The Year-End Adjustment to Recognize One Month's Work on the Three-Month

question 123

Multiple Choice

The year-end adjustment to recognize one month's work on the three-month contract results in a $2,000 decrease in liabilities (unearned revenue) and an increase in equity (retained earnings due to recognizing revenue) .
The following account balances were drawn from the 2016 financial statements of Grayson Company:

-Sheldon Company began 2016 with $1,200 in its supplies account.During the year,the company purchased $3,400 of supplies on account.The company paid $3,000 on accounts payable by year end.On December 31,2016,Sheldon counted $1,400 of supplies on hand.Sheldon's financial statements for 2016 would show:

• A)$1,600 of supplies;$200 of supplies expense
• B)$1,400 of supplies;$2,000 of supplies expense
• C)$1,400 of supplies;$3,200 of supplies expense
• D)$1,600 of supplies;$3,400 of supplies expense

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Definitions:

Variable Overhead

Indirect production costs that fluctuate with the level of production output, such as utilities for the manufacturing plant.

Labour Rate Variance

The difference between the actual cost of direct labor and the expected (or standard) cost, based on the standard rate times the actual hours worked.

Flexible Budget

A budget that adjusts or flexes with changes in the volume or activity level, allowing for more accurate budgeting and analysis.

Standard Costing

A cost accounting system that uses pre-determined costs to value the cost of goods sold and assess the performance.