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Exam 3: Adjusting Accounts for Financial Statements

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Question 221

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Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are:

A) Intangible expenses.
B) Prepaid expenses.
C) Unearned expenses.
D) Net expenses.
E) Accrued expenses.

F) A) and D)
G) None of the above

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Question 222

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Sanborn Company rents space to a tenant for $2,200 per month.The tenant currently owes rent for November and December.The tenant has agreed to pay the November,December,and January rents in full on January 15 and has agreed not to fall behind again.The adjusting entry needed on December 31 is:

A) Debit Rent Receivable, $6,600; credit Rent Earned, $6,600.
B) Debit Unearned Rent, $4,400; credit Rent Earned, $4,400.
C) Debit Unearned Rent, $2,200; credit Rent Earned, $2,200.
D) Debit Rent Receivable, $4,400; credit Rent Earned, $4,400.
E) Debit Rent Receivable, $2,200; credit Rent Earned, $2,200.

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

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Question 223

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It is acceptable to record cash received in advance of providing products or services to revenue accounts if an adjusting entry is made at the end of the period to bring the liability account balance to the correct unearned amount.

The Retained earnings account has a credit balance of $37,000 before closing entries are made.Total revenues for the period are $55,200,total expenses are $39,800,and dividends are $9,000.What is the correct closing entry for the expense accounts?

The accrual basis of accounting:

The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the:

The following information is available for Hatter Co. $\begin{array} { | l | l | l | l | } \hline & 2017 & 2016 & 2015 \\\hline \text { Net income } & 2,500 & 1,700 & 1,900 \\\hline \text { Net sales } & 37,000 & 35,000 & 32,000 \\\hline \text { Total assets } & 420,000 & 395,000 & 375,000 \\\hline\end{array}$ 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.

An ________ is a listing of all of the accounts in the ledger with their account balances after adjustments are made.

Classified balance sheets commonly include the following categories: A. Current assets B. Long-term investments C. Plant assets D. Intangible assets E. Current liabilities F. Long-term liabilities G. Equity. Match the typical classification of each item below with its correct balance sheet category (A through G) . -Trademarks

Which of the following does not require an adjusting entry at year-end?

The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

Sanborn 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 on December 31,which 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 accrue employee salaries,Salaries Expense and Salaries Payable are both understated.

On April 1,Santa Fe,Inc.paid Griffith Publishing Company $1,548 for 36-month subscriptions to several different magazines.Santa Fe debited the prepayment to a Prepaid Subscriptions account,and the subscriptions started immediately.What adjusting entry should be made by Santa Fe,Inc.for the adjustment on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustments had been made?

Explain how accounting adjustments affect financial statements and provide an example of an adjustment that would impact the statements if not recorded.

A company's fiscal year must correspond with the calendar year.

The cash basis of accounting is a system in which revenues are recorded when earned and expenses are recorded when incurred.

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees,the end-of-period adjusting entry to record the portion of those fees that has been earned is:

The Income Summary account is used to close the permanent accounts at the end of an accounting period.

The cash basis of accounting commonly increases the comparability of financial statements from period to period.