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Exam 3: Adjusting Accounts for Financial Statements

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Question 1

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The adjusting entry to record an accrued expense is:

A) Increase an expense; increase a liability.
B) Increase an asset; increase revenue.
C) Decrease a liability; increase revenue.
D) Increase an expense; decrease an asset.
E) Increase an expense; decrease a liability.

F) B) and E)
G) B) and C)

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Question 2

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Two common subgroups for liabilities on a classified balance sheet are:

A) Current liabilities and intangible liabilities.
B) Present liabilities and operating liabilities.
C) General liabilities and specific liabilities.
D) Intangible liabilities and long-term liabilities.
E) Current liabilities and long-term liabilities.

F) C) and D)
G) B) and E)

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Question 3

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A number of accounts are listed below. Use the table to classify each account by indicating whether it is a temporary or permanent account, whether it is included in the Income Statement or Balance sheet, and if it is closed at the end of the accounting period, and, if so, whether it is closed with a debit or credit. The first one is done as an example.

The following information is available for the Noir Detective Agency, Inc. After recording these closing entries, what will be the balance in the Retained Earnings account?

The adjusted trial balance of Carson's Internet Services, Inc. follows: (a) Prepare the four closing entries necessary. (b) What is the balance of the Retained Earnings account after the closing entries are posted?

What is the purpose of a post-closing trial balance?

Revenue accounts are temporary accounts that should begin each accounting period with zero balances.

Describe a work sheet and explain why it is useful.

The Income Summary account is used to:

The balances in the unadjusted columns of a work sheet will agree with:

Closing entries are required at the end of each accounting period to close all ledger accounts.

A company's ledger accounts and their end-of-period balances before closing entries are posted are shown below. What amount will be posted to Retained Earnings in the process of closing the Income Summary account? (Assume all accounts have normal balances.)

The current ratio is used to help assess a company's ability to pay its debts in the near future.

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

On October 2, Demitri Company borrowed $100,000, at 4% annual interest, from First National Bank. Interest will be paid when the loan matures one year from the issue date. What is the amount of interest that Demitri would accrue on December 31, the end of the company's fiscal year?

Mandalay Company, Inc. frequently has accrued expenses at the end of its fiscal year that should be recorded for proper financial statement presentation. Mandalay pays on a weekly basis and has $50,000 of accrued salaries incurred but not paid for June 30, its fiscal year-end. This consists of one day's accrued salaries for the week. The company will pay its employees $250,000 on July 4; the one day of accrued salaries and the remaining four days for July salaries. Record the following entries: (a) Accrual of the salaries on June 30. (b) Payment of the salaries on July 4, assuming that Mandalay does not prepare reversing entries. (c) Assuming that Mandalay prepares reversing entries, reverse the adjusting entry made on June 30. (d) Assuming that Mandalay prepares reversing entries, payment of the salaries on July 4.

Explain the purpose of adjusting entries at the end of a period and provide an example of an adjusting entry.

Using the information given below, prepare an income statement and statement of retained earnings for Rapid Car Services, Inc. from the adjusted trial balance. The stockholders did not make any additional investments in the company during the year.

Accrued expenses reflect transactions where cash is paid before a related expense is recognized.

Tara Westmont, the stockholder of Tiptoe Shoes, Inc., had annual revenues of $185,000, expenses of $103,700, and the company paid $18,000 cash in dividends to the owner (sole shareholder) . The retained earnings account before closing had a balance of $297,000. The Net Income for the year is: