Exam 3: Adjusting the Accounts

Prepaid expenses are

Aeroplane Insurance Agency prepares monthly financial statements. Presented below is an income statement for the month of June that is correct on the basis of information considered. Additional Data: When the income statement was prepared, the company accountant neglected to take into consideration the following information: 1. A utility bill for $2,500 was received on the last day of the month for electric and gas service for the month of June. 2. A company insurance salesman sold a life insurance policy to a client for a premium of $25,000. The agency billed the client for the policy and is entitled to a commission of 20%. 3. Supplies on hand at the beginning of the month were $3,000. The agency purchased additional supplies during the month for $4,000 in cash and $2,200 of supplies were on hand at June 30. 4. The agency purchased a new car at the beginning of the month for $22,000 cash. The car will depreciate $5,400 per year. 5. Salaries owed to employees at the end of the month total $6,100. The salaries will be paid on July 5. Instructions Prepare a correct income statement.

As prepaid expenses expire with the passage of time, the correct adjusting entry will be a

Expenses include losses that are not part of normal operations under

On February 1, Results Income Tax Service received a $3,000 cash retainer for tax preparation services to be rendered equally over the next 4 months. The full amount was credited to the liability account Unearned Service Revenue. Assuming that the revenue is recognized equally over the 4-month period, what balance would be reported on the February 28 balance sheet for Unearned Service Revenue?

The cash basis of accounting is not in accordance with generally accepted accounting principles.

Accrued revenues are

A company shows a balance in Salaries and Wages Payable of $38,000 at the end of the month. The next payroll amounting to $48,000 is to be paid in the following month. What will be the journal entry to record the payment of salaries?

The expense recognition principle attempts to match ______________ with ______________.

Stone Roses Candies paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (29-31). Employees work 5 days a week and the company pays $1,500 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January?

The adjusted trial balance of Sodajerk Company at December 31, 2018 includes the following accounts: Retained Earnings $12,600; Dividends $7,000; Service Revenue $38,000; Salaries and Wages Expense $13,000; Insurance Expense $2,000; Rent Expense $3,500; Supplies Expense $2,500; and Depreciation Expense $2,000. Prepare a retained earnings statement for the year.

For each of the following oversights, state whether total assets will be understated (U), overstated (O), or no affect (NA). _____ 1. Failure to record revenue recognized but not yet received. _____ 2. Failure to record expired prepaid rent. _____ 3. Failure to record accrued interest on the bank savings account. _____ 4. Failure to record depreciation. _____ 5. Failure to record accrued wages. _____ 6. Failure to record the recognized portion of unearned revenues.

Cash-basis accounting is allowed under

O'Brien Industries collected $190,000 from customers in 2018. Of the amount collected, $40,000 was from revenue accrued from services performed in 2017, and $20,000 was received in advance for 2019 revenue. In addition, O'Brien earned $60,000 of revenue in 2018, which will not be collected until 2016. O'Brien also earned $25,000 of revenue in 2018 which had been collected in 2017. O'Brien Industries paid $150,000 for expenses in 2018. Of the amount paid, $50,000 was for expenses incurred on account in 2017, $22,000 was paid in advance for 2019 expenses. In addition, O'Brien incurred $78,000 of expenses in 2018, which will not be paid until 2019. O'Brien also incurred $29,000 of expenses in 2018 which had been paid in 2017. Instructions (a) Compute 2018 cash-basis net income. (b) Compute 2018 accrual-basis net income.

The fiscal year of a business is usually determined by

If an adjusting entry is not made for an accrued revenue,

Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments?

Can financial statements be prepared directly from the adjusted trial balance?

The adjusted trial balance is prepared

In a service company, revenue is recognized when the service is ______________.