Exam 3: Adjusting the Accounts

Adjustments would not be necessary if financial statements were prepared to reflect net income from

Y-B-2 Inc. pays its rent of $120,000 annually on January 1. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following will be true?

Accumulated Depreciation is a liability account and has a credit normal account balance.

Hardwood Supplies Inc. purchased a 12-month insurance policy on March 1, 2010 for $900. At March 31, 2010, the adjusting journal entry to record expiration of this asset will include a

Before month-end adjustments are made, the February 28 trial balance of Alice's Adventures contains revenue of $9,000 and expenses of $4,400. Adjustments are necessary for the following items: $\bullet$ Depreciation for February is $1,800. $\bullet$ Revenue earned but not yet billed is $2,300. $\bullet$ Accrued interest expense is $700. $\bullet$ Revenue collected in advance that is now earned is $3,500. $\bullet$ Portion of prepaid insurance expired during February is $400. Instructions Calculate the correct net income for Alice's Income Statement for February.

The following ledger accounts are used by the Chicago Heights Dog Track: Accounts Receivable Prepaid Printing Prepaid Rent Unearned Admissions Revenue Printing Expense Rent Expense Admissions Revenue Concessions Revenue Instructions For each of the following transactions below, prepare the journal entry (if one is required) to record the initial transaction and then prepare the adjusting entry, if any, required on September 30, the end of the fiscal year. (a) On September 1, paid rent on the track facility for three months, $180,000. (b) On September 1, sold season tickets for admission to the racetrack. The racing season is year-round with 25 racing days each month. Season ticket sales totaled $840,000. (c) On September 1, borrowed $300,000 from First National Bank by issuing a 9% note payable due in three months. (d) On September 5, schedules for 20 racing days in September, 25 racing days in October, and 15 racing days in November were printed for $2,400. (e) The accountant for the concessions company reported that gross receipts for September were $140,000. Ten percent is due to the track and will be remitted by October 10.

From an accounting standpoint, the acquisition of productive facilities can be thought of as a long-term

The revenue recognition principle dictates that revenue be recognized in the accounting period

Prepare adjusting entries for the following transactions. Omit explanations. 1. Depreciation on equipment is $800 for the accounting period. 2. There was no beginning balance of supplies and purchased $500 of office supplies during the period. At the end of the period $80 of supplies were on hand. 3. Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $600 was unexpired.

Instructions Calculate the following for 2010: 1. Cash received for interest. 2. Cash paid for supplies. 3. Cash paid for wages. 4. Cash received for revenue.

Which of the following statements concerning accrual-basis accounting is incorrect?

On February 1, Results Income Tax Service received a $2,000 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 Revenue. Assuming that the revenue is earned equally over the 4-month period, what balance would be reported on the February 28 balance sheet for Unearned Revenue?

Hal Corp. prepared the following income statement using the cash basis of accounting: Additional data: 1. Depreciation on a company automobile for the year amounted to $6,000. This amount is not included in the expenses above. 2. On January 1, 2010, paid for a two-year insurance policy on the automobile amounting to $1,800. This amount is included in the expenses above. Instructions (a) Recast the above income statement on the accrual basis in conformity with generally accepted accounting principles. Show computations and explain each change. (b) Explain which basis (cash or accrual) provides a better measure of income.

Southwestern City College sold season tickets for the 2010 football season for $160,000. A total of 8 games will be played during September, October and November. In September, two games were played. In October, three games were played. The balance in Unearned Revenue at October 31 is

Southwestern City College sold season tickets for the 2010 football season for $160,000. A total of 8 games will be played during September, October and November. Assuming all the games are played, the Unearned Revenue balance that will be reported on the December 31 balance sheet will be

The matching principle attempts to match ______________ with ______________.

The preparation of adjusting entries is

On January 1, 2010, Dimes and Quarters Corp. purchased a general liability insurance policy for $3,600 to provide coverage for the calendar year. 1. If the company recorded the policy as an asset when purchased, what is the monthly adjusting journal entry that should be recorded at January 31, 2010? *2. If the company expensed the cost of the policy on January 1, 2010, what is the monthly adjusting entry that should be recorded at January 31, 2010?

Compute the net income for 2010 based on the following amounts presented on the adjusted trial balance of D-Lay Company.

Mike Conway is a lawyer who requires that his clients pay him in advance of legal services rendered. Mike routinely credits Legal Service Revenue when his clients pay him in advance. In June Mike collected $12,000 in advance fees and completed 75% of the work related to these fees. What adjusting entry is required by Mike's firm at the end of June?