Exam 3: Adjusting the Accounts

The cash basis of accounting is prohibited for income tax purposes.

What is the adjusting entry for that portion of revenue received in advance which has now been earned?

The adjustment for estimated property taxes would include a

Which of the following is not a condition required by the SEC for the recognition of revenue?

Which of the following is an example of a deferral?

The amount of a depreciable asset's annual depreciation expense can typically be obtained by referring to the balance sheet.

Net income provides a good measure of a business's debt-paying ability.

Financial statements may be prepared from an adjusted trial balance.

When preparing financial statements,the accountant assumes that the business will continue to operate for at least 5 years,unless there is evidence to the contrary.

Use this information to answer the following question. The trial balance for Nowwick Company appears as follows: If the estimated depreciation for office equipment were $350,the adjusting entry would contain a

In July,a company pays three years' insurance in advance.The December 31 adjusting entry is

Which of the following is an example of a deferral?

Susan Kane won the mayoral election in the City of Ashley partly on the basis of her charge that Allen Ross,the former mayor,was responsible for the budget deficit.After taking office,she hired a major international accounting firm to straighten things out.This excerpt appeared in an article from a leading business publication,West End Business Review: [A riddle] Q: When is a budget deficit not a deficit? A: When it is a surplus,of course. Ashley Mayor Susan Kane was once again caught with egg on her face last week as she and her financial advisers tried to defend that riddle.On one hand,Comptroller Jim Guan,a Kane appointee,testified in hearings that the city had actually ended 20x5 with a $6 million surplus,not the much-reported deficit.He said further that the modest surplus grew to $54 million as a result of tax-enrichment supplements to the 20x5 balance sheet. On the other hand,the mayor stuck by the same guns she used last year on her predecessor.The city had ended 20x5,under the Allen Ross administration,not merely without a surplus,but with a deficit.The apparent discrepancy can be explained. Like most U.S.cities,Ashley operates under a modified accrual accounting basis.This is a combination of the cash basis and the accrual basis.The modified accrual basis differs from the accrual basis in that revenue is recorded when it is collected.The collection of Ashley's parking tax,which is assessed on all city parking lots and garages,is an example. The tax is assessed and collected on a quarterly basis,but the city doesn't collect the amount due for the last quarter of 20x6 until the first quarter of 20x7.Under ideal accrual methods,the parking revenues should be recorded in the 20x6 financial statements.Under a cash approach,the revenues would be recorded in the 20x7 budget.What the city did before was to record the money whenever it was advantageous politically.That,combined with the infamous revolving funds,allowed the city to hide the fact it was running large deficits under former Mayor Ross.That also means that no one really knew where the city stood. The auditors are now reallocating the parking revenues to the 20x7 budget but are accruing other revenues by shifting the period of collection from a year in the past.Overall,more revenues were moved into earlier fiscal years than into later years,inflating those budgets.Thus,the 20x7 deficit is a surplus. The article concluded: The upshot is that both Mayor Kane and Mr.Guan (the comptroller)were correct.There was a deficit in the 20x5 corporate or checkbook fund,but because of corrections taking place now,a surplus exists. a.Do you agree with the way the auditors handled parking revenues? Support your answer by explaining which method of accounting you think a city should use. b.Comment on the statement,"Systematically applied accounting principles will allow all to know exactly where the city stands."

Assets are converted to revenues as they benefit the company.

The matching rule is most closely related to the cash basis of accounting.

Retailers often end their fiscal years .

Which of the following accounts would not need to be adjusted at year end?

The general rule for determining the cash flow received from any revenue or paid for any expense (except depreciation,which is a special case)is to determine the potential cash payments or cash receipts and add the amount not paid or not received.

Which of the following transactions results in the recognition of an expense?

Accounts Receivable was $1,500 at the end of November and $1,050 at the end of December.Revenue totaled $8,400 for December.How much cash was received from revenues during December?