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Exam 3: Adjusting Accounts for Financial Statements

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Question 191

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A company paid $9,000 for a twelve-month insurance policy on February 1.The policy coverage began on February 1.On February 28,$750 of insurance expense must be recorded.

A) True
B) False

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Question 192

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Unearned revenue is reported in the financial statements as:

A) A revenue on the balance sheet.
B) A liability on the balance sheet.
C) An unearned revenue on the income statement.
D) An asset on the balance sheet.
E) A financing activity on the statement of cash flows.

F) A) and D)
G) D) and E)

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Question 193

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The ________ depreciation method allocates equal amounts of an asset's cost to depreciation during its useful life.

What is the proper adjusting entry at December 31,the end of the accounting period,if the balance in the prepaid insurance account is $7,750 before adjustment,and the unexpired amount per analysis of policies is,$3,250?

Accrued revenues at the end of one accounting period are expected to result in cash collections in a future period.

Using the selected information given below for Luk Company,calculate the return on assets,debt ratio,and profit margin.Comment on the results of operations and the financial position of the company for the year. $\begin{array} { | l | r| } \hline \text { Sales } & 1,050,000 \\\hline \text { Expenses } & 795,000 \\\hline \text { Assets (beginning of the year) } & 1,500,000 \\\hline \text { Assets (end of the year) } & 1,900,000 \\\hline \text { Liabilities } & 850,000 \\\hline\end{array}$

A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31.Which of the following statements is true?

On a work sheet,if the Debit total exceeds the Credit total of the Income Statement columns,a net loss is indicated.

On May 1,Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 this year to April 30 of the following year.The Cash receipt was recorded as unearned fees and at year-end on December 31,$1,000 of the fees had been earned.Assuming adjustments are only made at year-end,the adjusting entry on December 31 would be:

Using the table below,indicate the impact of the following errors made during the adjusting entry process.Use a "+" for overstatements,a "-" for understatements,and a "0" for no effect.The first one is provided as an example.

After preparing and posting the closing entries for revenues and expenses,the income summary account has a debit balance of $33,000.The entry to close the income summary account will be:

The closing process is a step in the accounting cycle that prepares accounts for the next accounting period.

Which of the following accounts showing a balance on the post-closing trial balance indicate an error?

Kline Company accrued wages of $7,350 that were earned by employees unpaid at the year-end.Assuming Kline uses reversing entries,which of the following entries correctly reverses the accrued wages at the beginning of the following year?

Gracio Co.had the following transactions in the last two months of its year ended December 31.Prepare entries for these transactions under the method that records prepaid expenses as expenses and records unearned revenues as revenues.Also prepare adjusting entries at the end of the year. $\begin{array} { | l | l | } \hline \text { Nov. } 1 & \text { Paid } \$ 11,400 \text { for } 12 \text { months of insurance coverage through October } 31 \text { of next } \\\hline 5 & \text { Received } \$ 8,000 \text { cash for future services to be provided to a customer. } \\\hline 7 & \text { Paid } \$ 10,000 \text { for future advertising. } \\\hline \text { Dec. } 31 & \begin{array} { l } \text { A portion of the insurance paid for on November } 1 \text { has expired. No adjustment } \\\text { was made in November to the insurance account. }\end{array} \\\hline 31 & \begin{array} { l } \text { Services of } \$ 2,500 \text { are not yet provided to the customer who paid on November } \\5 .\end{array} \\\hline 31 & \text { Of the advertising paid for on November } 7 , \$ 1,500 \text { is not yet used. } \\\hline\end{array}$

List the three-steps of the adjusting process.

Match the following terms with the appropriate definition. -A ratio that is used to help evaluate a company's ability to pay its short-term obligations, calculated by dividing current assets by current liabilities.

Match the following terms with the appropriate definition. -The process of allocating the costs of long-term assets to the income statement over their expected useful lives.

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 interest expense of $200. 2.Forgot to record $7,700 of depreciation on machinery. 3.Failed to accrue $1,300 of revenue earned but not collected. Error Revenues Expenses Assets Liabilities Equity EX -$600 0 0 +$600 -$600 1.________ ________ ________ ________ ________ 2.________ ________ ________ ________ ________ 3.________ ________ ________ ________ ________

A company had $7,000,000 in net income for the year.Its net sales were $15,200,000 for the same period.Calculate its profit margin.