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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 1

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Using the information given below, prepare a balance sheet for Martin Sky Taxi Services from the adjusted trial balance. Helena Martin did not make any additional investments in the company during the year.

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Question 2

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Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:

A) Debit Office Supplies $105 and credit Office Supplies Expense $105.
B) Debit Office Supplies Expense $105 and credit Office Supplies $105.
C) Debit Office Supplies Expense $254 and credit Office Supplies $254.
D) Debit Office Supplies $254 and credit Office Supplies Expense $254.
E) Debit Office Supplies $105 and credit Supplies Expense $254.

F) B) and D)
G) C) and E)

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Question 3

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The accrual basis of accounting reflects the principle that revenue is recorded when it is earned, not when cash is received.

Reed's net income was $180,000; its total assets were $1,050,000; and its net sales were $3,500,000. Calculate the company's profit margin ratio.

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

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

A company paid $9,000 for a six-month insurance policy. The policy coverage began on February 1. On February 28, $150 of insurance expense must be recorded.

Prior to recording adjusting entries on December 31, a company's Store Supplies account had an $880 debit balance. A physical count of the supplies showed $325 of unused supplies available as of December 31. Prepare the required adjusting entry.

The difference between the cost of an asset and the accumulated depreciation for that asset is called

__________________________ refer to costs incurred in a period that are both unpaid and unrecorded. ______________________ refer to revenues earned in a period that are both unrecorded and not yet received in cash (or other assets).

The accrual basis of accounting recognizes revenues when cash is received from customers.

Explain the purpose of adjusting entries at the end of a period.

Profit margin can also be called return on sales.

Using the selected information given below for Bliss Company, calculate return on assets, debt ratio, and profit margin. Comment on the results of operations and the financial position of the company for the year. Return on assets = ($950,000-795,000)/((1,900,000+1,500,000)/2) =9.1% Debt ratio=$850,000/1,900,000=44.7% Profit margin=$155,000/950,000=16.3%

The balance in the prepaid insurance account before adjustment at the end of the year is $4,800, which represents the insurance premiums for four months. The premiums were paid on November 1. The adjusting entry required on December 31 is:

A company entered into a 2-month contract for $50,000 on April 1. It earned $25,000 of the contract services in April and billed the customer. The company should recognize the revenue when it receives the customer's check.

An adjusting entry often includes an entry to Cash.

Under the cash basis of accounting, no adjustments are made for prepaid, unearned, and accrued items.

A company recorded 2 days of accrued salaries of $1,400 for its employees on January 31. On February 9, it paid its employees $7,000 for these accrued salaries and for other salaries earned through February 9. The January 31 and February 9 journal entries are:

A company purchased new computers at a cost of $14,000 on September 30. The computers are estimated to have a useful life of 4 years and a residual value of $2,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the computers for the first year ended December 31?