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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 31

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Revenue and expense balances are transferred from the adjusted trial balance to the income statement.

A) True
B) False

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Question 32

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A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31. Which of the following statements is true?

A) It will have no effect on income.
B) It will overstate assets and liabilities by $9,000.
C) It will understate net income by $9,000.
D) It will understate assets by $9,000.
E) It will understate expenses and overstate net income by $9,000.

F) C) and D)
G) C) and E)

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Question 33

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Discuss the importance of periodic reporting and the time period assumption.

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:

A company purchased $6,000 worth of supplies in August and recorded the purchase in the Supplies account. On August 31, the fiscal year-end, the supplies count equaled $3,200. The adjusting entry would include a $2,800 debit to Supplies.

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

A company issued financial statements for the year ended December 31, but failed to include the following adjusting entries: A. Accrued service fees earned of $2,200. B. Depreciation expense of $8,000. C. Portion of office supplies (an asset) used $3,100. D. Accrued salaries of $5,200. E. Revenues of $7,200, originally recorded as unearned, have been earned by the end of the year.

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

Prepare general journal entries on December 31 to record the following unrelated year-end adjustments. a. Estimated depreciation on office equipment for the year, $4,000. b. The Prepaid Insurance account has a $3,680 debit balance before adjustment. An examination of insurance policies shows $950 of insurance expired. c. The Prepaid Insurance account has a $2,400 debit balance before adjustment. An examination of insurance policies shows $600 of unexpired insurance. d. The company has three office employees who each earn $100 per day for a five-day workweek that ends on Friday. The employees were paid on Friday, December 26, and have worked full days on Monday, Tuesday, and Wednesday, December 29, 30, and 31. e. On November 1, the company received 6 months' rent in advance from a tenant whose rent is $700 per month. The $4,200 was credited to the Unearned Rent account. f. The company collects rent monthly from its tenants. One tenant whose rent is $750 per month has not paid his rent for December.

Since the revenue recognition principle requires that revenues be recorded when earned, there are no unearned revenues in accrual accounting.

Before an adjusting entry is made to recognize the cost of expired insurance for the period, Prepaid Insurance and Insurance Expense are both overstated.

Adjusting entries made at the end of an accounting period accomplish all of the following except:

A company performs 20 days work on a 30-day contract before the end of the year. The total contract is valued at $6,000 and payment is not due until the contract is fully completed. The adjusting entry includes a $4,000 credit to unearned revenue.

Manning, Co. collected 6-months' rent in advance from a tenant on November 1 of the current year. When it collected the cash, it recorded the following entry: Prepare the required adjusting entry at December 31 of the current year.

Explain how the owner of Cheezburger Network uses the accrual basis of accounting.

The cash basis of accounting commonly results in financial statements that are less comparable from period to period than the accrual basis of accounting.

Profit margin reflects the percent of profit in each dollar of revenue.

The adjusted trial balance contains information pertaining to:

The ________________________________ depreciation method allocates equal amounts of an asset's cost to depreciation during its useful life.

List the three-steps of the adjusting process.