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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 21

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On December 1, Casualty Insurance Company borrowed $50,000 at a 6.0% interest rate from One Mutual Bank. The note payable plus interest will not be paid until April 1 of the following year. The company's annual accounting period ends on December 31 and adjustments are only made at year-end. The adjusting entry needed on December 31 is:

A) Debit Interest Expense, $250; credit Interest Payable, $250.
B) Debit Interest Expense, $250; credit Note Payable, $250.
C) Debit Interest Payable, $1,000; credit Interest Expense, $1,000.
D) Debit Interest Expense, $1,000; credit Interest Payable, $1,000.
E) No entry required.

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Question 22

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Revenue and expense balances are transferred from the adjusted trial balance to the income statement.

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Question 23

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Glisten Co. leases an office to a tenant at the rate of $3,000 per month. The tenant contacted Glisten and arranged to pay the rent for December on January 8 of the following year. Glisten agrees to this arrangement. a.)Prepare the journal entry that Glisten 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 (Assume no reversing entries were made).

On January 1, Imlay Company purchases manufacturing equipment costing $95,000 that is expected to have a five-year life and an estimated salvage value of $5,000. Imlay uses the straight-line depreciation method to allocate costs, and only prepares adjustments at year-end. The adjusting entry needed on December 31 of the first year is:

The difference between the cost of an asset and the accumulated depreciation for that asset is called

Prepare general journal entries on December 31 to record the following unrelated year-end adjustments. a. Estimated depreciation on equipment for the year, $4,500. b. The Prepaid Insurance account has a $3,680 debit balance before adjustment. An examination of insurance policies shows $600 of insurance expired. c. The Prepaid Insurance account has a $2,400 debit balance before adjustment. An examination of insurance policies shows $950 of unexpired insurance. d. The company has three office employees who each earn $100 per day for a five-day workweek that ends on Friday. The employees were paid on Friday, December 26, and have worked full days on Monday, Tuesday, and Wednesday, December 29, 30, and 31. e. On November 1, the company received 6 months' rent in advance from a tenant whose rent is $700 per month. The $4,200 was credited to the Unearned Rent account. f. The company collects rent monthly from its tenants. One tenant whose rent is $1,000 per month has not paid his rent for December.

A balance sheet that places the assets above the liabilities and equity is called a(n) :

Costs incurred during an accounting period but unpaid and unrecorded are accrued expenses.

The expense recognition (matching)principle does not aim to record expenses in the same accounting period as the revenue earned as a result of these expenses.

Asset and liability balances are transferred from the adjusted trial balance to the income statement.

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:

Prior to recording adjusting entries at the end of an accounting period, some accounts may not show correct balances even though all transactions were properly recorded.

Wilson Company paid $4,800 for a 4-month insurance premium in advance on November 1, with coverage beginning on that date. The balance in the prepaid insurance account before adjustment at the end of the year is $4,800 and no adjustments had been made previously. The adjusting entry required on December 31 is:

Under the alternative method for accounting for unearned revenue, which of the following pairs of journal entry formats is correct? A) $\begin{array}{|l|l|}\hline {\text { Initial Entry }} & {\text { Adjusting Entry }} \\\hline \text { Consulting Revenue } & \text { Unearned Revenue } \\\hline \text { Cash } & \text { Consulting Revenue } \\\hline\end{array}$ B) $\begin{array}{|l|l|}\hline {\text { Initial Entry }} & {\text { Adjusting Entry }} \\\hline \text { Cash } & \text { Unearned Revenue } \\\hline \text { Unearned Revenue } & \text { Cash } \\\hline\end{array}$ C) $\begin{array}{|l|l|}\hline {\text { Initial Entry }} & {\text { Adjusting Entry }} \\\hline \text { Cash } & \text { Consulting Revenue } \\\hline \text { Consulting Revenue } & \text { Unearned Revenue } \\\hline\end{array}$ D) $\begin{array}{|l|l|}\hline {\text { Initial Entry }} &{\text { Adjusting Entry }} \\\hline \text { Cash } & \text { Unearned Consulting Revenue } \\\hline \text { Unearned Consulting Revenue } & \text { Consulting Revenue } \\\hline\end{array}$ E) $\begin{array}{|l|l|}\hline {\text { Initial Entry }} &{\text { Adjusting Entry }} \\\hline \text { Cash } & \text { Consulting Revenue } \\\hline \text { Unearned Revenue } & \text { Unearned Revenue } \\\hline\end{array}$

Profit margin can also be called return on sales.

A company had $7,000,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin.

The accounting principle that requires revenue to be recorded when earned is the:

Werner Company had $1,300 of store supplies at the beginning of the current year. During this year, Werner purchased $6,250 worth of store supplies. On December 31, $1,125 worth of store supplies remained. Calculate the amount of Werner Company's store supplies expense for the current year.

Profit margin measures the relation of debt to assets.

On April 1, Griffith Publishing Company received $1,548 from Santa Fe, Inc. for 36-month subscriptions to several different magazines. The company credited Unearned Fees for the amount received and the subscriptions started immediately. Assuming adjustments are only made at year-end, What is the adjusting entry that should be recorded by Griffith Publishing Company on December 31 of the second year?