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Exam 4: Adjustments, Financial Statements, and Financial Results

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Question 51

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On July 1, Rawling Store paid $6,000 to Iceberg Realty for six months' rent, starting July 1. Prepaid rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Rawling Store is

A) debit rent expense, $6,000; credit prepaid rent, $6,000.
B) debit prepaid rent, $1,000; credit rent expense, $1,000.
C) debit prepaid rent, $6,000; credit rent expense, $6,000.
D) debit rent expense, $1,000; credit prepaid rent, $1,000.

E) B) and D)
F) A) and B)

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Question 52

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Manitoba Metals Ltd lent $100,000 to Coltraine Ltd. at an interest rate of 5%. Both the loan and all the interest are to be repaid after two years. At the end of the first year what is the entry required on Manitoba's books? (Dr.=Debit and Cr.=Credit)

A) Dr. Interest expense $5,000, Cr. Interest payable $5,000
B) Dr. Interest receivable $5,000, Cr. Interest revenue $5,000
C) Dr. Interest revenue $5,000, Cr. Interest payable $5,000
D) no entry is required until the amount becomes due.

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

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Question 53

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On July 1, 20X1, Liz Company borrowed $5,000 cash and signed a one year note payable, interest 10 percent, payable on the maturity date, June 30, 20X2. The accounting period ends on December 31; therefore, the required adjusting entry on December 31, 20X1 would be: Debit--Interest payable, $250; Credit--Interest expense, $250.

Atlantic Company is completing the information processing cycle at the end of the annual accounting period, December 31, 20X1. Four adjusting entries must be made at this date to update the accounts. The following accounts, selected from Atlantic's chart of accounts, are to be used for this purpose. They are coded to the left for easy reference. $\begin{array} { | l | l | } \hline \text { A. Office Supplies } & \text { D. Office Supplies Expense } \\\hline \text { B. Trade Receivables } & \text { K. Rent Expense } \\\hline \text { C. Accumulated Depreciation } & \text { L. Bad Debt Expense } \\\hline \text { D. Interest Receivable } & \text { M. Depreciation Expense } \\\hline \text { E. Notes Payable } & \text { N. Interest Expense } \\\hline \text { F. Interest Payable } & \text { O. Sales Revenue } \\\hline \text { G. Property Tax Payable } & \text { P. Rent Revenue } \\\hline \text { H. Unearned Rent } & \text { Q. Interest Revenue } \\\hline \text { I. Rent Payable } & \text { R. Equipment } \\\hline\end{array}$ You are to indicate the appropriate account code and amount for each required adjusting entry at December 31, 20X1

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.

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

Charging the cost of a wastebasket with an estimated useful life of 10 years to an expense account when purchased is an example of the application of

$\begin{array}{l}\text { At the end of } 20 \times 4 \text {, the following data were taken from the accounts of Timberline Company: }\\\begin{array} { | l | r | } \hline \text { Share capital } & \$ 209,000 \\\hline \text { Retained earnings, beginning balance January 1, 20X4 } & 100,000 \\\hline \text { Total revenue earned during 20X4 } & 190,000 \\\hline \text { Total expenses incurred during 20X4 } & 180,000 \\\hline \text { Total cash collected during 20X4 } & 200,000 \\\hline\end{array}\end{array}$ -The 20X4 closing entries would include which of the following?

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

The return on equity measures how effectively management used shareholders' investment to generate revenue during the period.

$\begin{array}{l}\text { Time Corporation reported the following for } 20X 1 \text { : }\\\begin{array} { | l | r | } \hline \text { Share Capital } & 5,000 \text { shares outstanding } \\\hline \text { Revenues } & \$ 100,000 \\\hline \text { Expenses } & \$ 95,000 \\\hline\end{array}\end{array}$ -What was the amount of earnings per share?

Amortization attempts to adjust the value of the assets to reflect the market value of those assets on the statement of financial position.

Accrued revenues represent money received from customers for work to be done later.

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

The bank statements of Waylon Taylor Textiles Ltd. for $20 \times 7$ included the following items: $\begin{array}{|l|r|}\hline \text { Insurance premiums paid } & \$ 12,400 \\\hline \text { Interest collected } & \$ 25,900 \\\hline \text { Salaries paid } & \$ 125,200 \\\hline\end{array}$ The following balances have been excerpted from the company's Statement of Financial Position: $\begin{array}{|l|r|r|}\hline & \text { December 31, 20X7 } & \text { December 31, 20X6 } \\\hline \text { Prepaid insurance } & \$ 1,400 & \$ 1,700 \\\hline \text { Accrued interest receivable } & \$ 3,700 & \$ 2,900 \\\hline \text { Accrued salaries payable } & \$ 12,300 & \$ 10,600 \\\hline\end{array}$ -How much salaries expense should WTT report on its 20X7 statement of earnings?

On December 1, 20X1, Pest Company collected $1,200 in advance for three months of rent on some o?ce space. It was credited in full to unearned rent revenue. Assuming the accounting year ends December 31, give the adjusting entry required on December 31, 20X1.

The primary difference between prepaid and accrued expenses is that prepaid expenses have

The bank statements of Waylon Taylor Textiles Ltd. for $20 \times 7$ included the following items: $\begin{array}{|l|r|}\hline \text { Insurance premiums paid } & \$ 12,400 \\\hline \text { Interest collected } & \$ 25,900 \\\hline \text { Salaries paid } & \$ 125,200 \\\hline\end{array}$ The following balances have been excerpted from the company's Statement of Financial Position: $\begin{array}{|l|r|r|}\hline & \text { December 31, 20X7 } & \text { December 31, 20X6 } \\\hline \text { Prepaid insurance } & \$ 1,400 & \$ 1,700 \\\hline \text { Accrued interest receivable } & \$ 3,700 & \$ 2,900 \\\hline \text { Accrued salaries payable } & \$ 12,300 & \$ 10,600 \\\hline\end{array}$ -How much interest revenue should WTT report on its 20X7 statement of earnings?

The bank statements of Waylon Taylor Textiles Ltd. for $20 \times 7$ included the following items: $\begin{array}{|l|r|}\hline \text { Insurance premiums paid } & \$ 12,400 \\\hline \text { Interest collected } & \$ 25,900 \\\hline \text { Salaries paid } & \$ 125,200 \\\hline\end{array}$ The following balances have been excerpted from the company's Statement of Financial Position: $\begin{array}{|l|r|r|}\hline & \text { December 31, 20X7 } & \text { December 31, 20X6 } \\\hline \text { Prepaid insurance } & \$ 1,400 & \$ 1,700 \\\hline \text { Accrued interest receivable } & \$ 3,700 & \$ 2,900 \\\hline \text { Accrued salaries payable } & \$ 12,300 & \$ 10,600 \\\hline\end{array}$ -How much insurance expense should WTT report on its 20X7 statement of earnings?

Service revenue earned but not yet collected by the end of the period was $200; therefore, the adjusting entry should be: Debit--Service revenue receivable, $200; Credit--Unearned service revenue, $200.