Question 1

Interim financial statements report a company's business activities for a one-year period.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A)   Income statement accounts.
B)   Asset and equity.
C)   Items that require contra accounts.
D)   Items that require adjusting entries.
E)   Asset accounts.F) D) and E)
G) C) and D) D

Question 3

Profit margin =____________ divided by net sales.

Accepted Answer

The answer of Profit margin =____________ divided by net sales....

Question 4

Describe the two alternate methods used to account for prepaid expenses.

Accepted Answer

The first method places all prepaid expe...

Question 5

The adjusted trial balance must be prepared before the adjusting entries are made.

Accepted Answer

A) True 
 B)False

Question 6

Prior to recording adjusting entries on December 31, a company's Office Supplies account had an
$780 debit balance. A physical count of the supplies showed $425 of unused supplies available as of December 31. Prepare the required adjusting entry.

Accepted Answer

None...

Question 7

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Accepted Answer

A)   Cash basis accounting.
B)   Revenue recognition accounting.
C)   Current basis accounting.
D)   Accrual basis accounting.
E)   Operating cycle accounting.F) A) and E)
G) B) and C)

Question 8

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Accepted Answer

A)   Debit Legal Fees Earned and credit Unearned Legal Fees.
B)   Debit Unearned Legal Fees and credit Accounts Receivable.
C)   Debit Cash and credit Legal Fees Earned.
D)   Debit Cash and credit Unearned Legal Fees.
E)   Debit Unearned Legal Fees and credit Legal Fees Earned.F) B) and E)
G) C) and D) E

Question 9

On April 1, Santa Fe, Inc. paid Griffith Publishing Company $1,548 for 36-month subscriptions to several different magazines. Santa Fe debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. 
-What adjusting entry should be made by Santa Fe, Inc. for the adjustment on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustments had been made?

Accepted Answer

A)   Debit Subscription Expense $516 and credit Prepaid Subscriptions $516.
B)   Debit Unearned Subscriptions $387 and credit Subscription Expense $387.
C)   Debit Subscription Expense $387 and credit Cash $387.
D)   Debit Prepaid Subscriptions $516 and credit Subscription Expense $516.
E)   Debit Subscription Expense $387 and credit Prepaid Subscriptions $387.F) B) and E)
G) B) and D)

Question 10

An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Assuming the company does not prepare reversing entries, which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year?

Accepted Answer

A)     Salaries Payable 1,200 Salaries Expense 1,200\begin{array} { | l | r | r | } \hline 	ext { Salaries Payable } & 1,200 & \\hline 	ext { Salaries Expense } & & 1,200 \\hline\end{array} Salaries Payable  Salaries Expense ​1,200​1,200​​ 
B)     Salaries Payable 1,200 Cash 1,200\begin{array} { | l | r | r | } \hline 	ext { Salaries Payable } & 1,200 & \\hline 	ext { Cash } & & 1,200 \\hline\end{array} Salaries Payable  Cash ​1,200​1,200​​ 
C)     Salaries Payable 1,200 Salaries Expense 1,800 Cash 3,000\begin{array} { | l | r | r | } \hline 	ext { Salaries Payable } & 1,200 & \\hline 	ext { Salaries Expense } & 1,800 & \\hline 	ext { Cash } & & 3,000 \\hline\end{array} Salaries Payable  Salaries Expense  Cash ​1,2001,800​3,000​​ 
D)     Salaries Expense 3,000 Cash 3,000\begin{array} { | l | r | r | } \hline 	ext { Salaries Expense } & 3,000 & \\hline 	ext { Cash } & & 3,000 \\hline\end{array} Salaries Expense  Cash ​3,000​3,000​​ 
E)     Salaries Payable 3,000 Cash 3,000\begin{array} { | l | r | r | } \hline 	ext { Salaries Payable } & 3,000 & \\hline 	ext { Cash } & & 3,000 \\hline\end{array} Salaries Payable  Cash ​3,000​3,000​​F) C) and D)
G) B) and E)

Question 11

The cash basis of accounting commonly increases the comparability of financial statements from period to period.

Accepted Answer

A) True 
 B)False

Question 12

Interim financial statements refer to financial reports:

Accepted Answer

A)   That show the assets above the liabilities and the liabilities above the equity.
B)   That cover less than one year, usually spanning one, three, or six-month periods.
C)   That are prepared before any adjustments have been recorded.
D)   Where the adjustment process is used to assign revenues to the periods in which they are earned and to match expenses with revenues.
E)   Where revenues are reported on the income statement when cash is received and expenses are reported when cash is paid.F) All of the above
G) B) and E) B

Question 13

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 move the portion of these fees that has been earned to a revenue account, one effect will be:

Accepted Answer

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

Question 14

If accrued salaries were recorded on December 31 with a debit to Salaries Expense and a credit to Salaries Payable, and no reversing entries were made on January 1, the entry to record payment of these wages on the following January 5 would include:

Accepted Answer

A)   A debit to Cash and a credit to Salaries Payable.
B)   A debit to Cash and a credit to Prepaid Salaries.
C)   A debit to Salaries Payable and a credit to Salaries Expense.
D)   A debit to Salaries Payable and a credit to Cash.
E)   No entry would be necessary on January 5.F) A) and B)
G) A) and C)

Question 15

Accrual accounting and the adjusting process rely on two principles: the ________ principle and the ________ principle.

Accepted Answer

revenue recognition;...

Question 16

In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers) ; Incurred expenses of $35,000 ($31,000 cash paid toward them) ; Prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the accrual basis of accounting is:

Accepted Answer

A)   $13,000.
B)   $21,000.
C)   $25,000.
D)   $17,000.
E)   None of these options are correctF) B) and E)
G) C) and D)

Question 17

A company purchased new furniture at a cost of $14,000 on September 30. The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. 
-What is the book value of the furniture on December 31 of the first year?

Accepted Answer

A)   $12,500.00
B)   $13,625.00
C)   $13,562.50
D)   $12,250.00
E)   $13,500.00F) None of the above
G) B) and C)

Question 18

The difference between the cost of an asset and the accumulated depreciation for that asset is called

Accepted Answer

A)   Prepaid Depreciation.
B)   Unearned Depreciation.
C)   Book Value.
D)   Depreciation Expense.
E)   Depreciation Value.F) B) and E)
G) A) and C)

Question 19

A company issued financial statements for the year ended December 31, but failed to include the following adjusting entries:
A. Accrued interest revenue earned of $1,200.
B. Depreciation expense of $4,000.
C. Portion of prepaid insurance expired (an asset) used $1,100.
D. Accrued taxes of $3,200.
E. Revenues of $5,200, originally recorded as unearned, have been earned by the end of the year. Determine the correct amounts for the December 31 financial statements by completing the following table:
$\begin{array} { | l c c c c | } 
\hline & \text { Assets } & \text { Liabilities } & \text { Equity } & \text { Net Income } \
\hline \begin{array} { l } 
\text { Reported } \
\text { amounts }
\end{array} & \$ 350,000 & \$ 200,000 & \$ 150,000 & \$ 70,000 \
\hline \begin{array} { l } 
\text { Add (subtract) to } \
\text { correct for item: }
\end{array} & & & & \
\hline
\end{array}$

Accepted Answer

\[\begin{array} { | l c c c c | }
\hlin...

Question 20

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n) :

Accepted Answer

A)   Intangible asset.
B)   Contra account.
C)   Accrued revenue.
D)   Accrued expense.
E)   Adjunct account.F) B) and D)
G) B) and E)

Exam 3: Adjusting Accounts and Preparing Financial Statements

Interim financial statements report a company's business activities for a one-year period.

Correct Answer
verified

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

Correct Answer
verified
D

Profit margin =____________ divided by net sales.

Correct Answer
verified

Describe the two alternate methods used to account for prepaid expenses.

Correct Answer
verified
The first method places all prepaid expe...
View Answer

The adjusted trial balance must be prepared before the adjusting entries are made.

Correct Answer
verified

Prior to recording adjusting entries on December 31, a company's Office Supplies account had an $780 debit balance. A physical count of the supplies showed $425 of unused supplies available as of December 31. Prepare the required adjusting entry.

Correct Answer
verified
None...
View Answer

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Correct Answer
verified

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Correct Answer
verified
E

Correct Answer
verified

An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Assuming the company does not prepare reversing entries, which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year?

Correct Answer
verified

The cash basis of accounting commonly increases the comparability of financial statements from period to period.

Correct Answer
verified

Interim financial statements refer to financial reports:

Correct Answer
verified
B

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 move the portion of these fees that has been earned to a revenue account, one effect will be:

Correct Answer
verified

If accrued salaries were recorded on December 31 with a debit to Salaries Expense and a credit to Salaries Payable, and no reversing entries were made on January 1, the entry to record payment of these wages on the following January 5 would include:

Correct Answer
verified

Accrual accounting and the adjusting process rely on two principles: the principle and the principle.

Correct Answer
verified
revenue recognition;...
View Answer

Correct Answer
verified

A company purchased new furniture at a cost of $14,000 on September 30. The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. -What is the book value of the furniture on December 31 of the first year?

Correct Answer
verified

The difference between the cost of an asset and the accumulated depreciation for that asset is called

Correct Answer
verified

Correct Answer
verified
\[\begin{array} { | l c c c c | }
\hlin...
View Answer

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n) :

Correct Answer
verified

Exam 3: Adjusting Accounts and Preparing Financial Statements

Interim financial statements report a company's business activities for a one-year period.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedD

Profit margin =____________ divided by net sales.

Correct AnswerverifiedShow Answer

Describe the two alternate methods used to account for prepaid expenses.

Correct AnswerverifiedThe first method places all prepaid expe...View AnswerShow Answer

The adjusted trial balance must be prepared before the adjusting entries are made.

Correct AnswerverifiedShow Answer

Prior to recording adjusting entries on December 31, a company's Office Supplies account had an $780 debit balance. A physical count of the supplies showed $425 of unused supplies available as of December 31. Prepare the required adjusting entry.

Correct AnswerverifiedNone...View AnswerShow Answer

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Correct AnswerverifiedShow Answer

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Correct AnswerverifiedE

Correct AnswerverifiedShow Answer

An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Assuming the company does not prepare reversing entries, which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year?

Correct AnswerverifiedShow Answer

The cash basis of accounting commonly increases the comparability of financial statements from period to period.

Correct AnswerverifiedShow Answer

Interim financial statements refer to financial reports:

Correct AnswerverifiedB

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 move the portion of these fees that has been earned to a revenue account, one effect will be:

Correct AnswerverifiedShow Answer

If accrued salaries were recorded on December 31 with a debit to Salaries Expense and a credit to Salaries Payable, and no reversing entries were made on January 1, the entry to record payment of these wages on the following January 5 would include:

Correct AnswerverifiedShow Answer

Accrual accounting and the adjusting process rely on two principles: the ________ principle and the ________ principle.

Correct Answerverifiedrevenue recognition;...View AnswerShow Answer

Correct AnswerverifiedShow Answer

A company purchased new furniture at a cost of $14,000 on September 30. The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. -What is the book value of the furniture on December 31 of the first year?

Correct AnswerverifiedShow Answer

The difference between the cost of an asset and the accumulated depreciation for that asset is called

Correct AnswerverifiedShow Answer

Correct Answerverified\[\begin{array} { | l c c c c | } \hlin...View AnswerShow Answer

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n) :

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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D

Correct Answer
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Correct Answer
verified
The first method places all prepaid expe...
View Answer

Correct Answer
verified

Correct Answer
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None...
View Answer

Correct Answer
verified

Correct Answer
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E

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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B

Correct Answer
verified

Correct Answer
verified

Accrual accounting and the adjusting process rely on two principles: the principle and the principle.

Correct Answer
verified
revenue recognition;...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
\[\begin{array} { | l c c c c | }
\hlin...
View Answer

Correct Answer
verified