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Exam 3: Adjusting Accounts for Financial Statements

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Question 111

True/False

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Earned but uncollected revenues are recorded during the adjusting process with a credit to a revenue account and a debit to an expense account.

A) True
B) False

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Question 112

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In preparing a work sheet an adjusted trial balance amount is mistakenly sorted to the wrong work sheet column.The Balance Sheet columns will balance on completing the work sheet but with the wrong net income,if the amount sorted in error is:

A) An expense amount placed in the Balance Sheet Credit column.
B) A revenue amount placed in the Balance Sheet Debit column.
C) A liability amount placed in the Income Statement Credit column.
D) An asset amount placed in the Balance Sheet Credit column.
E) A liability amount placed in the Balance Sheet Debit column.

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

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Question 113

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Two common subgroups for liabilities on a classified balance sheet are:

The Income Summary account is a permanent account that will be carried forward period after period.

Failure to record depreciation expense will overstate assets and understate expenses.

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

Profit margin can also be called return on sales.

Trekker Bikes' current assets are $300 million and its current liabilities are $125 million.Its current ratio is 0.417.

A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31.This oversight would:

All of the following statements regarding profit margin are true except:

If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period,the financial statements prepared at that time would show:

On April 1,Otisco,Inc.paid Garcia Publishing Company $1,548 for 36-month subscriptions to several different magazines.Otisco debited the prepayment to a Prepaid Subscriptions account,and the subscriptions started immediately.What adjusting entry should be made by Otisco,Inc.for the adjustment on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustments had been made?

Closing entries are necessary so that retained earnings will begin each period with a zero balance.

Adjustments must be entered in the journal and posted to the ledger after the work sheet is prepared.

Which of the following errors would cause the Balance Sheet and Statement of Retained Earnings columns of a work sheet to be out of balance?

A company's post-closing trial balance has total debits of $40,560 and total credits of $40,650.Accordingly,the company should review for errors in the closing process.

Unearned revenue is reported in the financial statements as:

If a company reporting on a calendar year basis,paid $18,000 cash on January 1 for one year of rent in advance (lease beginning January 1),and adjusting entries are made at the end of each month,the balance remaining in Prepaid Rent on December 1 should be $1,500.

For each of the following two separate situations,present both the April 30 adjusting entry and the subsequent entry during May to record the payment of the accrued expenses or receipt of the accrued revenue.Assume the company does not prepare reversing entries. a.Nicolas Company has 5 employees,who earn a total of $2,900 in salaries each working day.They are paid on Monday for the five-day workweek ending on the previous Friday.Assume that fiscal year ended April 30,is a Thursday and all employees worked each day and will be paid salaries for five full days on the following Monday. b.Services of $3,000 have been performed for Clevenger Company through April 30.The client will pay the entire amount of the contract when services are completed on May 23. c.Paid the employees' salaries on May 4. d.Received payment from Clevenger Company for services that are now completed on May 23.

The steps in the closing process are (1)close credit balances in revenue accounts to Income Summary; (2)close debit balances in expense accounts to Income Summary; (3)close Income Summary to Retained Earnings; (4)close Dividends to Retained Earnings.