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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 21

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Interim financial statements refer to financial reports:

A) That cover less than one year, usually spanning one, three, or six-month periods.
B) That are prepared before any adjustments have been recorded.
C) That show the assets above the liabilities and the liabilities above the equity.
D) Where revenues are reported on the income statement when cash is received and expenses are reported when cash is paid.
E) Where the adjustment process is used to assign revenues to the periods in which they are earned and to match expenses with revenues.

F) A) and B)
G) C) and D)

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Question 22

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A company purchased $6,000 worth of supplies in August and recorded the purchase in the Supplies account. On August 31, the fiscal year-end, the supplies count equaled $3,200. The adjusting entry would include a $2,800 debit to Supplies.

A) True
B) False

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Question 23

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The matching principle does not aim to record expenses in the same accounting period as the revenue earned as a result of these expenses.

Adjusting entries are made after the preparation of financial statements.

Under the alternative method for accounting for unearned revenue, which of the following pairs of journal entry formats is correct?

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

In general journal form, record the December 31 adjusting entries for the following transactions and events. Assume that December 31 is the end of the annual accounting period. a. The Prepaid Insurance account shows a debit balance of $2,340, representing the cost of a three-year fire insurance policy that was purchased on October 1 of the current year. b. The Office Supplies account has a debit balance of $400; a year-end inventory count reveals $80 of supplies still on hand. c. On November 1 of the current year, Rent Earned was credited for $1,500. This amount represented the rent earned for a three-month period beginning November 1. d. Estimated depreciation on office equipment is $600. e. Accrued salaries amount to $400.

Using the information presented below, prepare an income statement from the adjusted trial balance of Hanson Storage.

What are the types of adjusting entries used for accrued expenses and accrued revenues?

On January 1, Alco Company purchases manufacturing equipment costing $95,000 that is expected to have a five-year life and an estimated residual value of $5,000. Alco uses the straight-line depreciation method to allocate costs. The adjusting entry needed on December 31 is:

Accrued revenues at the end of one accounting period often result in cash _______________________ in the next period.

Costs incurred during an accounting period but unpaid and unrecorded are accrued expenses.

An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year?

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

On December 1, Miller Company borrowed $300,000, at 8% annual interest, from the Nomo Bank. Miller has 60 days before the first payment is required. What is the adjusting entry that Miller would need to make on December 31, the calendar year-end?

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

On December 31, the year end, a company forgot to record $7,000 of depreciation on office equipment. In the current year financial statements, what is the effect of this error on assets, net income, and equity?

On June 30 Apricot Co. paid $7,500 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On June 30 Apricot should record:

Using the information given below, prepare an income statement and statement of changes in equity for Martin Sky Taxi Services from the adjusted trial balance. Helena Martin did not make any additional investments in the company during the year.

Discuss the importance of periodic reporting and the time period assumption.