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Exam 3: Preparing Financial Statements

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Question 81

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Below is Adventure Travel's adjusted trial balance as of the end of its annual accounting period: a. Prepare the necessary closing entries. b. Prepare a post-closing trial balance.

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Question 82

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Match the following terms with the appropriate definition:

Premises

Responses

Requires that revenue be recorded when earned.

Depreciation

A principle that assumes that an organization's activities can be divided into specific time periods such as months, quarters or years.

Accrued revenues

Net income divided by net sales.

Prepaid expenses

The principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses.

Revenue recognition principle

The accounting system that recognizes revenues when earned and expenses when incurred.

Accrual basis accounting

The accounting system where revenues are recognized when cash is received and expenses are recorded when cash is paid.

Matching principle

Revenues earned in a period that are both unrecorded and not yet received in cash or other assets.

Profit margin

Items paid for in advance of receiving their benefits.

Time period assumption

The expense created by allocating the cost of plant and equipment to the periods in which they are used.

Cash basis accounting

Premises

Requires that revenue be recorded when earned.

A principle that assumes that an organization's activities can be divided into specific time periods such as months, quarters or years.

Net income divided by net sales.

The principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses.

The accounting system that recognizes revenues when earned and expenses when incurred.

The accounting system where revenues are recognized when cash is received and expenses are recorded when cash is paid.

Revenues earned in a period that are both unrecorded and not yet received in cash or other assets.

Items paid for in advance of receiving their benefits.

The expense created by allocating the cost of plant and equipment to the periods in which they are used.

Responses

Depreciation

Accrued revenues

Prepaid expenses

Revenue recognition principle

Accrual basis accounting

Matching principle

Profit margin

Time period assumption

Cash basis accounting

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Correct Answer

Premises

Responses

Requires that revenue be recorded when earned.

A principle that assumes that an organization's activities can be divided into specific time periods such as months, quarters or years.

Net income divided by net sales.

The principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses.

The accounting system that recognizes revenues when earned and expenses when incurred.

The accounting system where revenues are recognized when cash is received and expenses are recorded when cash is paid.

Revenues earned in a period that are both unrecorded and not yet received in cash or other assets.

Items paid for in advance of receiving their benefits.

The expense created by allocating the cost of plant and equipment to the periods in which they are used.

Premises

Requires that revenue be recorded when earned.

A principle that assumes that an organization's activities can be divided into specific time periods such as months, quarters or years.

Net income divided by net sales.

The principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses.

The accounting system that recognizes revenues when earned and expenses when incurred.

The accounting system where revenues are recognized when cash is received and expenses are recorded when cash is paid.

Revenues earned in a period that are both unrecorded and not yet received in cash or other assets.

Items paid for in advance of receiving their benefits.

The expense created by allocating the cost of plant and equipment to the periods in which they are used.

Responses

Question 83

Multiple Choice

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A company's Office Supplies account shows a beginning balance of $600 and an ending balance of $400. If office supplies expense for the year is $3,100, what amount of office supplies was purchased during the period?

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

Prepare general journal entries on December 31 to record the following unrelated year-end adjustments. a. Estimated depreciation on office equipment for the year, $4,000. b. The Prepaid Insurance account has a $3,680 debit balance before adjustment. An examination of insurance policies shows $950 of insurance expired. c. The Prepaid Insurance account has a $2,400 debit balance before adjustment. An examination of insurance policies shows $600 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 six 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 $750 per month has not paid his rent for December.

The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments columns contain entries for the following: Office supplies used during the period, $1,200. Expiration of prepaid rent, $700. Accrued salaries expense, $500. Depreciation expense, $800. Accrued service fees receivable, $400. The Adjusted Trial Balance columns total is:

On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance Sheet Debit column.

The adjusted trial balance contains information pertaining to:

Before an adjusting entry is made to accrue employee salaries, Salaries Expense and Salaries Payable are both understated.

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

An account linked with another account that has an opposite normal balance and that is subtracted from the balance of the related account is a(n) :

A classified balance sheet:

Since the revenue recognition principle requires that revenues be earned, there are no unearned revenues in accrual accounting.

Use the following information to prepare the adjusted trial balance for Bella's Beauty Salon. Bella's Beauty Salon's unadjusted trial balance for the current year follows: Additional information: a. An insurance policy examination showed $1,240 of expired insurance. b. An inventory count showed $210 of unused shop supplies still available. c. Depreciation expense on shop equipment, $350. d. Depreciation expense on the building, $2,220. e. A beautician is behind on space rental payments and this $200 of accrued revenue was unrecorded at the time the trial balance was prepared.. f. $800 of the Unearned Rent account balance was earned by year-end. g. The one employee, a receptionist, works a five-day workweek at $50 per day. The employee was paid last week but has worked four days this week for which she has not been paid. h. Three months' property taxes, totaling $450, have accrued. This additional amount of property taxes expense has not been recorded. i. One month's interest on the note payable, $600, has accrued but is unrecorded.

On April 30, 2014, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the year ended December 31, 2014?

The dividends account is normally closed by debiting it.

Which of the following errors would cause the Balance Sheet columns of a work sheet to be out of balance?

Based on the following information, what would be the balance in the Retained Earnings Account, assuming all accounts have a normal balance?

A company had service revenue of $250,000, rent expense of $10,000, utility expense of $3,500, salary expense of $18,500, depreciation expense of $9,000, advertising expense of $4,500, dividends in the amount of $18,000, and a beginning balance in retained earnings of $17,900. What is the balance in the income summary account before it is closed for the period?

The adjusted trial balance of E. Pace, Consultant, is entered on the partial work sheet below. Complete the worksheet using the following information: a. Salaries earned by employees that are Unpaid and unrecorded, $500. b. An inventory of supplies showed $800 of Unused supplies still on hand. c. Depreciation on equipment, $1,300.