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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 111

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

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Question 112

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If a company records prepayment of expenses in an asset account, the adjusting entry 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.

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Question 113

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Given the table below, indicate the impact of the following errors made during the adjusting entry process. Use a "+" followed by the amount for overstatements, a "-" followed by the amount for understatements, and a "0" for no effect. The first one is done as an example. Ex. Failed to recognize that $600 of unearned revenues, previously recorded as liabilities, had been earned by year-end. 1. Failed to accrue salaries expense of $1,200. 2. Forgot to record $2,700 of depreciation on office equipment. 3. Failed to accrue $300 of interest on a note receivable.

All of the following are regarding prepaid expenses except:

On March 31, Phoenix, Inc. paid Melanie Publishing Company $15,480 for a 3-year subscription for five different magazines. The subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Phoenix Company after adjustments on December 31 each year assuming Phoenix using a calendar reporting period?

Which of the following statements is incorrect?

The adjusting entry to record an accrued revenue is:

Each adjusting entry affects only one or more income statements account and never cash.

Prepare adjusting entries for the year ended December 31, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance are initially recorded as liabilities. a. The Prepaid Rent account has a debit balance of $12,000 before adjustment, representing a prepayment for four months rent made on December 1 of the current year. b. One-third of the work related to $18,000 of cash received in advance was performed during this period. c. Unpaid accrued salaries at December 31 amounts to $15,000 d. Work was completed for a client on December 31 in the amount of $21,000, but was not previously billed or recorded. e. Estimated depreciation on office equipment is $27,000.

Ned's net income was $780,000; its net assets were $5,200,000; and its net sales were $9,000,000. Calculate its profit margin ratio.

On May 1, Carter Advertising Company received $3,600 from Kaitlyn Breanna for advertising services to be completed April 30 of the following year. The Cash receipt was recorded as unearned fees. The adjusting entry for the year ended December 31, Year 2 would include:

On April 30, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the year ended December 31?

In preparing statements from the adjusted trial balance, the balance sheet must be prepared first.

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

Each adjusting entry can only affect a balance sheet account.

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

What is the usual order in which financial statements are prepared from the adjusted trial balance? Why are they prepared in that order?

All of the following are regarding unearned revenues except:

An annual reporting period consisting of any twelve consecutive months is known as:

The accrual basis of accounting requires adjustments to recognize revenues in the periods they are earned and to match expenses with revenues.