14) On December 1, Simpson Marketing Company reccived S3,600 from a customer for

Question

14) On December 1, Simpson Marketing Company reccived S3,600 from a customer for a 14) 2-month marketing plan to be completed January 31 of the following year. The cash receipt was recorded as unearned fees. The adjusting entry for the year ended December 31 would include: A) a debit to Unearned Fees for $1,800. B) a debit to Eamed Fees for $1,800 C) a credit to Earned Fees for $3,600. D) a credit to Unearned Fees for $1,800. E) a debit to Eamed Fees for S3,600. 15) What is the proper adjusting entry at December 31, the end of the accounting period, if 15) the balance in the prepaid insurance account is $7,750 before adjustment, and the unexpired amount per analysis of policies is, $3,250? A) Debit Insurance Expense, $3,250, credit Prepaid Insurance, $3,250 B) Debit Insurance Expense, $7,750; credit Prepaid Insurance, $7,750. C) Debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500. D) Debit Cash, S7,750; Credit Prepaid Insurance, $7,750. E) Debit Prepaid Insurance, $4,500; credit Insurance Expense, $4,500. 16) On April 1, Santa Fe, Inc. paid Griffith Publishing Company $1,548 for 36-month 16) subscriptions to several different magazines. Santa Fe debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Santa Fe, Inc. after adjustments on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustment has been made? A) S516 B) S387 C) S1,161. D) $1,548. E) SO. 17) A company made no adjusting entry for accrued and unpaid employee salaries of S9,000 17) on December 31. Which of the following statements is true? A) It will understate expenses and overstate net income by S9,000. B) It will understate net income by $9,000. C) It will understate assets by $9,000. D) It will have no effect on income. E) It will overstate assets and liabilities by $9,000 18) The correct adjusting entry for accrued and unpaid employee salaries of $9,000 on 18) December 31 is: A) debit Salary Expense, S9,000; credit Cash, $9,000 B) debit Salary Expense, $9,000; credit Salaries Payable, $9,000 C) debit Salaries Payable, $9,000; credit Salary Expense S9,000 D) debit Salary Expense, $9,000; credit Fees Earned, $9,000 E) debit Salary Expense, $9,000; credit Prepaid Salary, $9,000

Explanation / Answer

Question 14

Correct Answer ----(A) a debit to unearned fee $ 1800

Explanation

The adjusting journal entry would be as follows

Unearned fee                                                   $1800

              Earned fee                                                                            $1800

(1 month’s fee earned)

Simpson marketing company has completed 1 month of service for which it is entitled to record revenue. 1 months service is still to be rendered hence unearned fee account will have a balance of $1800 till 31st January of next year.

Question 15

Correct Answer ----(C ) Debit Insurance Expense $4500 and credit Prepaid Insurance $4500.

Explanation and calculations

Prepaid insurance balance

$    7,750.00

Unexpired Amount of premium

$    3,250.00

Expired Amount (7750-3250)

$    4,500.00

Since $ 4500 of insurance is expired this amount will be recorded as expense and 3250 will remain in Prepaid insurance account.

               

Question 16

Correct Answer----(C ) $ 1162

Explanation and calculations

Subscription for 36 months

$ 1,548.00

Subscription for 1 months (1548/36)

$        43.00

Subscription for 9 months (43x9)

$     387.00

Expense to be recorded on December 31 for 9 months of expired subscription

$     387.00

Beginning balance of Prepayment to subscription account

$ 1,548.00

Less: Expense Recorded/Subscription expired

$     387.00

balance on December 31 for Prepayment to subscription account

$ 1,161.00

Question 17

Correct Answer----(A) It will understate Expense and Overstate Net Income by $9000.

Explanation

Employee salary needs to be recorded even if cash is not paid for that. If salary is not recorded then expense will be understated and since expense is understated, net income will automatically be overstated. Accrues expense are recorded to follow accrual basis of accounting.

Question 18

Correct Answer----(B) Debit salary expense $9000, Credit salaries payable $9000.

Explanation

Salary will be recorded as expense and since no cash is paid, liability for unpaid salary will be recorded by crediting salaries payable at the end of the year.

Cash will not be credited because no cash is paid.

Prepaid insurance balance

$    7,750.00

Unexpired Amount of premium

$    3,250.00

Expired Amount (7750-3250)

$    4,500.00

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