Mid-Term
1. Explain the difference between an unearned revenue and a prepaid expense. Provide an example of each
2. Explain a closing entry, and explain why this is an important part of the accounting cycle.
3. Explain the difference between the direct write off and allowance method of writing off bad debts. Which method is more common? Why?
4. For the next four questions, review the journal entry and explain what the probable transaction would be requiring the entry, and how this entry is impacting the financial statements. Explaining that account ‘ x’ is a debit/credit etc… is not an acceptable answer. Explanation should cover the actual transaction that occurred.
Example Question:
Utilities Expense 700
Cash 700
An acceptable answer would be: Client paid current month’s utility bill, asset is decreasing, and net worth is decreasing.
____________________________________________________________

Accounts Receivable 8,000 debit
Services Revenue 8,000 credit

5. Explain what the probable transaction would be requiring the entry, and how this entry is impacting the financial statements.
Prepaid Insurance 6,000 debit
Cash 6,000 credit

6. Explain what the probable transaction would be requiring the entry, and how this entry is impacting the financial statements.
Cash 100,000 debit
Office Equipment 24,000 debit
Common Stock 124,000 credit

<link is hidden> what the probable transaction would be requiring the entry, and how this entry is impacting the financial statements.
Office Equipment 12,000 debit
Office Supplies 2,400 debit
Accounts Payable 14,400 credit

8. For each of the following four separate cases, prepare adjusting entries required of financial statements for the year ended (date of) December 31, 2018. (Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance of work are initially recorded as liabilities.).

Question A:
Wages of $9,000 are earned by workers but not paid as of December 31, 2018.
9. Question B:
The Office Supplies account had a $480 debit balance on December 31, 2017. During 2018, $5,349 of office supplies are purchased. A physical count of supplies at December 31, 2018, shows $587 of supplies available.
10. Question C:
The company has earned (but not recorded) $750 of interest from investments in CDs for the year ended December 31, 2018. The interest revenue will be received on January 10, 2019.

11. Question D:

The Prepaid Insurance account had a $5,000 balance on December 31, 2017. An analysis of insurance policies shows that $2,200 of unexpired insurance benefits remain at December 31, 2018.

12. Explain why adjusting entries are needed at the end of the accounting cycle