Exam 3: Adjusting the Accounts

The adjusted trial balance of Wilcox Company at December 31, 2014 includes the following accounts: Retained Earnings $12,600; Dividends $6,000; Service Revenue $35,000; Salaries and Wages Expense $16,000; Insurance Expense $2,000; Rent Expense $3,500; Supplies Expense $500; and Depreciation Expense $1,000. Prepare a retained earnings statement for the year.

Indicate (a) the type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense), and (b) the accounts before adjustment (overstated or understated) for each of the following: 1. Supplies of $200 have been used. 2. Salaries of $600 are unpaid. 3. Rent received in advance totaling $300 has been earned. 4. Services provided but not recorded total $500.

The expense recognition principle requires that efforts be matched with accomplishments.

Which of the following statements related to the adjusted trial balance is incorrect?

Arrow Company prepares monthly financial statements. On July 1, the Supplies account had a balance of $3,000. During July, additional office supplies were purchased for $3,800 and that amount was debited to Supplies Expense. On July 31, a physical count of office supplies revealed that there was $1,800 on hand. Prepare the adjusting journal entry that Arrow Company should make on July 31. 2. Fletching Rental Agency prepares monthly financial statements. On September 1, a check for $8,400 was received from a tenant for six months' rent. The full amount was credited to Rent Revenue. Prepare the adjusting entry the company should make on September 30.

Which statement is correct?

The Accumulated Depreciation account is a contra asset account that is reported on the statement of financial position.

Accounting time periods that are one year in length are referred to as interim periods.

Adjusting entries are required

The adjusted trial balance of Hanson Hawk Corporation at September 30, 2014 includes the following accounts: Retained Earnings €27,700; Dividends €9,750; Sales Revenue €44,800; Insurance Expense €1,950; Salaries and Wages Expense €18,000; Rent Expense €3,000; Supplies Expense €650; and Depreciation Expense €1,100. Prepare a retained earnings statement for the year.

A flower shop makes a large sale and provides flowers to a customer for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows IFRS and applies the revenue recognition principle. When is the $1,000 considered to be earned?

Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitment?

On February 1, Results Income Tax Service received a ₤4,000 cash retainer for tax preparation services to be rendered equally over the next 4 months. The full amount was credited to the liability account Unearned Service Revenue. Assuming that the revenue is earned equally over the 4-month period, what balance would be reported on the February 28 statement of financial position for Unearned Revenue?

If accounting information has relevance, it is useful in making predictions about

The two fundamental qualities of useful information are

On July 1, 2014, Patrick Company pays ₤12,000 to its insurance company for a 2-year insurance policy. Instructions Prepare the necessary journal entries for Patrick on July 1 and December 31.

A candy factory's employees work overtime to finish an order that is sold and shipped on February 28. The office sends a statement to the customer in early March and payment is received by mid-March. The overtime wages should be expensed in

Which one of the following is not an application of revenue recognition?

On December 31, 2014, Speedy Company prepared an income statement and statement of financial position and failed to take into account three adjusting entries. The incorrect income statement showed net income of ¥40,000. The statement of financial position showed total assets, ¥140,000; total liabilities, ¥45,000; and equity, ¥95,000. The data for the three adjusting entries were: (1) Depreciation of ¥9,000 was not recorded on equipment. (2) Salaries and Wages amounting to ¥6,000 for the last two days in December were not paid and not recorded. The next payroll will be in January. (3) Rent of ¥10,000 was paid for two months in advance on December 1. The entire amount was debited to Rent Expense when paid. Instructions Complete the following tabulation to correct the financial statement amounts shown (indicate deductions with parentheses):

Accrued expenses result in an adjustment to both the income statement and the statement of financial position.