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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 51

Multiple Choice

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Adjusting entries:

A) Affect only income statement accounts.
B) Affect only equity accounts.
C) Affect cash accounts.
D) Affect only balance sheet accounts.
E) Affect both income statement and balance sheet accounts.

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

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Question 52

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The time period assumption assumes that an organization's activities can be divided into specific time periods such as months, quarters, or years.

A) True
B) False

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Question 53

Multiple Choice

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A physical count of supplies on hand at the end of May for Masters, Inc. indicated $1,250 of supplies on hand. The general ledger balance before any adjustment is $2,100. What is the adjusting entry for office supplies that should be recorded on May 31?

A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:

In accrual accounting, accrued revenues are recorded as liabilities.

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?

Complete the following by filling in the blanks: (1) The Prepaid Insurance account had a $545 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 $275; consequently, if all supplies were accounted for, $ of office supplies must have been purchased during the year.

A company pays its employees $4,000 each Friday, which amounts to $800 per day for the five-day workweek that begins on Monday. If the monthly accounting period ends on Thursday and the employees worked through Thursday, the amount of salaries earned but unpaid at the end of the accounting period is:

On December 1, Simpson Marketing Company received $3,600 from a customer for a 2-month marketing plan to be completed January 31 of the following year. The cash receipt was recorded as unearned fees. The adjusting entry for the year ended December 31 would include:

On December 1, Milton Company borrowed $300,000, at 8% annual interest, from the Tennessee National Bank. Interest is paid when the loan matures one year from the issue date. What is the adjusting entry for accruing interest that Milton would need to make on December 31, the calendar year-end?

If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show:

A roofing company collects fees when jobs are complete. The work for one customer, whose job was bid at $3,000, has been completed as of December 31, but the customer has not yet been billed. Assuming adjustments are only made at year-end, what is the adjusting entry the company would need to make on December 31, the calendar year-end?

Net income for a period will be understated if accrued revenues are not recorded at the end of the accounting period.

A company performs 20 days of work on a 30-day contract before the end of the year. The total contract is valued at $6,000 and payment is not due until the contract is fully completed. The required adjusting entry includes a $4,000 debit to Unearned Revenue.

Accrued revenues:

Two accounting principles central to accrual accounting basis that are relied on in the adjusting process are:

On July 1 Plum Co. paid $7,500 cash for management services to be performed over a two-year period. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Plum should record:

A contra account is an account linked with another account; it is added to that account to show the proper amount for the item recorded in the associated account.

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:

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