Question 1

Ned's net income was $780,000; its net assets were $5,200,000; and its net sales were $9,000,000. Calculate its profit margin ratio.

Accepted Answer

$780,000/$

Question 2

What is the usual order in which financial statements are prepared from the adjusted trial balance? Why are they prepared in that order?

Accepted Answer

The income statement is prepared first.

Question 3

In preparing statements from the adjusted trial balance, the balance sheet must be prepared first.

Accepted Answer

A) True 
 B)False

Question 4

On May 1, Carter Advertising Company received $3,600 from Kaitlyn Breanna for advertising services to be completed April 30 of the following year. The Cash receipt was recorded as unearned fees. The adjusting entry for the year ended December 31, Year 2 would include:

Accepted Answer

A)  a debit to Earned Fees for $3,600. 
B)  a debit to Unearned Fees for $1,200. 
C)  a credit to Unearned Fees for $1,200. 
D)  a debit to Earned Fees for $2,400. 
E)  a credit Earned Fees for $2,400. 
A)  a debit to Earned Fees for $3,600. 
B)  a debit to Unearned Fees for $1,200. 
C)  a credit to Unearned Fees for $1,200. 
D)  a debit to Earned Fees for $2,400. 
E)  a credit Earned Fees for $2,400.

Question 5

Prepare adjusting entries for the year ended December 31, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance are initially recorded as liabilities.
a. The Prepaid Rent account has a debit balance of $12,000 before adjustment, representing a prepayment for four months rent made on December 1 of the current year.
b. One-third of the work related to $18,000 of cash received in advance was performed during this period.
c. Unpaid accrued salaries at December 31 amounts to $15,000
d. Work was completed for a client on December 31 in the amount of $21,000, but was not previously billed or recorded.
e. Estimated depreciation on office equipment is $27,000.

Accepted Answer

The answer of Prepare adjusting entries for the year ended...

Question 6

Each adjusting entry can only affect a balance sheet account.

Accepted Answer

A) True 
 B)False

Question 7

If a company records prepayment of expenses in an asset account, the adjusting entry would:

Accepted Answer

A)  Result in a debit to an expense and a credit to an asset account. 
B)  Cause an adjustment to prior expense to be overstated and assets to be understated. 
C)  Cause an accrued liability account to exist. 
D)  Result in a debit to a liability and a credit to an asset account. 
E)  Decrease cash. 
A)  Result in a debit to an expense and a credit to an asset account. 
B)  Cause an adjustment to prior expense to be overstated and assets to be understated. 
C)  Cause an accrued liability account to exist. 
D)  Result in a debit to a liability and a credit to an asset account. 
E)  Decrease cash.

Question 8

On March 31, Phoenix, Inc. paid Melanie Publishing Company $15,480 for a 3-year subscription for five different magazines. The subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Phoenix Company after adjustments on December 31 each year assuming Phoenix using a calendar reporting period?

Accepted Answer

A)  $15,480; $11,610; $6,540; $1,290. 
B)  $3,870; $5,160; $5,160; $1,290. 
C)  $5,160; $5,160; $5,160. 
D)  $11,610; $6,450; $1,290; $0. 
E)  The answer cannot be determined based on the information given. 
A)  $15,480; $11,610; $6,540; $1,290. 
B)  $3,870; $5,160; $5,160; $1,290. 
C)  $5,160; $5,160; $5,160. 
D)  $11,610; $6,450; $1,290; $0. 
E)  The answer cannot be determined based on the information given.

Question 9

The accrual basis of accounting requires adjustments to recognize revenues in the periods they are earned and to match expenses with revenues.

Accepted Answer

A) True 
 B)False

Question 10

If a company failed to make the end-of-period adjustment to remove from the Unearned Management Fees account the amount of management fees that were earned, this omission would cause:

Accepted Answer

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

Question 11

Which of the following statements is incorrect?

Accepted Answer

A)  Adjustments to prepaid expenses, depreciation, and unearned revenues involve previously recorded assets and liabilities. 
B)  Accrued expenses and accrued revenues involve assets and liabilities that had not previously been recorded. 
C)  Adjusting entries can be used to record both accrued expenses and accrued revenues. 
D)  Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time. 
E)  Adjusting entries affect the cash account. 
A)  Adjustments to prepaid expenses, depreciation, and unearned revenues involve previously recorded assets and liabilities. 
B)  Accrued expenses and accrued revenues involve assets and liabilities that had not previously been recorded. 
C)  Adjusting entries can be used to record both accrued expenses and accrued revenues. 
D)  Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time. 
E)  Adjusting entries affect the cash account.

Question 12

On April 30, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the year ended December 31?

Accepted Answer

A)  $500. 
B)  $4,000. 
C)  $6,000. 
D)  $14,000. 
E)  $18,000. 
A)  $500. 
B)  $4,000. 
C)  $6,000. 
D)  $14,000. 
E)  $18,000.

Question 13

Given the table below, indicate the impact of the following errors made during the adjusting entry process. Use a "+" followed by the amount for overstatements, a "-" followed by the amount for understatements, and a "0" for no effect. The first one is done as an example.
Ex. Failed to recognize that $600 of unearned revenues, previously recorded as liabilities, had been earned by year-end.
1. Failed to accrue salaries expense of $1,200.
2. Forgot to record $2,700 of depreciation on office equipment.
3. Failed to accrue $300 of interest on a note receivable.

Accepted Answer

The answer of Given the table below, indicate the impact...

Question 14

All of the following are regarding unearned revenues except:

Accepted Answer

A)  They are payments received in advance of services performed. 
B)  The adjusting entry for unearned revenues increases assets and increases revenues. 
C)  The adjusting entry for unearned revenues increases revenues and decreases liabilities. 
D)  They are liabilities. 
E)  As they are earned, they become revenues. 
A)  They are payments received in advance of services performed. 
B)  The adjusting entry for unearned revenues increases assets and increases revenues. 
C)  The adjusting entry for unearned revenues increases revenues and decreases liabilities. 
D)  They are liabilities. 
E)  As they are earned, they become revenues.

Question 15

Each adjusting entry affects only one or more income statements account and never cash.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

All of the following are regarding prepaid expenses except:

Accepted Answer

A)  They are paid for in advance of receiving their benefits. 
B)  They are assets. 
C)  When they are used, their costs become expenses. 
D)  The adjusting entry for prepaid expenses increases expenses and increases liabilities. 
E)  The adjusting entry for prepaid expenses increases expenses and decreases assets. 
A)  They are paid for in advance of receiving their benefits. 
B)  They are assets. 
C)  When they are used, their costs become expenses. 
D)  The adjusting entry for prepaid expenses increases expenses and increases liabilities. 
E)  The adjusting entry for prepaid expenses increases expenses and decreases assets.

Question 18

Recording expenses early overstates current-period income; recording expenses late understates current period income.

Accepted Answer

A) True 
 B)False

Question 19

An annual reporting period consisting of any twelve consecutive months is known as:

Accepted Answer

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

Question 20

The adjusting entry to record an accrued revenue is:

Accepted Answer

A)  Increase an expense; increase a liability. 
B)  Increase an asset; increase revenue. 
C)  Decrease a liability; increase revenue. 
D)  Increase an expense; decrease an asset. 
E)  Increase an expense; decrease a liability. 
A)  Increase an expense; increase a liability. 
B)  Increase an asset; increase revenue. 
C)  Decrease a liability; increase revenue. 
D)  Increase an expense; decrease an asset. 
E)  Increase an expense; decrease a liability.

Exam 3: Adjusting Accounts and Preparing Financial Statements

Ned's net income was $780,000; its net assets were $5,200,000; and its net sales were $9,000,000. Calculate its profit margin ratio.

What is the usual order in which financial statements are prepared from the adjusted trial balance? Why are they prepared in that order?

In preparing statements from the adjusted trial balance, the balance sheet must be prepared first.

On May 1, Carter Advertising Company received $3,600 from Kaitlyn Breanna for advertising services to be completed April 30 of the following year. The Cash receipt was recorded as unearned fees. The adjusting entry for the year ended December 31, Year 2 would include:

Each adjusting entry can only affect a balance sheet account.

If a company records prepayment of expenses in an asset account, the adjusting entry would:

The accrual basis of accounting requires adjustments to recognize revenues in the periods they are earned and to match expenses with revenues.

If a company failed to make the end-of-period adjustment to remove from the Unearned Management Fees account the amount of management fees that were earned, this omission would cause:

Which of the following statements is incorrect?

On April 30, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the year ended December 31?

All of the following are regarding unearned revenues except:

Each adjusting entry affects only one or more income statements account and never cash.

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

All of the following are regarding prepaid expenses except:

Recording expenses early overstates current-period income; recording expenses late understates current period income.

An annual reporting period consisting of any twelve consecutive months is known as:

The adjusting entry to record an accrued revenue is:

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

Long-Term Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

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