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

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Question 41

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Which of the following correctly describes the effects of accruing income tax expense at year-end?

A) A cash payment is made to pay the taxes due.
B) Liabilities are not affected.
C) Retained earnings decreases.
D) Net income increases.

E) A) and B)
F) C) and D)

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Question 42

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On December 1, 2014, Fleet Company paid $30,000 for three months rent and debited prepaid rent for $30,000; the payment was for rent beginning December 1, 2014. Required: Prepare Fleet's adjusting entry required on December 31, 2014.

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Question 43

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Which is the correct sequence of the following steps in the accounting cycle?

At the end of the accounting period, the balances in the nominal accounts are closed while the balances in the real accounts are carried forward to the next accounting period.

A calendar year reporting company preparing its annual financial statements should use the phrase "As of December 31, 2014" in the heading of which financial statements?

Adjusting entries do not involve cash and therefore do not impact the cash flow statement.

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

Which of the following statements regarding earnings per share is not correct?

On July 1, 2014, Allen Company signed a $100,000, one-year, 6 percent note payable. The principal and interest will be paid on June 30, 2015. How much interest expense should be reported on the income statement for the year ended December 31, 2014?

Which of the following is not a correct closing entry? A. Retained earnings $\quad$ Revenues $\quad$ Expenses B. Revenues $\quad$ Gain on sale of land $\quad$ Expenses $\quad$ Retained earnings C. Revenues $\quad$ Loss on sale of Building $\quad$ Expenses $\quad$ Retained earnings D. Loss on sale of land $\quad$ Expenses $\quad$ Revenues $\quad$ Retained earnings

Bridge Company keeps a small inventory of supplies used for cleaning and maintenance purposes. On January 1, 2014, the inventory of supplies on hand was $2,000. During the year, supplies purchased were debited to the supplies account in the amount of $6,500. On December 31, 2014, the amount of supplies in the storeroom was $1,750. The books are adjusted only at year-end. Required: Prepare the adjusting entry required at December 31, 2014.

A deferred expense such as prepaid insurance is created when cash is paid in advance of the expense incurred, and is reduced when the expense is actually incurred.

What is the effect on the financial statements when a company fails to accrue interest expense at year-end?

Johnson Corporation is completing the accounting information processing cycle at the end of the fiscal year, June 30, 2014. Johnson has provided the following trial balances as of June 30, 2014: Required: A. Reconstruct the adjusting entries and give a brief explanation of each. B. What is the amount of net income? C. Calculate earnings per share (EPS) assuming 1,000 shares of common stock are outstanding.

Earnings per share are calculated by dividing net income minus preferred dividends by the average number of shares of common stock outstanding.

Which of the following transactions and events results in a decrease in both total assets and net income?

Which of the following account balances would be closed at year-end?

Explain how adjusting entries provide for potential manipulation by managers. In addition, discuss how compensation arrangements may result in incentives for such manipulation to occur.

On July 1, 2014, Bass Company paid a two-year insurance premium. On that date the following journal entry was made: The annual accounting period ends on December 31, 2014. Required: A. How much of the premium should be reported as expense on the 2014 income statement? B. What is the amount of prepaid insurance that should be reported on the balance sheet at December 31, 2014? C. Prepare the adjusting entry that should be made on December 31, 2014, assuming no adjusting entries have been made during the year.

What is the effect on the financial statements when a company fails to accrue salaries expense at year-end?