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Exam 3: Adjusting Accounts for Financial Statements

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Question 21

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A company prepays rent of $500 and receives a $3,000 payment for services not yet rendered. Under accrual basis accounting, these two transactions will

A) Increase profit by $2,500
B) Increase profit by $3,000
C) Decrease profit by $500
D) Have no effect on profit
E) Decrease profit by $3,500

F) A) and B)
G) A) and C)

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Question 22

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

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

F) A) and E)
G) A) and C)

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Question 23

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Pure Taste Company had $2,500 of store supplies on hand at the beginning of 2020. During 2020 Pure Taste purchased $300 worth of store supplies. On December 31, 2020, $1,125 worth of store supplies remained. What is the amount of BioVert Company's store supplies expense for 2020?

Given the schedule 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.(1) Recorded accrued salaries expense of $1,200 with a debit to Prepaid Salaries.(2) The bookkeeper forgot to record $2,700 of depreciation on office equipment.(3) Failed to accrue $300 of interest on a note receivable. Ex. Failed to recognize that $600 of unearned revenues, previously recorded as liabilities, had been earned by year-end.

In January, Denton Mabrey College received $120,000 in Unearned Tuition Revenue from its students for the spring semester, which lasts four months. On January 31, the college should recognize which amount for tuition revenue?

It is acceptable to credit unearned revenues to revenue accounts when cash is received.

Which of the following accounts is most likely to be associated with an accrued expense?

The adjusted trial balance must be prepared before the adjusting entries are made.

Of the office supplies Sandhu Consulting buys each month, 60% are paid for during the same month and 40% are paid for during the following month. During July, Sandhu purchased $600 of office supplies. During August, Sandhu paid $450 for office supplies. The office supplies inventory was $160 on July 31 and was $90 on August 31. What should be reported as office supplies expense for August?

Correcting entries cannot involve cash.

Unearned Premium Revenue at December 31, 2023 is

Unearned revenue is reported in the financial statements as

The partial unadjusted trial balance of Erif Corporation at December 31, 2020 follows. All accounts have normal balances. The following additional information is available at the December 31, 2020 year end: a. Insurance expense represents a 3-year insurance policy for the period from January 1, 2020 to December 31, 2022. b. A count of office supplies reveals that at December 31, 2020, the company had $500 of office supplies on hand. c. The company's lease, signed on January 1, 2020, specifies monthly rent of $4,000, or $48,000 a year. d. The December 2020 utility bill has not yet been received and is not included in the trial balance. The utility bill averages $400 a month. Required - Using the information above, find the balances in the following account balances, after adjustment, at December 31, 2020: -Prepaid Insurance

Discuss how accrual accounting adds usefulness to financial statements.

Gallery Corp. paid $6,000 for a six-month insurance policy for the company van. The policy coverage began on January 1. On January 31, $1,000 of insurance expense must be reported.

Depreciation expense for a period is the portion of a plant asset's cost that is allocated to that period.

Accrued revenues

The cash basis of accounting is an accounting system in which revenues are reported in the income statement when cash is received, and expenses are reported when cash is paid.

Which of the following is not considered a basic type of adjusting entry?

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