Exam 3: Adjusting Accounts and Preparing Financial Statements

It is acceptable to record cash received in advance of providing products or services to revenue accounts if an adjusting entry is made at the end of the period to bring the liability account balance to the correct unearned amount.

Which of the following statements is incorrect?

A contra account is an account linked with another account;it is added to that account to show the proper amount for the item recorded in the associated account.

Assuming unearned revenues are originally recorded in balance sheet accounts,the adjusting entry to record earning of unearned revenue is:

An adjusting entry could be made for each of the following except:

Based on the unadjusted trial balance for Highlight Styling and the adjusting information given below,prepare the adjusting journal entries for Highlight Styling. Highlight Stylings' unadjusted trial balance for the current year follows: Additional information: a.An insurance policy examination showed $1,040 of expired insurance. b.An inventory count showed $210 of unused shop supplies still available. c.Depreciation expense on shop equipment,$350. d.Depreciation expense on the building,$2,020. e.A beautician is behind on space rental payments,and this $200 of accrued revenues was unrecorded at the time the trial balance was prepared. f.$800 of the Unearned Rent account balance was still unearned by year-end. g.The one employee,a receptionist,works a five-day workweek at $50 per day.The employee was paid last week but has worked four days this week for which she has not been paid. h.Three months' property taxes,totaling $450,have accrued.This additional amount of property taxes expense has not been recorded. i.One month's interest on the note payable,$600,has accrued but is unrecorded.

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:

On December 1,Simpson Marketing Company received $3,600 from a customer for a marketing plan to be completed January 31 of the following year.The cash receipt was recorded as unearned fees.The adjusting entry for the year ended December 31 would include:

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

All of the following are true regarding prepaid expenses except:

On December 31,2015 Winters Company's Prepaid Rent account had a balance before adjustment of $6,000.Three months' rent was paid in advance on December 1.The adjusting entry needed on December 31 is:

All plant assets,including land,are depreciated.

On May 1,a two-year insurance policy was purchased for $18,000 with coverage to begin immediately.What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31?

Holman Company owns equipment with an original cost of $95,000 and an estimated salvage value of $5,000 that is being depreciated at $15,000 per year using the straight-line depreciation method.The adjusting entry needed to record annual depreciation is:

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

The accrual basis of accounting:

A company purchased new furniture at a cost of $14,000 on September 30.The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000.The company uses the straight-line method of depreciation.What is the book value of the furniture on December 31 of the first year?

On October 1,Goodwell Company rented warehouse space to a tenant for $2,500 per month and received $12,500 for five months' rent in advance on that date.The collection was credited to the Unearned Rent account.The company's annual accounting period ends on December 31.The Unearned Rent account balance at the end of December,after adjustment,should be:

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

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