance not
contain up-to-date and complete financial information?

8. Distinguish among the three categories of adjusting entries, and identify the
types of adjustments applicable to each category.

9. When adjusting for prepaid expense, what is debited? What is credited?

10. When adjusting for unearned revenue, what is debited? What is credited?

11. A company received cash from a customer. It debited Cash, but did not credit
any revenue account. Name two other accounts that the company might have
credited.

12. A company wants to recognize revenue earned but not yet received. An
adjusting entry is needed. What will be debited? What will be credited?

13. A company fails to recognize a utility expense that has been incurred but not
paid. Which accounts do they need to debit and credit to make the appropriate
adjusting entry?

14. A company makes an accrued revenue adjusting entry for $900, and an
accrued expense adjusting entry for $600. Which financial statement items were
overstated or understated prior to these entries? Explain.
15. For each of the following items before adjustment, indicate the type of adjusting
entry (prepaid expense, unearned revenue, accrued revenue, accrued expense,
estimate) that is needed to correct the misstatement. If an item could result in
more than one type of adjusting entry, indicate each of the types.
a. Assets are understated
b. Liabilities are overstated
c. Liabilities are understated
d. Expenses are understated
e. Assets are overstated
f. Revenue is understated

16. Amortization is a valuation process that results in the reporting of the market
value of the asset. Do you agree? Explain.

17. Shen Company purchased equipment for $12,000. By the current balance sheet
date, $7,000 has been amortized. Indicate the balance sheet presentation of this
data.

18. One half of the adjusting entry is given below. Indicate the account title for the
other half of hte entry.
a. Salaries Expense is debited
b. Amortization Expense is debited
c. Interest Payable is credited
d. Supplies is credited
e. Accounts Receivable is debited
f. Unearned Revenue is debited