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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 111

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On April 1, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the year ended December 31?

A) $1,350.00.
B) $450.00.
C) $1,012.50.
D) $337.50.
E) $37.50.

F) None of the above
G) B) and E)

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Question 112

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All of the following are True regarding unearned revenues except:

A) They are payments received in advance of services performed.
B) The adjusting entry for unearned revenues increases assets and increases revenues.
C) The adjusting entry for unearned revenues increases revenues and decreases liabilities.
D) They are liabilities.
E) As they are earned, they become revenues.

F) D) and E)
G) A) and E)

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Question 113

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Identify the differences between accrual accounting and cash basis accounting.

On January 1, Southwest College received $1,200,000 in Unearned Tuition Revenue from its students for the spring semester, which spans four months beginning on January 2. What amount of tuition revenue should the college recognize on January 31?

In accrual accounting, accrued revenues are recorded as liabilities.

From the information provided, calculate Wooden's profit margin ratio for each of the three years. Comment on the results, assuming that the industry average for the profit margin ratio is 6% for each of the three years.

If a company records prepayment of expenses in an asset account, the adjusting entry would:

Alex Company rents space to a tenant for $2,200 per month. The tenant currently owes two months rent, November and December. The tenant has agreed to pay the November, December, and January rents in full on January 15 and has agreed not to fall behind again. The adjusting entry needed on December 31 is:

The accrual basis of accounting recognizes revenues when cash is received from customers.

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

Using the information given below, prepare an income statement and owner's equity statement for Martin Sky Taxi Services from the adjusted trial balance. Helena Martin did not make any additional investments in the company during the year.

A company records the fees for legal services paid in advance by its clients in an account called Unearned Legal Fees. If the company fails to make the end-of-period adjusting entry to record the portion of these fees that has been earned, one effect will be:

On October 1, Haslip Company rented warehouse space to a tenant for $2,500 per month. The tenant paid five months' rent in advance on that date. The payment was recorded to the Unearned Rent account. The company's annual accounting period ends on December 31. The adjusting entry needed on December 31 is:

On April 30, a three-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 year ended December 31?

A company had $9,000,000 in net income for the year. Its net sales were $13,200,000 for the same period. Calculate its profit margin.

On December 31, the year end, a company forgot to record $7,000 of depreciation on office equipment. In the current year financial statements, what is the effect of this error on assets, net income, and equity?

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?

Depreciation measures the decline in market value of an asset.

The following two separate situations require adjusting journal entries to prepare financial statements as of the fiscal year ended April 30. For each situation, present both the April 30 adjusting entry and the subsequent entry during May to record the payment of the accrued expenses or receipt of the accrued revenue. a. Cage Company has 10 employees, who earn a total of $2,900 in salaries each working day. They are paid on Monday for the five-day workweek ending on the previous Friday. Assume that fiscal year ended April 30, is a Thursday and all employees will be paid salaries for five full days on the following Monday. All employees worked each day. b. Services of $4,000 have been performed for a client through April 30. The client will pay the entire amount of the contract when services are completed on May 23. c. Paid the employees salaries on May 4 d. Received payment from the client in the amount of $11,500 for services that are now completed on May 23.

__________________________ is the process of allocating the cost of plant assets to their expected useful lives.