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Exam 3: Adjusting Accounts for Financial Statements

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Question 71

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Adjusting entries are made after the preparation of financial statements.

A) True
B) False

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Question 72

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If a company records prepayment of expenses in an asset account,the adjusting entry when all or part of the prepaid asset is used or expired would:

A) Result in a debit to an expense and a credit to an asset account.
B) Cause an adjustment to prior expense to be overstated and assets to be understated.
C) Cause an accrued liability account to exist.
D) Result in a debit to a liability and a credit to an asset account.
E) Decrease cash.

F) C) and E)
G) A) and B)

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Question 73

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Match the following terms with the appropriate definition. -Assets that are held for more than the longer of one year or the operating cycle of the company and are not used in operations.

Based on the unadjusted trial balance for Highlight Styling and the adjusting information given below,prepare the adjusting journal entries for Highlight Styling. Highlight Stylings' unadjusted trial balance for the current year follows: Additional information: a.An insurance policy examination showed $1,040 of expired insurance. b.An inventory count showed $210 of unused shop supplies still available. c.Depreciation expense on shop equipment,$350. d.Depreciation expense on the building,$2,020. e.A beautician is behind on space rental payments,and this $200 of accrued revenues was unrecorded at the time the trial balance was prepared. f.$800 of the Unearned Rent account balance was still unearned by year-end. g.The one employee,a receptionist,works a five-day workweek at $50 per day.The employee was paid last week but has worked four days this week for which she has not been paid. h.Three months' property taxes,totaling $450,have accrued.This additional amount of property taxes expense has not been recorded. i.One month's interest on the note payable,$600,has accrued but is unrecorded.

On the work sheet,net income is entered in the Income Statement Credit column as well as the Balance Sheet or Statement of Retained Earnings Credit column.

Classified balance sheets commonly include the following categories: A. Current assets B. Long-term investments C. Plant assets D. Intangible assets E. Current liabilities F. Long-term liabilities G. Equity. Match the typical classification of each item below with its correct balance sheet category (A through G) . -Long-term Note Payable

Using the information given below,prepare an income statement and statement of retained earnings for Rapid Car Services from the adjusted trial balance. $\begin{array}{c} \text {Rapid Car Services}\\ \text {Adjusted Trial Balance}\\ \text {For the year ended December 31}\\\begin{array}{lll} \text { Cash } & \$ 33,000 \\ \text { Accounts receivable } & 14,200 \\\text { Office supplies . } & 1,700 \\\text { Vehicles}&100,000\\\text { Accumulated depreciation - Vehicles}&&45,000\\\text { Accounts payable}&&11,500\\\text { Common stock}&&20,000\\\text { Retained earnings}&&51,900\\\text { Dividends}&40,000\\\text { Fees earned }&&155,000\\ \text { Rent expense} & 13,000 \\ \text { Office supplies expense } & 2,000 \\ \text { Utilities expense } & 2,500 \\ \text { Depreciation Expense - Vehicles } & 15,000 \\ \text { Salary expense} & 50,000 & \\ \text { Fuel expense } & 12.000 & \\ \text { Totals } & \underline{\underline{\$ 283,400}} & \underline{\underline{\$ 283,400}} \\\end{array}\end{array}$

Match the following terms with the appropriate definition. -The owners' claims on the assets of a company.

All necessary amounts needed to prepare the income statement can be taken from the income statement columns of the work sheet,including the net income or net loss.

The steps in the closing process are (1)close credit balances in revenue accounts to Income Summary; (2)close debit balances in expense accounts to Income Summary; (3)close Income Summary to Retained Earnings; (4)close Dividends to Retained Earnings.

Adjusting is a three-step process (1)________, (2)________,and (3)________.

On December 31,Chu Company had performed $3,000 of management services for clients that had not yet been billed.Prepare Chu's adjusting entry to record these fees earned.

Using the information given below,prepare a balance sheet for Rapid Car Services from the adjusted trial balance. $\begin{array}{c} \text {Rapid Car Services}\\ \text {Adjusted Trial Balance}\\ \text {For the year ended December 31}\\\begin{array}{lll} \text { Cash } & \$ 33,000 \\ \text { Accounts receivable } & 14,200 \\\text { Office supplies . } & 1,700 \\\text { Vehicles}&100,000\\\text { Accumulated depreciation - Vehicles}&&45,000\\\text { Accounts payable}&&11,500\\\text { Common stock}&&20,000\\\text { Retained earnings}&&51,900\\\text { Dividends}&40,000\\\text { Fees earned }&&155,000\\ \text { Rent expense} & 13,000 \\ \text { Office supplies expense } & 2,000 \\ \text { Utilities expense } & 2,500 \\ \text { Depreciation Expense - Vehicles } & 15,000 \\ \text { Salary expense} & 50,000 & \\ \text { Fuel expense } & 12.000 & \\ \text { Totals } & \underline{\underline{\$ 283,400}} & \underline{\underline{\$ 283,400}} \\\end{array}\end{array}$

A balance sheet that places the assets above the liabilities and equity is called a(n) :

Asset and liability balances are transferred from the adjusted trial balance to the balance sheet.

How is the current ratio calculated? How is it used to evaluate a company?

If a company failed to make the end-of-period adjustment to move the amount of management fees that were earned from the Unearned Management Fees account to the Management Fees Revenue account,this omission would cause:

List and explain the steps in preparing a 10-column worksheet.

The accounting principle that requires revenue to be recorded when earned is the:

Recording revenues early overstates current-period income; recording revenues late understates current period income.