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Exam 3: Adjusting Accounts for Financial Statements

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Question 31

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A company shows a $600 balance in Prepaid Rent in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired rent of $200. This adjusting entry results in:

A) $200 decrease in net income.
B) $200 increase in net income.
C) $200 difference between the debit and credit columns of the Unadjusted Trial Balance.
D) $200 of prepaid insurance.
E) An error in the financial statements.

F) A) and B)
G) A) and E)

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Question 32

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The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements, recording adjusting entries, and recording closing entries.

A) True
B) False

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Question 33

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If a company has current assets of $15,000 and current liabilities of $9,500, its current ratio is 1.6. Current Ratio = Current Assets/Current Liabilities Current Ratio = $15,000/$9,500 = 1.6

The purpose of reversing entries is to:

When closing entries are made:

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

A company's December 31 work sheet appears below with summary amounts in the Income Statement and Balance Sheet columns. Prepare the four necessary closing entries.

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. 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.

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

Prior to recording adjusting entries on December 31, a company's Office Supplies account had a $780 debit balance. A physical count of the supplies showed $425 of unused supplies available as of December 31. Prepare the required adjusting entry.

Flagg, Inc. records adjusting entries at its December 31 year end. At December 31, employees had earned $12,000 of unpaid and unrecorded salaries. The next payday is January 3, at which time $30,000 will be paid. Prepare the journal on January 3 to record payment assuming the adjusting and reversing entries were made on December 31 and January 1.

Reversing entries:

Adjusting entries are made after the preparation of financial statements.

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

Assuming unearned revenues are originally recorded in balance sheet accounts, the adjusting entry to record earning of unearned revenue is:

Which of the following assets is not depreciated?

At the beginning of the year, a company's balance sheet reported the following balances: Total Assets = $225,000; Total Liabilities = $125,000; and Retained Earnings = $100,000. During the year, the company reported revenues of $46,000 and expenses of $30,000. In addition, dividends for the year totaled $20,000. Assuming no other changes to retained earnings, the balance in the retained earnings account at the end of the year would be:

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.

A company recorded 2 days of accrued salaries of $1,400 for its employees on January 31. On February 9, it paid its employees $7,000 for these accrued salaries and for other salaries earned through February 9. Assuming reversing entries were not made, the January 31 and February 9 journal entries are:

The company paid $35,000 cash in dividends to the owner, Jen Rogers. The entry needed to close the dividends account is: