Adjusting for Financials - Test Bank | 7e

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Financial Accounting Fundamentals, 7e (Wild)

Chapter 3 Adjusting Accounts for Financial Statements

1) A company's fiscal year must correspond with the calendar year.

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

3) Interim financial statements report a company's business activities for a one-year period.

4) A fiscal year refers to an organization's accounting period that spans twelve consecutive months or 52 weeks.

5) Adjusting entries are made after the preparation of financial statements.

6) Adjusting entries result in a better matching of revenues and expenses for the period.

7) Two main accounting principles used in accrual accounting are expense recognition and full closure.

8) Adjusting entries are necessary so that asset, liability, revenue, and expense account balances are correctly reported.

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

10) The revenue recognition principle is the basis for making adjusting entries that pertain to unearned and accrued revenues.

11) The cash basis of accounting commonly increases the comparability of financial statements from period to period.

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

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

14) The expense recognition (matching) principle requires that expenses get recorded in the same accounting period as the revenues that are earned as a result of the expenses, not necessarily when cash is paid.

15)   The cash basis of accounting is a system in which revenues are recorded when earned and expenses are recorded when incurred.

16) The cash basis of accounting recognizes revenues when cash payments from customers are received.

17) The accrual basis of accounting recognizes revenues when cash is received from customers, regardless of when the goods or services are provided.

18) The accrual basis of accounting recognizes expenses when cash is paid.

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

20) Recording expenses early overstates current-period income; recording expenses late understates current period income.

21) Prior to recording adjusting entries at the end of an accounting period, some accounts may not show correct balances even though all transactions were properly recorded.

22) 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.

23) On October 15, a company received $15,000 cash as a down payment on a consulting contract. The amount was credited to Unearned Consulting Revenue. By October 31, 10% of the services required by the contract were completed. The company will record consulting revenue of $1,500 from this contract for October.

24) The accrual basis of accounting reflects the principle that revenue is recorded when it is earned, not when cash is received.

25) The accrual basis of accounting requires adjustments to recognize revenues in the periods they are earned and to match expenses with revenues.

26) Adjusting entries are designed primarily to correct accounting errors.

27) Adjustments are necessary to bring an asset or liability account to its proper amount and also update a related expense or revenue account.

28) Each adjusting entry will affect a balance sheet account.

29) Adjusting entries always affect the cash account.

30) Accrued expenses at the end of one accounting period are expected to result in cash payments in a future period.

31) Accrued revenues at the end of one accounting period are expected to result in cash receipts in a future period.

32) Each adjusting entry affects one or more income statement account, one or more balance sheet account, and never cash.

33) Accrued expenses reflect transactions where cash is paid before a related expense is recognized.

34) Under the accrual basis of accounting, adjustments are often made for prepaid expenses and unearned revenues.

35) The entry to record a cash receipt from a customer when the service is to be provided in a future period involves a debit to an unearned revenue account.

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

37) An adjusting entry often includes an entry to Cash.

38) Before an adjusting entry is made to recognize the cost of expired insurance for the period, Prepaid Insurance and Insurance Expense are both overstated.

39) Before an adjusting entry is made to accrue employee salaries, Salaries Expense and Salaries Payable are both understated.

40) Failure to record depreciation expense will overstate assets and understate expenses.

41) A company's month-end adjusting entry for Insurance Expense is $1,000. If this entry is not made then expenses are understated by $1,000 and net income is overstated by $1,000.

42) Profit margin can also be called return on sales.

43) Profit margin measures the relation of debt to assets.

44) Profit margin reflects the percent of profit in each dollar of revenue.

45) Profit margin is calculated by dividing net sales by net income.

46) Truman had total assets of $149,501,000, net income of $6,276,090, and net sales of $209,203,000. Its profit margin was 3%.

47) 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.

48) If a company reporting on a calendar year basis, paid $18,000 cash on January 1 for one year of rent in advance (lease beginning January 1), and adjusting entries are made at the end of each month, the balance remaining in Prepaid Rent on December 1 should be $1,500.

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

50) A salary owed to employees is an example of an accrued expense.

51) In accrual accounting, accrued revenues are recorded as liabilities.

52) Depreciation expense is an example of an accrued expense.

53) Earned but unrecorded revenues are recorded during the adjusting process with a credit to a revenue account and a debit to an expense account.

54) Depreciation expense for a period is the portion of a plant asset's cost that is allocated to that period.

55) All plant assets, including land, are depreciated.

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

57) Depreciation measures the decline in market value of an asset.

58) A company owes its employees $5,000 for the year ended December 31. It will pay employees on January 6 for the previous two weeks' salaries. The year-end adjusting entry on December 31 will include a debit to Salaries Expense and a credit to Cash.

59) A company had no supplies available at the beginning of August. 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 physical count of supplies indicates the cost of unused supplies is $3,200. The adjusting entry would include a $2,800 debit to Supplies.

60) 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.

61) 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, with payment received in advance. The $6,000 cash receipt was initially recorded as Unearned Revenue. The required adjusting entry includes a $4,000 debit to Unearned Revenue.

62) A company entered into a 2-month contract for $50,000 on April 1. It earned $25,000 of the contract services in April and billed the customer. The company should recognize the revenue when it receives the customer's check.

63) The adjusted trial balance must be prepared before the adjusting entries are made.

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

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

66) Asset and liability balances are transferred from the adjusted trial balance to the income statement.

67) Asset and liability balances are transferred from the adjusted trial balance to the balance sheet.

68) Revenue and expense balances are transferred from the adjusted trial balance to the income statement.

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

70) 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.

71) It is acceptable to record cash received in advance of providing products or services to revenue accounts if an adjusting entry is made at the end of the period to bring the liability account balance to the correct unearned amount.

72) Accounts that appear in the balance sheet are often called temporary (nominal) accounts.

73) Income Summary is a temporary account only used for the closing process.

74) Revenue accounts are temporary accounts that should begin each accounting period with zero balances.

75) Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and expense accounts ready for use in the next period.

76) The closing process takes place before financial statements have been prepared.

77) Revenue and expense accounts are permanent (real) accounts and should not be closed at the end of the accounting period.

78) Closing entries result in the Dividends account being transferred into net income or net loss for the period ending.

79) The closing process is a step in the accounting cycle that prepares accounts for the next accounting period.

80) Closing entries are required at the end of each accounting period to close all ledger accounts.

81) Closing entries are designed to transfer the end-of-period balances in the revenue accounts, the expense accounts, and the dividends account to retained earnings.

82) The Income Summary account is a permanent account that will be carried forward period after period.

83) Closing entries are necessary so that retained earnings will begin each period with a zero balance.

84) Permanent accounts carry their balances into the next accounting period.

85) If a company plans to continue business into the future, closing entries are not required.

86) The first step in the accounting cycle is to analyze transactions and events to prepare for journalizing.

87) The accounting cycle refers to the sequence of steps used in preparing the work sheet.

88) The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries.

89) The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements, and recording closing and adjusting entries.

90) A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers.

91) An unclassified balance sheet provides more information to users than a classified balance sheet.

92) Current assets and current liabilities are expected to be used up or come due within one year or the company's operating cycle whichever is longer.

93) Intangible assets are long-term resources that benefit business operations that usually lack physical form and have uncertain benefits.

94) Assets are often classified into current assets, long-term investments, plant assets, and intangible assets.

95) Current liabilities are cash and other resources that are expected to be sold, collected or used within one year or the company's operating cycle whichever is longer.

96) Long-term investments can include land held for future expansion.

97) Intangible assets are assets that are long-term, have physical form, and are used to produce or sell products and services.

98) Current liabilities include accounts receivable, unearned revenues, and salaries payable.

99) Cash and office supplies are both classified as current assets.

100) Plant assets are usually listed in order by how quickly they can be converted to cash.

101) The current ratio is used to help assess a company's ability to pay its debts in the near future.

102) The current ratio is computed by dividing current liabilities by current assets.

103) Trekker Bikes' current assets are $300 million and its current liabilities are $125 million. Its current ratio is 0.417.

104) If a company has current assets of $15,000 and current liabilities of $9,500, its current ratio is 1.6

105) Flo's Flowers' current ratio is 1.3. The industry average for the current ratio is 1.2. This indicates that Flo's can cover its short-term liabilities with its short-term assets.

106) A benefit of using a work sheet is that it aids in the preparation of the financial statements.

107) Adjustments must be entered in the journal and posted to the ledger after the work sheet is prepared.

108) The work sheet is a required report made available to external decision makers.

109) A work sheet contains all of the balances for each account and therefore may be used as a substitute for the set of financial statements.

110) All necessary amounts needed to prepare the income statement can be taken from the income statement columns of the work sheet, including the net income or net loss.

111) On a work sheet, if the Debit total exceeds the Credit total of the Income Statement columns, a net loss is indicated.

112) If all columns of a completed work sheet balance, you can be sure that no errors were made in its preparation.

113) Normally closing entries are first entered in the general journal and then posted to the work sheet.

114) Adjusting entries are usually entered in the work sheet before they are entered in the general journal.

115) On a work sheet, the adjusted balances of revenues and expenses are sorted to the Income Statement columns of the work sheet.

116) On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance Sheet or Statement of Retained Earnings Credit column.

117) All necessary amounts to prepare the balance sheet, including ending retained earnings, can be found in the Balance Sheet columns of the work sheet.

118) A worksheet can be helpful in showing the effects of proposed or "what if" transactions but not in helping to prepare interim financial statements.

119) Because it is a necessary financial statement, the work sheet must be prepared according to specified accounting procedures.

120) An expense account is normally closed by debiting Income Summary and crediting the expense account.

121) The Dividends account is normally closed by debiting it.

122) After posting the entries to close all revenue and expense accounts, the Income Summary account of Cleaver Auto Services has a $4,000 debit balance. This result implies that Cleaver earned a net income of $4,000.

123) After posting the entries to close all revenue and expense accounts, Marker Company's Income Summary account has a credit balance of $6,000, and its Dividends account has a debit balance of $2,500. These balances indicate that net income for the current accounting period amounted to $3,500.

124) When there is a net loss, the Income Summary account would have a credit balance.

125) The Income Summary account is used to close the permanent accounts at the end of an accounting period.

126) The steps in the closing process are (1) close credit balances in revenue accounts to Income Summary; (2) close debit balances in expense accounts to Income Summary; (3) close Income Summary to Retained Earnings; (4) close Dividends to Retained Earnings.

127) During the closing process, Retained Earnings is closed to the Dividends account.

128) A post-closing trial balance is a list of permanent accounts and their balances from the ledger after all closing entries are journalized and posted.

129) The aim of a post-closing trial balance is to verify that (1) total debits equal total credits for temporary accounts, and (2) all temporary accounts have zero balances.

130) A company's post-closing trial balance has total debits of $40,560 and total credits of $40,650. Accordingly, the company should review for errors in the closing process.

131) Reversing entries are optional.

132) Reversing entries are recorded in response to external transactions that were created in error during the prior accounting period.

133) Reversing entries overcome the disadvantage of more complex entries to pay accrued liabilities and collect accrued receivables from the previous accounting period.

134) The time period assumption assumes that an organization's activities may be divided into specific reporting time periods including all of the following except:

A) Months.

B) Quarters.

C) Fiscal years.

D) Calendar years.

E) Days.

135) A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the:

A) Operating cycle of a business.

B) Time period assumption.

C) Going-concern assumption.

D) Expense recognition (matching) principle.

E) Accrual basis of accounting.

136) Interim financial statements refer to financial reports:

A) That cover less than one year, usually spanning one, three, or six-month periods.

B) That are prepared before any adjustments have been recorded.

C) That show the assets above the liabilities and the liabilities above the equity.

D) Where revenues are reported on the income statement when cash is received and expenses are reported when cash is paid.

E) Where the adjustment process is used to assign revenues to the periods in which they are earned and to match expenses with revenues.

137) The 12-month period that ends when a company's sales activities are at their lowest level is called the:

A) Fiscal year.

B) Calendar year.

C) Natural business year.

D) Accounting period.

E) Interim period.

138) The length of time covered by a set of periodic financial statements, primarily a year for most companies, is referred to as the:

A) Fiscal year.

B) Natural business year.

C) Accounting period.

D) Business cycle.

E) Calendar year.

139) The accounting principle that requires revenue to be recorded when earned is the:

A) Expense recognition (matching) principle.

B) Revenue recognition principle.

C) Time period assumption.

D) Accrual reporting principle.

E) Going-concern assumption.

140) Adjusting entries:

A) Affect only income statement accounts.

B) Affect only balance sheet accounts.

C) Affect both income statement and balance sheet accounts.

D) Affect cash accounts.

E) Affect only equity accounts.

141) The main purpose of adjusting entries is to:

A) Record external transactions and events.

B) Record internal transactions and events.

C) Recognize assets purchased during the period.

D) Recognize debts paid during the period.

E) Correct errors in the accounting records.

142) The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:

A) Recognition principle.

B) Cost principle.

C) Cash basis of accounting.

D) Expense recognition (Matching) principle.

E) Time period principle.

143) The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

A) Accrual basis accounting.

B) Operating cycle accounting.

C) Cash basis accounting.

D) Revenue recognition accounting.

E) Current basis accounting.

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

A) Updating liability and asset accounts to their proper balances.

B) Assigning revenues to the periods in which they are earned.

C) Assigning expenses to the periods in which they are incurred.

D) Assuring that financial statements reflect the revenues earned and the expenses incurred.

E) Assuring that external transaction amounts remain unchanged.

145) The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

A) Cash basis accounting.

B) The expense recognition (matching) principle.

C) The time period assumption.

D) Accrual basis accounting.

E) Revenue basis accounting.

146) Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of:

A) Items that require contra accounts.

B) Items that require adjusting entries.

C) Asset and equity accounts.

D) Asset accounts.

E) Income statement accounts.

147) The accrual basis of accounting:

A) Is generally accepted for external reporting because it is more useful than cash basis for most business decisions.

B) Is flawed because it gives complete information about cash flows.

C) Recognizes revenues when received in cash.

D) Recognizes expenses when paid in cash.

E) Eliminates the need for adjusting entries at the end of each period.

148) In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the accrual basis of accounting is:

A) $17,000.

B) $21,000.

C) $13,000.

D) $25,000.

E) None of the answer choices is correct.

149) In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the cash basis of accounting is:

A) $17,000.

B) $21,000.

C) $13,000.

D) $25,000.

E) None of the answer choices is correct.

150) Which of the following statements is incorrect?

A) Adjustments to prepaid expenses and unearned revenues involve previously recorded assets and liabilities.

B) Accrued expenses and accrued revenues involve assets and liabilities that had not previously been recorded.

C) Adjusting entries can be used to record both accrued expenses and accrued revenues.

D) Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time.

E) Adjusting entries affect only balance sheet accounts.

151) An adjusting entry could be made for each of the following except:

A) Prepaid expenses.

B) Depreciation.

C) Stockholder investments.

D) Unearned revenues.

E) Accrued expenses.

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

A) Understate net income by $28,000.

B) Overstate net income by $28,000.

C) Have no effect on net income.

D) Overstate assets by $28,000.

E) Understate assets by $28,000.

153) 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) Assets overstated and equity understated.

B) Assets and equity both understated.

C) Assets overstated, net income understated, and equity overstated.

D) Assets, net income, and equity understated.

E) Assets, net income, and equity overstated.

154) If a company failed to make the end-of-period adjustment to move the amount of management fees that were earned from the Unearned Management Fees account to the Management Fees Revenue account, this omission would cause:

A) An overstatement of net income.

B) An overstatement of assets.

C) An overstatement of liabilities.

D) An overstatement of equity.

E) An understatement of liabilities.

155) 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 move the portion of these fees that has been earned to a revenue account, one effect will be:

A) An overstatement of equity.

B) An understatement of equity.

C) An understatement of assets.

D) An understatement of liabilities.

E) An overstatement of assets.

156) Profit margin is defined as:

A) Revenues divided by net sales.

B) Net sales divided by assets.

C) Net income divided by net sales.

D) Net income divided by assets.

E) Net sales divided by net income.

157) A company earned $3,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:

A) 3%.

B) 30%.

C) 33%.

D) 333%.

E) 33.3%

158) All of the following statements regarding profit margin are true except:

A) Profit margin reflects the percent of profit in each dollar of revenue.

B) Profit margin is also called return on sales.

C) Profit margin can be used to compare a firm's performance to its competitors.

D) Profit margin is calculated by dividing net income by net sales.

E) Profit margin is not a useful measure of a company's operating results.

159) A company had $6,992,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin.

A) 85.4%.

B) 117.1%.

C) 53.9%.

D) 217.1%.

E) 46.0%.

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

A) A debit to an expense and credit to a prepaid expense for $7,500.

B) A debit to an expense and credit to Cash for $7,500.

C) A debit to a prepaid expense and a credit to Cash for $7,500.

D) A credit to a prepaid expense and a debit to Cash for $7,500.

E) A debit to Cash for $7,500 and a credit to an expense for $7,500.

161) 161. On July 1 of the current calendar year, Olive Co. paid $7,500 cash for management services to be performed over a two-year period beginning July 1. Olive follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31 of the current year for Olive would include:

A) A debit to an expense and a credit to a prepaid expense for $5,625.

B) A debit to a prepaid expense and a credit to Cash for $5,625.

C) A debit to an expense and a credit to a prepaid expense for $1,875.

D) A debit to a prepaid expense and a credit to an expense for $1,875.

E) A credit to a liability and a debit to a prepaid expense for $1,875.

162) Accrued revenues:

A) At the end of one accounting period result in cash receipts in a future period.

B) At the end of one accounting period often result in cash payments in the next period.

C) Are also called unearned revenues.

D) Are listed on the balance sheet as liabilities.

E) Are recorded at the end of an accounting period because cash has already been received for revenues earned.

163) An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):

A) Accrued expense.

B) Contra account.

C) Accrued revenue.

D) Intangible asset.

E) Adjunct account.

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

A) Is referred to as depreciation expense.

B) Is referred to as accumulated depreciation.

C) Is shown on the income statement of the final period.

D) Is only recorded when the asset is disposed of.

E) Is referred to as an accrued asset.

165) The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called:

A) Accumulated depreciation.

B) A contra account.

C) The expense recognition (matching) principle.

D) Depreciation expense.

E) An accrued account.

166) 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:

A) Debit Office Supplies $105 and credit Office Supplies Expense $105.

B) Debit Office Supplies Expense $105 and credit Office Supplies $105.

C) Debit Office Supplies Expense $254 and credit Office Supplies $254.

D) Debit Office Supplies $254 and credit Office Supplies Expense $254.

E) Debit Office Supplies $105 and credit Supplies Expense $254.

167) If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

A) Debit Cash and credit Legal Fees Earned.

B) Debit Cash and credit Unearned Legal Fees.

C) Debit Unearned Legal Fees and credit Legal Fees Earned.

D) Debit Legal Fees Earned and credit Unearned Legal Fees.

E) Debit Unearned Legal Fees and credit Accounts Receivable.

168) 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 first year ended December 31?

A) $1,350.00.

B) $450.00.

C) $1,012.50.

D) $337.50.

E) $37.50.

169) On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

A) $1,200.

B) $2,400.

C) $1,000.

D) $400.

E) $1,400.

170) A company had no office supplies available at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year?

A) $75.

B) $125.

C) $175.

D) $250.

E) $325.

171) On January 1, a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

A) Debit Prepaid Insurance, $1,800; credit Cash, $1,800.

B) Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.

C) Debit Prepaid Insurance, $360; credit Insurance Expense, $360.

D) Debit Insurance Expense, $360; credit Prepaid Insurance, $360.

E) Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440.

172) Unearned revenue is reported in the financial statements as:

A) A revenue on the balance sheet.

B) A liability on the balance sheet.

C) An unearned revenue on the income statement.

D) An asset on the balance sheet.

E) A financing activity on the statement of cash flows.

173) Which of the following assets is not depreciated?

A) Store fixtures.

B) Computers.

C) Land.

D) Buildings.

E) Equipment.

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

A) Accrued interest on notes payable.

B) Supplies used during the period.

C) Cash invested by stockholders.

D) Accrued wages.

E) Expired portion of prepaid insurance.

175) On May 1, a two-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 first year ended December 31?

A) $750.

B) $5,270.

C) $6,000.

D) $6,750.

E) $18,000.

176) 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:

A) A debit to Rent Revenue and a credit to Cash for $2,400.

B) A debit to Rent Revenue and a credit to Unearned Rent for $2,400.

C) A debit to Cash and a credit to Rent Revenue for $6,400.

D) A debit to Unearned Rent and a credit to Rent Revenue for $2,400.

E) A debit to Unearned Rent and a credit to Rent Revenue for $4,000.

177) On May 1, Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 of the current year to April 30 of the following year. The Cash receipt was recorded as unearned fees and at year-end on December 31, $1,000 of the fees had been earned. Assuming adjustments are only made at year-end, the adjusting entry on December 31 would be:

A) A debit to Unearned Fees and a credit to Cash for $500.

B) A debit to Fees Earned and a credit to Unearned Fees for $500.

C) A debit to Unearned Fees and a credit to Fees Earned for $1,000.

D) A debit to Fees Earned and a credit to Cash for $1,000.

E) A debit to Fees Earned and a credit to Cash for $500.

178) Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are:

A) Intangible expenses.

B) Prepaid expenses.

C) Unearned expenses.

D) Net expenses.

E) Accrued expenses.

179) The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work provided is:

A) Debit Unpaid Salaries and credit Salaries Payable.

B) Debit Salaries Payable and credit Salaries Expense.

C) Debit Salaries Expense and credit Cash.

D) Debit Salaries Expense and credit Salaries Payable.

E) Debit Cash and credit Salaries Expense.

180) 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:

A) Debit Unpaid Salaries $600 and credit Salaries Payable $600.

B) Debit Salaries Expense $400 and credit Salaries Payable $400.

C) Debit Salaries Expense $600 and credit Salaries Payable $600.

D) Debit Salaries Payable $400 and credit Salaries Expense $400.

E) Debit Salaries Expense $400 and credit Cash $400.

181) 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:

A) $4,000.

B) $800.

C) $1,600.

D) $2,400.

E) $3,200.

182) The adjusting entry to record the salaries earned due to employees for services provided but unpaid at the end of the accounting period affects the accounts in which of the following ways?

A) Debit Salaries Payable and credit Salaries Expense.

B) Debit Salaries Expense and credit Cash.

C) Debit Accrued Salaries and credit Salaries Payable.

D) Debit Cash and credit Salaries Expense.

E) Debit Salaries Expense and credit Salaries Payable.

183) On January 1, Eastern College received $1,200,000 from its students for the spring semester that it recorded in Unearned Tuition and Fees. The term spans four months beginning on January 2 and the college spreads the revenue evenly over the months of the term. Assuming the college prepares adjustments monthly, what amount of tuition revenue should the college recognize on February 28?

A) $300,000.

B) $600,000.

C) $800,000.

D) $900,000.

E) $1,200,000.

184) On January 1, Fashion Forward Magazine received $15,000 from subscribers for the annual subscriptions that it recorded in Unearned Subscription Revenue. The issues of the magazine are mailed to subscribers quarterly. What amount of subscription revenue should the magazine recognize on March 31 when the first issue is sent in March?

A) $15,000.

B) $1,250.

C) $7,500.

D) $3,750.

E) $0.

185) An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Assuming the company does not prepare reversing entries, which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year?

A)

B)

C)

D)

E)

186) The difference between the cost of an asset and the accumulated depreciation for that asset is called

A) Depreciation Expense.

B) Unearned Depreciation.

C) Prepaid Depreciation.

D) Depreciation Value.

E) Book Value.

187) A company purchased a new delivery van at a cost of $45,000 on July 1. The delivery van is estimated to have a useful life of 6 years and a salvage value of $3,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the van during the first year ended December 31?

A) $3,250.

B) $3,500.

C) $4,000.

D) $6,500.

E) $7,000.

188) A company's Office Supplies account shows a beginning balance of $600 and an ending balance of $400. If office supplies expense for the year is $3,100, what amount of office supplies was purchased during the period?

A) $2,700.

B) $2,900.

C) $3,300.

D) $3,500.

E) $3,700.

189) 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 an expense and a credit to an asset account.

B) Cause an adjustment to prior expense to be overstated and assets to be understated.

C) Cause an accrued liability account to exist.

D) Result in a debit to a liability and a credit to an asset account.

E) Decrease cash.

190) A company recorded 2 days of accrued salaries of $1,400 for its employees on January 31. On February 9, it paid its employees $7,000 for these accrued salaries and for other salaries earned through February 9. Assuming the company does not prepare reversing entries, the January 31 and February 9 journal entries are:

A)

B)

C)

D)

E)

191) If accrued salaries were recorded on December 31 with a debit to Salaries Expense and a credit to Salaries Payable, and no reversing entries were made on January 1, the entry to record payment of these wages on the following January 5 would include:

A) A debit to Cash and a credit to Salaries Payable.

B) A debit to Cash and a credit to Prepaid Salaries.

C) A debit to Salaries Payable and a credit to Cash.

D) A debit to Salaries Payable and a credit to Salaries Expense.

E) No entry would be necessary on January 5.

192) On December 1, Orenthal 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:

A) a debit to Earned Fees for $3,600.

B) a debit to Unearned Fees for $1,800.

C) a credit to Unearned Fees for $1,800.

D) a debit to Earned Fees for $1,800.

E) a credit to Earned Fees for $3,600.

193) Harrod Company paid $4,800 for a 4-month insurance premium in advance on November 1, with coverage beginning on that date. The balance in the prepaid insurance account before adjustment at the end of the year is $4,800 and no adjustments had been made previously. The adjusting entry required on December 31 is:

A) Debit Insurance Expense, $2,400; credit Prepaid Insurance, $2,400.

B) Debit Prepaid Insurance, $2,400; credit Insurance Expense, $2,400.

C) Debit Insurance Expense, $1,200; credit Prepaid Insurance, $1,200.

D) Debit Prepaid Insurance, $1,200; credit Insurance Expense, $1,200.

E) Debit Cash, $4,800; Credit Prepaid Insurance, $4,800.

194) 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?

A) Debit Insurance Expense, $3,250; credit Prepaid Insurance, $3,250.

B) Debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500.

C) Debit Prepaid Insurance, $4,500; credit Insurance Expense, $4,500.

D) Debit Insurance Expense, $7,750; credit Prepaid Insurance, $7,750.

E) Debit Cash, $7,750; Credit Prepaid Insurance, $7,750.

195) On April 1, Garcia Publishing Company received $1,548 from Otisco, Inc. for 36-month subscriptions to several different magazines. The subscriptions started immediately. What is the amount of revenue that should be recorded by Otisco Publishing Company for the first year of the subscription assuming the company uses a calendar-year reporting period?

A) $0.

B) $516.

C) $387.

D) $129.

E) $430.

196) On April 1, Garcia Publishing Company received $1,548 from Otisco, Inc. for 36-month subscriptions to several different magazines. The subscriptions started immediately. What is the amount of revenue that should be recorded by Garcia Publishing Company for the second year of the subscription assuming the company uses a calendar-year reporting period?

A) $0

B) $516.

C) $387.

D) $129.

E) $430.

197) On April 1, Garcia Publishing Company received $1,548 from Otisco, Inc. for 36-month subscriptions to several different magazines. The company credited Unearned Fees for the amount received and the subscriptions started immediately. Assuming adjustments are only made at year-end, What is the adjusting entry that should be recorded by Garcia Publishing Company on December 31 of the first year?

A) debit Unearned Fees, $1,548; credit Fees Earned, $1,548.

B) debit Unearned Fees, $516; credit Fees Earned, $516.

C) debit Unearned Fees, $1,161; credit Fees Earned, $1,161.

D) debit Unearned Fees, $129; credit Fees Earned, $129.

E) debit Unearned Fees, $387; credit Fees Earned, $387.

198) On April 1, Garcia Publishing Company received $1,548 from Otisco, Inc. for 36-month subscriptions to several different magazines. The company credited Unearned Fees for the amount received and the subscriptions started immediately. Assuming adjustments are only made at year-end, What is the adjusting entry that should be recorded by Garcia Publishing Company on December 31 of the second year?

A) debit Unearned Fees, $1,548; credit Fees Earned, $1,548.

B) debit Unearned Fees, $516; credit Fees Earned, $516.

C) debit Unearned Fees, $1,161; credit Fees Earned, $1,161.

D) debit Unearned Fees, $129; credit Fees Earned, $129.

E) debit Unearned Fees, $387; credit Fees Earned, $387.

199) On April 1, Otisco, Inc. paid Garcia Publishing Company $1,548 for 36-month subscriptions to several different magazines. Otisco debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Otisco, Inc. after adjustments on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustment has been made?

A) $1,548.

B) $387.

C) $516.

D) $1,161.

E) $0.

200) On April 1, Otisco, Inc. paid Garcia Publishing Company $1,548 for 36-month subscriptions to several different magazines. Otisco debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Otisco, 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?

A) $1,548.

B) $387.

C) $516.

D) $645.

E) $0.

201) On April 1, Otisco, Inc. paid Garcia Publishing Company $1,548 for 36-month subscriptions to several different magazines. Otisco debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. What adjusting entry should be made by Otisco, Inc. for the adjustment on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustments had been made?

A) Debit Subscription Expense $516 and credit Prepaid Subscriptions $516.

B) Debit Prepaid Subscriptions $516 and credit Subscription Expense $516.

C) Debit Subscription Expense $387 and credit Cash $387.

D) Debit Unearned Subscriptions $387 and credit Subscription Expense $387.

E) Debit Subscription Expense $387 and credit Prepaid Subscriptions $387.

202) A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31. Which of the following statements is true?

A) It will have no effect on income.

B) It will overstate assets and liabilities by $9,000.

C) It will understate current-year net income by $9,000.

D) It will understate assets by $9,000.

E) It will understate current-year expenses and overstate current-year net income by $9,000.

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

A) debit Salary Expense, $9,000; credit Cash, $9,000

B) debit Salary Expense, $9,000; credit Fees Earned, $9,000

C) debit Salary Expense, $9,000; credit Prepaid Salary, $9,000

D) debit Salary Expense, $9,000; credit Salaries Payable, $9,000

E) debit Salaries Payable, $9,000; credit Salary Expense $9,000

204) 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?

A) $437.50

B) $375.00

C) $1,500.00

D) $500

E) $1,750

205) 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. What is the book value of the furniture on December 31 of the first year?

A) $13,562.50

B) $12,250.00

C) $12,500.00

D) $13,500.00

E) $13,625.00

206) 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?

A) $16,000

B) $15,000

C) $2,500

D) $13,500

E) $13,333

207) The balances in Labeille Accounting Services' office supplies account on February 1 and February 28 were $1,200 and $375, respectively. If the office supplies expense for the month is $1,900, what amount of office supplies was purchased during February?

A) $1,075

B) $1,500

C) $1,525

D) $2,325

E) $3,100

208) If Bojana Tax Services' office supplies account balance on March 1 was $1,400, the company purchased $675 of supplies during the month, and a physical count of supplies on hand at the end of March indicated $1,250 unused, what is the amount of the adjusting entry for office supplies on March 31?

A) $675

B) $825

C) $1,250

D) $1,975

E) $525

209) 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) Debit Supplies Expense $1,250 and credit Supplies $1,250.

B) Debit Prepaid Supplies $850 and credit Supplies Expense $850.

C) Debit Supplies Expense $1,250 and credit Supplies $2,100.

D) Debit Supplies $1,250 and credit Cash $1,250.

E) Debit Supplies Expense $850 and credit Supplies $850.

210) Which of the following statements is incorrect?

A) An income statement reports revenues earned less expenses incurred.

B) An unadjusted trial balance shows the account balances after they have been revised to reflect the effects of end-of-period adjustments.

C) Interim financial reports can be based on one-month or three-month accounting periods.

D) The fiscal year is any 12 consecutive months (or 52 weeks) used by a business as its annual accounting period.

E) Property, plant, and equipment are referred to as plant assets.

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

A) Balance sheet.

B) Adjusted trial balance.

C) Unadjusted trial balance.

D) Classified balance sheet.

E) Unclassified balance sheet.

212) A trial balance prepared before any adjustments have been recorded is:

A) An adjusted trial balance.

B) Used to prepare financial statements.

C) An unadjusted trial balance.

D) Correct with respect to proper balance sheet and income statement amounts.

E) Only prepared once a year.

213) The adjusted trial balance contains information pertaining to:

A) Asset accounts only.

B) Balance sheet accounts only.

C) Income statement accounts only.

D) All general ledger accounts.

E) Revenue accounts only.

214) Financial statements are typically prepared in the following order:

A) Balance sheet, statement of retained earnings, income statement.

B) Statement of retained earnings, balance sheet, income statement.

C) Income statement, balance sheet, statement of retained earnings.

D) Income statement, statement of retained earnings, balance sheet.

E) Balance sheet, income statement, statement of retained earnings.

215) A balance sheet that places the assets above the liabilities and equity is called a(n):

A) Report form balance sheet.

B) Account form balance sheet.

C) Classified balance sheet.

D) Unadjusted balance sheet.

E) Unclassified balance sheet.

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

A) Account form balance sheet.

B) Report form balance sheet.

C) Interim balance sheet.

D) Classified balance sheet.

E) Unclassified balance sheet.

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

A)

B)

C)

D)

E)

218) Under the alternative method for recording prepaid expenses, which is the correct set of journal entries?

A)

B)

C)

D)

E)

219) An adjusting entry that increases a revenue and decreases a liability is known as a(n):

A) Accrued expense.

B) Deferred expense.

C) Deferred revenue.

D) Accrued revenue.

E) Depreciation.

220) 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?

A) debit Interest Payable, $2,000; credit Interest Expense, $2,000.

B) debit Interest Expense, $2,000; credit Interest Payable, $2,000.

C) debit Interest Expense, $2,000; credit Cash, $2,000.

D) debit Interest Expense, $4,000; credit Interest Payable, $4,000.

E) debit Interest Expense, $24,000; credit Interest Payable, $24,000.

221) On September 1, Kennedy Company loaned $100,000, at 12% annual interest, to a customer. Interest and principal will be collected when the loan matures one year from the issue date. Assuming adjustments are only made at year-end, what is the adjusting entry for accruing interest that Kennedy would need to make on December 31, the calendar year-end?

A) Debit Interest Expense, $12,000; credit Interest Payable, $12,000.

B) Debit Interest Expense, $4,000; credit Interest Payable, $4,000.

C) Debit Interest Receivable, $12,000; credit Cash, $12,000.

D) Debit Interest Receivable, $4,000; credit Interest Revenue, $4,000.

E) Debit Cash, $4,000; credit Interest Revenue, $4,000.

222) 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?

A) Debit Cash, $3,000; credit Roofing Fees Revenue, $3,000.

B) Debit Roofing Fees Revenue, $3,000; credit Accounts Receivable, $3,000.

C) Debit Accounts Receivable, $3,000; credit Roofing Fees Revenue, $3,000.

D) Debit Cash, $3,000; credit Accounts Receivable, $3,000.

E) No adjustment is required.

223) All of the following are true regarding prepaid expenses except:

A) They are paid for in advance of receiving their benefits.

B) They are assets.

C) When they are used, their costs become expenses.

D) The adjusting entry for prepaid expenses increases expenses and decreases liabilities.

E) The adjusting entry for prepaid expenses increases expenses and decreases assets.

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

A) Fiscal year.

B) Calendar year.

C) Interim financial period.

D) Natural business year.

E) Seasonal year.

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

A) Revenue recognition and monetary unit.

B) Revenue recognition and going-concern.

C) Expense recognition (matching) and cost.

D) Expense recognition (matching) and business entity.

E) Revenue recognition and Expense recognition (matching).

226) 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.

227) Assuming prepaid expenses are originally recorded in balance sheet accounts, the adjusting entry to record use of a prepaid expense is:

A) Increase an expense; increase a liability.

B) Increase an asset; increase revenue.

C) Decrease a liability; increase revenue.

D) Increase an expense; decrease an asset.

E) Increase an expense; decrease a liability.

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

A) Increase an expense; increase a liability.

B) Increase an asset; increase revenue.

C) Decrease a liability; increase revenue.

D) Increase an expense; decrease an asset.

E) Increase an expense; decrease a liability.

229) The adjusting entry to record an accrued expense is:

A) Increase an expense; increase a liability.

B) Increase an asset; increase revenue.

C) Decrease a liability; increase revenue.

D) Increase an expense; decrease an asset.

E) Increase an expense; decrease a liability.

230) The adjusting entry to record an accrued revenue is:

A) Increase an expense; increase a liability.

B) Increase an asset; increase revenue.

C) Decrease a liability; increase revenue.

D) Increase an expense; decrease an asset.

E) Increase an expense; decrease a liability.

231) On October 1, Vista View Company rented warehouse space to a tenant for $2,500 per month. The tenant paid five months' rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Rent account. The company's annual accounting period ends on December 31. The adjusting entry needed on December 31 is:

A) Debit Rent Receivable, $12,500; credit Rent Earned, $12,500.

B) Debit Rent Receivable, $7,500; credit Rent Earned, $7,500.

C) Debit Unearned Rent, $7,500; credit Rent Earned, $7,500.

D) Debit Unearned Rent, $5,000; credit Rent Earned, $5,000.

E) Debit Unearned Rent, $12,500; credit Rent Earned, $12,500.

232) On October 1, Vista View Goodwell Company rented warehouse space to a tenant for $2,500 per month and received $12,500 for five months' rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Rent account. The company's annual accounting period ends on December 31. The Unearned Rent account balance at the end of December, after adjustment, should be:

A) $5,000.

B) $7,500.

C) $12,500.

D) $2,500.

E) $10,000.

233) Chase Company rents space to a tenant for $2,200 per month. The tenant currently owes rent for 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:

A) Debit Rent Receivable, $6,600; credit Rent Earned, $6,600.

B) Debit Unearned Rent, $4,400; credit Rent Earned, $4,400.

C) Debit Unearned Rent, $2,200; credit Rent Earned, $2,200.

D) Debit Rent Receivable, $4,400; credit Rent Earned, $4,400.

E) Debit Rent Receivable, $2,200; credit Rent Earned, $2,200.

234) Chase Company has 10 employees, who earn a total of $1,800 in salaries each working day. They are paid on Monday for the five-day workweek ending on the previous Friday. Assume that year ended on December 31, which is a Wednesday, and all employees will be paid salaries for five full days on the following Monday. The adjusting entry needed on December 31 is:

A) Debit Salaries Expense, $5,400; credit Salaries Payable, $5,400.

B) Debit Salaries Expense, $3,600; credit Salaries Payable, $3,600.

C) Debit Salaries Expense, $9,000; credit Salaries Payable, $9,000.

D) Debit Salaries Payable, $5,400; credit Salaries Expense, $5,400.

E) Debit Salaries Expense, $5,400; credit Cash, $5,400.

235) 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:

A) Debit Depreciation Expense, $9,000; credit Accumulated Depreciation, $9,000.

B) Debit Depreciation Expense, $18,000; credit Accumulated Depreciation, $18,000.

C) Debit Depreciation Expense, $90,000; credit Accumulated Depreciation, $90,000.

D) Debit Depreciation Expense, $18,000; credit Equipment, $18,000.

E) Debit Depreciation Expense, $9,000; credit Equipment, $9,000.

236) Holman Company owns equipment with an original cost of $95,000 and an estimated salvage value of $5,000 that is being depreciated at $15,000 per year using the straight-line depreciation method, and only prepares adjustments at year-end. The adjusting entry needed to record annual depreciation is:

A) Debit Depreciation Expense, $15,000; credit Equipment, $15,000.

B) Debit Equipment, $15,000; credit Accumulated Depreciation, $15,000.

C) Debit Depreciation Expense, $10,000; credit Accumulated Depreciation, $10,000.

D) Debit Depreciation Expense, $10,000; credit Equipment, $10,000.

E) Debit Depreciation Expense, $15,000; credit Accumulated Depreciation, $15,000.

237) On November 1, Jasper Company loaned another company $100,000 at a 6.0% interest rate. The note receivable plus interest will not be collected until March 1 of the following year. The company's annual accounting period ends on December 31. The amount of interest revenue that should be reported in the first year is:

A) $0.

B) $6,000.

C) $5,000.

D) $16,667.

E) $1,000.

238) On November 1, Jasper Company loaned another company $100,000 at a 6.0% interest rate. The note receivable plus interest will not be collected until March 1 of the following year. The company's annual accounting period ends on December 31, and adjustments are only made at year-end. The adjusting entry needed on December 31 is:

A) No entry required.

B) Debit Interest Expense, $5,000; credit Interest Payable, $5,000.

C) Debit Interest Expense, $1,000; credit Note Payable, $1,000.

D) Debit Interest Receivable, $500; credit Interest Revenue, $500.

E) Debit Interest Receivable, $1,000; credit Interest Revenue, $1,000.

239) On December 1, Casualty Insurance Company borrowed $50,000 at a 6.0% interest rate from One Mutual Bank. The note payable plus interest will not be paid until April 1 of the following year. The company's annual accounting period ends on December 31 and adjustments are only made at year-end. The adjusting entry needed on December 31 is:

A) No entry required.

B) Debit Interest Expense, $250; credit Interest Payable, $250.

C) Debit Interest Expense, $250; credit Note Payable, $250.

D) Debit Interest Payable, $1,000; credit Interest Expense, $1,000.

E) Debit Interest Expense, $1,000; credit Interest Payable, $1,000.

240) Which of the following statements is incorrect?

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

B) An adjusted trial balance is a list of accounts and balances prepared after adjusting entries have been recorded and posted to the ledger.

C) Each trial balance amount is used in preparing the financial statements.

D) Financial statements should be prepared directly from information in the unadjusted trial balance.

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

241) On December 31, Carmack Company received a $215 utility bill for December that it will not pay until January 15. The adjusting entry needed on December 31 to accrue this expense is:

A) Debit Utilities Expense $215; credit Accounts Payable $215.

B) Debit Accounts Payable $215; credit Utilities Expense $215.

C) Debit Prepaid Utilities $215; credit Cash $215.

D) Debit Utilities Expense $215; credit Prepaid Utilities $215.

E) Debit Prepaid Utilities $215; credit Accounts Payable $215.

242) On December 31, Jacoby Company received a $385 bill for the purchase of supplies in December that it will not pay for until January 15. Jacoby follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry needed on December 31 to accrue this cost is:

A) Debit Supplies $385; credit Accounts Payable $385.

B) Debit Accounts Payable $385; credit Supplies $385.

C) Debit Accounts Payable $385; credit Cash $385.

D) Debit Supplies Expense $385; credit Cash $385.

E) Debit Supplies Expense $385; credit Supplies $385.

243) On December 31, Carmack Company's Prepaid Insurance account had a balance before adjustment of $6,000. The insurance was purchased on July 1 of the same year for one year of insurance coverage, with coverage beginning on that date. The adjusting entry needed on December 31 is:

A) Debit Prepaid Insurance $6,000; credit Cash $6,000.

B) Debit Insurance Expense $3,000; credit Accounts Payable $3,000.

C) Debit Insurance Expense $3,000; credit Prepaid Insurance $3,000.

D) Debit Cash $6,000; credit Prepaid Insurance $6,000.

E) Debit Insurance Expense $6,000; credit Accounts Payable $6,000.

244) On December 31, Jacoby Company's Prepaid Rent account had a balance before adjustment of $6,000. Three months' rent was paid in advance on December 1, the first day of the lease term. The adjusting entry needed on December 31 is:

A) Debit Prepaid Rent $6,000; credit Cash $6,000.

B) Debit Rent Expense $2,000; credit Accounts Payable $2,000.

C) Debit Rent Expense $2,000; credit Prepaid Rent $2,000.

D) Debit Cash $2,000; credit Prepaid Rent $2,000.

E) Debit Rent Expense $6,000; credit Accounts Payable $6,000.

245) Which of the following accounts is a permanent (real) account?

A) Fees earned.

B) Office supplies expense.

C) Interest revenue.

D) Accounts payable.

E) Salaries expense.

246) Closing the temporary accounts at the end of each accounting period does all of the following except:

A) Serves to transfer the effects of these accounts to the retained earnings account on the balance sheet.

B) Prepares the dividends account for use in the next period.

C) Brings the revenue and expense accounts to zero balances.

D) Has no effect on the retained earnings account.

E) Causes retained earnings to reflect increases from revenues and decreases from expenses and dividends.

247) Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and dividends accounts for the upcoming period and to update the retained earnings account for the events of the period just finished are referred to as:

A) Adjusting entries.

B) Closing entries.

C) Final entries.

D) Work sheet entries.

E) Updating entries.

248) The closing process is necessary in order to:

A) Calculate net income or net loss for an accounting period.

B) Ensure that all permanent accounts are closed to zero at the end of each accounting period.

C) Ensure that the company complies with state laws.

D) Ensure that net income or net loss and dividends for the period are closed into the retained earnings account.

E) Ensure that management is aware of how well the company is operating.

249) Closing entries are required:

A) If management has decided to cease operating the business.

B) Only if the company adheres to the accrual method of accounting.

C) If a company's bookkeeper does not choose to prepare reversing entries.

D) So that Revenue, expense, and dividends accounts must begin each period with zero balances.

E) In order to satisfy the Internal Revenue Service guidelines.

250) The recurring steps performed each reporting period in preparing financial statements, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the:

A) Accounting period.

B) Operating cycle.

C) Accounting cycle.

D) Closing cycle.

E) Natural business year.

251) Which of the following is the usual final step in the accounting cycle?

A) Journalizing transactions.

B) Preparing an adjusted trial balance.

C) Preparing a post-closing trial balance.

D) Preparing the financial statements.

E) Preparing a work sheet.

252) A classified balance sheet:

A) Measures a company's ability to pay its bills on time.

B) Organizes assets and liabilities into important subgroups that provide more information.

C) Broadly groups items into assets, liabilities and equity.

D) Reports operating, investing, and financing activities.

E) Reports the effect of profit and dividends on retained earnings.

253) The assets section of a classified balance sheet usually includes the subgroups:

A) Current assets, long-term investments, plant assets, and intangible assets.

B) Current assets, long-term assets, revenues, and intangible assets.

C) Current assets, long-term investments, plant assets, and equity.

D) Current liabilities, long-term investments, plant assets, and intangible assets.

E) Current assets, liabilities, plant assets, and intangible assets.

254) The usual order for the asset subgroups of a classified balance sheet is:

A) Current assets, prepaid expenses, long-term investments, intangible assets.

B) Long-term investments, current assets, plant assets, intangible assets.

C) Current assets, long-term investments, plant assets, intangible assets.

D) Intangible assets, current assets, long-term investments, plant assets.

E) Plant assets, intangible assets, long-term investments, current assets.

255) A classified balance sheet differs from an unclassified balance sheet in that:

A) An unclassified balance sheet is never used by large companies.

B) A classified balance sheet groups items into the broad categories of asset, liability, and equity.

C) A classified balance sheet presents information in a manner that makes it easier to calculate a company's current ratio.

D) A classified balance sheet will include more accounts than an unclassified balance sheet for the same company on the same date.

E) A classified balance sheet is not usually provided to outside parties.

256) Two common subgroups for liabilities on a classified balance sheet are:

A) Current liabilities and intangible liabilities.

B) Present liabilities and operating liabilities.

C) General liabilities and specific liabilities.

D) Intangible liabilities and long-term liabilities.

E) Current liabilities and long-term liabilities.

257) Which of the following is classified as a current asset?

A) Office equipment.

B) Patent.

C) Unearned revenue.

D) Office supplies.

E) Land.

258) Which of the following is classified as a plant asset?

A) Office equipment.

B) Patent.

C) Cash.

D) Office supplies.

E) Merchandise inventory.

259) The current ratio:

A) Is used to measure a company's profitability.

B) Is used to measure the relation between assets and long-term debt.

C) Measures the effect of operating income on profit.

D) Is used to help assess a company's ability to pay its debts in the near future.

E) Is calculated by dividing current assets by equity.

260) All of the following regarding the current ratio are true except:

A) Current ratio is calculated by dividing current assets by current liabilities.

B) Current ratio helps to assess a company's ability to pay its debts in the near future.

C) Current ratio does not affect a creditor's decision on whether to allow a company to buy on credit.

D) Current ratio can affect a creditor's decision about whether to lend money to a company.

E) Current ratio can reveal challenges in covering short-term obligations if it is less than 1.

261) The Unadjusted Trial Balance columns of a company's work sheet shows the Store Supplies account with a balance of $750. The Adjustments columns shows a credit of $425 for supplies used during the period. The amount shown as Store Supplies in the Balance Sheet columns of the work sheet is:

A) $325 debit.

B) $325 credit.

C) $425 debit.

D) $750 debit.

E) $425 credit.

262) An optional columnar working paper used to prepare a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements is a(n):

A) Adjusted trial balance.

B) Work sheet.

C) Post-closing trial balance.

D) Unadjusted trial balance.

E) General ledger.

263) Accumulated Depreciation and Service Fees Earned would be sorted to which respective columns in completing a work sheet?

A) Balance Sheet and Statement of Retained Earnings-Credit and Income Statement-Credit.

B) Balance Sheet and Statement of Retained Earnings-Debit and Income Statement-Debit.

C) Income Statement-Debit and Income Statement-Credit.

D) Balance Sheet and Statement of Retained Earnings-Debit and Balance Sheet and Statement of Retained Earnings-Credit.

E) Balance Sheet and Statement of Retained Earnings-Debit; and Income Statement-Credit.

264) Which of the following statements is incorrect?

A) Working papers are useful aids in the accounting process.

B) On the work sheet, the effects of the accounting adjustments are shown on the account balances.

C) After the work sheet is completed, it can be used to help prepare the financial statements.

D) On the work sheet, the adjusted amounts are sorted into columns according to whether the accounts are used in preparing the unadjusted trial balance or the adjusted trial balance.

E) A worksheet is not a substitute for financial statements.

265) A company shows a $600 balance in Prepaid Rent in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired rent of $200. This adjusting entry results in:

A) $200 decrease in net income.

B) $200 increase in net income.

C) $200 difference between the debit and credit columns of the Unadjusted Trial Balance.

D) $200 of prepaid insurance.

E) An error in the financial statements.

266) Statements that show the financial statements as if proposed transactions had already occurred are called:

A) Pro forma statements.

B) Professional statements.

C) Simplified statements.

D) Temporary statements.

E) Interim statements.

267) In preparing a work sheet an adjusted trial balance amount is mistakenly sorted to the wrong work sheet column. The Balance Sheet columns will balance on completing the work sheet but with the wrong net income, if the amount sorted in error is:

A) An expense amount placed in the Balance Sheet Credit column.

B) A revenue amount placed in the Balance Sheet Debit column.

C) A liability amount placed in the Income Statement Credit column.

D) An asset amount placed in the Balance Sheet Credit column.

E) A liability amount placed in the Balance Sheet Debit column.

268) If the Balance Sheet and Statement of Retained Earnings columns of a work sheet fail to balance when the net income is added to the Balance Sheet and Statement of Retained Earnings Credit column, the cause could be:

A) An expense entered in the Balance Sheet and Statement of Retained Earnings Debit column.

B) A revenue entered in the Balance Sheet and Statement of Retained Earnings Credit column.

C) An asset amount entered in the Income Statement and Statement of Retained Earnings Debit column.

D) A liability amount entered in the Income Statement and Statement of Retained Earnings Credit column.

E) An expense entered in the Balance Sheet and Statement of Retained Earnings Credit column.

269) A company's December 31 work sheet for the current period appears below. Based on the information provided, what is net income for the current period?

A) $1,400.

B) $1,855.

C) $1,905.

D) $2,060.

E) $4,670.

270) A company's December 31 work sheet for the current period appears below. Based on the information provided, what is net income for the current period?

A) $3,305.

B) $4,180.

C) $2,350.

D) $2,540.

E) $3,225.

271) Which of the following errors would cause the Balance Sheet and Statement of Retained Earnings columns of a work sheet to be out of balance?

A) Entering an asset amount in the Income Statement Debit column.

B) Entering a liability amount in the Income Statement Credit column.

C) Entering an expense amount in the Balance Sheet and Statement of Retained Earnings Debit column.

D) Entering a revenue amount in the Balance Sheet and Statement of Retained Earnings Debit column.

E) Entering a liability amount in the Balance Sheet and Statement of Retained Earnings Credit column.

272) The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments columns contain entries for the following:

1. Office supplies used during the period, $1,200.

2. Expiration of prepaid rent, $700.

3. Accrued salaries expense, $500.

4. Depreciation expense, $800.

5. Accrued service fees receivable, $400.

The Adjusted Trial Balance columns total is:

A) $80,400.

B) $84,000.

C) $85,700.

D) $85,900.

E) $87,600.

273) The balances in the unadjusted columns of a work sheet will agree with:

A) the balances reflected in the company's financial statements.

B) the balances reflected in the company's unadjusted trial balance.

C) whatever balances management has decided to report.

D) the balances in the company's post-closing trial balance.

E) the balances management budgeted for the accounting period.

274) In the process of completing a work sheet, the accountant determines that the Income Statement debit column totals $83,000, while the Income Statement credit column totals $65,000. To enter net income (or net loss) for the period into the work sheet would require an entry to

A) the Adjustments debit column and the Adjustments credit column.

B) the Unadjusted Trial Balance debit column and the Adjustments credit column.

C) it is not practical to enter Net Income (or Net Loss) on the work sheet.

D) the Balance Sheet & Statement of Retained Earnings debit column and the Income Statement credit column.

E) the Income Statement debit column and the Balance Sheet & Statement of Retained Earnings credit column.

275) The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the:

A) Income Summary account.

B) Closing account.

C) Balance column account.

D) Contra account.

E) Nominal account.

276) Castillo Services paid K. Castillo, the sole shareholder of Castillo Services, $5,700 in dividends during the current year. The entry to close the dividends account at the end of the year is:

A) Debit Dividends $5,700; credit Cash, $5,700

B) Debit Retained earnings $5,700; credit Dividends $5,700

C) Debit Dividends $5,700; credit Retained earnings $5,700

D) Debit Retained earnings $5,700, credit Salary Expense $5,700

E) Debit Income Summary $5,700; credit Retained earnings $5,700

277) High Step Shoes had annual revenues of $185,000, expenses of $103,700, and dividends of $18,000 during the current year. The retained earnings account before closing had a balance of $297,000. The entry to close the Income Summary account at the end of the year, after revenue and expense accounts have been closed, is:

A) Debit Retained earnings $297,000; credit Income Summary $297,000

B) Debit Retained earnings $63,300; credit Income Summary $63,300

C) Debit Income Summary $63,300; credit Retained earnings $63,300

D) Debit Income Summary $81,300, credit Retained earnings $81,300

E) Debit Retained earnings $81,300; credit Income Summary $81,300

278) High Step Shoes, had annual revenues of $185,000, expenses of $103,700, and paid dividends of $18,000 during the current year. The retained earnings account before closing had a balance of $297,000. The Net Income for the year is:

A) $185,000

B) $63,300

C) $81,300

D) $360,300

E) $378,300

279) High Step Shoes, had annual revenues of $185,000, expenses of $103,700, and paid dividends of $18,000 during the current year. The retained earnings account before closing had a balance of $297,000. The ending retained earnings balance after closing is:

A) $185,000

B) $63,300

C) $81,300

D) $360,300

E) $378,300

280) A company had revenues of $75,000 and expenses of $62,000 for the accounting period. Dividends of $8,000 were paid in cash during the same period. Which of the following entries could not be a closing entry?

A) Debit Income Summary $13,000; credit Retained earnings $13,000.

B) Debit Income Summary $75,000; credit Revenues $75,000.

C) Debit Revenues $75,000; credit Income Summary $75,000.

D) Debit Income Summary $62,000, credit Expenses $62,000.

E) Debit Retained earnings $8,000, credit Dividends $8,000.

281) The following information is available from the adjusted trial balance of the Harris Vacation Rental Agency. After closing entries are posted, what will be the balance in the Retained earnings account?

A) $65,000.

B) $80,000.

C) $130,000.

D) $145,000.

E) $280,000.

282) The following information is available for the Higgins Travel Agency. After closing entries are posted, what will be the balance in the Retained earnings account?

A) $75,500.

B) $184,500.

C) $99,500.

D) $160,500.

E) $130,000.

283) The following information is available for the Noir Detective Agency. After closing entries are posted, what will be the balance in the Retained earnings account?

A) $239,400.

B) $274,600.

C) $303,400.

D) $289,000.

E) $257,000.

284) The Retained earnings account has a credit balance of $37,000 before closing entries are made. If total revenues for the period are $55,200, total expenses are $39,800, and dividends are $9,000, what is the ending balance in the Retained earnings account after all closing entries are made?

A) $37,000.

B) $35,400.

C) $43,400.

D) $28,000.

E) $52,400.

285) The Retained earnings account has a credit balance of $37,000 before closing entries are made. Total revenues for the period are $55,200, total expenses are $39,800, and dividends are $9,000. What is the correct closing entry for the revenue accounts?

A) Debit Income Summary $55,200; credit Revenue accounts $55,200.

B) Debit Revenue accounts $37,000; credit Retained earnings $37,000.

C) Debit Revenue accounts $55,200; credit Retained earnings $37,000.

D) Debit Revenue accounts $55,200; credit Income Summary $55,200.

E) Debit Income Summary $37,000; credit Retained earnings $37,000.

286) The Retained earnings account has a credit balance of $37,000 before closing entries are made. Total revenues for the period are $55,200, total expenses are $39,800, and dividends are $9,000. What is the correct closing entry for the expense accounts?

A) Debit Income Summary $39,800; credit Expense accounts $39,800.

B) Debit Expense accounts $37,000; credit Retained earnings $37,000.

C) Credit Expense accounts $39,800; debit Retained earnings $39,800.

D) Debit Expense accounts $39,800; credit Income Summary $39,800.

E) Debit Income Summary $39,800; credit Retained earnings $39,800.

287) The Income Summary account is used to:

A) Adjust and update asset and liability accounts.

B) Close the revenue and expense accounts.

C) Determine the appropriate dividend amount.

D) Replace the income statement under certain circumstances.

E) Replace the Retained earnings account in some businesses.

288) A company paid Jen Rogers, its sole stockholder, a total of $35,000 in dividends during the current year. The entry needed to close the dividends account is:

A) Debit Income Summary and credit Cash for $35,000.

B) Debit Dividends and credit Cash for $35,000.

C) Debit Income Summary and credit Dividends for $35,000.

D) Debit Retained earnings and credit Dividends for $35,000.

E) Debit Dividends and credit Retained earnings for $35,000.

289) A company's ledger accounts and their end-of-period balances before closing entries are posted are shown below. What amount will be posted to Retained earnings in the process of closing the Income Summary account? (Assume all accounts have normal balances.)

A) $16,780 debit.

B) $7,180 credit.

C) $16,780 credit.

D) $18,280 credit.

E) $23,780 credit.

290) It is obvious that an error occurred in the preparation and/or posting of closing entries if:

A) all revenue and expense accounts have zero balances.

B) the Retained earnings account is debited for the amount of the net loss for the period.

C) the income summary account is debited for the amount of net income for the period.

D) all balance sheet accounts have zero balances.

E) only permanent accounts appear on the post-closing trial balance.

291) At the beginning of the year, a company's balance sheet reported the following balances: Total Assets = $225,000; Total Liabilities = $25,000; Total Paid-in capital of $100,000; and Retained earnings = $100,000. During the year, the company reported revenues of $46,000 and expenses of $30,000. In addition, dividends for the year totaled $20,000. Assuming no other changes to Retained earnings, the balance in the Retained earnings account at the end of the year would be:

A) $116,000.

B) $136,000.

C) $24,000.

D) $96,000.

E) $104,000.

292) At the beginning of the year, Sigma Company's balance sheet reported Total Assets of $195,000; Total Liabilities of $15,000; and Total Paid-in capital of $60,000. During the year, the company reported total revenues of $226,000 and expenses of $175,000. Also, dividends during the year totaled $48,000. Assuming no other changes to Retained earnings, the balance in the Retained earnings account at the end of the year would be:

A) $174,000.

B) $78,000.

C) $171,000.

D) $120,000.

E) $123,000.

293) After preparing and posting the closing entries for revenues and expenses, the income summary account has a debit balance of $33,000. The entry to close the income summary account will be:

A) Debit Dividends $33,000; credit Income Summary $33,000.

B) Debit Income Summary $33,000; credit Dividends $33,000.

C) Debit Income Summary $33,000; credit Retained earnings $33,000.

D) Debit Retained earnings $33,000; credit Income Summary $33,000.

E) Credit Retained earnings $33,000; debit Dividends $33,000.

294) The trial balance prepared after all closing entries have been journalized and posted is called the:

A) Unadjusted trial balance.

B) Post-closing trial balance.

C) General ledger.

D) Adjusted trial balance.

E) Work sheet.

295) Which of the following accounts showing a balance on the post-closing trial balance indicate an error?

A) Office Equipment.

B) Accumulated Depreciation-Office Equipment.

C) Depreciation Expense-Office Equipment.

D) Retained earnings.

E) Salaries Payable.

296) Which of the following accounts showing a balance on the post-closing trial balance indicate an error?

A) Land.

B) Dividends.

C) Accounts Payable.

D) Unearned Revenue.

E) Prepaid Insurance.

297) Which of the following statements is true?

A) Retained earnings must be closed each accounting period.

B) A post-closing trial balance should include only permanent accounts.

C) The work sheet can be substituted for preparing financial statements.

D) By using a work sheet to prepare adjusting entries you need not post these entries to the ledger accounts.

E) Closing entries are only necessary if errors have been made.

298) Reversing entries:

A) Are optional.

B) Are mandatory.

C) Correct errors in journal entries.

D) Are required by GAAP.

E) Are prepared on the worksheet.

299) Karl Company accrued wages of $7,350 that were earned by employees unpaid at the year-end. Assuming Karl uses reversing entries, which of the following entries correctly reverses the accrued wages at the beginning of the following year?

A) Debit Wages Expense $7,350; credit Cash $7,350.

B) Debit Wages Expense $7,350; credit Wages Payable $7,350.

C) Debit Wages Payable $7,350; credit Cash $7,350.

D) Debit Cash $7,350; credit Wages Expense $7,350.

E) Debit Wages Payable $7,350; credit Wages Expense $7,350.

300) All of the following regarding reversing entries are true except:

A) Reversing entries are optional.

B) Reversing entries are recorded in response to accrued assets and accrued liabilities that were created by adjusting entries at the end of the previous accounting period.

C) Reversing entries are used to simplify a company's record keeping.

D) Reversing entries are dated the first day of the new accounting period.

E) Reversing entries should not be the exact opposite of previous period adjusting entries.

301) Reversing entries:

A) Are necessary when journal entries have been incorrectly recorded.

B) Are a required step in the accounting cycle.

C) Will often result temporarily in abnormal account balances in some accounts.

D) Are required only if the company uses accounting software to record journal entries.

E) Must be made before preparing the post-closing trial balance.

302) The purpose of reversing entries is to:

A) Simplify a company's recording of certain journal entries in the future.

B) Correct errors made in previous journal entries.

C) Ensure that closing entries have been properly posted to the ledger accounts.

D) Make certain that only permanent accounts are carried forward into the next accounting period.

E) Complete a required step in the accounting cycle.

303) All of the following statements regarding a work sheet are true except:

A) A worksheet aids in the preparation of financial statements.

B) A worksheet reduces possible errors when working with many accounts and adjustments.

C) A worksheet is not useful in planning and organizing an audit of financial statements.

D) A worksheet helps in preparing interim financial statements.

E) A worksheet shows the effects of proposed or "what-if" transactions.

304) All of the following statements regarding the Income Statement columns on the worksheet are true except:

A) The balances in the Income Statement credit column are revenues.

B) The balances in the Income Statement credit column are unearned revenues.

C) The balances in the Income Statement debit column are expenses.

D) The difference between the totals of the Income Statement columns is net income or net loss.

E) The net income or net loss from the Income Statement columns is entered in the Balance Sheet & Statement of Retained Earnings columns.

305) Temporary accounts include all of the following except:

A) Consulting revenue.

B) Dividends.

C) Rent expense.

D) Prepaid rent.

E) Income Summary.

306) Permanent accounts include all of the following except:

A) Accumulated Depreciation—Equipment.

B) Prepaid Insurance.

C) Unearned Revenue.

D) Accounts Receivable.

E) Depreciation Expense—Equipment.

307) Which of the following statements about a company's operating cycle is not true:

A) Non-current items are those expected to come due within one year or the company's operating cycle.

B) The operating cycle is the time span from when cash is used to acquire goods and services until cash is received from the sale of goods and services.

C) The length of a company's operating cycle depends on its activities.

D) For a merchandiser selling products, the operating cycle is the time span between paying suppliers for merchandise and receiving cash from customers.

E) Most operating cycles are less than one year.

308) Which of the following types of businesses might have an operating cycle longer than one year?

A) Ski resort.

B) Clothing retailer.

C) Florist.

D) Wheat farmer.

E) Commercial airplane manufacturer.

309) Use the information in the adjusted trial balance presented below to calculate current assets for Wicked Wicker Company:

A) $21,200.

B) $45,600.

C) $24,400.

D) $95,600.

E) $41,200.

310) Use the information in the adjusted trial balance presented below to calculate the current ratio for Wicked Wicker Company:

A) 1.87.

B) .54.

C) 3.92.

D) 1.77.

E) 1.60.

311) An adjusting entry that increases an asset and increases a revenue is known as a(n):

A) Accrued expense.

B) Deferred expense.

C) Deferred revenue.

D) Accrued revenue.

E) Depreciation.

312) Based on the following information from Scranton Company's balance sheet, calculate the current ratio.

A) .44.

B) 3.51.

C) 3.33.

D) 1.06.

E) 2.23.

313) The following information is available for Cubic Company before closing the accounts. After all closing entries are made, what will be the balance in the Retained earnings account?

A) $115,000.

B) $225,000.

C) $264,000.

D) $186,000.

E) $956,000.

314) The following information is available for Brendon Company before closing the accounts. What will be the amount in the Income Summary account that should be closed to Retained earnings?

A) $80,000.

B) $64,400.

C) $43,000.

D) $32,400.

E) $42,400.

315) For the year ended December 31, a company had revenues of $187,000 and expenses of $109,000. $37,000 in dividends were paid during the year. Which of the following entries could not be a closing entry?

A) Debit Income Summary $78,000; credit Retained earnings $78,000.

B) Debit Retained earnings $37,000; credit Dividends $37,000.

C) Debit revenues $187,000; credit Income Summary $187,000.

D) Debit Income Summary $109,000, credit expenses $109,000.

E) Debit Income Summary $187,000; credit revenues $187,000.

316) Flagg records adjusting entries at its December 31 year end. At December 31, employees had earned $12,000 of unpaid and unrecorded salaries. The next payday is January 3, at which time $30,000 will be paid. Prepare the January 1 journal entry to reverse the effect of the December 31 salary expense accrual.

A) Debit Salaries expense $12,000; credit Salaries payable $12,000.

B) Debit Salaries expense $18,000; debit Salaries payable $12,000; credit Cash $30,000.

C) Debit Salaries payable $18,000; credit Cash $18,000.

D) Debit Salaries payable $12,000, credit Salaries expense $12,000.

E) Debit Salaries expense $18,000; credit Salaries payable $18,000.

317) Flagg records adjusting entries at its December 31 year-end. At December 31, employees had earned $12,000 of unpaid and unrecorded salaries. The next payday is January 3, at which time $30,000 will be paid. Prepare the journal entry on January 3 to record payment assuming the adjusting and reversing entries were made on December 31 and January 1.

A) Debit Salaries expense $12,000; debit Salaries payable $18,000; credit Cash $30,000.

B) Debit Salaries expense $30,000; credit Cash $30,000.

C) Debit Salaries payable $30,000; credit Cash $30,000.

D) Debit Salaries expense $18,000, debit Salaries payable $12,000; credit Cash $30,000.

E) Debit Salaries expense $18,000; credit Cash $18,000.

318) Which of the following accounts would be included in a post-closing trial balance?

A) Accounts Receivable.

B) Dividends.

C) Consulting Fees Earned.

D) Depreciation Expense—Equipment.

E) Salaries Expense.

319) Palmer Company is at the end of its annual accounting period. The accountant has journalized and posted all external transactions and all adjusting entries, has prepared an adjusted trial balance, and completed the financial statements. The next step in the accounting cycle is:

A) Prepare a work sheet.

B) Prepare reversing entries.

C) Close temporary accounts.

D) Prepare a post-closing trial balance.

E) Prepare an unadjusted trial balance.

320) For the year ended December 31, a company has revenues of $317,000 and expenses of $196,000. The company paid $50,000 in dividends during the year. The balance in the Retained earnings account before closing is $81,000. Which of the following entries would be used to close the dividends account?

A) Debit Income Summary $50,000; credit Retained earnings $50,000.

B) Debit Retained earnings $50,000; credit Dividends $50,000.

C) Debit Retained earnings $81,000; credit Income Summary $81,000.

D) Debit Income Summary $81,000, credit Dividends $81,000.

E) Debit Dividends $50,000; credit Retained earnings $50,000.

321) Which of the following accounts could not be classified as a current liability?

A) Unearned revenues.

B) Accounts payable.

C) Notes payable (due in 11 months).

D) Current portion of long-term note payable.

E) Notes payable (due in 5 years).

322) Match the following terms with the appropriate definition.

A. Accrual basis accounting

B. Cash basis accounting

C. Fiscal year

D. Interim financial statements

E. Depreciation

F. Straight-line depreciation

G. Time period assumption

H. Expense recognition (matching) principle

I. Accrued revenues

____ 1. Any 12 consecutive months or 52-week period that a company adopts for its annual reporting period.

____ 2. A method that allocates equal amounts of an asset's cost (less any salvage value) to depreciation expense during its useful life.

____ 3. Assumes that an organization's activities can be divided into specific time periods such as months, quarters, or years.

____ 4. Aims to record expenses in the same accounting period as the revenues that are earned as a result of those expenses.

____ 5. The accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred.

____ 6. The process of allocating the costs of long-term assets to the income statement over their expected useful lives.

____ 7. Revenues earned in a period that are both unrecorded and not yet received in cash or other assets.

____ 8. The accounting system that recognizes revenue when cash is received and records expenses when cash is paid.

____ 9. A set of financial statements that covers less than one year, typically one, three, or six months of activity.

323) Match the following terms with the appropriate definition.

A. Accrued expenses

B. Adjusting entry

C. Adjusted trial balance

D. Prepaid expenses

E. Report form balance sheet

F. Accounting period

G. Contra account

H. Profit margin

I. Unadjusted trial balance

J. Natural business year

____ 1. A 12-month period, used by companies with seasonal variation that ends when a company's sales activities are at their lowest point.

____ 2. A journal entry made at the end of an accounting period to reflect a transaction or event that is not yet recorded; affects one or more income statement account and one or more balance sheet account, but never cash.

____ 3. An account linked with another account and having an opposite normal balance.

____ 4. Items paid for in advance of receiving their benefits; recorded as an asset when purchased and expensed when used.

____ 5. Any length of time that an organization's activities are divided into and reported by financial statements.

____ 6. A listing of accounts and balances prepared after adjustments are recorded and posted to the ledger.

____ 7. A balance sheet that lists items vertically in the order of assets, liabilities and equity.

____ 8. Costs that are incurred in a period but are both unpaid and unrecorded, requiring an adjustment at the end of the period.

____ 9. A listing of accounts and balances prepared after external transactions are recorded but before adjustments are recorded.

____ 10. A useful measure of a company's operating results determined by dividing net income by net sales.

324) Match the following types of adjustments (a though d) with the transactions (1 through 4).

a. Prepaid expense

b. Unearned revenue

c. Accrued expense

d. Accrued revenue

4. Used to record wages owed, but not yet paid.

325) Match the following terms with the appropriate definition.

A. Permanent accounts F. Work sheet

B. Accounting cycle G. Closing entries

C. Temporary accounts H. Post-closing trial balance

D. Working papers I. Operating cycle of a business

E. Income summary J. Pro forma statements

____ 1. Various analyses and internal documents prepared by accountants when organizing information for internal and external decision makers.

____ 2. The time span from when cash is used to acquire goods and services until cash is received from the sale of those goods and services.

____ 3. A temporary account only used for the closing process that contains a credit for the sum of all revenues and a debit for the sum of all expenses.

____ 4. A widely used working paper that is a useful tool for preparers in working with accounting information, usually not available to external decision makers.

____ 5. A list of permanent accounts and their balances from the ledger after all closing entries are journalized and posted.

____ 6. Recurring steps in preparing financial statement performed each accounting period, beginning with analyzing transactions and ending with a post-closing trial balance or reversing entries.

____ 7. Entries used to transfer end-of-period balances in revenue, expense, and dividends accounts to the permanent retained earnings account.

____ 8. Statements that show the effects of proposed transactions as if the transactions had already occurred.

____ 9. Accounts that report on activities related to one or more future accounting periods; they carry their ending balances into the next period.

____10. Accounts that accumulate data related to one accounting period only; they include income statement accounts, dividends, and the Income Summary account.

326) Match the following terms with the appropriate definition.

A. Plant assets

B. Stockholders' equity

C. Classified balance sheet

D. Intangible assets

E. Current ratio

F. Closing entries

G. Current liabilities

H. Long-term investments

I. Current assets

J. Unclassified balance sheet

____ 1. The owners' claims on the assets of a company.

____ 2. Tangible assets that are long-lived and used to produce or sell products or services.

____ 3. Cash and other resources that are expected to be sold, collected, or used within one year or the company's operating cycle, whichever is longer.

____ 4. Entries recorded at the end of each accounting period to transfer end-of-period balances in revenue, expense, and dividends accounts to the permanent retained earnings account.

____ 5. Long-term resources that benefit business operations, usually lack physical form, and have uncertain benefits.

____ 6. Assets that are held for more than the longer of one year or the operating cycle of the company and are not used in operations.

____ 7. A balance sheet that organizes the assets and liabilities into important subgroups that provide more information to decision makers.

____ 8. Obligations due to be paid or settled within one year or the operating cycle of a business, whichever is longer.

____ 9. A balance sheet that broadly groups items into assets, liabilities and equity.

____10. A ratio that is used to help evaluate a company's ability to pay its short-term obligations, calculated by dividing current assets by current liabilities.

327) Classified balance sheets commonly include the following categories.

a. Current assets

b. Long-term investments

c. Plant assets

d. Intangible assets

e. Current liabilities

f. Long-term liabilities

g. Equity.

Indicate the typical classification of each item below by placing the letter of the correct balance sheet category a through g in the blank space next to the item.

1) ____ Equipment used in business operations

2) ____ Store Supplies

3) ____ Investment maturing in two years

4) ____ Long-term Note Payable

5) ____ Prepaid Rent

6) ____ Retained Earnings

7) ____ Accounts Payable

8) ____ Current portion of long-term debt

9) ____ Trademarks

10) ____ Wages Payable

11) ____ Accounts Receivable

12) ____ Cash

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

329) Discuss how accrual accounting enhances the usefulness of financial statements.

330) Identify the primary differences between accrual accounting and cash basis accounting.

331) Explain the purpose of adjusting entries at the end of a period and provide an example of an adjusting entry.

332) List the three-steps of the adjusting process.

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

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

335) How is profit margin calculated? Discuss its use in analyzing a company's performance.

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

337) Describe the adjusting entries, including the accounts used, for 1) prepaid expenses, 2) depreciation and 3) unearned revenues.

338) Describe the adjusting entries, including the accounts used, for 1) accrued expenses and 2) accrued revenues.

339) Describe the two alternate methods used to account for prepaid expenses.

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

341) Why are financial statements prepared in a specific order?What is the usual order in which financial statements are prepared from the adjusted trial balance?

342) Explain how a company uses the accrual basis of accounting.

343) Explain why temporary accounts are closed each period.

344) Explain the difference between temporary and permanent accounts.

345) List the steps in the accounting cycle.

346) How is a classified balance sheet different from an unclassified balance sheet? List the usual order of the categories on a classified balance sheet.

347) How is the current ratio calculated? How is it used to evaluate a company?

348) Describe a work sheet and explain why it is useful.

349) List and explain the steps in preparing a 10-column worksheet.

350) What is the purpose of closing entries? Describe the closing process.

351) What is the purpose of a post-closing trial balance?

352) Explain the purpose of reversing entries.

353) On December 31, the year end, a company forgot to record $6,000 of depreciation on machinery. In the current year financial statements, what is the effect of this error on assets, net income, and equity?

354) Given the table below, indicate the impact of the following errors made during the adjusting entry process. Use a "+" followed by the amount for overstatements, a "-" followed by the amount for understatements, and a "0" for no effect. The first one is done as an example.

Ex. Failed to recognize that $600 of unearned revenues, previously recorded as liabilities, had been earned by year-end.

1. Failed to accrue interest expense of $200.

2. Forgot to record $7,700 of depreciation on machinery.

3. Failed to accrue $1,300 of revenue earned but not collected.

Error Revenues Expenses Assets Liabilities Equity

EX -$600 0 0 +$600 -$600

1. ________ ________ ________ ________ ________

2. ________ ________ ________ ________ ________

3. ________ ________ ________ ________ ________

355) A company issued financial statements for the year ended December 31, but failed to include the following adjusting entries:

A. Accrued interest revenue earned of $1,200.

B. Depreciation expense of $4,000.

C. Portion of prepaid insurance expired (an asset) used $1,100.

D. Accrued taxes of $3,200.

E. Revenues of $5,200, originally recorded as unearned, have been earned by the end of the year.

Determine the correct amounts for the December 31 financial statements by completing the following table:

356) Using the table below, indicate the impact of the following errors made during the adjusting entry process. Use a "+" for overstatements, a "-" for understatements, and a "0" for no effect. The first one is provided as an example.

357) Andrew's net income was $280,000; its total assets were $1,050,000; and its net sales were $3,500,000. Calculate the company's profit margin ratio.

358) Farmers' net income was $740,000 and its net sales were $8,000,000. Calculate its profit margin ratio.

359) From the information provided, calculate Giuseppe'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.

2017 2016 2015

Net income $ 2,630 $ 2,100 $1,850

Net Sales 36,500 32,850 31,200

Total Assets 400,000 385,000 350,000

360) On December 14, Branch Company received $3,000 cash for 30 days of consulting services that will be completed on January 13. Branch records all such prepayments by customers in a liability account. Prepare the December 31 adjusting entry.

361) On December 31, Chu Company had performed $3,000 of management services for clients that had not yet been billed. Prepare Chu's adjusting entry to record these fees earned.

362) A company's employees earn a total of $10,000 per week for a 5-day week that begins on Monday. December 31 of Year 1 is a Monday, and all employees worked that day.

a) Prepare the required adjusting journal entry to record accrued salaries on December 31, Year 1.

b) Prepare the journal entry to record the payment of salaries on January 4, Year 2. (Assume no reversing entries were made).

363) Glisten Co. leases an office to a tenant at the rate of $3,000 per month. The tenant contacted Glisten and arranged to pay the rent for December on January 8 of the following year. Glisten agrees to this arrangement.

a) Prepare the journal entry that Glisten must make at year ended December 31 to record the accrued rent revenue.

b) Prepare the journal entry to record the receipt of the rent on January 8 of the following year (Assume no reversing entries were made).

364) Prior to recording adjusting entries on December 31, a company's Office Supplies account had a $780 debit balance. A physical count of the supplies showed $425 of unused supplies available as of December 31. Prepare the required adjusting entry.

365) 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.

366) Werner Company had $1,300 of store supplies at the beginning of the current year. During this year, Werner purchased $6,250 worth of store supplies. On December 31, $1,125 worth of store supplies remained. Calculate the amount of Werner Company's store supplies expense for the current year.

367) Prepare general journal entries on December 31 to record the following unrelated year-end adjustments.

a. Estimated depreciation on equipment for the year, $4,500.

b. The Prepaid Insurance account has a $3,680 debit balance before adjustment. An examination of insurance policies shows $600 of insurance expired.

c. The Prepaid Insurance account has a $2,400 debit balance before adjustment. An examination of insurance policies shows $950 of unexpired insurance.

d. The company has three office employees who each earn $100 per day for a five-day workweek that ends on Friday. The employees were paid on Friday, December 26, and have worked full days on Monday, Tuesday, and Wednesday, December 29, 30, and 31.

e. On November 1, the company received 6 months' rent in advance from a tenant whose rent is $700 per month. The $4,200 was credited to the Unearned Rent account.

f. The company collects rent monthly from its tenants. One tenant whose rent is $1,000 per month has not paid his rent for December.

368) Rogers Company's employees are paid a total of $1,600 per day for a 5-day workweek. The employees are paid each Friday. This year the accounting period ends on Tuesday. Prepare the December 31 year-end adjusting journal entry Rogers Company should make to accrue salaries.

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

370) Juno Company had $500 of office supplies available at the beginning of the current year. During the year Juno Company purchased $2,750 worth of office supplies, which were debited to the office supplies account. On December 31 of this year, $375 worth of office supplies remained.

a. Calculate the amount of Juno Company's office supplies expense for the current year. (Show your calculations.)

b. Prepare the journal entry to adjust the supplies account.

371) 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.

372) The following unadjusted and adjusted trial balances are from the current year's accounting system for Excelsior.

Excelsior

Trial Balances

For Year Ended December 31

Present the six adjusting entries in general journal form that explain the changes in the account balances from the unadjusted to the adjusted trial balance.

373) Trapper Company's unadjusted and adjusted trial balances on December 31 of the current year are as follows:

Present the four adjusting journal entries that were recorded by Trapper Company.

374) Record the December 31 adjusting entries for the following transactions and events in general journal form. 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 two-year fire insurance policy that was purchased on October 1 of the current year and has not been adjusted to-date.

b. The Store 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 store equipment is $600.

e. Accrued salaries amount to $1,400.

375) Based on the unadjusted trial balance for Highlight Styling and the adjusting information given below, prepare the adjusting journal entries for Highlight Styling.

Highlight Stylings' unadjusted trial balance for the current year follows:

Additional information:

a. An insurance policy examination showed $1,040 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, $2,020.

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 still unearned 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.

376) 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:

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.

377) Using the information presented below, prepare an income statement from the adjusted trial balance of Dodson Containers.

DODSON CONTAINERS

Adjusted Trial Balance

December 31

378) Using the information presented below, prepare a statement of retained earnings and balance sheet from the adjusted trial balance of Dodson Containers.

DODSON CONTAINERS

Adjusted Trial Balance

December 31

379) Using the information given below, prepare an income statement and statement of retained earnings for Rapid Car Services from the adjusted trial balance.

380) Using the information given below, prepare a balance sheet for Rapid Car Services from the adjusted trial balance.

381) 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:

Oct. 01 Cash ………………………………………..15,000

Rent Revenue Earned ……………... 15,000

Assuming Abdulla only prepares adjustments at year-end, prepare the required adjusting entry at December 31 of the current year.

382) On November 1 of the current year, Salinger Company paid $9,600 cash for a one-year insurance policy that took effect on that day. On the date of the payment, Salinger recorded the following entry:

Nov. 01 Insurance Expense..……………………….. 9,600

Cash………………….……………... 9,600

Assuming Salinger only prepares adjustments at year-end, prepare the required adjusting entry at December 31 of the current year.

383) Carroll Co. is a multi-million dollar business. The business results for the year have been impacted significantly by a slowing economy. The company wants to increase its net income. It has incurred $2,900,000 in unpaid salaries at the end of the year and wants to leave those amounts unrecorded at the end of the year. (a) How would this omission affect the financial statements of Carroll? (b) Which accrual basis of accounting principles does this omission violate? (c) Would this be considered an ethical problem?

384) The following information is available for Hatter Co.

From the information provided, calculate Hatter's profit margin ratio for each of the three years. In 2016, economic conditions and a slowing economy impacted the results of operations. Comment on the results, assuming that the industry average for the profit margin ratio is 7% for each of the three years.

385) 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?

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.

386) The unadjusted trial balance and the adjustment data for Porter Business Institute are shown below along with adjusting entry information. What is the impact of the adjusting entries on the balance sheet? Show the calculation for total assets, total liabilities, and equity without the adjustments; show the calculation for total assets, total liabilities, and equity with the adjustments. Which one provides the most accurate presentation of the balance sheet?

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.

387) Using the selected information given below for Luk Company, calculate the return on assets, debt ratio, and profit margin. Comment on the results of operations and the financial position of the company for the year.

388) Prepare adjusting entries for the year ended December 31, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance are initially recorded as liabilities.

a. The Prepaid Rent account has a debit balance of $8,000 before adjustment, representing a prepayment for four months' rent made on December 1 of the current year.

b. One-third of the work related to $18,000 of cash received in advance was performed during this period.

c. Unpaid accrued salaries at December 31 amounts to $15,000

d. Work was completed for a client on December 31 in the amount of $21,000, but was not previously billed or recorded.

e. Estimated depreciation on office equipment is $27,000.

389) Gracio Co. had the following transactions in the last two months of its year ended December 31. Prepare entries for these transactions under the method that records prepaid expenses as expenses and records unearned revenues as revenues. Also prepare adjusting entries at the end of the year.

390) For each of the following two separate situations, 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. Assume the company does not prepare reversing entries.

a. Nicolas Company has 5 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 worked each day and will be paid salaries for five full days on the following Monday.

b. Services of $3,000 have been performed for Clevenger Company 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 Clevenger Company for services that are now completed on May 23.

391) a) Prepare a classified balance sheet for Martin Air Freight based on the adjusted trial balance shown below. b) Prepare the required closing entries.

* $2,000 of the long-term note payable is due during the next year.

392) The calendar year-end adjusted trial balance for Blessinger Co. follows:

BLESSINGER CO.

Adjusted Trial Balance

December 31

Required:

(a) Prepare a classified year-end balance sheet. (Note: A $9,000 installment on the long-term note payable is due within one year.)

(b) Prepare the required closing entries.

393) The calendar year-end adjusted trial balance for Blessinger Co. follows:

BLESSINGER CO.

Adjusted Trial Balance

December 31

Required:

(a) Determine the amounts of current assets and current liabilities. (Note: A $9,000 installment on the long-term note payable is due within one year.)

(b) Calculate the current ratio. Comment on the ability of Blessinger Co. to meets its short-term debts.

394) Companies experiencing seasonal variations in sales often choose a fiscal year corresponding to their ________ year.

395) ________ are required at the end of the accounting period because certain internal transactions and events remain unrecorded.

396) Accrual accounting and the adjusting process rely on two principles: the ________ principle and the ________ principle.

397) ________ basis accounting means that revenues are recognized when cash is received and that expenses are recorded when cash is paid. ________ basis accounting means that the financial effects of revenues and expenses are recorded when earned or incurred.

398) Adjusting is a three-step process (1) ________, (2) ________, and (3) ________.

399) ________ refer to costs incurred in a period that are both unpaid and unrecorded. ________ refer to revenues earned in a period that are both unrecorded and not yet received in cash (or other assets).

400) Accrued revenues at the end of one accounting period often result in cash ________ in the next period.

401) ________ revenues are liabilities requiring delivery of products and for services.

402) If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be ________ and equity would be ________.

403) Profit margin = ________ divided by net sales.

404) The ________ depreciation method allocates equal amounts of an asset's cost to depreciation during its useful life.

405) ________ is the process of allocating the cost of plant assets to the income statement over their expected useful lives.

406) A ________ account is an account linked with another account, having an opposite normal balance, and reported as a subtraction from that other account's balance.

407) ________ expenses are those costs that are incurred in a period but are both unpaid and unrecorded.

408) An ________ is a listing of all of the accounts in the ledger with their account balances before adjustments are made.

409) An ________ is a listing of all of the accounts in the ledger with their account balances after adjustments are made.