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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 41

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Gracio Co.had the following transactions in the last two months of its year ended December 31.Prepare entries for these transactions under the method that records prepaid expenses as expenses and records unearned revenues as revenues.Also prepare adjusting entries at the end of the year.

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Question 42

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All of the following are true regarding unearned revenues except:

A) They are payments received in advance of services performed.
B) The adjusting entry for unearned revenues increases assets and increases revenues.
C) The adjusting entry for unearned revenues increases revenues and decreases liabilities.
D) They are liabilities.
E) As they are earned,they become revenues.

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Question 43

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On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately.If the purchase was recorded in the Prepaid Insurance account,and the company records adjustments only at year-end,the adjusting entry at the end of the first year is:

___________________ is the process of allocating the cost of plant assets to the income statement over their expected useful lives.

In accrual accounting,accrued revenues are recorded as liabilities.

Companies experiencing seasonal variations in sales often choose a fiscal year corresponding to their ________________________ year.

On November 1,Jovel Company loaned another company $100,000 at a 6.0% interest rate.The note receivable plus interest will not be collected until March 1 of the following year.The company's annual accounting period ends on December 31.The adjusting entry needed on December 31 is:

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 amount should appear in the Prepaid Subscription account for Santa Fe,Inc.after adjustments on December 31 of the first year assuming the company is using a calendar reporting period and no previous adjustment has been made?

Sanborn Company rents space to a tenant for $2,200 per month.The tenant currently owes rent for November and December.The tenant has agreed to pay the November,December,and January rents in full on January 15 and has agreed not to fall behind again.The adjusting entry needed on December 31 is:

Under the alternative method for accounting for unearned revenue,which of the following pairs of journal entry formats is correct?

Which of the following statements is incorrect?

On April 1,Griffith Publishing Company received $1,548 from Santa Fe,Inc.for 36-month subscriptions to several different magazines.The company credited Unearned Fees for the amount received and the subscriptions started immediately.What is the adjusting entry that should be recorded by Griffith Publishing Company on December 31 of the first year?

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:

On May 1,Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 this year to April 30 of the following year.The Cash receipt was recorded as unearned fees and at year-end on December 31,$1,000 of the fees had been earned.The adjusting entry on December 31 would be:

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.

On April 1,Griffith Publishing Company received $1,548 from Santa Fe,Inc.for 36-month subscriptions to several different magazines.The subscriptions started immediately.What is the amount of revenue that should be recorded by Griffith Publishing Company for the second year of the subscription assuming the company uses a calendar reporting period?

The correct adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31 is:

A company purchased a new delivery van at a cost of $45,000 on July 1.The truck is estimated to have a useful life of 6 years and a salvage value of $3,000.The company uses the straight-line method of depreciation.How much depreciation expense will be recorded for the van during the first year ended December 31?

On July 1 Plum Co.paid $7,500 cash for management services to be performed over a two-year period.Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment.On July 1 Plum should record:

Under the alternative method for recording prepaid expenses,which is the correct set of journal entries?