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

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Question 21

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Failure to make an adjusting entry to recognize service revenue receivable would cause which of the following?

A) An overstatement of assets and shareholders' equity and an understatement of profit.
B) No effect on assets, liabilities, profit, nor shareholders' equity.
C) An understatement of assets, profit, and shareholders' equity.
D) An overstatement of assets, profit, and shareholders' equity.

E) A) and B)
F) None of the above

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Question 22

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The three sections of the statement of cash flows are operating, investing, and financing activities.

A) True
B) False

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Question 23

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On January 1, 20A, Thomas Company paid $1,000 for a two-year insurance policy on the building. The accounting period ends December 31. At the end of 20A, the financial statements should report which of the following?

Return on equity is a ratio that:

The dividends declared account should be closed to retained earnings at year-end.

Which of the following would most likely lead to an accrued adjustment?

Which one of the following accounts would not be closed at the end of the accounting year?

To compute depreciation expense using the straight-line formula, the cost of a depreciable asset (i.e., equipment) must be reduced by any estimated residual or salvage value.

Air Cargo Company recorded the following adjusting entries at the end of the accounting year, December 31, 20B: Give the closing entries for Air Cargo Company at December 31, 20B. (You need not use the Income Summary account).

Allen Corporation is completing the accounting information processing cycle at the end of the fiscal year, June 30, 20B. The following trial balances are on Allen's worksheet at June 30, 20B. Reconstruct the adjusting entries and give a brief explanation of each.

The changes in revenues and expenses caused by accruals and deferrals are classified as which of the following?

The primary purpose of the statement of cash flows is to report which of the following?

Because of its complexity and susceptibility to errors, which step in the process do independent auditors examine most closely?

Which of the following is the essential difference between an unadjusted trial balance and an adjusted trial balance?

Rent of $150 collected in advance was credited to rent revenue. At the end of the accounting period, it was still unearned. The related adjusting entry should be: Debit-- Rent revenue, $150; Credit--Unearned rent revenue, $150.

Both the adjusting entries and the closing entries usually are dated as of the last day of the accounting period.

On January 1, 20B, the ledger of Global Corporation correctly showed supplies inventory of $500. During 20B, supplies purchases amounted to $700. A count (inventory) of supplies on hand at December 31, 20B, showed $400. The 20B income statement should report supplies expense amounting to which of the following?

This question focuses on the accounting cycle and the accounting model. For each item listed, indicate the best description by entering a capital letter in the space provided. Description A. End-of-period entries to transfer balances of temporary accounts to another account. B. Income statement accounts. C. Revenues collected but not earned. D. Revenues minus expenses. E. An expense incurred but not recorded nor paid. F. Ending retained earnings. G. Statement of financial position accounts. H. Entries at the end of the period necessary to measure income. Item ____ 1. Accrued expense ____ 2. Temporary accounts ____ 3. Closing entries ____ 4. Permanent accounts ____ 5. Adjusting entries 6. Deferred revenues

On November 1, 20A, Zany Company leased some of its office space to Fox Company and immediately collected twelve months rent in advance of $24,000. Zany debited cash and credited unearned rent revenue for $24,000. At the end of 20A (the end of the accounting period), give the adjusting entry Zany should make in respect to the rent.

Which of the following applies to both the depreciation expense account and the accumulated depreciation account at the end of the first year of operations?