Question 1

Interim financial statements refer to financial reports:

Accepted Answer

A)  That show the assets above the liabilities and the liabilities above the equity. 
B)  That cover less than one year, usually spanning one, three, or six-month periods. 
C)  That are prepared before any adjustments have been recorded. 
D)  Where the adjustment process is used to assign revenues to the periods in which they are earned and to match expenses with revenues. 
E)  Where revenues are reported on the income statement when cash is received and expenses are reported when cash is paid. 
A)  That show the assets above the liabilities and the liabilities above the equity. 
B)  That cover less than one year, usually spanning one, three, or six-month periods. 
C)  That are prepared before any adjustments have been recorded. 
D)  Where the adjustment process is used to assign revenues to the periods in which they are earned and to match expenses with revenues. 
E)  Where revenues are reported on the income statement when cash is received and expenses are reported when cash is paid. B

Question 2

Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of:

Accepted Answer

A)  Income statement accounts. 
B)  Asset and equity. 
C)  Items that require contra accounts. 
D)  Items that require adjusting entries. 
E)  Asset accounts. 
A)  Income statement accounts. 
B)  Asset and equity. 
C)  Items that require contra accounts. 
D)  Items that require adjusting entries. 
E)  Asset accounts. D

Question 3

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Accepted Answer

A)  Debit Legal Fees Earned and credit Unearned Legal Fees. 
B)  Debit Unearned Legal Fees and credit Accounts Receivable. 
C)  Debit Cash and credit Legal Fees Earned. 
D)  Debit Cash and credit Unearned Legal Fees. 
E)  Debit Unearned Legal Fees and credit Legal Fees Earned. 
A)  Debit Legal Fees Earned and credit Unearned Legal Fees. 
B)  Debit Unearned Legal Fees and credit Accounts Receivable. 
C)  Debit Cash and credit Legal Fees Earned. 
D)  Debit Cash and credit Unearned Legal Fees. 
E)  Debit Unearned Legal Fees and credit Legal Fees Earned. E

Question 4

The adjusted trial balance must be prepared before the adjusting entries are made.

Accepted Answer

A) True 
 B)False

Question 5

Profit margin =____________ divided by net sales.

Accepted Answer

The answer of Profit margin =____________ divided by net sales....

Question 6

A company records the fees for legal services paid in advance by its clients in an account called Unearned Legal Fees. If the company fails to make the end-of-period adjusting entry to move the portion of these fees that has been earned to a revenue account, one effect will be:

Accepted Answer

A)  An understatement of assets. 
B)  An understatement of equity. 
C)  An overstatement of assets. 
D)  An understatement of liabilities. 
E)  An overstatement of equity. 
A)  An understatement of assets. 
B)  An understatement of equity. 
C)  An overstatement of assets. 
D)  An understatement of liabilities. 
E)  An overstatement of equity.

Question 7

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):

Accepted Answer

A)  Intangible asset. 
B)  Contra account. 
C)  Accrued revenue. 
D)  Accrued expense. 
E)  Adjunct account. 
A)  Intangible asset. 
B)  Contra account. 
C)  Accrued revenue. 
D)  Accrued expense. 
E)  Adjunct account.

Question 8

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 adjusting entry should be made by Santa Fe, Inc. for the adjustment on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustments had been made?

Accepted Answer

A)  Debit Subscription Expense $516 and credit Prepaid Subscriptions $516. 
B)  Debit Unearned Subscriptions $387 and credit Subscription Expense $387. 
C)  Debit Subscription Expense $387 and credit Cash $387. 
D)  Debit Prepaid Subscriptions $516 and credit Subscription Expense $516. 
E)  Debit Subscription Expense $387 and credit Prepaid Subscriptions $387. 
A)  Debit Subscription Expense $516 and credit Prepaid Subscriptions $516. 
B)  Debit Unearned Subscriptions $387 and credit Subscription Expense $387. 
C)  Debit Subscription Expense $387 and credit Cash $387. 
D)  Debit Prepaid Subscriptions $516 and credit Subscription Expense $516. 
E)  Debit Subscription Expense $387 and credit Prepaid Subscriptions $387.

Question 9

Prior to recording adjusting entries on December 31, a company's Office Supplies account had an
$780 debit balance. A physical count of the supplies showed $425 of unused supplies available as of December 31. Prepare the required adjusting entry.

Accepted Answer

None

Question 10

Interim financial statements report a company's business activities for a one-year period.

Accepted Answer

A) True 
 B)False

Question 11

A company issued financial statements for the year ended December 31, but failed to include the following adjusting entries:
A. Accrued interest revenue earned of $1,200.
B. Depreciation expense of $4,000.
C. Portion of prepaid insurance expired (an asset) used $1,100.
D. Accrued taxes of $3,200.
E. Revenues of $5,200, originally recorded as unearned, have been earned by the end of the year. Determine the correct amounts for the December 31 financial statements by completing the following table:
$\begin{array} { | l c c c c | } 
\hline & \text { Assets } & \text { Liabilities } & \text { Equity } & \text { Net Income } \
\hline \begin{array} { l } 
\text { Reported } \
\text { amounts }
\end{array} & \$ 350,000 & \$ 200,000 & \$ 150,000 & \$ 70,000 \
\hline \begin{array} { l } 
\text { Add (subtract) to } \
\text { correct for item: }
\end{array} & & & & \
\hline
\end{array}$

Accepted Answer

\[\begin{array} { | l c c c c | } 
\hlin

Question 12

In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the accrual basis of accounting is:

Accepted Answer

A)  $13,000. 
B)  $21,000. 
C)  $25,000. 
D)  $17,000. 
E)  None of these options are correct 
A)  $13,000. 
B)  $21,000. 
C)  $25,000. 
D)  $17,000. 
E)  None of these options are correct

Question 13

Accrual accounting and the adjusting process rely on two principles: the ________ principle and the ________ principle.

Accepted Answer

revenue recognition;

Question 14

An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Assuming the company does not prepare reversing entries, which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year?

Accepted Answer

A)  $$\begin{array} { | l | r | r | } 
\hline \text { Salaries Payable } & 1,200 & \
\hline \text { Salaries Expense } & & 1,200 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Salaries Payable } & 1,200 & \
\hline \text { Cash } & & 1,200 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Salaries Payable } & 1,200 & \
\hline \text { Salaries Expense } & 1,800 & \
\hline \text { Cash } & & 3,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Salaries Expense } & 3,000 & \
\hline \text { Cash } & & 3,000 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Salaries Payable } & 3,000 & \
\hline \text { Cash } & & 3,000 \
\hline
\end{array}$$ 
A)  $$\begin{array} { | l | r | r | } 
\hline \text { Salaries Payable } & 1,200 & \
\hline \text { Salaries Expense } & & 1,200 \
\hline
\end{array}$$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Salaries Payable } & 1,200 & \
\hline \text { Cash } & & 1,200 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Salaries Payable } & 1,200 & \
\hline \text { Salaries Expense } & 1,800 & \
\hline \text { Cash } & & 3,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Salaries Expense } & 3,000 & \
\hline \text { Cash } & & 3,000 \
\hline
\end{array}$$ 
E)  $$\begin{array} { | l | r | r | } 
\hline \text { Salaries Payable } & 3,000 & \
\hline \text { Cash } & & 3,000 \
\hline
\end{array}$$

Question 15

A company purchased new furniture at a cost of $14,000 on September 30. The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. 
-What is the book value of the furniture on December 31 of the first year?

Accepted Answer

A)  $12,500.00 
B)  $13,625.00 
C)  $13,562.50 
D)  $12,250.00 
E)  $13,500.00 
A)  $12,500.00 
B)  $13,625.00 
C)  $13,562.50 
D)  $12,250.00 
E)  $13,500.00

Question 16

If accrued salaries were recorded on December 31 with a debit to Salaries Expense and a credit to Salaries Payable, and no reversing entries were made on January 1, the entry to record payment of these wages on the following January 5 would include:

Accepted Answer

A)  A debit to Cash and a credit to Salaries Payable. 
B)  A debit to Cash and a credit to Prepaid Salaries. 
C)  A debit to Salaries Payable and a credit to Salaries Expense. 
D)  A debit to Salaries Payable and a credit to Cash. 
E)  No entry would be necessary on January 5. 
A)  A debit to Cash and a credit to Salaries Payable. 
B)  A debit to Cash and a credit to Prepaid Salaries. 
C)  A debit to Salaries Payable and a credit to Salaries Expense. 
D)  A debit to Salaries Payable and a credit to Cash. 
E)  No entry would be necessary on January 5.

Question 17

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Accepted Answer

A)  Cash basis accounting. 
B)  Revenue recognition accounting. 
C)  Current basis accounting. 
D)  Accrual basis accounting. 
E)  Operating cycle accounting. 
A)  Cash basis accounting. 
B)  Revenue recognition accounting. 
C)  Current basis accounting. 
D)  Accrual basis accounting. 
E)  Operating cycle accounting.

Question 18

Describe the two alternate methods used to account for prepaid expenses.

Accepted Answer

The first method places all prepaid expe

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The difference between the cost of an asset and the accumulated depreciation for that asset is called

Accepted Answer

A)  Prepaid Depreciation. 
B)  Unearned Depreciation. 
C)  Book Value. 
D)  Depreciation Expense. 
E)  Depreciation Value. 
A)  Prepaid Depreciation. 
B)  Unearned Depreciation. 
C)  Book Value. 
D)  Depreciation Expense. 
E)  Depreciation Value.

Exam 3: Adjusting Accounts and Preparing Financial Statements

Interim financial statements refer to financial reports:

Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of:

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

The adjusted trial balance must be prepared before the adjusting entries are made.

Profit margin =____________ divided by net sales.

A company records the fees for legal services paid in advance by its clients in an account called Unearned Legal Fees. If the company fails to make the end-of-period adjusting entry to move the portion of these fees that has been earned to a revenue account, one effect will be:

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):

Prior to recording adjusting entries on December 31, a company's Office Supplies account had an $780 debit balance. A physical count of the supplies showed $425 of unused supplies available as of December 31. Prepare the required adjusting entry.

Interim financial statements report a company's business activities for a one-year period.

Accrual accounting and the adjusting process rely on two principles: the ________ principle and the ________ principle.

An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Assuming the company does not prepare reversing entries, which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year?

A company purchased new furniture at a cost of $14,000 on September 30. The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. -What is the book value of the furniture on December 31 of the first year?

If accrued salaries were recorded on December 31 with a debit to Salaries Expense and a credit to Salaries Payable, and no reversing entries were made on January 1, the entry to record payment of these wages on the following January 5 would include:

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Describe the two alternate methods used to account for prepaid expenses.

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

The difference between the cost of an asset and the accumulated depreciation for that asset is called

Accounting in Business

Analyzing and Recording Transactions

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets Natural Resoures and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Present and Future Values in Accounting

Activity-Based Costing

Filters

Accrual accounting and the adjusting process rely on two principles: the principle and the principle.