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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 21

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On June 30 Apricot Co. paid $7,500 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On June 30 Apricot should record:

A) A credit to an expense for $7,500.
B) A debit to an expense for $7,500.
C) A debit to a prepaid expense for $7,500.
D) A credit to a prepaid expense for $7,500.
E) A debit to Cash for $7,500.

F) B) and D)
G) C) and E)

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Question 22

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

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Question 23

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Using the information presented below, prepare an income statement from the adjusted trial balance of Hanson Storage.

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

What are the types of adjusting entries used for accrued expenses and accrued revenues?

Costs incurred during an accounting period but unpaid and unrecorded are accrued expenses.

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

Adjusting entries are made after the preparation of financial statements.

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

A company purchased $6,000 worth of supplies in August and recorded the purchase in the Supplies account. On August 31, the fiscal year-end, the supplies count equaled $3,200. The adjusting entry would include a $2,800 debit to Supplies.

Show the December 31 adjusting entry to record $750 of earned but unpaid salaries of employees at the end of the current accounting period.

Accrued revenues at the end of one accounting period often result in cash _______________________ in the next period.

On December 1, Miller Company borrowed $300,000, at 8% annual interest, from the Nomo Bank. Miller has 60 days before the first payment is required. What is the adjusting entry that Miller would need to make on December 31, the calendar year-end?

In general journal form, record the December 31 adjusting entries for the following transactions and events. Assume that December 31 is the end of the annual accounting period. a. The Prepaid Insurance account shows a debit balance of $2,340, representing the cost of a three-year fire insurance policy that was purchased on October 1 of the current year. b. The Office Supplies account has a debit balance of $400; a year-end inventory count reveals $80 of supplies still on hand. c. On November 1 of the current year, Rent Earned was credited for $1,500. This amount represented the rent earned for a three-month period beginning November 1. d. Estimated depreciation on office equipment is $600. e. Accrued salaries amount to $400.

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

Discuss the importance of periodic reporting and the time period assumption.

An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year?

The matching principle does not aim to record expenses in the same accounting period as the revenue earned as a result of these expenses.

Interim financial statements refer to financial reports:

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?