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Exam 3: Adjusting Accounts for Financial Statements

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Question 191

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Under the alternative method for recording prepaid expenses,which is the correct set of journal entries?

A) $\begin{array}{|l|l|}\hline{\text { Initial Entry }} & {\text { Adjusting Entry }} \\\hline \text { Insurance Expense } & \text { Prepaid Insurance } \\\hline \text { Cash } & \text { Insurance Expense } \\\hline\end{array}$
B) $\begin{array}{|l|l|}\hline{\text { Initial Entry }} & {\text { Adjusting Entry }} \\\hline \text { Cash } & \text { Prepaid Insurance } \\\hline \text { Insurance Expense } & \text { Insurance Expense } \\\hline\end{array}$
C) $\begin{array}{|l|l|}\hline {\text { Initial Entry }} & {\text { Adjusting Entry }} \\\hline \text { Prepaid Insurance } & \text { Prepaid Insurance } \\\hline \text { Cash } & \text { Insurance Expense } \\\hline\end{array}$
D) $\begin{array}{|l|l|}\hline {\text { Initial Entry }} &{\text { Adjusting Entry }} \\\hline \text { Prepaid Insurance } & \text { Insurance Expense } \\\hline \text { Cash } & \text { Prepaid Insurance } \\\hline\end{array}$
E) $\begin{array}{|l|l|}\hline {\text { Initial Entry }} &{\text { Adjusting Entry }} \\\hline \text { Prepaid Insurance } & \text { Cash } \\\hline \text { Insurance Expense } & \text { Prepaid Insurance } \\\hline\end{array}$

F) A) and D)
G) A) and C)

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Question 192

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The accrual basis of accounting recognizes revenues when cash is received from customers,regardless of when the goods or services are provided.

A) True
B) False

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Question 193

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On April 1,a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date.What amount of the insurance expense will be reported on the annual income statement for the year ended December 31?

Financial statements are typically prepared in the following order:

Recording revenues early overstates current-period income; recording revenues late understates current period income.

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

The first step in the accounting cycle is to analyze transactions and events to prepare for journalizing.

Revenue accounts are temporary accounts that should begin each accounting period with zero balances.

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

Using the table below,indicate the impact of the following errors made during the adjusting entry process.Use a "+" for overstatements,a "-" for understatements,and a "0" for no effect.The first one is provided as an example.

Flagg 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 January 1 journal entry to reverse the effect of the December 31 salary expense accrual.

The adjusted trial balance must be prepared before the adjusting entries are made.

A contra account is an account linked with another account; it is added to that account to show the proper amount for the item recorded in the associated account.

Adjusting entries are necessary so that asset,liability,revenue,and expense account balances are correctly recorded.

Which of the following statements regarding reporting under GAAP and IFRS is not true:

What is an adjusted trial balance? Why is it prepared?

On April 1,Garcia Publishing Company received $1,548 from Otisco,Inc.for 36-month subscriptions to several different magazines.The subscriptions started immediately.What is the amount of revenue that should be recorded by Otisco Publishing Company for the first year of the subscription assuming the company uses a calendar-year reporting period?

The calendar year-end adjusted trial balance for Blessinger Co.follows: BLESSINGER CO. Adjusted Trial Balance December 31 Required: (a)Determine the amounts of current assets and current liabilities.(Note: A $9,000 installment on the long-term note payable is due within one year.) (b)Calculate the current ratio.Comment on the ability of Blessinger Co.to meets its short-term debts.

On July 1 Olive Co.paid $7,500 cash for management services to be performed over a two-year period.Olive follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment.On July 1 Olive should record:

In its first year of operations,Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers) ; Incurred expenses of $35,000 ($31,000 cash paid toward them) ; Prepaid $8,000 cash for costs that will not be expensed until next year.Net income under the cash basis of accounting is: