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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 121

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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 amount of the insurance expense will be reported on the annual income statement for the year ended December 31?

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

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

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Question 122

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If a company records prepayment of expenses in an asset account, the adjusting entry when all or part of the prepaid asset is used or expired would:

A) Result in a debit to a liability and a credit to an asset account.
B) Decrease cash.
C) Result in a debit to an expense and a credit to an asset account.
D) Cause an accrued liability account to exist.
E) Cause an adjustment to prior expense to be overstated and assets to be understated.

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

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Question 123

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Under the cash basis of accounting, no adjustments are made for prepaid, unearned, and accrued items.

Explain how the owner of a company uses the accrual basis of accounting.

It is acceptable to record prepayment of expenses as debits to expense accounts if an adjusting entry is made at the end of the period to bring the asset account balance to the correct unused or unexpired amount.

A company purchased new furniture at a cost of $14,000 on September 30. The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. - How much depreciation expense will be recorded for the furniture for the first year ended December 31?

Under the alternative method for accounting for unearned revenue, which of the following pairs of journal entry formats is correct?

Using the information given below, prepare an income statement and owner's equity statement for Rapid Car Services from the adjusted trial balance. Owner Stella Grafton did not make any additional investments in the company during the year. Rapid Car Services Adjusted Trial Balance For the year ended December 31 $\begin{array}{lr}\text { Cash } & \$ 33,000 \\\text { Accounts receivable } & 14,200 \\\text { Office supplies } & 1,700 \\\text { Vehides } & 100,000\\\text { Accumulated depreciation - Vehicles } && 45,000 \\\text { Accounts payable } && 11,500 \\\text { Stella Grafton, Capital } && 71,900\\\text { Stella Grafton, Withdrawals } & 40,000 \\\text { Fees earned } &&155,000 \\\text { Rent expense } & 13,000\\\text { Office supplies expense } & 2,000 \\\text { Utilities expense } & 2,500 \\\text { Depreciation Expense — Vehicles } & 15,000 \\\text { Salary expense } & 50,000 \\\text { Fuel expense } & \underline{1 2 , 0 0 0} \\\text { Totals } & \underline{\$ 283,400}&\$283,400\end{array}$

Fragmental Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $800. Fragmental collected the entire $6,400 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made by Fragmental Co. on December 31 would be:

Abdulla, Co. collected 6-months' rent in advance from a tenant on October 1 of the current year. When it collected the cash, it recorded the following entry: $\begin{array} { l l l } \text { Oct. } 01 &\text { Cash } & 15,000\\&\text { Rent Revenue Earned} && 15,000 \end{array}$ Assuming Abdulla only prepares adjustments at year-end, prepare the required adjusting entry at December 31 of the current year.

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:

Using the information presented below, prepare an income statement from the adjusted trial balance of Dodson Containers. DODSON CONTAINERS Adjusted Trial Balance December 31

A company paid $9,000 for a twelve-month insurance policy on February 1. The policy coverage began on February 1. On February 28, $750 of insurance expense must be recorded.

During the current year ended December 31, clients paid fees in advance for accounting services amounting to $15,000. These fees were recorded in an account called Unearned Accounting Fees. If $3,500 of these fees remains unearned on December 31 of this year, prepare the required December 31 adjusting entry to bring the accounts up to date.

Which of the following statements is incorrect?

Match the following definitions with the appropriate term

Which of the following does not require an adjusting entry at year-end?

Explain how accounting adjustments affect financial statements and provide an example of an adjustment that would impact the statements if not recorded.

A balance sheet that places the liabilities and equity to the right of the assets is a(n) :

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