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Accounting Chapter 15 Study Guide
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Accounting Chapter 15 Study Guide

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Questions and Answers

What is an unadjusted trial balance?

A trial balance prepared before adjusting entries are posted.

What is beginning inventory?

The amount of inventory on hand at the beginning of a fiscal period.

What is ending inventory?

The actual count of merchandise at the end of a fiscal period.

What is accrued revenue?

<p>Revenue earned in one fiscal period but not received until a later fiscal period.</p> Signup and view all the answers

What is accrued interest income?

<p>Interest earned but not yet received.</p> Signup and view all the answers

What are current assets?

<p>Cash and other assets expected to be exchanged for cash or consumed within a year.</p> Signup and view all the answers

What are plant assets?

<p>Physical assets that will be used for a number of years in the operation of a business.</p> Signup and view all the answers

What is depreciation?

<p>A loss in the usefulness of a plant asset as a result of wear or obsolescence.</p> Signup and view all the answers

What is depreciation expense?

<p>The portion of a plant asset's cost that is transferred to an expense account in each fiscal period during that asset's useful life.</p> Signup and view all the answers

What is salvage value?

<p>An estimate of the amount that will be received for an asset at the time of its disposal.</p> Signup and view all the answers

What is useful life?

<p>The period of time over which an asset contributes to the earnings of a business.</p> Signup and view all the answers

What is the straight line method of depreciation?

<p>Recording an equal amount of depreciation expense for a plant asset in each year of its useful life.</p> Signup and view all the answers

What is accumulated depreciation?

<p>The total amount of depreciation expense that has been recorded since the purchase of a plant asset.</p> Signup and view all the answers

What is the book value of a plant asset?

<p>The original cost of a plant asset minus accumulated depreciation.</p> Signup and view all the answers

What is an adjusted trial balance?

<p>A trial balance prepared after adjusting entries are posted.</p> Signup and view all the answers

What is a tax bracket?

<p>Each tax rate and taxable income amount on one line of a tax table.</p> Signup and view all the answers

What is a marginal tax rate?

<p>The tax rate associated with a tax bracket.</p> Signup and view all the answers

Businesses must use a 12-month period, or fiscal year, ending on December 31 for reporting their financial performance.

<p>False</p> Signup and view all the answers

The adjusting entry for Merchandise Inventory is unique to a merchandising business.

<p>True</p> Signup and view all the answers

The first step in preparing adjusting entries is to prepare an unadjusted trial balance.

<p>True</p> Signup and view all the answers

A trial balance provides a complete list of accounts that may need to be brought up to date.

<p>True</p> Signup and view all the answers

Rather than using a worksheet, a business can use an unadjusted trial balance and record adjustments directly to a general journal.

<p>True</p> Signup and view all the answers

The adjustment for the Supplies—Office account will result in a debit to Supplies Expense—Office.

<p>True</p> Signup and view all the answers

The amount of the adjustment for Prepaid Insurance represents the value of the insurance premium used during the fiscal period.

<p>True</p> Signup and view all the answers

For a company using the periodic inventory method, the account balance of Merchandise Inventory changes during the fiscal year.

<p>False</p> Signup and view all the answers

If ending inventory is less than the account balance of Merchandise Inventory, the inventory adjustment will include a credit to Income Summary.

<p>False</p> Signup and view all the answers

The adjusting entry for accrued revenue increases a revenue account (a credit) and increases a receivable account (a debit).

<p>True</p> Signup and view all the answers

Estimates of the cost, salvage value, and useful life of a plant asset are used to calculate its annual depreciation.

<p>False</p> Signup and view all the answers

Functional depreciation occurs when a plant asset becomes inadequate or obsolete.

<p>True</p> Signup and view all the answers

The annual straight-line depreciation of equipment costing $4,000.00 with a salvage value of $500.00 and a useful life of five years would be $700.00.

<p>True</p> Signup and view all the answers

The adjustment for Accumulated Depreciation—Store Equipment includes a credit to Depreciation Expense—Store Equipment.

<p>False</p> Signup and view all the answers

The annual straight-line depreciation of land costing $40,000.00 with a salvage value of $10,000.00 and a useful life of 20 years would be $1,500.00.

<p>False</p> Signup and view all the answers

The adjustment for Federal Income Tax Payable and Federal Income Tax Expense is determined only after all other adjusting entries are posted and the net income before federal income tax is determined.

<p>True</p> Signup and view all the answers

Corporations anticipating annual federal income taxes of $500.00 or more are required to pay estimated taxes each month.

<p>False</p> Signup and view all the answers

A corporation using a 35% marginal tax rate must pay income taxes equal to 35% of its income before federal income taxes.

<p>False</p> Signup and view all the answers

Tax rates for corporations can be changed by an act of Congress.

<p>True</p> Signup and view all the answers

Any amount of federal income tax owed at the end of the fiscal year is debited to Federal Income Tax Payable.

<p>False</p> Signup and view all the answers

The amount in the Supplies—Office account on an unadjusted trial balance represents the value of supplies:

<p>At the beginning of a fiscal period plus office supplies bought during the fiscal period</p> Signup and view all the answers

The two accounts used to adjust the Office Supplies account are:

<p>Supplies—Office and Supplies Expense—Office</p> Signup and view all the answers

The portion of the insurance premiums that has expired during a fiscal period is classified as:

<p>An expense</p> Signup and view all the answers

The two accounts used to adjust the Prepaid Insurance account are:

<p>Prepaid Insurance and Insurance Expense</p> Signup and view all the answers

For a business using the periodic inventory method, the Merchandise Inventory amount on the unadjusted trial balance represents the merchandise inventory:

<p>At the beginning of a fiscal period</p> Signup and view all the answers

The two accounts used to adjust the Merchandise Inventory account are:

<p>Merchandise Inventory and Income Summary</p> Signup and view all the answers

A credit to Income Summary in the Merchandise Inventory adjustment represents the:

<p>Decrease in Merchandise Inventory</p> Signup and view all the answers

Recording revenue in the accounting period in which the revenue is earned is an application of the accounting concept:

<p>Realization of Revenue</p> Signup and view all the answers

The two accounts used to adjust for interest income earned on notes receivable are:

<p>Interest Receivable and Interest Income</p> Signup and view all the answers

After recording the adjustment for accumulated depreciation, the book value of plant assets:

<p>Decreases</p> Signup and view all the answers

The two accounts used to adjust the depreciation of store equipment are:

<p>Accumulated Depreciation—Store Equipment and Depreciation Expense—Store Equipment</p> Signup and view all the answers

The two accounts used to record the adjustment for federal income tax are:

<p>Federal Income Tax Payable and Federal Income Tax Expense</p> Signup and view all the answers

Study Notes

Unadjusted and Adjusted Trial Balance

  • An unadjusted trial balance reflects account balances before any adjustments are made.
  • The adjusted trial balance includes all adjustments post-adjusting entries.

Inventory Management

  • Beginning inventory refers to the stock available at the start of the fiscal period.
  • Ending inventory is the amount of merchandise counted at the end of the period, crucial for accurate financial reporting.

Revenue Recognition

  • Accrued revenue, recognized in one fiscal period, is not received until a future period, highlighting cash versus earnings timing.
  • Accrued interest income includes interest that has been earned but not yet collected.

Asset Classification

  • Current assets are those expected to convert to cash or be utilized within one year.
  • Plant assets are long-term physical assets used in operations, subject to depreciation.

Depreciation Concepts

  • Depreciation measures the reduction in value of a plant asset over time due to wear or obsolescence.
  • Depreciation expense represents the systematic allocation of an asset's cost over its useful life.
  • The straight-line method allocates equal depreciation expense across the useful life of an asset.

Valuation and Accounting

  • Salvage value is an estimate of an asset's residual worth at the end of its useful life, used in depreciation calculations.
  • Book value of a plant asset is the cost minus accumulated depreciation, reflecting its current value in accounting records.

Taxation and Financial Reporting

  • Tax brackets determine the applicable tax rate for various income ranges.
  • Marginal tax rate indicates the tax rate corresponding to a specific tax bracket.
  • Financial performance does not require a December 31 end date for fiscal years, countering a common misconception.

Adjusting Entries

  • Preparing an unadjusted trial balance is the initial step for making adjusting entries, aiding in revenue and expense recognition.
  • Adjustments for supplies and prepaid expenses typically involve recognizing used portions as expenses.

Fiscal Year and Income Reporting

  • The financial reporting process can vary, and businesses can choose fiscal year-end dates beyond December 31.
  • The matching principle requires that expenses like insurance be matched to the revenue they help to generate within a period.

Depreciation Adjustments

  • Adjusting entries for accumulated depreciation affect asset valuations and income statements, reflecting asset wear over time.

Income Taxes

  • Federal Income tax entries arise only after determining net income, ensuring taxes are accurately calculated based on earnings.
  • Corporations must manage estimated taxes diligently, especially if projections exceed thresholds set by law.

Key Events and Corrections

  • Accounting adjustments for various accounts ensure that financial statements accurately represent a company’s financial position.
  • The adjustment for supplies or prepaid insurance accounts typically involves debits to expense accounts that reflect their consumption during the accounting period.

Common Misconceptions

  • Corporations are not solely required to pay taxes at a set rate of income; tax rates can be influenced by legislation changes.
  • Misunderstandings about how various accounts relate (like accumulated depreciation and asset cost) can impact the overall financial reporting process.

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Prepare for your Accounting exam with this Chapter 15 study guide. It covers essential vocabulary such as unadjusted trial balance and inventory definitions crucial for understanding financial statements. Use these flashcards to reinforce your knowledge and improve your retention of key terms.

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