Exam 4: Adjustments, Financial Statements, and the Quality of Earnings

For each of the following accounts you are to enter one capital letter in each cell to indicate normal characteristics for each account.

Cash collected from customers in advance of providing the goods or services creates a liability which is later reduced when the goods or services are provided.

Four transactions described below were completed during 2016 by Russell Company. The books are adjusted only at year-end. A.On December 31, 2016, Russell Company owed employees $3,750 for wages that were earned by them during December and were not recorded. B.During 2016, Russell Company purchased office supplies that cost $1,000, which were placed in the supplies room for use as needed.The purchase was recorded as follows: At January 1, 2016, the amount of unused office supplies was $300.At December 31, 2016, a physical count showed unused office supplies in the supply room amounting to $100. C.On December 1, 2016, Russell Company rented some office space to another party.Russell Company collected $900 rent for the period December 1, 2016, to March 1, 2016.The December 1 transaction was recorded as follows: D.On July 1, 2016, Russell Company borrowed $12,000 cash on a one-year, 8% interest-bearing, note payable.The interest is payable on the due date of the note, June 30, 2017.The borrowing was recorded as follows on July 1, 2016:

On December 31, 2016, The Bates Company's revenue is $300,000 and expenses total $160,000 before consideration of the following: Accrued wages total $11,000; Accrued revenues total $36,000; Depreciation expense is $17,000; Rental revenue of $9,000 was earned; the rent from a tenant was initially recorded by Bates as unearned rent revenue; The income tax rate is 40% of income before income taxes. What is Bates' net income after consideration of the above information?

Which of the following best describes the difference between an unadjusted trial balance and an adjusted trial balance?

Which of the following does not correctly describe the following journal entry?

The year-end closing process transfers net income to retained earnings.

Johnson Corporation is completing the accounting information processing cycle at the end of the fiscal year, June 30, 2016. Johnson has provided the following trial balances as of June 30, 2016: Required: A.Reconstruct the adjusting entries and prepare a brief explanation of each. B.What is the amount of net income? C.Calculate earnings per share (EPS) assuming 1,000 shares of common stock are outstanding.

Which of the following will result in an increase in earnings per share?

Accounts that start a new accounting period with zero balances are referred to as temporary accounts and include both balance sheet and income statement accounts.

Which of the following is a false statement about the unadjusted trial balance?

Which of the following account balances would not be closed at year-end by debiting the account?

Below are two related transactions for Golden Corporation. The annual accounting period ends December 31. The books are adjusted only at year-end. A.October 1, 2016: Golden Corporation borrowed $100,000 and signed a note providing for 8% interest.The principal and interest are due in one year on September 30, 2017. B.December 31, 2016: End of the annual accounting period.Required: Prepare the required journal entry at October 31 and December 31, 2016 for each of the above items.

Which of the following statements does not correctly describe the relationship between the income statement and the ending retained earnings balance?

The comparative balance sheets of Titan Company for the years ended December 31, 2016 and 2017, reported the following selected amounts: The 2017 income statement reported the following: Required: A.Calculate the total amount of office supplies purchased during 2017. B.Calculate the total amount of rent collected during 2017. C.In what section of the statement of cash flows would the payments for office supplies appear? D.In what section of the statement of cash flows would the collection for rents appear?

Which of the following statements regarding the balance sheet is false?

The results or a balance on one financial statement may affect the results or a balance on another financial statement. Required: Prepare a response to the following items. A.Describe how the income statement is related to the statement of stockholders' equity. B.Describe how the statement of stockholders' equity is related to the balance sheet. C.Describe how the statement of cash flows is related to the balance sheet.

Determine the effect of the following errors on the financial statements. Code your answers as follows and do not leave any blank spaces. O: If the error results in an overstatement of the financial statement component. U: If the error results in an understatement of the financial statement component. N: If the error does not affect the financial statement component. Error 1: A company failed to adjust the prepaid insurance account for insurance that was used during the period. Revenue _____ Expenses _____ Net income _____ Assets _____ Liabilities _____ Stockholders' equity _____ Error 2: A company failed to record depreciation expense at year-end. Revenue _____ Expenses _____ Net income _____ Assets _____ Liabilities _____ Stockholders' equity _____ Error 3: A company did not adjust the unearned revenue account for revenue earned during the year. Revenue _____ Expenses _____ Net income _____ Assets _____ Liabilities _____ Stockholders' equity _____