Exam 3: Adjusting Accounts for Financial Statements

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:

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

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?

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

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

Profit margin is defined as:

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

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.

All of the following are true regarding unearned revenues except:

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.

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

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.

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?

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

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

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

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

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.

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

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