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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 71

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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-year reporting period and no previous adjustment has been made?

A) $387.
B) $1,548.
C) $0.
D) $516.
E) $1,161.

F) C) and E)
G) None of the above

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Question 72

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A salary owed to employees is an example of an accrued expense.

A) True
B) False

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Question 73

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

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 cash basis of accounting is:

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

Financial statements can be prepared directly from the information in the adjusted trial balance.

Adjusting entries are necessary so that asset, liability, revenue, and expense account balances are correctly recorded.

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-year reporting period?

Which of the following statements is incorrect?

The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work provided is:

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: $\begin{array}{|lcccc|}\hline & \text { Assets } & \text { Liabilities } & \text { Equity } & \text { Net Income } \\\hline \begin{array}{l}\text { Reported } \\\text { amounts }\end{array} & \$ 350,000 & \$ 200,000 & \$ 150,000 & \$ 70,000 \\\hline \text { Add (subtract) to }\\\text { correct for item: }\\\hline A\\\hline\end{array}$ $\text { Education. }$ $\begin{array} { l }\hline A\\\hline B\\\hline C\\\hline D\\\hline E\\\hline \text { Corrected amounts }&\$&\$&\$&\$\\\hline \end{array}$

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

A company's fiscal year must correspond with the calendar year.

The 12-month period that ends when a company's sales activities are at their lowest level is called the:

On September 1, Kennedy Company loaned $100,000, at 12% annual interest, to a customer. Interest and principal will be collected when the loan matures one year from the issue date. Assuming adjustments are only made at year-end, what is the adjusting entry for accruing interest that Kennedy would need to make on December 31, the calendar year-end?

A roofing company collects fees when jobs are complete. The work for one customer, whose job was bid at $3,000, has been completed as of December 31, but the customer has not yet been billed. Assuming adjustments are only made at year-end, what is the adjusting entry the company would need to make on December 31, the calendar year-end?

If Regent Tax Services' office supplies account balance on March 1 was $1,400, the company purchased $675 of supplies during the month, and a physical count of supplies on hand at the end of March indicated $1,250 unused, what is the amount of the adjusting entry for office supplies on March 31?

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 first year of the subscription assuming the company uses a calendar-year reporting period?

Unearned revenue is reported in the financial statements as:

In accrual accounting, accrued revenues are recorded as liabilities.