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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 91

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Accrued revenues at the end of one accounting period are expected to result in cash collections in a future period.

A) True
B) False

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Question 92

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A balance sheet that places the liabilities and equity to the right of the assets is a(n) :

A) Report form balance sheet.
B) Classified balance sheet.
C) Unclassified balance sheet.
D) Account form balance sheet.
E) Interim balance sheet.

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

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Question 93

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The cash basis of accounting commonly increases the comparability of financial statements from period to period.

How is profit margin calculated? Discuss its use in analyzing a company's performance.

If a company records prepayment of expenses in an asset account, the adjusting entry when all or part of the prepaid asset is used or expired would:

Fragmental Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $800. Fragmental collected the entire $6,400 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made by Fragmental Co. on December 31 would be:

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

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

The revenue recognition principle is the basis for making adjusting entries that pertain to unearned and accrued revenues.

Using the table below, indicate the impact of the following errors made during the adjusting entry process. Use a "+" for overstatements, a "-" for understatements, and a "0" for no effect. The first one is provided as an example. $\begin{array}{|c|l|c|c|c|c|c|}\hline &{\text { Error }} & \text { Revenues } & \text { Expenses } & \text { Assets } & \text { Liabilities } & \text { Equity } \\\hline \text { Ex. } & \begin{array}{l}\text { Did not record depreciation } \\\text { for this period }\end{array} & 0 & - & + & 0 & + \\\hline \text { 1. } & \begin{array}{l}\text { Did not record unpaid } \\\text { telephone bill }\end{array} \\\hline 2 . & \begin{array}{l}\text { Did not adjust unearned } \\\text { revenue account for revenue } \\\text { earned this period. }\end{array} \\\hline 3 . & \begin{array}{l}\text { Did not adjust shop supplies } \\\text { for supplies used this period }\end{array} \\\hline 4 . & \begin{array}{l}\text { Did not accrue employee } \\\text { salaries for this period }\end{array} \\\hline 5 . & \begin{array} { l } \text { Recorded rent expense owed } \\\text { with a debit to insurance } \\\text { expense and a credit to rent } \\\text { payable }\end{array}\\\hline\end{array}$  

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

A company earned $3,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:

Andrew's net income was $280,000; its total assets were $1,050,000; and its net sales were $3,500,000. Calculate the company's profit margin ratio.

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

On December 31, the year end, a company forgot to record $6,000 of depreciation on machinery. In the current year financial statements, what is the effect of this error on assets, net income, and equity?

Under the accrual basis of accounting, adjustments are often made for prepaid expenses and unearned revenues.

A company purchased a new delivery van at a cost of $45,000 on July 1. The delivery van 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?

Two main accounting principles used in accrual accounting are expense recognition and full closure.

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?

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: