Exam 4: Adjustments,Financial Statements,and the Quality of Earnings

Which of the following account balances would be closed at year-end by crediting the account?

Which of the following is not an accrual?

Three transactions are given below that were completed during 2011 by Story Company.Prepare the adjusting entries as of December 31,2011,assuming no adjusting entries have been made during the year. Prepaid rent $\quad$$\quad$ 12,600 $\quad$ Cash $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 12,600 B.On February 1,2011,Story Company purchased office supplies during the year that cost $700 and placed the supplies in a storeroom for use as needed.The purchase was recorded as follows: Office supplies inventory $\quad$$\quad$$\quad$ 700 $\quad$ Cash $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 700 At December 31,2011,a count showed unused office supplies of $200 in the storeroom.There was no beginning inventory of supplies on hand. C.On December 31,2011,Story Company owed employees $2,000 for wages earned during December.These wages had not been paid nor recorded.

The comparative balance sheets of Titan Company for the years ended December 31,2010 and 2011,reported the following selected amounts: Assets: Office supplies inventory Unearned rent revenue 2010 2011 \ 2,000 \ 800 11,000 10,500 The 2011 income statement reported the following: Rent revenue $\quad$$\quad$$\quad$$\quad$$\quad$ $ 12,000 Office supplies expense $\quad$$\quad$ 15,000 Requirements: A.Calculate the total amount of office supplies purchased during 2011. B.Calculate the total amount of rent collected during 2011. C.In what section of the statement of cash flows would the payments for office supplies appear? D.In what section of the statement of cash flows would the collection for rents appear?

Lane Company is completing the accounting cycle at the end of its annual accounting period,December 31,2011.No adjusting entries have been made during the year so three adjusting entries must be made to update the accounts.The following accounts,selected from the company's chart of accounts,are to be used for this purpose.They are coded to the left for easy reference. A. Cash I. Unearned rent B. Notes payable J. Rent expense C. Interest receivable K. Wage expense D. Machinery L. Depreciation expense E. Accumulated depreciation M. Interest expense F. Notes payable N. Interest revenue G. Interest payable O. Rent revenue H. Wages payable P. Some other account not listed You are to indicate the appropriate account code and amount for each of the required adjusting entries at December 31,2011.

Which is the correct sequential order of the following steps in the accounting cycle?

Accounts which retain their balance from one period to the next are referred to as permanent accounts and include balance sheet accounts.

The trial balance is similar to the balance sheet in that it is a listing of assets,liabilities,and stockholders' equity and is provided to external decision makers.

The adjusting entry to adjust the prepaid rent account for rent expired during the period results in an increase in expenses and a decrease in stockholders' equity.

On January 1,2011 the balance in the prepaid insurance account was $2,500.On December 31,2011,after the 2011 adjusting entries were made,the balance of the prepaid insurance account was $1,200.During 2011,cash payments for insurance premiums amounted to $5,000,which was debited to the prepaid insurance account.Prepare the adjusting entry which must have been made at December 31,2011.

Which of the following best describes the difference between an unadjusted trial balance and an adjusted trial balance?

Accounts which start a new accounting period with zero balances are referred to as temporary accounts and include both balance sheet and income statement accounts.

Income statement accounts often are called temporary accounts because their balances are closed out at the end of the accounting year.

Which of the following journal entries was not created as the result of an accrual?

Failure to make an adjusting entry to recognize rent revenue receivable would cause which of the following?

Cash collected from customers in advance of providing the goods or services creates a liability which is reduced when the goods or services are later provided.

Four transactions are given below that were completed during 2011 by Russell Company.You are to provide the adjusting entries required for Russell Company on December 31,2011.No adjusting entries were made during the year. Office supplies inventory $\quad$$\quad$ 1,000 $\quad$ Cash $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 1,000 At January 1,2011,the inventory of unused office supplies was $300.At December 31,2011,a physical count showed unused office supplies in the supply room amounting to $100. C.On December 1,2011,Russell Company rented some office space to another party.Russell Company collected $900 rent for the period December 1,2011,to March 1,2012.The December 1 transaction was recorded as follows: Cash $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 900 $\quad$ Unearned rent revenue $\quad$$\quad$$\quad$ 900 D.On July 1,2011,Russell Company borrowed $2,000 cash on a one-year,8% interest-bearing,note payable.The interest is payable on the due date,June 30,2012.The borrowing was recorded as follows on July 1,2011: Cash $\quad$$\quad$$\quad$$\quad$ 2,000 $\quad$ Notes payable $\quad$$\quad$ 2,000

Which of the following correctly describes the accounts reported on the post-closing trial balance?

The adjusted trial balance of Tahoe Company at the end of the accounting year,December 31,2010,showed the following: $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Adjusted Trial Balance Account Titles $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Debits $\quad$$\quad$$\quad$$\quad$ Credits Cash $\quad$$\quad$$\quad$ $\quad$$\quad$$\quad$$\quad$ $\quad$$\quad$ $ 20,000 Machinery $\quad$ $\quad$$\quad$$\quad$$\quad$ $\quad$$\quad$ 90,000 Accumulated depreciation $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ $ 16,000 Accounts payable $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 7,000 Capital stock $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 20,000 Retained earnings $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ 59,000 Service revenue $\quad$$\quad$$\quad$$\quad$ $\quad$$\quad$$\quad$$\quad$ $\quad$$\quad$$\quad$$\quad$ 40,000 Interest expense $\quad$$\quad$$\quad$$\quad$ $\quad$ 4,000 Operating expenses $\quad$$\quad$$\quad$$\quad$ 17,000 Depreciation expense $\quad$$\quad$$\quad$ 11,000 Totals $\quad$$\quad$$\quad$$\quad$ $\quad$$\quad$$\quad$$\quad$ $142,000 $\quad$$\quad$$\quad$$\quad$ $ 142,000 Requirements: A.Prepare all the required closing entries for Tahoe Company at December 31,2010. B.Calculate the 2010 ending balance in retained earnings.

Closing the revenue and gain accounts at year-end requires that these accounts be debited.