Exam 3: Adjusting Accounts for Financial Statements

It is acceptable to record prepayment of expenses as debits to expense accounts if an adjusting entry is made at the end of the period to bring the asset account balance to the correct unused or unexpired amount.

Match the following terms with the appropriate definition. -A method that allocates equal amounts of an asset's cost (less any salvage value)to depreciation expense during its useful life.

Depreciation measures the decline in market value of an asset.

Wilson Company paid $4,800 for a 4-month insurance premium in advance on November 1,with coverage beginning on that date.The balance in the prepaid insurance account before adjustment at the end of the year is $4,800 and no adjustments had been made previously.The adjusting entry required on December 31 is:

Match the following terms with the appropriate definition. -Items paid for in advance of receiving their benefits; recorded as an asset when purchased and expensed when used.

All of the following are true regarding unearned revenues except:

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

________ revenues are liabilities requiring delivery of products and for services.

A company's December 31 work sheet for the current period appears below.Based on the information provided,what is net income for the current period?

Closing entries are required at the end of each accounting period to close all ledger accounts.

If a prepaid expense account were not adjusted for the amount used,on the balance sheet assets would be ________ and equity would be ________.

A company shows a $600 balance in Prepaid Rent in the Unadjusted Trial Balance columns of the work sheet.The Adjustments columns show expired rent of $200.This adjusting entry results in:

The expense recognition (matching)principle does not aim to record expenses in the same accounting period as the revenue earned as a result of these expenses.

Adjusting entries are necessary so that asset,liability,revenue,and expense account balances are correctly recorded.

The purpose of reversing entries is to:

Record the December 31 adjusting entries for the following transactions and events in general journal form.Assume that December 31 is the end of the annual accounting period. a.The Prepaid Insurance account shows a debit balance of $2,340,representing the cost of a two-year fire insurance policy that was purchased on October 1 of the current year and has not been adjusted to-date. b.The Store Supplies account has a debit balance of $400; a year-end inventory count reveals $80 of supplies still on hand. c.On November 1 of the current year,Rent Earned was credited for $1,500.This amount represented the rent earned for a three-month period beginning November 1. d.Estimated depreciation on store equipment is $600. e.Accrued salaries amount to $1,400.

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

Asset and liability balances are transferred from the adjusted trial balance to the income statement.

Financial statements are typically prepared in the following order:

Werner Company had $1,300 of store supplies at the beginning of the current year.During this year,Werner purchased $6,250 worth of store supplies.On December 31,$1,125 worth of store supplies remained.Calculate the amount of Werner Company's store supplies expense for the current year.