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Exam 4: Adjustments, Financial Statements, and the Quality of Earnings

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Question 1

Multiple Choice

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Which of the following transactions results in an increase in both net income and stockholders' equity?

A) Paying cash to acquire a six-month insurance policy.
B) Collecting cash from a customer for services to be provided in the future.
C) The accrual of interest expense year-end.
D) Adjustment of the unearned revenue account for revenue earned during the perioD.Adjusting unearned revenue for revenue earned results in a credit to revenue and a debit to unearned revenue. This decreases liabilities and increases net income and stockholders' equity.

E) None of the above
F) All of the above

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D

Question 2

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A list of the accounts of Medford Corporation is given below, followed by some selected transactions. Indicate the accounts that should be debited and credited for the transaction or for the closing entry by placing the appropriate account codes in the debit and credit columns provided.

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Question 3

Multiple Choice

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Which of the following statements is correct?

Describe the adjusted trial balance.

Depreciation expense is an estimated allocation of the cost of long-term assets and is recorded in a contra-asset called accumulated depreciation.

Which of the following account balances would not be closed at year-end by debiting the account?

At the time of the initial cash flow, deferred expenses are recorded as assets and then, when they are used, both expenses and liabilities will increase.

Which of the following does not correctly describe an adjusting journal entry that debits interest expense and credits interest payable?

Which of the following statements is inaccurate with respect to the total asset turnover ratio?

On September 1, 2014, Fast Track, Inc. was started with $30,000 invested by the owners as contributed capital. On September 30, 2014, the accounting records contained the following amounts: Required: Prepare a balance sheet for Fast Track, Inc. as of September 30, 2014.

On January 1, 2014, the general ledger of Global Corporation included supplies of $1,000. During 2014, supplies purchases amounted to $5,000. A physical count of inventory on hand at December 31, 2014 determined that the amount of supplies on hand was $1,200. How much is the 2014 supplies expense?

Three transactions given below were completed during 2014 by Story Company. A. On June 1, 2014, Story Company paid $12,600 for one year's rent beginning on that date. The rent payment was recorded as follows: B. On February 1, 2014, Story Company purchased office supplies during the year that cost $700 and placed the supplies in a storeroom for use as needed. The purchase was recorded as follows: At December 31, 2014, a count showed unused office supplies of $200 in the storeroom. There was no beginning inventory of supplies on hand. C. On December 31, 2014, Story Company owed employees $2,000 for wages earned during December. These wages had not been paid or recorded. Required: Prepare the adjusting entries as of December 31, 2014, assuming no adjusting entries have been made during the year. Prepaid rent $\quad$ 12,600 Cash $\quad$ 12,600 Office supplies inventory $\quad$ 700 Cash $\quad$ 700

On December 31, 2014, the manager of Jordan Creek Apartments noticed that four tenants had not paid their December rent amounting to $500 each. What is the adjusting entry required on December 31, 2014?

The CHS Company paid $30,000 cash to its landlord on November 1, 2014 for rent covering the six-month period from November 1, 2014 through April 30, 2015. The books are adjusted only at year-end. Which of the following does not correctly describe the effect on CHS Company's financial statements of the December 31, 2014 adjusting entry?

On November 1, 2014, Bruce Company leased some of its office space to Fairlane Company and immediately collected $600,000 for twelve months rent in advance. Bruce debited cash and credited unearned rent revenue for $600,000. Required: Prepare the December 31, 2014 adjusting entry Bruce should make in respect to the rent, assuming no adjusting entries have been made during the year.

The declaration of a $5,000 dividend by JLH Company would be reported on which of JLH's financial statements?

Which of the following transactions does not create a deferral?

Below are four transactions that were completed during 2014 by Timber Lodge. The annual accounting period ends on December 31. Each transaction will require an adjusting entry at December 31, 2014. Required: Prepare the 2014 adjusting entries required for Timber Lodge. A. On July 1, 2014, Timber Lodge paid a two-year insurance premium for a policy on its facilities. This transaction was recorded as follows: B. On December 31, 2014, a tenant renting some storage space from Timber Lodge had not paid the rent of $750 for December. C. On September 1, 2014, Timber Lodge borrowed $25,000 cash and gave a one-year, 6 percent, note payable. The interest is payable on the note's due date of August 31 2015. The September 1, 2014 transaction was recorded as follows: D. On October 1, 2014, Timber Lodge collected $10,000 from a tenant for two years rent beginning October 1, 2014. The $10,000 collection was recorded as follows:

Four transactions are given below that were completed during 2014 by Russell Company. The books are adjusted only at year-end. A. On December 31, 2014, Russell Company owed employees $3,750 for wages that were earned by them during December and were not recorded. B. During 2014, Russell Company purchased office supplies that cost $1,000, which were placed in the supplies room for use as needed. The purchase was recorded as follows: At January 1, 2014, the amount of unused office supplies was $300. At December 31, 2014, a physical count showed unused office supplies in the supply room amounting to $100. C. On December 1, 2014, Russell Company rented some office space to another party. Russell Company collected $900 rent for the period December 1, 2014, to March 1, 2014. The December 1 transaction was recorded as follows: D. On July 1, 2014, Russell Company borrowed $12,000 cash on a one-year, 8% interest-bearing, note payable. The interest is payable on the due date of the note, June 30, 2015. The borrowing was recorded as follows on July 1, 2014:

What is the effect on the financial statements when a company fails to adjust the unearned revenue account for revenues earned at year-end?