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Exam 3: Adjusting Accounts for Financial Statements

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Question 1

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On December 1, Milton Company borrowed $300,000, at 8% annual interest, from the Tennessee National Bank. Interest is paid when the loan matures one year from the issue date. What is the adjusting entry for accruing interest that Milton would need to make on December 31, the calendar year-end?

A) debit Interest Payable, $2,000; credit Interest Expense, $2,000
B) debit Interest Expense, $2,000; credit Interest Payable, $2,000
C) debit Interest Expense, $2,000; credit Cash, $2,000
D) debit Interest Expense, $4,000; credit Interest Payable, $4,000
E) debit Interest Expense, $24,000; credit Interest Payable, $24,000

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

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Question 2

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

A) True
B) False

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Question 3

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Which of the following assets is not depreciated?

After preparing and posting the closing entries for revenues and expenses, the income summary account has a debit balance of $33,000. The entry to close the income summary account will be:

Temporary accounts include all of the following except:

An expense account is normally closed by debiting Income Summary and crediting the expense account.

When closing entries are made:

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

Which of the following accounts showing a balance on the post-closing trial balance indicate an error?

Intangible assets are long-term resources that benefit business operations that usually lack physical form and have uncertain benefits.

A current ratio of 2.1 suggests that a company has ____________ current assets to cover current liabilities.

At the beginning of the year, a company's balance sheet reported the following balances: Total Assets = $225,000; Total Liabilities = $125,000; and Retained Earnings = $100,000. During the year, the company reported revenues of $46,000 and expenses of $30,000. In addition, dividends for the year totaled $20,000. Assuming no other changes to retained earnings, the balance in the retained earnings account at the end of the year would be:

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.

Profit margin is defined as:

Closing entries are necessary so that retained earnings will begin each period with a zero balance.

A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers.

The ___________________ account is a temporary account used only in the closing process.

Show the December 31 adjusting entry to record $750 of earned but unpaid salaries of employees at the end of the current accounting period.

Explain the difference between temporary and permanent accounts.

The adjusting entry to record the salaries earned due to employees for services provided but unpaid at the end of the accounting period affects the accounts in which of the following ways?