Exam 3: Measuring Business Income

An examination of the Prepaid Insurance account shows a debit balance of $3,960 at the end of the accounting period before adjustment. Prepare entries in journal form to record the insurance expense for the period under each of the following independent assumptions: a. An examination of insurance policies shows that insurance costing $1,200 has expired during the period. b. An examination of insurance policies shows unexpired insurance of $2,640 at the end of the period.

The accrual basis of accounting results in a more accurate measurement of net income for the period than does the cash basis of accounting.

Use the following unadjusted trial balance to prepare adjusting entries, given the additional information below it. Assume financial statements are prepared quarterly. Omit explanations. a.Of the revenue received in advance, 60 percent remained unearned on September 30. b.The office furniture has an estimated five-year useful life and zero value at the end of that time. Record depreciation for the quarter. c.Salaries earned, but unpaid, totaled $1,520. d.The Prepaid Rent applies to the six months beginning July 1, 2010. e.Office supplies on hand totaled $300 at the end of the quarter. f.Services performed but not yet billed or recorded amount to $1,800.

Distinguish between a deferral and an accrual.

Depreciation Expense-Equipment is an example of a contra account.

An adjusted trial balance is prepared to

Adjusting entries are useful in apportioning costs among two or more accounting periods.

A net loss results in a decrease in

Use this information to answer the following question. The trial balance for Sanchez Company appears as follows: If on December 31, 2010, supplies on hand were $20, the adjusting entry would contain a

Quality Heating Company has the following liabilities at year end: Notes Payable \ 20,000 Accounts Payable 15,000 Unearned Contract Revenue 9,000 Wages Payable 2,900 Interest Payable 700 a. Which of these accounts probably was/were created at the end of the fiscal year as a result of an accrual? Which probably was/were adjusted at year end? Explain your answer. b. Which adjustments probably reduced net income? Which probably increased net income? Explain your answers.

Prepaid Rent was $400 at the end of May and $650 at the end of June. Rent Expense for June was $360. How much cash was paid for rent during June?

Profitability is best determined from cash flow information.

Which of the following is an example of an accrual?

The matching rule relates the least to

Instead of the word profit, accountants use net income because the latter term can be defined more precisely.

The intentional preparation of misleading financial statements is referred to as fraudulent financial reporting.

Which of the following accounts probably would need to be adjusted at year end?

Use the following unadjusted trial balance to prepare adjusting entries, given the additional information below it. Assume that financial statements are prepared quarterly. Omit explanations. a. Of the revenue received in advance, 60 percent remained unearned on September 30. b. The office furniture has an estimated 12-year useful life and zero value at the end of that time. Record depreciation for the quarter. c. Salaries earned, but unpaid, totaled $2,600. d. The Prepaid Rent applies to the six months beginning July 1, 2010. e. Office supplies on hand totaled $600 at the end of the quarter. f. Services performed but not yet billed or recorded amount to $3,000.

Revenue is produced when accounts receivable are collected.

Which of the following accounts probably would be greater in amount on an adjusted trial balance than on a trial balance?