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Exam 4: Adjustments,Financial Statements,and the Quality of Earnings

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Question 31

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The year-end closing process transfers net income to retained earnings.

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Question 32

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Which of the following isn't a correct closing entry?

A) Retained earnings
Revenues
$\quad$$\quad$ Expenses
B) Revenues
Gain on sale of land
$\quad$$\quad$ Expenses
$\quad$$\quad$ Retained earnings
C) Revenues
$\quad$$\quad$ Loss on sale of Building
$\quad$$\quad$$\quad$$\quad$ Expenses
$\quad$$\quad$$\quad$$\quad$ Retained earnings
D) Loss on sale of land
Expenses
$\quad$$\quad$ Revenues
$\quad$$\quad$ Retained earnings

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Question 33

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Below are four transactions that were completed during 2011 by Timber Lodge.The annual accounting period ends on December 31.Each transaction will require an adjusting entry at December 31,2011.You are to provide the 2011 adjusting entries required for Timber Lodge. $\begin{array}{lll}\text { Prepaid insurance } & 8,000 & \\\text { Cash } & & 8,000\end{array}$ B.On December 31,2011 a tenant renting some storage space from Timber Lodge had not paid the rent of $750 for December 2011. C.On September 1,2011,Timber Lodge borrowed $25,000 cash and gave a one-year,10 percent,note payable.The interest is payable on the due date,August 31,2012.The September 1,2011 transaction was recorded as follows: Cash $\quad$$\quad$ 25,000 $\quad$ Note payable $\quad$$\quad$ 25,000 D.On October 1,2011,Timber Lodge collected $3,600 from a tenant for two years rent beginning October 1,2011.The $3,600 collection was recorded as follows: Cash $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 3,600 $\quad$ Unearned rent revenues $\quad$$\quad$$\quad$$\quad$ 3,600

The adjusting entry to record an accrued expense increases liabilities.

The net profit margin ratio is a measure of how much profit was created per sales dollar.

Which of the following doesn't correctly describe a journal entry which debits rent expense and credits prepaid rent?

Center Company is completing the accounting cycle at the end of the annual accounting period,December 31,2011.No adjusting entries have been made during the year so three adjusting entries must be made at this date to update the accounts.The following accounts,selected from Center Company's chart of accounts,are to be used for this purpose.They are coded to the left for easy reference. $\begin{array} { l l l l } \text { A. } & \text { Supplies expense } & \text { I. } & \text { Unearned rent } \\\text { B. } & \text { Supplies } & \text { J. } & \text { Rent expense } \\\text { C. } & \text { Interest receivable } & \text { K. } & \text { Wage expense } \\\text { D. } & \text { Equipment }&\text { L. } & \text { Depreciation expense } \\\text { E. } & \text { Accumulated depreciation } & \text { M. } & \text { Interest expense } \\\text { F. } & \text { Notes payable } & \text { N. } & \text { Interest revenue } \\\text { G. } & \text { Interest payable } & \text { O. } & \text { Rent revenue } \\\text { H. } & \text { Wages payable } & \text { P. } & \text { Some other account not listed }\end{array}$

On January 1,2011,the general ledger of Global Corporation included supplies inventory of $1,000.During 2011,supplies purchases amounted to $5,000.A physical count of inventory on hand at December 31,2011 determined that the supplies inventory was $1,200.How much is the 2011 supplies expense?

Adjusting entries do not involve a cash flow and therefore do not impact the cash flow statement.

On December 31,2011,Krug Company reported total assets of $390,000 prior to the following adjusting entries: Depreciation expense was $31,000; Accrued service revenues totaled $29,000; Accrued expenses totaled $12,000; Expired insurance which was prepaid totaled $9,000; Rent revenue earned was $7,000; the rent was prepaid by the tenant and credited to unearned rent revenue. How much are Krug's total assets after adjusting entries?

Which of the following correctly describes the following journal entry? Accounts receivable $\quad$$\quad$ Franchise fees revenue

For each of the following transactions,indicate the amounts and direction of effects of the adjusting entry on the elements of the balance sheet and income statement.Using the following format,indicate + for increase,and - for decrease,and NE for no effect. Transactions: A.Wages of $5,800 have been earned, but not paid to employees at the end of the year. B.Supplies in the amount of $2,000 were used during the year, which are currently recorded in the office supplies inventory account. C.Interest has accrued on a bank loan.

On January 1,2011,Ryan Company paid the premium on a three-year insurance policy in the amount of $6,000.At that time,the full amount paid was recorded as prepaid insurance.After recording the adjusting entry for the insurance policy on December 31,2011,Ryan Company's records would reflect what balance in the prepaid insurance account?

What is the purpose of adjusting entries? Give two examples of accruals and deferrals.

Which of the following correctly describes the following journal entry? Utilities expense $\quad$$\quad$ Utilities payable

Describe the adjusted trial balance.

Which of the following accounts was created as the result of an accrual for expenses?

An objective of preparing the trial balance is to test the equality of debits and credits.

Which of the following transactions results in a decrease in both total assets and net income?

A calendar year reporting company preparing its annual financial statements should use the phrase "As of December 31,2011" in the heading of which financial statements?