Question 1

The length of time covered by a set of periodic financial statements, primarily a year for most companies, is referred to as the:

Accepted Answer

A)  Calendar year. 
B)  Accounting period. 
C)  Business cycle. 
D)  Fiscal year. 
E)  Natural business year. 
A)  Calendar year. 
B)  Accounting period. 
C)  Business cycle. 
D)  Fiscal year. 
E)  Natural business year.

Question 2

Describe the adjusting entries, including the accounts used, for 1) accrued expenses and 2) accrued revenues.

Accepted Answer

1) Accrued expenses are expenses that ha

Question 3

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

Accepted Answer

overstated

Question 4

A company had $7,000,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin.

Accepted Answer

A)  85.4%. 
B)  46.1%. 
C)  53.9%. 
D)  217.1%. 
E)  117.1%. 
A)  85.4%. 
B)  46.1%. 
C)  53.9%. 
D)  217.1%. 
E)  117.1%.

Question 5

Identify the primary differences between accrual accounting and cash basis accounting.

Accepted Answer

Accrual accounting records revenues in t

Question 6

The 12-month period that ends when a company's sales activities are at their lowest level is called the:

Accepted Answer

A)  Natural business year. 
B)  Interim period. 
C)  Fiscal year. 
D)  Accounting period. 
E)  Calendar year. 
A)  Natural business year. 
B)  Interim period. 
C)  Fiscal year. 
D)  Accounting period. 
E)  Calendar year.

Question 7

The following information is available for Hatter Co.
 $$\begin{array} { | l | l | l | l | } 
\hline & 2017 & 2016 & 2015 \
\hline \text { Net in come } & 2,500 & 1,700 & 1,900 \
\hline \text { Net sales } & 37,000 & 35,000 & 32,000 \
\hline \text { Total asststs } & 420,000 & 395,000 & 375,000 \
\hline
\end{array}$$ From the information provided, calculate Hatter's profit margin ratio for each of the three years. In 2016, economic conditions and a slowing economy impacted the results of operations. Comment on the results, assuming that the industry average for the profit margin ratio is 7% for each of the three years.

Accepted Answer

Hatter Co. did rebound from the slowing

Question 8

Profit margin reflects the percent of profit in each dollar of revenue.

Accepted Answer

A) True 
 B)False

Question 9

Profit margin is calculated by dividing net sales by net income.

Accepted Answer

A) True 
 B)False

Question 10

Explain the purpose of adjusting entries at the end of a period and provide an example of an adjusting entry.

Accepted Answer

Adjusting entries are necessary for tran

Question 11

A company performs 20 days of work on a 30-day contract before the end of the year. The total contract is valued at $6,000, with payment received in advance. The $6,000 cash receipt was initially recorded as Unearned Revenue. The required adjusting entry includes a $4,000 debit to Unearned Revenue.

Accepted Answer

A) True 
 B)False

Question 12

The accrual basis of accounting:

Accepted Answer

A)  Recognizes expenses when paid in cash. 
B)  Is generally accepted for external reporting because it is more useful than cash basis for most business decisions. 
C)  Recognizes revenues when received in cash. 
D)  Is flawed because it gives complete information about cash flows. 
E)  Eliminates the need for adjusting entries at the end of each period. 
A)  Recognizes expenses when paid in cash. 
B)  Is generally accepted for external reporting because it is more useful than cash basis for most business decisions. 
C)  Recognizes revenues when received in cash. 
D)  Is flawed because it gives complete information about cash flows. 
E)  Eliminates the need for adjusting entries at the end of each period.

Question 13

Match the following terms with the appropriate definition.
A. Accrued expenses
B. Adjusting entry
C. Adjusted trial balance
D. Prepaid expenses
E. Report form balance sheet
F. Accounting period
G. Contra account
H. Profit margin
I. Unadjusted trial balance
J. Natural business year
_____ 1. A 12-month period, used by companies with seasonal variation, that ends when a company's sales activities are at their lowest point.
_____ 2. A journal entry made at the end of an accounting period to reflect a transaction or event that is not yet recorded; affects one or more income statement account and one or more balance sheet account, but never cash.
_____ 3. An account linked with another account and having an opposite normal balance.
4. Items paid for in advance of receiving their benefits; recorded as an asset when purchased and expensed when used.
_____ 5. Any length of time that an organization's activities are divided into and reported by financial statements.
_____ 6. A listing of accounts and balances prepared after adjustments are recorded and posted to the ledger.
7. A balance sheet that lists items vertically in the order of assets, liabilities and equity.
8. Costs that are incurred in a period but are both unpaid and unrecorded, requiring an adjustment at the end of the period.
_____ 9. A listing of accounts and balances prepared after external transactions are recorded but before adjustments are recorded.
_____ 10. A useful measure of a company's operating results determined by dividing net income by net sales.

Accepted Answer

1. J; 2. B; 3. G; 4.

Question 14

An adjusting entry could be made for each of the following except:

Accepted Answer

A)  Unearned revenues. 
B)  Accrued expenses. 
C)  Depreciation. 
D)  Prepaid expenses. 
E)  Owner investments. 
A)  Unearned revenues. 
B)  Accrued expenses. 
C)  Depreciation. 
D)  Prepaid expenses. 
E)  Owner investments.

Question 15

The cash basis of accounting recognizes revenues when cash payments from customers are received.

Accepted Answer

A) True 
 B)False

Question 16

Glisten Co. leases an office to a tenant at the rate of $3,000 per month. The tenant contacted Glisten and arranged to pay the rent for December on January 8 of the following year. Glisten agrees to this arrangement.
a.) Prepare the journal entry that Glisten must make at year ended December 31 to record the accrued rent revenue.
b.) Prepare the journal entry to record the receipt of the rent on January 8 of the following year (Assume no reversing entries were made).

Accepted Answer

None

Question 17

On December 31, Winters Company's Prepaid Rent account had a balance before adjustment of $6,000. Three months' rent was paid in advance on December 1, the first day of the lease term. The adjusting entry needed on December 31 is:

Accepted Answer

A)  Debit Cash $2,000; credit Prepaid Rent $2,000. 
B)  Debit Rent Expense $2,000; credit Accounts Payable $2,000. 
C)  Debit Rent Expense $6,000; credit Accounts Payable $6,000. 
D)  Debit Rent Expense $2,000; credit Prepaid Rent $2,000. 
E)  Debit Prepaid Rent $6,000; credit Cash $6,000. 
A)  Debit Cash $2,000; credit Prepaid Rent $2,000. 
B)  Debit Rent Expense $2,000; credit Accounts Payable $2,000. 
C)  Debit Rent Expense $6,000; credit Accounts Payable $6,000. 
D)  Debit Rent Expense $2,000; credit Prepaid Rent $2,000. 
E)  Debit Prepaid Rent $6,000; credit Cash $6,000.

Question 18

The time period assumption assumes that an organization's activities may be divided into specific reporting time periods including all of the following except:

Accepted Answer

A)  Months. 
B)  Days. 
C)  Fiscal years. 
D)  Calendar years. 
E)  Quarters. 
A)  Months. 
B)  Days. 
C)  Fiscal years. 
D)  Calendar years. 
E)  Quarters.

Question 19

On October 1, Goodwell Company rented warehouse space to a tenant for $2,500 per month and received $12,500 for five months' rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Rent account. The company's annual accounting period ends on December 31. The Unearned Rent account balance at the end of December, after adjustment, should be:

Accepted Answer

A)  $5,000. 
B)  $10,000. 
C)  $7,500. 
D)  $12,500. 
E)  $2,500. 
A)  $5,000. 
B)  $10,000. 
C)  $7,500. 
D)  $12,500. 
E)  $2,500.

Question 20

Under the accrual basis of accounting, adjustments are often made for prepaid expenses and unearned revenues.

Accepted Answer

A) True 
 B)False

Exam 3: Adjusting Accounts and Preparing Financial Statements

The length of time covered by a set of periodic financial statements, primarily a year for most companies, is referred to as the:

Describe the adjusting entries, including the accounts used, for 1) accrued expenses and 2) accrued revenues.

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 had $7,000,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin.

Identify the primary differences between accrual accounting and cash basis accounting.

The 12-month period that ends when a company's sales activities are at their lowest level is called the:

Profit margin reflects the percent of profit in each dollar of revenue.

Profit margin is calculated by dividing net sales by net income.

Explain the purpose of adjusting entries at the end of a period and provide an example of an adjusting entry.

A company performs 20 days of work on a 30-day contract before the end of the year. The total contract is valued at $6,000, with payment received in advance. The $6,000 cash receipt was initially recorded as Unearned Revenue. The required adjusting entry includes a $4,000 debit to Unearned Revenue.

The accrual basis of accounting:

An adjusting entry could be made for each of the following except:

The cash basis of accounting recognizes revenues when cash payments from customers are received.

On December 31, Winters Company's Prepaid Rent account had a balance before adjustment of $6,000. Three months' rent was paid in advance on December 1, the first day of the lease term. The adjusting entry needed on December 31 is:

The time period assumption assumes that an organization's activities may be divided into specific reporting time periods including all of the following except:

Under the accrual basis of accounting, adjustments are often made for prepaid expenses and unearned revenues.

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

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