Exam 4: Adjustments, Financial Statements, and the Quality of Earnings

Lane Company is completing the accounting cycle at the end of its annual accounting period, December 31, 2014. Adjusting entries have not been made during the year so three adjusting entries must be made to update the accounts. The following accounts, selected from the company's chart of accounts, are to be used for this purpose. They are coded to the left of each title for easy reference. Required: Indicate the appropriate account code and amount for each of the required adjusting entries at December 31, 2014.

Deferred expenses are initially recorded as assets and when they are later used, expenses will increase and assets will decrease.

The adjusted trial balance of Tahoe Company at the end of the accounting year, December 31, 2014, showed the following: Required: A. Prepare all the required closing entries for Tahoe Company at December 31, 2014. B. Calculate the 2014 ending balance in retained earnings.

Which of the following accounts requires a debit to close the account at year-end?

On January 1, 2014, Ryan Company paid the premium on a three-year insurance policy in the amount of $6,000. At that time, the full amount paid was recorded as prepaid insurance. After recording the adjusting entry for the insurance policy on December 31, 2014, what would be the balance in Ryan Company's prepaid insurance account?

On December 31, 2014, Krug Company reported total liabilities of $110,000 prior to the following adjusting entries: Depreciation expense: $31,000. Accrued service revenues: $29,000. Accrued expenses: $12,000. Used insurance: $9,000; the insurance was initially recorded as prepaid. Rent revenue earned: $7,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue. How much are Krug's total liabilities after adjusting entries?

The adjusting entry to record an accrued expense increases liabilities.

What is the purpose of adjusting entries? Give two examples of accruals and deferrals.

Which of the following journal entries is created as the result of an accrual? A. Deferred revenue $\quad$ Revenue B. Interest expense $\quad$ Interest payable C. Cash $\quad$ Deferred revenue D. Revenue receivable $\quad$ Unearned Revenue

On December 31, 2014, Madison Company prepared an income statement and a balance sheet. In making the adjusting entries at year-end, Madison failed to record the adjusting entry for wages earned by employees, but not yet paid, amounting to $5,000 for the last four days of the year. The income statement reported net income of $52,000. The balance sheet reported total assets of $254,000, total liabilities of $170,000, and stockholders' equity of $84,000. Required: Complete the following tabulation to show the correct amounts for the financial statements (ignore income taxes).

Which is the correct order of the following steps in the accounting cycle?

On December 31, 2014, Krug Company reported total assets of $390,000 prior to the following adjusting entries: Depreciation expense was $31,000. Accrued service revenues totaled $29,000. Accrued expenses totaled $12,000. Used insurance: $9,000; the insurance was initially recorded as prepaid. Rent revenue earned: $7,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue. How much are Krug's total assets after adjusting entries?

Which of the following will result in an increase in earnings per share?

For each of the following accounts you are to enter one capital letter in each cell to indicate normal characteristics for each account.

Center Company is completing the accounting cycle at the end of the annual accounting period, December 31, 2014. Adjusting entries have not been made during the year so three adjusting entries must be made at this date to update the accounts. The following accounts, selected from Center Company's chart of accounts, are to be used for this purpose. They are coded to the left of each title for easy reference. Required: Indicate the appropriate account code and amount for each of the required adjusting entries at December 31, 2014.

Which of the following journal entries is created to adjust for a deferral? A. Unearned revenue $\quad$ Revenue B. Interest expense $\quad$ Interest payable C. Cash $\quad$ Revenue D. Accounts receivable $\quad$ Unearned revenue

Failure to make an adjusting entry to recognize rent revenue receivable would cause which of the following?

What is the effect on the financial statements when a company fails to accrue revenue earned at year-end?

Which of the following adjusting journal entries is created as the result of an accrual? A. Salaries expense $\quad$ Salaries payable B. Depreciation expense $\quad$ Accumulated depreciation C. Prepaid Rent $\quad$ Rent expense D. Accounts receivable $\quad$ Unearned revenue

For each of the following transactions, indicate the direction of effects of the adjusting entry on the elements of the balance sheet and income statement. Using the following format, indicate + for increase, and - for decrease, and NE for no effect. Do not leave any blank spaces. Transactions: A. Wages of $5,800 have been earned, but not paid to employees at the end of the year. B. Supplies in the amount of $2,000 were used during the year, which are currently recorded in the office supplies (inventory) account. C. Interest has accrued on a note payable.