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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 91

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What is an adjusted trial balance? Why is it prepared?

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An adjusted trial balance is a list of a...

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Question 92

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Which of the following statements is incorrect?

A) Property, plant, and equipment are referred to as plant assets.
B) Interim financial reports can be based on one-month or three-month accounting periods.
C) The fiscal year is any 12 consecutive months (or 52 weeks) used by a business as its annual accounting period.
D) An income statement reports revenues earned less expenses incurred.
E) An unadjusted trial balance shows the account balances after they have been revised to reflect the effects of end-of-period adjustments.

F) All of the above
G) B) and E)

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Question 93

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

Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:

The correct adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31 is:

Adjusting entries made at the end of an accounting period accomplish all of the following except:

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

The unadjusted trial balance and the adjustment data for Porter Business Institute are given below along with adjusting entry information. What is the impact on net income if these adjustments are not recorded? Show the calculation for net income without the adjustments and net income with the adjustments. Which one gives the most accurate net income? Which accounting principles are being violated if the adjustments are not made? $\begin{array}{c}\text {Porter Business Institute }\\\text {Unadjusted Trial Balance }\\\text {December 31}\\\text { (In millions)}\\\begin{array}{l|l||l}\hline \text { Cash........ } & \$ 58,000 & \\\hline \text { Accounts receivable .............. } & 59,000 & \\\hline \text { Prepaid insurance ............. } & 12,000 & \\\hline \text { Equipment ... } & 8,000 & \\\hline \text { Accumulated depreciation-equipment .......... } & & \$ 2,000 \\\hline \text { Buildings..... } & 57,500 & \\\hline \text { Accumulated depreciation-buildings............. } & & 17,500\end{array}\end{array}$ $\begin{array} { l | l | | l } \hline \text { Land } & 55,000 & \\\hline \text { Unearned rent. } & & 16,000 \\\hline \text { Long-term notes payable } \ldots \ldots \ldots & & 50,000 \\\hline \text { Porter, Capital } & & 115,600 \\\hline \text { Tuition fees earned } \ldots \ldots \ldots \ldots & & 74,000 \\\hline \text { Training fees earned } \ldots \ldots \ldots & & 23,400 \\\hline \text { Wages expense } \ldots \ldots \ldots \ldots \ldots & 32,000 & \\\hline \text { Utilities expense } \ldots \ldots \ldots \ldots & 8,000 & \\\hline \text { Property taxes expense } \ldots \ldots & 5,000 & \\\hline \text { Interest expense } \ldots \ldots \ldots \ldots \ldots & 4,000 & \\\hline \text { Totals } \ldots \ldots \ldots & \$ 298,500 & \$ 298,500 \\\hline\end{array}$ Additional information items: a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis of the insurance invoice indicates that one half of the policy has expired by the end of the December 31 year-end. b. A cash payment for space sublet for 8 months was received on July 1 and was credited to Unearned Rent. c. Accrued interest expense on the note payable of $1,000 has been incurred but not paid.

An unadjusted trial balance is a list of accounts and balances prepared before adjustments are recorded.

On April 1, Santa Fe, Inc. paid Griffith Publishing Company $1,548 for 36-month subscriptions to several different magazines. Santa Fe debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. -What amount should appear in the Prepaid Subscription account for Santa Fe, Inc. after adjustments on December 31 of the second year assuming the company is using a calendar-year reporting period and the previous year adjustment had been made?

Financial statements can be prepared directly from the information in the adjusted trial balance.

Describe the types of entries required in later periods that result from accruals.

Based on the unadjusted trial balance for Glow Styling and the adjusting information given below, prepare the adjusting journal entries for Glow Styling. After completing the adjusting entries, prepare the trial balance for Glow Styling. Glow Styling unadjusted trial balance for the current year follows: Glow Styling Trial Balance December 31 $131,870 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. Use the above information to prepare the adjusted trial balance for Glow Styling.

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

On January 1, Imlay Company purchases manufacturing equipment costing $95,000 that is expected to have a five-year life and an estimated salvage value of $5,000. Imlay uses the straight-line depreciation method to allocate costs, and only prepares adjustments at year-end. The adjusting entry needed on December 31 of the first year is:

Recording revenues early overstates current-period income; recording revenues late understates current period income.

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

Assuming unearned revenues are originally recorded in balance sheet accounts, the adjusting entry to record earning of unearned revenue is:

Torsten 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%.

Adjusting entries are designed primarily to correct accounting errors.