Exam 3: Adjusting Accounts for Financial Statements

Prepare adjusting entries for the year ended December 31, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance are initially recorded as liabilities. a. The Prepaid Rent account has a debit balance of $8,000 before adjustment, representing a prepayment for four months' rent made on December 1 of the current year. b. One-third of the work related to $18,000 of cash received in advance was performed during this period. c. Unpaid accrued salaries at December 31 amounts to $15,000. d. Work was completed for a client on December 31 in the amount of $21,000, but was not previously billed or recorded. e. Estimated depreciation on office equipment is $27,000.

Permanent accounts include all of the following except:

Describe a work sheet and explain why it is useful.

Financial statements are typically prepared in the following order:

_____________ expenses are those costs that are incurred in a period but are both unpaid and unrecorded.

The current ratio:

Which of the following accounts are permanent (real) accounts?

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:

Under the cash basis of accounting, no adjustments are made for prepaid, unearned, and accrued items.

A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:

___________________ is the process of allocating the cost of plant assets to the income statement over their expected useful lives.

If a company plans to continue business into the future, closing entries are not required.

What is the purpose of a post-closing trial balance?

Accrued expenses at the end of one accounting period are expected to result in cash payments in a future period.

Depreciation expense for a period is the portion of a plant asset's cost that is allocated to that period.

Accrued revenues at the end of one accounting period are expected to result in cash collections in a future period.

_______________ are long-term resources used to produce or sell products and services; they generally lack physical form and their benefits are highly uncertain.

The cash basis of accounting commonly increases the comparability of financial statements from period to period.

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?

Intangible assets are assets that are long-term, have physical form, and are used to produce or sell products and services.