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Exam 3: Adjusting Accounts for Financial Statements

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Question 71

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Explain the purpose of adjusting entries at the end of a period and provide an example of an adjusting entry.

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Adjusting entries are necessary for tran...

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Question 72

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On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

A) Debit Prepaid Insurance, $1,800; credit Cash, $1,800.
B) Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.
C) Debit Prepaid Insurance, $360; credit Insurance Expense, $360.
D) Debit Insurance Expense, $360; credit Prepaid Insurance, $360.
E) Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440.

F) D) and E)
G) C) and E)

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Question 73

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Which of the following is classified as current assets?

If a prepaid expense account was not adjusted for the amount used, on the balance sheet assets would be ___________________ and equity would be ___________________.

Explain how accounting adjustments affect financial statements and provide an example of an adjustment that would impact the statements if not recorded.

Permanent accounts carry their balances into the next accounting period.

Assets are often classified into current assets, long-term investments, plant assets, and intangible assets.

When there is a net loss the Income Summary account would have a credit balance.

Flo's Flowers' current ratio is 1.3. The industry average for the current ratio is 1.2. This indicates that Flo's can cover its short term liabilities with its short term assets.

Depreciation measures the decline in market value of an asset.

The adjusted trial balance contains information pertaining to:

The trial balance prepared after all closing entries have been journalized and posted is called the:

Flagg, Inc. 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 approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

If a company reporting on a calendar year basis, paid $18,000 cash on January 1 for one year of rent in advance and adjusting entries are made at the end of each month, the balance remaining in Prepaid Rent on December 1 should be $1,500.

Assets, liabilities, and equity accounts are not closed; these accounts are called:

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

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

A company pays each of its two office employees each Friday at the rate of $100 per day for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is:

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