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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 71

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The matching principle requires that revenue not be assigned to the accounting period in which it is earned.

A) True
B) False

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Question 72

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Adjustments must be entered in the journal and posted to the ledger after the work sheet is prepared.

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B) False

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Question 73

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Interim financial statements refer to financial reports:

______________________ basis accounting means that revenues are recognized when cash is received and that expenses are recorded when cash is paid. ______________________ basis accounting means that the financial effects of revenues and expenses are recorded when earned or incurred.

Which of the following is true of accrued revenues:

On January 1, Able Company purchased equipment costing $135,000 with an estimated salvage value of $10,500, and an estimated useful life of five years. What is the amount that should be recorded as depreciation on December 31?

The dividends account is normally closed by debiting it.

Since the revenue recognition principle requires that revenues be earned, there are no unearned revenues in accrual accounting.

If accrued salaries were recorded on December 31 with a credit to Salaries Payable, the entry to record payment of these wages on the following January 5 would include:

Complete the following by filling in the blanks: (1) The Prepaid Insurance account had a $455 debit balance at the beginning of the current year; $650 of insurance premiums were paid during the year; and the year-end balance sheet showed $420 of prepaid insurance; consequently, the income statement for the year must have shown $______________ of insurance expense. (2) The Office Supplies account began the current year with a $235 debit balance; the income statement for the year showed $475 of office supplies expense; and the year-end balance sheet showed the current asset, office supplies, at $225; consequently, if all supplies were accounted for, $____________ of office supplies must have been purchased during the year.

During the year, Able Co. purchased $23,750 worth of supplies, at the end of the year, the supplies expense on the adjusted trial balance was $29,340 and the balance sheet showed a balance of $810 in the supplies account. What was the supplies balance at the beginning of the year?

The accrual basis of accounting:

Discuss how accrual accounting enhances the usefulness of financial statements.

On December 31, the balance in the Prepaid Advertising account was $176,000, which is the remaining balance of a twelve-month advertising campaign purchased on August 31 in the current year. Assuming the cost is spread equally over each month how much did this advertising campaign cost in total?

All necessary numbers to prepare the income statement can be taken from the income statement columns of the work sheet, including the net income or net loss.

A balance sheet that places the assets above the liabilities and equity is called a(n) :

Use the following partial work sheet from Matthews Lanes to prepare its income statement, statement of changes in retained earnings and a balance sheet

List and explain the steps in preparing a 10-column worksheet.

Based on the following information, what would be the ending balance in the Retained Earnings Account, assuming all accounts have a normal balance? $\begin{array} { l r l c } \text { Cash } & \$ 6,754 & \text { Dividends } & \$ 2,000 \\\text { Accounts receivable } & 13,733 & \text { Consulting fees earned } & 13,718 \\\text { Office supplies } & 2,625 & \text { Rent expense } & 3,673 \\\text { Land } & 37,153 & \text { Salaries expense } & 6,642 \\\text { Office equipment } & 14,535 & \text { Telephone expense } & 560 \\\text { Accounts payable } & 6,463 & \text { Miscellaneous expense } & 280 \\\text { Common stock } & 54,490 & \text { Retained Earnings } & ?\end{array}$

Ben and Jerry's had total assets of $149,501,000, net income of $6,242,000 and net sales of $209,203,000. Its profit margin was 2.98%.