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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 71

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A company purchased a new truck at a cost of $42,000 on July 1.The truck is estimated to have a useful life of 6 years and a salvage value of $3,000.The company uses the straight-line method of depreciation.How much depreciation expense will be recorded for the truck during the first year ended December 31?

A) $3,250.
B) $3,500.
C) $4,000.
D) $6,500.
E) $7,000.

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

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Question 72

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Assuming prepaid expenses are originally recorded in balance sheet accounts,the adjusting entry to record use of a prepaid expense is:

A) Increase an expense; increase a liability.
B) Increase an asset; increase revenue.
C) Decrease a liability; increase revenue.
D) Increase an expense; decrease an asset.
E) Increase an expense; decrease a liability.

F) B) and D)
G) All of the above

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Question 73

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Discuss the importance of periodic reporting and the time period assumption.

Pfister Co.leases an office to a tenant at the rate of $5,000 per month.The tenant contacted Pfister and arranged to pay the rent for December on January 8 of the following year.Pfister agrees to this arrangement. a.)Prepare the journal entry that Pfister 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.

Each adjusting entry can only affect a balance sheet account.

Ned's net income was $780,000; its net assets were $5,200,000; and its net sales were $9,000,000.Calculate its profit margin ratio.

A company issued financial statements for the year ended December 31,but failed to include the following adjusting entries: A.Accrued service fees earned of $2,200. B.Depreciation expense of $8,000. C.Portion of office supplies (an asset) used $3,100. D.Accrued salaries of $5,200. E.Revenues of $7,200, originally recorded as unearned, have been earned by the end of the year.Determine the correct amounts for the December 31 financial statements by completing the following table:

Explain how the owner of a company uses the accrual basis of accounting.

The adjusted trial balance must be prepared before the adjusting entries are made.

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 supplies count equaled $3,200.The adjusting entry would include a $2,800 debit to Supplies.

Alex Company has 10 employees,who earn a total of $1,800 in salaries each working day.They are paid on Monday for the five-day workweek ending on the previous Friday.Assume that year ended December 31,is a Wednesday and all employees will be paid salaries for five full days on the following Monday.The adjusting entry needed on December 31 is:

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

On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately.If the purchase was recorded in the Prepaid Insurance account,and the company records adjustments only at year-end,the adjusting entry at the end of the first year is:

The total amount of depreciation recorded against an asset or group of assets during the entire time the asset or assets have been owned:

The length of time covered by a set of periodic financial statements is referred to as the:

Harrow Co.is a multi-million business.The business results for the year have been seriously impacted by a slowing economy.The company wants to improve its net income.It has incurred $2,500,000 in unpaid salaries at the end of the year and wants to leave those amounts unrecorded at the end of the year.(a)How would this omission affect the financial statements of Harrow? (b)Which accrual basis of accounting principles does this omission violate? (c)Would this be considered an ethical problem?

The accrual basis of accounting recognizes revenues when cash is received from customers.

Prior to recording adjusting entries on December 31,a company's Store Supplies account had an $880 debit balance.A physical count of the supplies showed $325 of unused supplies available as of December 31.Prepare the required adjusting entry.

Identify the differences between accrual accounting and cash basis accounting.

Depreciation expense for a period is the portion of a plant asset's cost that is allocated to that period.