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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 1

True/False

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Interim financial statements report a company's business activities for a one-year period.

A) True
B) False

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Question 2

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A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the:

A) Time period assumption.
B) Operating cycle of a business.
C) Going-concern assumption.
D) Accrual basis of accounting.
E) Expense recognition (matching) principle.

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

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Question 3

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Why are financial statements prepared in a specific order? What is the usual order in which financial statements are prepared from the adjusted trial balance?

Adjusting entries are designed primarily to correct accounting errors.

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:

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

From the information provided, calculate Giuseppe's profit margin ratio for each of the three years. Comment on the results, assuming that the industry average for the profit margin ratio is 6% for each of the three years. $\begin{array}{lrccc}&2017&2016&2015\\\text { Net income } & \$ 2,630 & \$ 2,100 & \$ 1,850 \\\text { Net Sales } & 36,500 & 32,850 & 31,200 \\\text { Total Assets } & 400,000 & 385,000 & 350,000\end{array}$

A company performs 20 days of 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 required adjusting entry includes a $4,000 debit to Unearned Revenue.

A company purchased new furniture at a cost of $14,000 on September 30. The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the furniture for the first year ended December 31?

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

It is acceptable to record cash received in advance of providing products or services to revenue accounts if an adjusting entry is made at the end of the period to bring the liability account balance to the correct unearned amount.

Before an adjusting entry is made to accrue employee salaries, Salaries Expense and Salaries Payable are both understated.

On October 1, Goodwell Company rented warehouse space to a tenant for $2,500 per month. The tenant paid five months' rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Rent account. The company's annual accounting period ends on December 31. The adjusting entry needed on December 31 is:

A company purchased $6,000 worth of supplies in August and recorded the purchase in the Supplies account. On August 31, the fiscal year-end, the physical count of supplies indicates the cost of unused supplies is $3,200. The adjusting entry would include a $2,800 debit to Supplies.

Describe the adjusting entries, including the accounts used, for 1)accrued expenses and 2)accrued revenues.

Which of the following statements is incorrect?

Each adjusting entry affects one or more income statement account, one or more balance sheet account, and never cash.

On April 1, Griffith Publishing Company received $1,548 from Santa Fe, Inc. for 36-month subscriptions to several different magazines. The company credited Unearned Fees for the amount received and the subscriptions started immediately. Assuming adjustments are only made at year-end, What is the adjusting entry that should be recorded by Griffith Publishing Company on December 31 of the first year?

A company's employees earn a total of $10,000 per week for a 5-day week that begins on Monday. December 31 of Year 1 is a Monday, and all employees worked that day. a)Prepare the required adjusting journal entry to record accrued salaries on December 31, Year 1. b)Prepare the journal entry to record the payment of salaries on January 4, Year 2. (Assume no reversing entries were made).

Each adjusting entry will affect a balance sheet account.