Exam 3: Adjusting Accounts and Preparing Financial Statements

A company's month-end adjusting entry for Insurance Expense is $1,000. If this entry is not made then expenses are understated by $1,000 and net income is overstated by $1,000.

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:

Assuming prepaid expenses are originally recorded in balance sheet accounts, the adjusting entry to record use of a prepaid expense is:

The cash basis of accounting is a system in which revenues are recorded when earned and expenses are recorded when incurred.

Explain how the owner of a company uses the accrual basis of accounting.

Farmers' net income was $740,000 and its net sales were $8,000,000. Calculate its profit margin ratio.

On December 31, Winters Company received a $385 bill for the purchase of supplies in December that it will not pay for until January 15. Winters follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry needed on December 31 to accrue this cost is:

A trial balance prepared before any adjustments have been recorded is:

On December 31, Carmack Company's Prepaid Insurance account had a balance before adjustment of $6,000. The insurance was purchased on July 1 of the same year for one year of insurance coverage, with coverage beginning on that date. The adjusting entry needed on December 31 is:

All of the following are true regarding unearned revenues except:

Describe the types of entries required in later periods that result from accruals.

Financial statements are typically prepared in the following order:

On November 1, Jovel Company loaned another company $100,000 at a 6.0% interest rate. The note receivable plus interest will not be collected until March 1 of the following year. The company's annual accounting period ends on December 31, and adjustments are only made at year-end. The adjusting entry needed on December 31 is:

The accrual basis of accounting recognizes revenues when cash is received from customers.

On April 1, Santa Fe, Inc. paid Griffith Publishing Company $1,548 for 36-month subscriptions to several different magazines. Santa Fe debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Santa Fe, Inc. after adjustments on December 31 of the second year assuming the company is using a calendar-year reporting period and the previous year adjustment had been made?

On July 1 of the current calendar year, Plum Co. paid $7,500 cash for management services to be performed over a two-year period beginning July 1. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31 of the current year for Plum would include:

On November 1, Jovel Company loaned another company $100,000 at a 6.0% interest rate. The note receivable plus interest will not be collected until March 1 of the following year. The company's annual accounting period ends on December 31. The amount of interest revenue that should be reported in the first year is:

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

Adjusting entries always affect the cash account.