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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 91

True/False

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Under the cash basis of accounting, no adjustments are made for prepaid, unearned and accrued items.

A) True
B) False

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Question 92

Multiple Choice

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Which of the following accounts would not be on the post closing trial balance?

A) Accounts Payable
B) Accounts Receivable
C) Common Stock
D) Dividends
E) Retained Earnings

F) B) and D)
G) A) and D)

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Question 93

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Based on the following information, determine the current assets, assuming all accounts have a normal balance? $\begin{array} { l r l r } \text { Cash } & \$ 6,754 & \text { Dividends } & \$ 2,000 \\\text { Accounts receivable } & 13,733 & \text { Consulting fees earned } & 13,718 \\\text { Office supplies } & 2,625 & \text { Rent expense } & 3,673 \\\text { Land } & 37,153 & \text { Salaries expense } & 6,642 \\\text { Office equipment } & 14,535 & \text { Telephone expense } & 560 \\\text { Accounts payable } & 6,463 & \text { Miscellaneous expense } & 280 \\\text { Common stock } & 54,490 & \text { Retained Earnings } & ?\end{array}$

The following information is available for the Travis Travel Agency. After the closing entries have been journalized and posted, what will be the balance in the Retained Earnings account? $\begin{array} { | l | r | } \hline \text { Total revenues } & \$ 125,000 \\\hline \text { Total expenses } & 60,000 \\\hline \text { Retained earnings } & 80,000 \\\hline \text { Dividends } & 15,000 \\\hline\end{array}$

For a corporation, the equity section is divided into two main accounts: Common Stock and Retained Earnings.

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

What are the types of adjusting entries used for prepaid expenses, depreciation and unearned revenues?

List the steps in the accounting cycle.

Based on the following information, determine the current ratio, assuming all accounts have a normal balance? $\begin{array} { l r l r } \text { Cash } & \$ 6,754 & \text { Dividends } & \$ 2,000 \\\text { Accounts receivable } & 13,733 & \text { Consulting fees earned } & 13,718 \\\text { Office supplies } & 2,625 & \text { Rent expense } & 3,673 \\\text { Land } & 37,153 & \text { Salaries expense } & 6,642 \\\text { Office equipment } & 14,535 & \text { Telephone expense } & 560 \\\text { Accounts payable } & 6,463 & \text { Miscellaneous expense } & 280 \\\text { Common stock } & 54,490 & \text { Retained Earnings } & ?\end{array}$

Failure to record depreciation expense will overstate the asset and understate the expense.

A company's post-closing trial balance has a debit total of $475,000 and a credit total of $457,000. This indicates that __________________________.

The adjusted trial balance of Sara's Web Services follows: (a) Prepare the closing entries for Sara's Web Services. (b) What is the balance of the retained earnings account after the closing entries are posted?

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

The ________________________________ depreciation method allocates equal amounts of an asset's cost to depreciation during its useful life.

Nike'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.

Identify the differences between accrual accounting and cash basis accounting.

Current liabilities include accounts receivable, unearned revenues and salaries payable.

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:

Accrual accounting and the adjusting process rely on two principles: the ___________________ principle and the ________________________ principle.

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