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Exam 3: Adjusting Accounts for Financial Statements

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Question 51

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Plant assets are usually listed in order from most liquid to least liquid.

A) True
B) False

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Question 52

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A company recorded 2 days of accrued salaries of $1,400 for its employees on January 31. On February 9, it paid its employees $7,000 for these accrued salaries and for other salaries earned through February 9. The January 31 and February 9 journal entries are:

A) $\begin{array} { | l | l | r | r | } \hline 1 / 31 & \text { Salaries Expense } & 1400 & \\\hline & \text { Salaries Payable } & & 1,400 \\\hline 2 / 9 & \text { Salaries Payable } & 7,000 & \\\hline & \text { Salaries Expense } & 1400 & \\\hline & \text { Cash } & & 7,000 \\\hline \hline\end{array}$
B) $\begin{array} { | l | l | r | r | } \hline 1 / 31 & \text { Salaries Payable } & 1,400 & \\\hline & \text { Salaries Expense } & & 1,400 \\\hline 2 / 9 & \text { Salaries Expense } & 5,600 & \\\hline & \text { Salaries Payable } & 1,400 & \\\hline & \text { Cash } & & 7,000 \\\hline\end{array}$
C) $\begin{array} { | l | l | r | r | } \hline \hline 1 / 31 & \text { Salaries Expense } & 1,400 & \\\hline & \text { Cash } & & 1,400 \\\hline 2 / 9 & \text { Salaries Expense } & 7,000 & \\\hline & \text { Cash } & & 7,000 \\\hline\end{array}$
D) $\begin{array} { | l | l | r | r | } \hline 1 / 31 & \text { Salaries Expense } & 1400 & \\\hline & \text { Salaries Payable } & & 1400 \\\hline 2 / 9 & \text { Salaries Expense } & 7,000 & \\\hline & \text { Cash } & & 7,000 \\\hline\end{array}$
E) $\begin{array} { | l | l | r | r | } \hline \hline 1 / 31 & \text { Salaries Expense } & 1,400 & \\\hline & \text { Salaries Payable } & & 1,400 \\\hline 2 / 9 & \text { Salaries Expense } & 5,600 & \\\hline & \text { Salaries Payable } & 1,400 & \\\hline & \text { Cash } & & 7,000 \\\hline\end{array}$

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

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Question 53

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Two common subgroups for liabilities on a classified balance sheet are:

Cash and office supplies are both classified as current assets.

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

A _____________ account is an account linked with another account, having an opposite normal balance, and reported as a subtraction from that other account's balance.

Current assets and current liabilities are expected to be used up or come due within one year or the company's operating cycle whichever is longer.

A benefit of using a work sheet is that it aids in the preparation of the financial statements.

If a company failed to make the end-of-period adjustment to move the amount of management fees that were earned from the Unearned Management Fees account to the Management Fees Revenue account, this omission would cause:

A classified balance sheet:

The matching principle requires that expenses get recorded in the same accounting period as the revenues that are earned as a result of the expenses, not when cash is paid.

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Accrued expenses reflect transactions where cash is paid before a related expense is recognized.

Accrual accounting and the adjusting process rely on two principles: the ___________________ principle and the ________________________ principle.

Adjustments are necessary to bring an asset or liability account to its proper amount and also update a related expense or revenue account.

Prior to recording adjusting entries on December 31, a company's Office Supplies account had a $780 debit balance. A physical count of the supplies showed $425 of unused supplies available as of December 31. Prepare the required adjusting entry.

If all columns of a completed work sheet balance, you can be sure that no errors were made in its preparation.

What is the purpose of closing entries? Describe the closing process.

Andrew Inc.'s net income was $280,000; its total assets were $1,050,000; and its net sales were $3,500,000. Calculate the company's profit margin ratio.

Adjusting entries result in a better matching of revenues and expenses for the period.