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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 101

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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 of Prepaid Rent as of December 1 should be $1,500. $18,000 x 1/12 = $1,500

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B) False

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Question 102

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The time period assumption assumes that an organization's activities can be divided into specific time periods.

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B) False

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Question 103

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Using the selected information given below for Bliss Company, calculate return on assets, debt ratio, and profit margin. Comment on the results of operations and the financial position of the company for the year. Return on assets = ($950,000-795,000)/((1,900,000+1,500,000)/2) =9.1% Debt ratio=$850,000/1,900,000=44.7% Profit margin=$155,000/950,000=16.3%

How is profit margin calculated? Discuss its use in analyzing a company's performance.

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

Under the alternative method for recording prepaid expenses, which is the correct set of journal entries?

Which of the following statements is incorrect?

The 12-month period that ends when a company's sales activities are at their lowest level is called the:

On December 1, Miller Company borrowed $300,000, at 8% annual interest, from the Nomo Bank. Miller has 60 days before the first payment is required. What is the adjusting entry that Miller would need to make on December 31, the calendar year-end?

It is acceptable to record prepayment of expenses as debits to expense accounts.

A company purchased a new truck at a cost of $42,000 on July 1. The truck is estimated to have a useful life of 6 years and a salvage value of $3,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the truck during the first year ended December 31?

An adjusting entry often includes an entry to Cash.

Accrued expenses at the end of one accounting period are expected to result in cash payments in a future period.

Based on the unadjusted trial balance for Bella's Beauty Salon and the adjusting information given below, prepare the adjusting journal entries for Bella's Beauty Salon. Bella 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 revenues 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.

A trial balance prepared before any adjustments have been recorded is:

A trial balance prepared after adjustments have been recorded is called a(n)

A fiscal year refers to an organization's accounting period that spans twelve consecutive months or 52 weeks.

Identify the types of adjusting entries and explain the purpose of each type.

The balance in Tee Tax Services' office supplies account on February 1 and February 28 was $1,200 and $375, respectively. If the office supplies expense for the month is $1,900, what amount of office supplies was purchased during February?

Two accounting principles that are relied on in the adjusting process are: