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Exam 3: Adjusting Accounts for Financial Statements

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Question 91

True/False

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

A) True
B) False

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Question 92

Multiple Choice

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Palmer Company, Inc. is at the end of its annual accounting period. The accountant has journalized and posted all external transactions and all adjusting entries, had prepared an adjusted trial balance, and completed the financial statements. The next step in the accounting cycle is:

A) Prepare a work sheet.
B) Prepare reversing entries.
C) Close temporary accounts.
D) Prepare a post-closing trial balance.
E) Prepare an unadjusted trial balance.

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

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Question 93

Multiple Choice

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An annual reporting period consisting of any twelve consecutive months is known as:

On August 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will the balance be in the Prepaid Insurance account on the Balance Sheet for the current year ended December 31?

Accumulated Depreciation and Service Fees Earned would be sorted to which respective columns in completing a work sheet?

Permanent accounts carry their balances into the next accounting period.

Revenue, expense, and dividend accounts, which are closed at the end of each accounting period, are:

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

In preparing statements from the adjusted trial balance, the balance sheet must be prepared first.

Prepare general journal entries on December 31 to record the following unrelated year-end adjustments. a. Estimated depreciation on equipment for the year, $4,500. b. The Prepaid Insurance account has a $3,680 debit balance before adjustment. An examination of insurance policies shows $600 of insurance expired. c. The Prepaid Insurance account has a $2,400 debit balance before adjustment. An examination of insurance policies shows $950 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 6 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 $1,000 per month has not paid his rent for December.

Each adjusting entry will affect a balance sheet account.

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:

Using the information presented below, prepare a statement of retained earnings and balance sheet from the adjusted trial balance of Dodson Containers, Inc.

The recurring steps performed each reporting period in preparing financial statements, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the:

Adjusting entries:

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the current year ended December 31?

Depreciation measures the decline in market value of an asset.

On May 1, a two-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 first year ended December 31?

Record the December 31 adjusting entries for the following transactions and events in general journal form. Assume that December 31 is the end of the annual accounting period. a. The Prepaid Insurance account shows a debit balance of $2,340, representing the cost of a two-year fire insurance policy that was purchased on October 1 of the current year and has not been adjusted to-date. b. The Store Supplies account has a debit balance of $400; a year-end inventory count reveals $80 of supplies still on hand. c. On November 1 of the current year, Rent Earned was credited for $1,500. This amount represented the rent earned for a three-month period beginning November 1. d. Estimated depreciation on store equipment is $600. e. Accrued salaries amount to $1,400.

Which of the following accounts showing a balance on the post-closing trial balance indicate an error?