Discuss Adjustments for Financial Reporting
Unit 3 Assignment 1: Adjustments for Financial Reporting
This assignment will familiarize you with the need for adjusting entries. After completing this assignment, you will understand:
The difference between the cash and accrual bases of accounting.
The concept of adjusting entries and how they are prepared.
How to classify adjusting entries.
The concept of asset depreciation and its effect on book values.
Instructions
Respond to the following questions or problems using grammatically correct language and appropriate APA citations. To achieve a proficient grade in this assignment, answer the proficient-level queries for each question. To achieve a distinguished grade, answer both sets of queries for each question.
Question 1:
o Proficient:
o Describe the basic characteristics of the cash basis and the accrual basis of accounting.
o How are revenues and expenses reported on the income statement under the cash basis of accounting and the accrual basis of accounting?
o Distinguished:
o What differences exist when assets, liabilities, and equities are recorded under each of the two bases of accounting?
Question 2:
o Proficient:
o Which events during an accounting period trigger the recording of normal journal entries and which event triggers the making of adjusting entries? Please explain why adjusting entries are necessary at the end of an accounting period.
o Distinguished:
o Identify the four different types of adjusting entries frequently required at the end of an accounting period.
Question 3:
o Proficient:
o Give an example of an adjusting journal entry for each of the following transactions. Provide three correct responses:
o Equal growth of an expense and a liability.
o Earning of revenue that was previously recorded as unearned revenue.
o Equal growth of an asset and revenue.
o Increase in an expense and decrease in an asset.
o Distinguished:
o Give an example of an adjusting journal entry for each of the transactions.
Provide four correct responses.
Question 4:
o Proficient:
o Classify the following items as (a) prepaid expense, (b) unearned revenue, (c) accrued revenue, or (d) accrued expense. Provide six or seven correct responses:
o A three-year premium paid on a fire insurance policy.
o Fees earned but not yet received.
o Fees received but not yet earned.
o Salary owed but not yet paid.
o Subscriptions received in advance by a magazine publisher.
o Supplies on hand at the end of an accounting period.
o Taxes owed but payable in the following accounting period.
o Utilities owed but not yet paid.
o Distinguished:
o Classify the items mentioned as (a) prepaid expense, (b) unearned revenue, (c) accrued revenue, or (d) accrued expense. Provide eight correct responses.
Question 5:
o Proficient:
o Describe the difference between depreciation expense and accumulated depreciation.
o Describe the formula used for computing the straight line depreciation for a depreciable asset. Explain how to calculate an asset’s book value.
o Distinguished:
o The balance in the equipment account is $1,375,000, and the balance in the accumulated depreciation—equipment account is $725,000.
o What is the book value of the equipment and does that amount mean that the equipment has a loss in real value of $725,000? Explain your response. Write your responses in a Microsoft Word document and submit it as an attachment in the assignment area. Prior to submitting your assignment, review the Adjustments for Financial Reporting Scoring Guide to ensure you have met all of the requirements and as a self-assessment of your work. Be sure to address the questions at the proficient and distinguished levels to achieve the highest grade possible.
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