Test Bank | Adjusting Financials - Static - 10th

View Product website:

https://selldocx.com/docx/test-bank-adjusting-financials-static-10th-1034

Student name:__________

FILL IN THE BLANK. Write the word or phrase that best completes each statement or answers the question.
1) Companies that have seasonal variation in sales often use a ________________________ year end, which is when sales are at their lowest for the year.

2) ______________________ are made at the end of an accounting period to reflect transactions or events that are not yet recorded.

3) Accrual accounting and the adjusting process rely on two principles: the ___________________ principle and the ________________________ principle.

4) __________ basis accounting means that revenues are recognized when cash is received and that expenses are recorded when cash is paid. _____________ basis accounting means that revenue is recorded when products or services are delivered and expenses are recorded when incurred.

5) Adjusting is a three-step process (1) _________________, (2) ___________________, and (3) _______________________.

6) ________________ 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).

7) Accrued revenues at the end of one accounting period result in cash _______________________ in a future period(s).

8) ______________ revenue is cash received in advance of providing products or services.

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

10) Profit margin = ___________________ divided by net sales.

11) The _______________ depreciation method allocates equal amounts of an asset’s net cost to depreciation during its useful life.

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

13) 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.

14) _____________ expenses are those costs that are incurred in a period that are both unpaid and unrecorded.

15) An _______________________ is a listing of all accounts and balances before adjustments are recorded.

16) An _______________________ is a listing of all accounts and balances after adjustments are made.

SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
17) Discuss the importance of periodic reporting and the time period assumption.

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

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

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

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

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

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

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

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

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

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

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

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

30) 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?

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

32) Explain why temporary accounts are closed each period.

33) Explain the difference between temporary and permanent accounts.

34) List the steps in the accounting cycle.

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

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

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

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

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

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

41) Explain the purpose of reversing entries.

ESSAY. Write your answer in the space provided or on a separate sheet of paper.
42) 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? Indicate the amount each is overstated or understated as a result of this error.

43) 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.

Example 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.

44) 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 tax expense 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:

45) 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.

46) 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.

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

48) 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.

49) 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.

50) 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.

51) 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).

52) Glisten Company 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).

53) Prior to recording adjusting entries on December 31, a company’s 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.

54) 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 Supplies account began the current year with a $235 debit balance; the income statement for the year showed $475 of supplies expense; and the year-end balance sheet showed supplies of $275; consequently, if all supplies were accounted for, $____________ of supplies must have been purchased during the year.

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

56) 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 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 Revenue 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.

57) 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.

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

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

a. Calculate the amount of Juno Company’s supplies expense for the current year. (Show your calculations.)
b. Prepare the journal entry to adjust the supplies account.

60) During the current year ended December 31, clients paid fees in advance for accounting services amounting to $15,000. These fees were recorded in Unearned Revenue. 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.

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

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.

62) 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.

63) 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 Supplies account has a debit balance of $400; a year-end inventory count reveals $80 of supplies still on hand.
c. Estimated depreciation on store equipment is $600.
d. Accrued salaries amount to $1,400.

64) 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 supplies still available.
c. Depreciation expense on 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 revenue 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.

65) Based on the unadjusted trial balance for Glow Styling and the adjusting information given below, (1) prepare the adjusting journal entries for Glow Styling. After completing the adjusting entries, (2) 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 insurance had expired.
b. An inventory count showed $210 of unused supplies still available.
c. Depreciation expense on equipment, $350.
d. Depreciation expense on the building, $2,220.
e. Accrued revenue of $200 was unrecorded and not yet received at the time the trial balance was prepared.
f. $800 of the Unearned Revenue 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 and not yet been paid. 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 and not yet paid.

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

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

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

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

70) Abdulla, Company 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:

71) 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:

72) Carroll Company 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?

73) The following information is available for Hatter Company

From the information provided, calculate Hatter’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 7% for each of the three years.

74) 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.

75) 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.

76) Using the selected information given below for Luk Company, calculate the profit margin and current ratio.

77) 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.

78) Gracio Company 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.

79) 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.

80) 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.

81) The calendar year-end adjusted trial balance for Blessinger Company follows:

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.

82) The calendar year-end adjusted trial balance for Blessinger Company follows:

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 Company to meets its short-term debts.

Answer Key

Test name: John Wild Ch03 Problem Material

1) natural business

2) Adjusting entries

3) [revenue recognition, expense recognition (matching) (answers can appear in any order)]

4) [Cash, Accrual (answers must appear in this order)]

5) [(1) determine what the current account balance equals, (2) determine what the current account balance should equal, (3) record an adjusting entry to get from step 1 to step 2.]

6) [Accrued expenses, Accrued revenues (answers must appear in this order)]

7) receipts (collections or inflows)

8) Unearned

9) [overstated, overstated]

10) Net Income

11) straight-line

12) Depreciation

13) contra

14) Accrued

15) unadjusted trial balance

16) adjusted trial balance

17) For information to be valuable to decision makers, it must be presented in a timely fashion. To provide timely information for decision making, accounting systems are designed to prepare periodic reports at regular intervals. The time period assumption assumes that an organization’s activities can be divided into specific time periods such as months, quarters or years.

18) The accrual accounting method recognizes revenue when earned and expenses when incurred. In this way, accrual accounting better reflects business performance than information about cash receipts and payments. Accrual accounting also increases the comparability of financial statements from one period to another.

19) Accrual accounting records revenues in the period earned and expenses in the period incurred. The cash basis, on the other hand, records revenues when cash is received, and expenses when cash is paid.

20) Adjusting entries are necessary for transactions and events that extend over more than one period. They are used to reflect transactions or events that have not yet been recorded and to bring asset or liability account balances to their proper amount and to update related expense or revenue accounts. Events requiring adjusting entries are the recognition of revenue earned or expenses incurred during the accounting period when the corresponding cash received or cash paid occurs in another period.

21) (1) Determine what the current account balance equals; (2) Determine what the current account balance should equal; (3) Record an adjusting entry to get from step 1 to step 2.

22) Adjusting entries can be grouped into two general categories: accruals and deferrals. Deferral adjusting entries reflect transactions when cash changes hands before the related revenue or expense is recognized. Deferrals affect prepaid expenses and unearned revenues. Accrual adjusting entries reflect transactions when cash changes hands after the related revenue or expense is recognized. Accruals affect payable and receivable accounts.

23) Adjusting entries bring assets, liabilities, revenue, and expenses to their proper balances. Without accounting adjustments many accounts would have balances that do not reflect the proper financial performances and financial condition of the company. For example, a Prepaid Insurance account that was unadjusted would affect both the expired cost (expense) and the unexpired cost (asset) and no expense would be included on the income statement for the amount used. Adjusting entries thus enhance the accuracy of financial statements so that the amounts on the statements better reflect the financial condition and performance of the company.

24) Profit margin is calculated by dividing net income by net sales. The resulting percent reflects the percent of profit a company makes for every dollar in sales. The profit margin ratio is useful in comparing a company’s performance to that of its competitors, and as a relative measure of the company’s performance across periods.

25) Accrued revenues recorded in one period result in recording cash received in a later period. At the time of an accrual of revenue, a receivable account is debited. When cash for accrued revenues is received, a journal entry must be made to recognize the cash receipt and reduce the receivable. Accrued expenses recorded in one period result in recording cash payments made in later periods. At the time of an accrual of an expense, a payable account is credited. When the cash for these expenses is paid, a journal entry must be made to recognize the cash payment and reduce the payable.

26) 1) Prepaid expenses are deferrals, or expenses paid for in advance. The adjusting entry credits a prepaid expense account and debits an expense account. 2) Depreciation is the recognition of the decline in usefulness of plant and equipment assets. The adjusting entry for depreciation debits an expense account and credits accumulated depreciation. 3) Unearned revenues represent cash collected in advance for products or services. The adjusting entry for unearned revenues debits the unearned revenue account and credits a revenue account.

27) 1) Accrued expenses are expenses that have been incurred but not yet paid for. Adjusting for accrued expenses requires a debit to an expense and a credit to a liability account to recognize that an expense has been incurred but not yet paid. 2) Accrued revenues are revenues that have been earned but not yet received in cash. The adjusting entry requires a credit to a revenue account and a debit to a receivable account.

28) The first method places all prepaid expenses into asset accounts when cash is paid. Adjusting entries are used to recognize expired amounts which are placed into expense accounts. The second method places all prepaid expenses in the expense accounts when cash is paid. Adjusting entries are used to place unexpired amounts into the asset accounts.

29) An adjusted trial balance is a list of accounts and balances prepared after adjusting entries are recorded and posted to the ledger. The purpose of the adjusted trial balance is to ensure that total debits equal total credits for all accounts in the ledger prior to preparing financial statements.

30) The financial statements are prepared in a specific order because amounts from the statements prepared earlier are needed to prepare the statements prepared later. The income statement is prepared first. The amount of net income is then used in the statement of retained earnings to calculate the ending balance in the Retained Earnings account. The ending balance in the Retained Earnings account is then transferred to the balance sheet. The statement of cash flows is usually prepared last.

31) Financial information is more comparable when revenues are consistently recorded in the period in which they are earned and expenses are consistently recorded in the periods in which they are incurred. Adjusting entries are made at the end of the accounting period so that timely and accurate financial statements are available for business decisions.

32) Temporary accounts accumulate data related to one accounting period. They are closed at the end of each accounting period to prepare revenue, expense and dividends accounts for the next reporting period by bringing the balances in those accounts to zero. Secondly, the closing process is used to update the retained earnings account to include the increases from revenues and decreases from expenses and dividends.

33) Temporary accounts accumulate data related to one accounting period. They include all income statement accounts, dividends, and Income Summary. Temporary accounts are closed at the end of each accounting period. Permanent accounts, on the other hand, report on activities related to one or more future accounting periods. They carry their balances to the next period. All balance sheet accounts are permanent accounts.

34) The accounting cycle consists of ten steps: (1) analyze transactions, (2) journalize, (3) post, (4) prepare unadjusted trial balance, (5) adjust and post accounts, (6) prepare an adjusted trial balance, (7) prepare financial statements, (8) close the temporary accounts, (9) prepare a post-closing trial balance, and (10) prepare reversing entries (optional).

35) An unclassified balance sheet broadly groups items into assets, liabilities, and equity. A classified balance sheet organizes assets, liabilities, and equity into subgroups that provide more useful information to decisions makers. Classified balance sheets usually report four groups of assets: current assets, long-term investments, plant assets, and intangible assets. Liabilities are usually divided into current and long-term. For sole proprietorships and partnerships equity is reported under capital accounts. For corporations, the equity section is divided into common stock and retained earnings.

36) The current ratio is current assets divided by current liabilities. It is used to help evaluate a company's ability to pay its short-term obligations. It can be used by suppliers and creditors to help them decide whether to allow a company to buy on credit, and whether to loan them money.

37) A work sheet is a useful tool that preparers use in working with accounting information. It aids in the preparation of financial statements. It contains five pairs of debit and credit columns for the trial balance, adjusting entries, adjusted trial balance, income statement accounts, and balance sheet (and retained earnings) accounts. The worksheet reduces the possibility of errors when working with many accounts and adjustments, helps in preparing interim financial statements, and shows the effects of proposed transactions.

38) 1. Enter the unadjusted trial balance. List the titles and account numbers of every account that will be expected to appear on the financial statements and enter their balances from the ledger; 2. Enter adjustments; 3. Prepare the adjusted trial balance by combining the unadjusted trial balance columns with the adjustments; 4. Sort the adjusted trial balance columns into the Income Statement columns and Balance Sheet and Statement of Retained Earnings columns; 5. Total the Income Statement columns and Balance Sheet and Statement of Retained Earnings columns. The difference between the Income Statement columns is the net income or net loss. The difference between the Balance Sheet and Statement of Retained Earnings columns will also be the amount of the net income or net loss. Add the net income to the Income Statement debit column and total the columns. Add the net income to the Balance Sheet and Statement of Retained Earnings credit column and total the columns.

39) The purpose of closing entries is to transfer the end of period balances in the temporary accounts to the equity account(s). The closing process has four steps: (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 the retained earnings account, (4) close dividends to the retained earnings account.

40) A post-closing trial balance is a list of permanent accounts and their balances after all the closing entries are journalized and posted. It is used to verify the equality of debits and credits of the permanent account balances. It also verifies that the temporary accounts have zero balances.

41) Reversing entries are an optional step in the accounting cycle. They apply to accrued assets and accrued liabilities that were created by adjusting entries at the end of a reporting period. They are the exact opposite of the original accrual entry in the prior period. The purpose of the reversing entries is to simplify a company's recordkeeping.

42) 1. Assets are overstated by $6,000.<br> 2. Net income is overstated by $6,000.<br> 3. Equity is overstated by $6,000.

43)

44)

45)

46) Profit Margin Ratio = Net Income/Net Sales<br> $280,000/$3,500,000 = 8.0%

47) Profit Margin Ratio = Net Income/Net Sales<br> $740,000/$8,000,000 = 9.25%

48) Current Year:
Profit margin = NI/Sales = $2,630/$36,500 = 7.2%

1 Year Ago:
Profit margin = NI/Sales = $2,100/$32,850 = 6.4%

2 Years Ago:
Profit margin = NI/Sales = $1,850/$31,200 = 5.9%

Analysis comment: The profit margin has increased in all three years and has exceeded the industry average in the last two years. These results reflect positively on Giuseppe and its trend in profitability.

49)