Final

4. The left side of an account is always:
a. the debit side.
b. the credit side.
c. the balance of that account.
d. carried forward to the next accounting period.

5. Posting is the process of:
a. preparing a chart of accounts.
b. adding a column of figures.
c. transferring journal entries to ledger accounts.
d. recording entries in a journal.

6. Montana Inc.'s fiscal year ended on December 31, 2012. The balance in the prepaid insurance account as of December 31, 2012, was $34,800 (before adjustment) and consisted of the following policies:

Policy
Date of
Date of
Balance in
Number
Purchase
Expiration
Account
279248
10/1/11
9/30/12
$14,400
694421
3/1/12
2/28/14
9,600
800616
7/1/11
6/30/13
10,800

$34,800
The adjusting entry required on December 31, 2012, would be
a.
Insurance Expense 22,000 Prepaid Insurance 22,000
b.
Insurance Expense 20,200 Prepaid Insurance 20,200
c.
Prepaid Insurance 17,600 Insurance Expense 17,600
d.
Insurance Expense 25,600 Prepaid Insurance 25,600

ANS: D
Policy 279248  3 months expired last year: all $14,400 expires this year
Policy 694421  10 months expire this year:
$9,600  10/24 = $4,000
Policy 800616  6 months expired last year,

12 months expire this year:
$10,800  12/18 = $7,200.
Adjusting entry:
$14,400 + $4,000 + $7,200 = $25,600.

PTS: 1 DIF: Challenging OBJ: 4.2
NAT: AACSB Analytic | AICPA FN Measurement

7. Tawdry Company debited Prepaid Insurance for $900 on May 1, 2012, for a one-year fire insurance policy. If the company prepares monthly financial statements, failure to make an adjusting entry on May 31, for the amount of insurance that has expired would cause:
a. assets to be overstated by $900 and expenses to be understated by $900.
b. expenses to be overstated by $75 and