Complete the two activities in the attachments.

Eye openers questions

1. How are revenues and expenses reported on the income statement under (a) the cash basis of accounting and (b) the accrual basis of accounting?

2. Fees for services provided are billed to a customer during 2009. The customer remits the amount owed in 2010. During which year would the revenues be reported on the income statement under (a) the cash basis? (b) the accrual basis?

3. Employees performed services in 2009, but the wages were not paid until 2010.

During which year would the wages expense be reported on the income statement under (a) the cash basis? (b) the accrual basis?

4. Is the matching concept related to (a) the cash basis of accounting or (b) the accrual basis of accounting?

5. Is the cash balance on the unadjusted trial balance the amount that should normally be reported on the balance sheet? Explain.

6. Is the supplies balance on the unadjusted trial balance the amount that should normally be reported on the balance sheet? Explain.

7. Why are adjusting entries needed at the end of an accounting period?

8. What is the difference between adjusting entries and correcting entries?

9. Identify the four different categories of adjusting entries frequently required at the end of an accounting period.

10. If the effect of the debit portion of an adjusting entry is to increase the balance of an asset account, which of the following statements describes the effect of the credit portion of the entry?

a. Increases the balance of a liability account.

b. Increases the balance of a revenue account.

c. Increases the balance of an expense account.

11. If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following statements describes the effect of the debit portion of the entry?

a. Increases the balance of an expense account.

b. Increases the balance of a revenue account.

c. Increases the balance of an asset account.

12. Does every adjusting entry have an effect on determining the amount of net income for a period? Explain.

13. What is the nature of the balance in the prepaid insurance account at the end of the accounting period (a) before adjustment? (b) after adjustment?

14. On July 1 of the current year, a business paid the July rent on the building that it occupies. (a) Do the rights acquired at July 1 represent an asset or an expense? (b)

What is the justification for debiting Rent Expense at the time of payment?

15. (a) Explain the purpose of the two accounts: Depreciation Expense and Accumulated Depreciation. (b) What is the normal balance of each account? (c) Is it customary for the balances of the two accounts to be equal in amount? (d) In what financial statements, if any, will each account appear?

Exercise questions

EX 3-1

Classifying types of

Adjustments

Classify the following items as (a) prepaid expense, (b) unearned revenue, (c) accrued revenue, or (d) accrued expense.

1. A two-year premium paid on a fire insurance policy.

2. Fees earned but not yet received.

3. Fees received but not yet earned.

4. Salary owed but not yet paid.

5. Subscriptions received in advance by a magazine publisher.

6.

Supplies

on hand.

7. Taxes owed but payable in the following period.

8. Utilities owed but not yet paid.

EX 3-2

Classifying adjusting entries

The following accounts were taken from the unadjusted trial balance of Washington

Co a congressional lobbying firm. Indicate whether or not each account would normally require an adjusting entry. If the account normally requires an adjusting entry, use the following notation to indicate the type of adjustment:

AE—Accrued Expense

AR—Accrued Revenue

PE—Prepaid Expense

UR—Unearned Revenue

Choose the correct answer:

Accounts Receivable Example = Normally requires adjustment(AR).

Capital Stock

Cash

Dividends

Interest Payable

Interest Receivable

Land

Office Equipment

Prepaid Rent

Retained Earnings

Supplies

Unearned Fees

Wages Expense

EX 3-3

Adjusting entry for

Supplies

The balance in the supplies account, before adjustment at the end of the year, is $1,736.

Journalize the adjusting entry required if the amount of supplies on hand at the end of the year is $813.