Exam 3: Adjusting Accounts and Preparing Financial Statements

Western Company had $500 of store supplies available at the beginning of the current year. During the year Western Company purchased $2,750 worth of store supplies. On December 31 of this year $375 worth of store supplies remained. a. Calculate the amount of Western Company's store supplies expense for the current year. (Show your calculations.) b. Prepare the journal entry to adjust the supplies account.

Profit margin = ___________________ divided by net sales.

On December 14 Bench Company received $3,700 cash for consulting services that will be performed in January. Bench records all such prepayments in a liability account. Prepare a general journal entry to record the $3,700 cash receipt.

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

Financial statements can be prepared directly from the information in the adjusted trial balance.

Adjusting entries:

Manning, Co. collected 6-months' rent in advance from a tenant on November 1 of the current year. When it collected the cash, it recorded the following entry: Prepare the required adjusting entry at December 31 of the current year.

Adjusting entries are designed primarily to correct accounting errors.

On October 15, a company received $15,000 cash as a down payment on a consulting contract. The amount was credited to Unearned Consulting Revenue. By October 31, 10% of the services required by the contract were completed. The company will record consulting revenue of $1,500 from this contract for October.

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

Match the following terms with the appropriate definition.

The length of time covered by a set of periodic financial statements is referred to as the:

List the three-steps of the adjusting process.

All of the following statements regarding profit margin are except:

______________________ basis accounting means that revenues are recognized when cash is received and that expenses are recorded when cash is paid. ________________________ basis accounting means that the financial effects of revenues and expenses are recorded when earned or incurred.

A company issued financial statements for the year ended December 31, but failed to include the following adjusting entries: A. Accrued service fees earned of $2,200. B. Depreciation expense of $8,000. C. Portion of office supplies (an asset) used $3,100. D. Accrued salaries of $5,200. E. Revenues of $7,200, originally recorded as unearned, have been earned by the end of the year.

Which of the following statements related to adjusting entries is incorrect?

Match the following terms with the appropriate definition.

Net income for a period will be overstated if accrued salaries are not recorded at the end of the accounting period.

A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31. The entry to record the adjusting entry should have been: