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Exam 3: Preparing Financial Statements

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Question 71

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The accrual basis of accounting is an accounting system in which revenues are reported as earned when cash is received.

A) True
B) False

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Question 72

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The Income Summary account is closed to the retained earnings account.

A) True
B) False

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Question 73

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How is the current ratio calculated? How is it used to evaluate a company?

A 10-column spreadsheet used to draft a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements and which is an optional tool in the accounting process is a(n) :

A company paid $6,000 for a six-month insurance policy. The policy coverage began on February 1. On February 28, $100 of insurance expense must be recorded.

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

The ______________ refers to the steps in preparing financial statements for users.

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

Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:

The adjusted trial balance of the Thomas Company follows: THOMAS COMPANY Adjusted Trial Balarce Decermber 31 $\begin{array}{|l|r|r|}\hline &{\text { Debit }} & \text { Credit } \\\hline \text { Cash } & 8,000 & \\\hline \text { Prepaid insurance } & 2,400 & \\\hline \text { Equipment } & 18,000 & \\\hline \text { Accumulated depreciation - Equipment } & & 3,600 \\\hline \text { Salaries payable } & & 2,000 \\\hline \text { Unearned repair fees } & & 1,200 \\\hline \text { Common stock } & & 4,000 \\\hline \text { Retained earnings } & & 7,400 \\\hline \text { Dividends } & 4,000 & \\\hline \text { Repair fees earned } & & 27,500 \\\hline \text { Salaries expense } & 10,000 & \\\hline \text { Depreciation expense } & 1,800 & \\\hline \text { Insurance expense } & 1,500 & \\\hline \text { Totals } & 45,700 & 45,700 \\\hline\end{array}$ Prepare the closing entries for Thomas Company.

In accrual accounting, accrued revenues are recorded as liabilities.

Listed below are a number of accounts. Use the table below to classify each account. Indicate whether it is a temporary or permanent account, whether it is included in the income statement or balance sheet, and if it is closed at the end of the accounting period and, if so, how it is closed. The first one is done as an example.

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called:

It is acceptable to record prepayment of expenses as debits to expense accounts.

What are some of the steps that Ashley Cook and Danielle Danker took to control ash&dans.com costs?

__________________ expenses are those costs that are incurred in a period but are both unpaid and unrecorded.

An error is indicated if the following account has a balance appearing on the post-closing trial balance:

Based on the adjusted trial balance, prepare a statement of retained earnings for Martin Sky Taxi Services.

From the adjusted trial balance, prepare an income statement for Martin Sky Taxi Services.

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