Exam 3: Adjusting Accounts for Financial Statements

On January 1,Fashion Forward Magazine received $15,000 from subscribers for the annual subscriptions that it recorded in Unearned Subscription Revenue.The issues of the magazine are mailed to subscribers quarterly.What amount of subscription revenue should the magazine recognize on March 31 when the first issue is sent in March?

Under the cash basis of accounting,no adjustments are made for prepaid,unearned,and accrued items.

The current ratio:

Carroll Co.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?

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?

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

Use the information in the adjusted trial balance presented below to calculate current assets for Taron Company: Account Title Dr. Cr Cash \ 23,000 Accounts receivable 16,000 Prepaid insurance 6,600 Equipment 100,000 Accumulated depreciation-Equipment \ 5,000 Land 95,000 Accounts payable 17,000 Interest payable 2,400 Unearned revenue 5,000 Long-term notes payable 30,000 Retained earnings 136,200 Totals \ 240,600 \ 240,600

Journal entries recorded at the end of each accounting period to prepare the revenue,expense,and dividends accounts for the upcoming period and to update the retained earnings account for the events of the period just finished are referred to as:

On December 31,Winters Company received a $385 bill for the purchase of supplies in December that it will not pay for until January 15.Winters follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment.The adjusting entry needed on December 31 to accrue this cost is:

In its first year of operations,Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year.Net income under the cash basis of accounting is:

A roofing company collects fees when jobs are complete.The work for one customer,whose job was bid at $3,000,has been completed as of December 31,but the customer has not yet been billed.Assuming adjustments are only made at year-end,what is the adjusting entry the company would need to make on December 31,the calendar year-end?

In preparing statements from the adjusted trial balance,the balance sheet must be prepared first.

If a company reporting on a calendar year basis,paid $18,000 cash on January 1 for one year of rent in advance (lease beginning January 1),and adjusting entries are made at the end of each month,the balance remaining in Prepaid Rent on December 1 should be $1,500.

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

The closing process takes place before financial statements have been prepared.

Fragmental Co.leased a portion of its store to another company for eight months beginning on October 1,at a monthly rate of $800.Fragmental collected the entire $6,400 cash on October 1 and recorded it as unearned revenue.Assuming adjusting entries are only made at year-end,the adjusting entry made by Fragmental Co.on December 31 would be:

On a work sheet,the adjusted balances of revenues and expenses are sorted to the Income Statement columns of the work sheet.

Explain the purpose of reversing entries.

Match the following terms with the appropriate definition. -Revenues earned in a period that are both unrecorded and not yet received in cash or other assets.

In its first year of operations,Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year.Net income under the accrual basis of accounting is: