FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 3: Adjusting Accounts and Preparing Financial Statements

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 61

Short Answer

Review LaterAdd Note

Review Later

If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be ________ and equity would be ________.

Correct Answer

verified

overstated...

View Answer

Show Answer

Question 62

True/False

Review LaterAdd Note

Review Later

Under the accrual basis of accounting, adjustments are often made for prepaid expenses and unearned revenues.

A) True
B) False

Correct Answer

verified

Show Answer

Question 63

True/False

Review LaterAdd Note

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, with payment received in advance. The $6,000 cash receipt was initially recorded as Unearned Revenue. The required adjusting entry includes a $4,000 debit to Unearned Revenue.

Profit margin reflects the percent of profit in each dollar of revenue.

Match the following terms with the appropriate definition. A. Accrued expenses B. Adjusting entry C. Adjusted trial balance D. Prepaid expenses E. Report form balance sheet F. Accounting period G. Contra account H. Profit margin I. Unadjusted trial balance J. Natural business year _____ 1. A 12-month period, used by companies with seasonal variation, that ends when a company's sales activities are at their lowest point. _____ 2. A journal entry made at the end of an accounting period to reflect a transaction or event that is not yet recorded; affects one or more income statement account and one or more balance sheet account, but never cash. _____ 3. An account linked with another account and having an opposite normal balance. 4. Items paid for in advance of receiving their benefits; recorded as an asset when purchased and expensed when used. _____ 5. Any length of time that an organization's activities are divided into and reported by financial statements. _____ 6. A listing of accounts and balances prepared after adjustments are recorded and posted to the ledger. 7. A balance sheet that lists items vertically in the order of assets, liabilities and equity. 8. Costs that are incurred in a period but are both unpaid and unrecorded, requiring an adjustment at the end of the period. _____ 9. A listing of accounts and balances prepared after external transactions are recorded but before adjustments are recorded. _____ 10. A useful measure of a company's operating results determined by dividing net income by net sales.

An adjusting entry could be made for each of the following except:

Explain the purpose of adjusting entries at the end of a period and provide an example of an adjusting entry.

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

The cash basis of accounting recognizes revenues when cash payments from customers are received.

The accrual basis of accounting:

The length of time covered by a set of periodic financial statements, primarily a year for most companies, is referred to as the:

Glisten Co. leases an office to a tenant at the rate of $3,000 per month. The tenant contacted Glisten and arranged to pay the rent for December on January 8 of the following year. Glisten agrees to this arrangement. a.) Prepare the journal entry that Glisten must make at year ended December 31 to record the accrued rent revenue. b.) Prepare the journal entry to record the receipt of the rent on January 8 of the following year (Assume no reversing entries were made).

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

The following information is available for Hatter Co. $\begin{array} { | l | l | l | l | } \hline & 2017 & 2016 & 2015 \\\hline \text { Net in come } & 2,500 & 1,700 & 1,900 \\\hline \text { Net sales } & 37,000 & 35,000 & 32,000 \\\hline \text { Total asststs } & 420,000 & 395,000 & 375,000 \\\hline\end{array}$ From the information provided, calculate Hatter's profit margin ratio for each of the three years. In 2016, economic conditions and a slowing economy impacted the results of operations. Comment on the results, assuming that the industry average for the profit margin ratio is 7% for each of the three years.

Profit margin is calculated by dividing net sales by net income.

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

On December 31, Winters Company's Prepaid Rent account had a balance before adjustment of $6,000. Three months' rent was paid in advance on December 1, the first day of the lease term. The adjusting entry needed on December 31 is:

On October 1, Goodwell Company rented warehouse space to a tenant for $2,500 per month and received $12,500 for 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 Unearned Rent account balance at the end of December, after adjustment, should be:

A company had $7,000,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin.

Identify the primary differences between accrual accounting and cash basis accounting.