Exam 3: Adjusting Accounts and Preparing Financial Statements

It is acceptable to record cash received in advance of providing products or services to revenue accounts if an adjusting entry is made at the end of the period to bring the liability account balance to the correct unearned amount.

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

Andrew's net income was $280,000; its total assets were $1,050,000; and its net sales were $3,500,000. Calculate the company's profit margin ratio.

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

A company had no office supplies available at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year?

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

A company owes its employees $5,000 for the year ended December 31. It will pay employees on January 6 for the previous two weeks' salaries. The year-end adjusting entry on December 31 will include a debit to Salaries Expense and a credit to Cash.

Before an adjusting entry is made to accrue employee salaries, Salaries Expense and Salaries Payable are both understated.

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.

The following unadjusted and adjusted trial balances are from the current year's accounting system for Excelsior. Present the six adjusting entries in general journal form that explain the changes in the account balances from the unadjusted to the adjusted trial balance.

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

A balance sheet that places the assets above the liabilities and equity is called a(n):

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

A company purchased a new delivery van at a cost of $45,000 on July 1. The delivery van is estimated to have a useful life of 6 years and a salvage value of $3,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the van during the first year ended December 31?

On September 1, Kennedy Company loaned $100,000, at 12% annual interest, to a customer. Interest and principal will be collected when the loan matures one year from the issue date. Assuming adjustments are only made at year-end, what is the adjusting entry for accruing interest that Kennedy would need to make on December 31, the calendar year-end?

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

Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are:

Rogers Company's employees are paid a total of $1,600 per day for a 5-day workweek. The employees are paid each Friday. This year the accounting period ends on Tuesday. Prepare the December 31 year-end adjusting journal entry Rogers Company should make to accrue salaries.

Accrued revenues at the end of one accounting period often result in cash ________ in the next period.