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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 71

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A trial balance prepared after adjustments have been recorded is called a(n)

A) Balance sheet.
B) Adjusted trial balance.
C) Unadjusted trial balance.
D) Classified balance sheet.
E) Unclassified balance sheet.

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

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Question 72

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Adjusting entries are necessary so that asset, liability, revenue, and expense account balances are correctly recorded.

A) True
B) False

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Question 73

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The entry to record a cash receipt from a customer when the service to be provided has not yet been performed involves a debit to an unearned revenue account.

Assuming unearned revenues are originally recorded in balance sheet accounts, the adjusting entry to record earning of unearned revenue is:

Explain how the owner of Cheezburger Network uses the accrual basis of accounting.

Before an adjusting entry is made to recognize the cost of expired insurance for the period, Prepaid Insurance and Insurance Expense are both overstated.

An unadjusted trial balance is a list of accounts and balances prepared before adjustments are recorded.

A company performs 20 days work on a 30-day contract before the end of the year. The total contract is valued at $6,000 and payment is not due until the contract is fully completed. The adjusting entry includes a $4,000 credit to unearned revenue.

A company records the fees for legal services paid in advance by its clients in an account called Unearned Legal Fees. If the company fails to make the end-of-period adjusting entry to record the portion of these fees that has been earned, one effect will be:

The accrual basis of accounting:

Which of the following statements is incorrect?

Salvo 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.

The time period assumption assumes that an organization's activities can be divided into specific time periods including all of the following except:

The unadjusted trial balance and the adjustment data for Harris Training Institute are given below along with adjusting entry information. What is the impact of the adjusting entries on the balance sheet? Show calculation for total assets, total liabilities, and owner's equity without the adjustments; show calculation for total assets, total liabilities, and owner's equity with the adjustments. Which one gives the most accurate presentation of the balance sheet? Additional information items: a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis of the insurance invoice indicates that one half of the policy has expired by the end of the December 31 year-end. b. A cash payment for space sublet for 8 months was received on July 1 and was credited to Unearned Rent. c. Accrued interest expense on the note payable of $1,000 has been incurred but not paid.

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

Accrued revenues:

The accrual basis of accounting recognizes expenses when cash is paid.

Adjusting entries result in a better matching of revenues and expenses for the period.

PPW Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $800. This other company paid the entire $6,400 cash on October 1, which PPW Co. recorded as unearned revenue. The journal entry made by PPW Co. at year-end on December 31 would include:

Prepare general journal entries on December 31 to record the following unrelated year-end adjustments. a. Estimated depreciation on office equipment for the year, $4,000. b. The Prepaid Insurance account has a $3,680 debit balance before adjustment. An examination of insurance policies shows $950 of insurance expired. c. The Prepaid Insurance account has a $2,400 debit balance before adjustment. An examination of insurance policies shows $600 of unexpired insurance. d. The company has three office employees who each earn $100 per day for a five-day workweek that ends on Friday. The employees were paid on Friday, December 26, and have worked full days on Monday, Tuesday, and Wednesday, December 29, 30, and 31. e. On November 1, the company received 6 months' rent in advance from a tenant whose rent is $700 per month. The $4,200 was credited to the Unearned Rent account. f. The company collects rent monthly from its tenants. One tenant whose rent is $750 per month has not paid his rent for December.