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

At December 31, 2014, the following adjusting entries were recorded in the accounts of ABD Company: There were no other accrued receivables or payables on ABD's books in 2014. Required: Calculate the balances in the following accounts immediately after the closing entries were posted.

What does the total asset turnover ratio measure and how is it calculated? Give two examples of transactions that decrease the ratio.

Modern Mother Magazine (MMM) has received cash subscriptions on April 1, 2014 in the amount of $3,600,000 for the next three years. The year-end for MMM is December 31, 2014. Magazine delivery occurs monthly and started on April 1, 2014. These were the only subscription sales for the year. Required: Answer the following questions for the year ended December 31, 2014. A. What amount of cash should be reported for the year on the statement of cash flows? B. What amount of subscriptions revenue should be reported on the income statement? C. What amount would be reported as unearned subscriptions revenue on the balance sheet as of December 31, 2014?

Top Company's 2014 sales revenue was $200,000 and 2013 sales revenue was $180,000. Top's total assets as of December 31, 2014 were $150,000 and total assets as of January 1, 2014 were $130,000. What is Top's total asset turnover ratio?

Which of the following correctly describes the following adjusting journal entry? Depreciation expense $\quad$ Accumulated depreciation

What is the effect on the financial statements when a company fails to adjust the prepaid insurance expense account at year-end for insurance coverage that has been used?

Which of the following journal entries is used to record a deferral? A. Interest expense $\quad$ Interest payable B. Accounts receivable $\quad$ Service revenues $\quad$ C. Salaries expense Salaries payable D. Cash $\quad$ Unearned revenue

A trial balance prepared after the closing entries have been posted would show a zero balance in which one of the following accounts?

Accounts that start a new accounting period with zero balances are referred to as temporary accounts and include both balance sheet and income statement accounts.

The journal entry to adjust the unearned revenue account when revenues are earned results in an increase in assets and a decrease in liabilities.

Closing the expense and loss accounts at year-end requires that these accounts be debited.

Which of the following correctly describes the effects of initially recording prepaid insurance expense when cash is paid to purchase an insurance policy?

Which of the following does not correctly describe the following adjusting journal entry? Salaries expense $\quad$ Salaries payable

On December 31, 2014, Krug Company reported pretax income of $120,000 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 is Krug's pretax income after adjusting entries?

Which of the following does not correctly describe the following adjusting journal entry? Interest receivable $\quad$ Investment income

Which of the following is a false statement about the unadjusted trial balance?

Accrued revenues are revenues that have been earned, but the customer has not yet paid for the goods or services.

Which of the following correctly describes the closing entry process?

Morgan Company used supplies in the amount of $2,000. Due to an error in posting to the general ledger, the supplies account was credited for only $200 while supplies expense was debited for $2,000. During which phase of the accounting cycle would this error be first discovered?

Which of the following correctly describes the accounts reported on the post-closing trial balance?