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Exam 3: Preparing Financial Statements

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Question 91

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On October 1 of the current year, Morton Company paid $9,600 cash for a one-year insurance policy that took effect on that day. On the date of the payment, Morton recorded the following entry: $\begin{array}{|l|l|r|r|}\hline \text { Oct. 01 } & \text { Insurance Expense } & 9,600 & \\\hline & \text { Cash } & & 9,600 \\\hline\end{array}$ Prepare the required adjusting entry at December 31 of the current year.

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Question 92

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A company records the fees for legal services paid in advance by its clients in an account called Unearned Legal Fees. If the company fails to make the end-of-period adjusting entry to record the portion of these fees that has been earned, one effect will be:

A) An overstatement of equity.
B) An understatement of equity.
C) An understatement of assets.
D) An understatement of liabilities.
E) An overstatement of assets.

F) A) and C)
G) C) and D)

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Question 93

Multiple Choice

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Accumulated depreciation, accounts receivable, and service fees earned would be sorted to which respective columns in completing a work sheet?

Using the following table indicate the impact of the following errors made during the adjusting entry process. Use a "+" for overstatements, a "-" for understatements and a "0" for no effect. The first one is provided as an example:

The main purpose of adjusting entries is to:

What is the purpose of closing entries? Describe the closing process.

Black Company's unadjusted and adjusted trial balances on December 31 of the current year are as follows Present the four adjusting journal entries that were recorded by Black Company.

The following items appeared on a company's December 31 work sheet for the current period. Based on the following information, what is net income for the current period?

The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the:

The asset section of a classified balance sheet usually includes:

Which of the following does not require an adjusting entry at year-end?

Profit margin is defined as:

On December 31, the balance in the Prepaid Insurance account was $4,500, which is the remaining balance of a 12-month policy purchased on October 31 in the current year. How much did this policy originally cost?

A company pays each of its two office employees each Friday at the rate of $100 per day each for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is:

A partially completed worksheet is shown below. The unadjusted trial balance columns are complete. Complete the adjustments, adjusted trial balance, income statement, and balance sheet columns.

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of:

List the steps in the accounting cycle.

In general journal form, record the December 31 adjusting entries for the following transactions and events. Assume that December 31 is the end of the annual accounting period. a. The Prepaid Insurance account shows a debit balance of $2,340, representing the cost of a three-year fire insurance policy that was purchased on October 1 of the current year. b. The Office Supplies account has a debit balance of $400; a year-end inventory count reveals $80 of supplies still on hand. c. On November 1 of the current year, Rent Earned was credited for $1,500. This amount represented the rent earned for a three-month period beginning November 1. d. Estimated depreciation on office equipment is $600. e. Accrued salaries amount to $400.

July 31, 2013, the end of the quarter is on a Wednesday. Employees get paid each Friday for the week worked. Abel Co. has five employees who earn $100 per day each. Make the necessary adjusting journal entry for June 30.