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

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Question 21

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Which of the following does not correctly describe an adjusting journal entry that debits depreciation expense and credits accumulated depreciation?

A) It increases expenses and increases assets.
B) It decreases net income and decreases assets.
C) It increases expenses and decreases retained earnings.
D) It decreases assets and decreases net income.

E) A) and B)
F) A) and C)

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Question 22

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On December 31, 2014, The Bates Company's revenues total $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?

A) $94,200.
B) $157,000.
C) $140,000.
D) $88,800.

E) A) and B)
F) A) and C)

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Question 23

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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 record accrued wage expense at year-end. Revenues_____ Expenses_____ Net income_____ Assets_____ Liabilities_____ Stockholders' equity_____ Error 2: A company failed to accrue revenue earned at year-end. Revenues_____ Expenses_____ Net income_____ Assets_____ Liabilities_____ Stockholders' equity_____ Error 3: A company recorded revenue when cash was received from a customer for services to be provided in the future. Revenues_____ Expenses_____ Net income_____ Assets_____ Liabilities_____ Stockholders' equity_____

Which of the following is not an accrual?

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.

Which of the following does not correctly describe an adjusting journal entry that debits supplies expense and credits supplies?

The comparative balance sheets of Titan Company for the years ended December 31, 2014 and 2015, reported the following selected amounts: Required: A. Calculate the total amount of office supplies purchased during 2015. B. Calculate the total amount of rent collected during 2015. 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?

The adjusting entry to record an accrued expense results in a decrease in both assets and stockholders' equity.

On October 1, 2014, Adams Company paid $4,800 for a two-year insurance policy with the insurance coverage beginning on that date. As of December 31, 2014, which of the following account balances are correct after adjusting entries have been made?

The journal entry to adjust the prepaid rent account for rent used during the period results in an increase in expenses and a decrease in stockholders' equity.

Which of the following correctly describes the following adjusting journal entry? Utilities expense $\quad$ Utilities payable

Which of the following correctly describes the effects of initially recording deferred revenues when cash is received from a customer?

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.

Which of the following accounts is used to record an accrual for expenses?

On September 1, 2014, Fast Track, Inc. was started with $30,000 invested by the owners as contributed capital. On September 30, 2014, the accounting records contained the following amounts: Required: Prepare a single-step income statement for September for the first month of Fast Track's operation. Ignore income taxes.

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

Under accrual accounting, interest expense would be recognized on the income statement when the interest has accrued with the passage of time even though cash has not been paid.

Which of the following account balances would not be affected by closing journal entries?

Which of the following adjusting journal entries is not created as the result of an accrual? A. Interest expense $\quad$ Interest payable B. Accounts receivable $\quad$ Service revenue C. Prepaid Rent $\quad$ Rent expense D. Interest receivable $\quad$ Investment income

Which of the following accounts would most likely not require an adjusting entry at year-end?