Chapter 3: Q3-3DQ (page 139)
Question: What type of business is most likely to select a fiscal year that corresponds to its natural business year instead of the calendar year?
By seasonal businesses.
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Question: For each case below, follow the three-step process for adjusting the unearned revenue liability
account on December 31. Step 1: Determine what the current account balance equals. Step 2: Determine
what the current account balance should equal. Step 3: Record the December 31 adjusting entry to get
from step 1 to step 2. Assume no other adjusting entries are made during the year.
a. Unearned Rent Revenue. The Krug Company collected \(6,000 rent in advance on November 1, debiting
Cash and crediting Unearned Rent Revenue. The tenant was paying 12 months’ rent in advance
and occupancy began November 1.
b. Unearned Services Revenue. The company charges \)75 per month to spray a house for insects. A
customer paid \(300 on October 1 in advance for four treatments, which was recorded with a debit to
Cash and a credit to Unearned Services Revenue. At year-end, the company has applied three treatments
for the customer.
c. Unearned Rent Revenue. On September 1, a client paid the company \)24,000 cash for six months of
rent in advance (the client leased a building and took occupancy immediately). The company recorded
the cash as Unearned Rent Revenue.
In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.
A. Current assets E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Plant assets G. Equity
D. Intangible assets
9. Accumulated depreciation—Trucks
Question: Choose from the following list of terms/phrases to best complete the statements below.
a. Fiscal year d. Accounting period g. Natural business year
b. Timeliness e. Annual financial statements h. Time period assumption
c. Calendar year f. Interim financial statements i. Quarterly statements
1. presumes that an organization’s activities can be divided into specific time periods.
2. Financial reports covering a one-year period are known as .
3. A(n)consists of any 12 consecutive months.
4. A(n)consists of 12 consecutive months ending on December 31.
5. The value of information is often linked to its .
In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.
A. Current assets E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Plant assets G. Equity
D. Intangible assets
4. Prepaid insurance
In the blank space beside each numbered balance sheet item, enter the letter of its balance sheet classification. If the item should not appear on the balance sheet, enter a Z in the blank.
A. Current assets E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Plant assets G. Equity
D. Intangible assets
15. Office supplies
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