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Exam 3: Adjusting Accounts for Financial Statements

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Question 81

Multiple Choice

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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) An overstatement of net income.
B) An overstatement of assets.
C) An overstatement of liabilities.
D) An overstatement of equity.
E) An understatement of liabilities.

F) A) and C)
G) A) and B)

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Question 82

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Each adjusting entry affects one or more income statements account, one or more balance sheet account, and never cash.

A) True
B) False

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Question 83

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The unadjusted trial balance and the adjustment data for Porter Business Institute, Inc. are shown below along with adjusting entry information. What is the impact of the adjusting entries on the balance sheet? Show the calculation for total assets, total liabilities, and stockholders' equity without the adjustments; show the calculation for total assets, total liabilities, and stockholders' equity with the adjustments. Which one provides the most accurate presentation of the balance sheet? Additional information items: a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis of the insurance invoice indicates that one half of the policy has expired by the end of the December 31 year-end. b. A cash payment for space sublet for 8 months was received on July 1 and was credited to Unearned Rent. c. Accrued interest expense on the note payable of $1,000 has been incurred but not paid.

List the steps in the accounting cycle.

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:

In the table below, indicate with an "X" in the proper column whether the account is a temporary (nominal) account or a permanent (real) account.

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.

Which of the following statements about a company's operating cycle is not true?

On April 1, Griffith Publishing Company received $1,548 from Santa Fe, Inc. for 36-month subscriptions to several different magazines. The company credited Unearned Fees for the amount received and the subscriptions started immediately. What is the adjusting entry that should be recorded by Griffith Publishing Company on December 31 of the second year?

The unadjusted trial balance and the adjustment data for Porter Business Institute, Inc. are given below along with adjusting entry information. What is the impact on net income if these adjustments are not recorded? Show the calculation for net income without the adjustments and net income with the adjustments. Which one gives the most accurate net income? Which accounting principles are being violated if the adjustments are not made? Additional information items: a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis of the insurance invoice indicates that one half of the policy has expired by the end of the December 31 year-end. b. A cash payment for space sublet for 8 months was received on July 1 and was credited to Unearned Rent. c. Accrued interest expense on the note payable of $1,000 has been incurred but not paid.

The adjusting entry to record an accrued revenue is:

A company purchased new furniture at a cost of $16,000 on January 1. The furniture is estimated to have a useful life of 6 years and a $1,000 salvage value. The company uses the straight-line method of depreciation. What is the book value of the furniture on December 31 of the first year?

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

Failure to record depreciation expense will overstate assets and understate expenses.

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

Accumulated depreciation is shown on the balance sheet as a subtraction from the cost of its related asset.

Which of the following are classified as current assets?

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

A current ratio of 2.1 suggests that a company has ____________ current assets to cover current liabilities.

What is the proper adjusting entry at December 31, the end of the accounting period, if the balance in the prepaid insurance account is $7,750 before adjustment, and the unexpired amount per analysis of policies is, $3,250?