Question 1

On December 31,2010,Madison Company prepared an income statement and a balance sheet.In making the adjusting entries at year-end,Madison failed to record the adjusting entry for wages earned by employees,but not yet paid,amounting to $5,000 for the last four days of the year.The income statement reported net income of $52,000.The balance sheet reported total assets of $254,000,total liabilities of $170,000 and stockholders' equity of $84,000.
Complete the following tabulation to show the correct amounts for the financial statements (ignore income taxes). $$\begin{array} { | l | l | l | l | l | } 
\hline \text { Item } & \text { Net Income } & \text { Assets } & \text { Liabilities } & \begin{array} { l } 
\text { Stockholders' } \
\text { Equity }
\end{array} \
\hline \text { Balances reported } & \$ 52,000 & \$ 254,000 & \$ 170,000 & \$ 84,000 \
\hline \text { Correction for wages } & & & & \
\hline \text { Corrected balances } & & & & \
\hline
\end{array}$$

Accepted Answer

The answer of On December 31,2010,Madison Company prepared an income...

Question 2

On December 31,2011,Krug Company reported pretax income of $120,000 prior to the following adjusting entries:
 Depreciation expense was $31,000;
 Accrued service revenues totaled $29,000;
 Accrued expenses totaled $12,000;
 Expired insurance which was prepaid totaled $9,000;
 Rent revenue earned was $7,000; the rent was prepaid by the tenant and credited to unearned rent revenue.
How much is Krug's pretax income after adjusting entries?

Accepted Answer

A) $113,000 
B) $104,000 
C) $106,000 
D) $128,000

Question 3

Which of the following statements does not correctly describe the relationship between the income statement and the ending retained earnings balance?

Accepted Answer

A) Net income increases the ending balance of retained earnings. 
B) A net loss decreases the ending retained earnings balance. 
C) A net loss does not affect the ending retained earnings balance. 
D) Net income and net loss both affect the ending retained earnings balance.

Question 4

On December 31,2010,the manager of Jordan Creek Apartments noticed that four tenants had not paid their December rent amounting to $500 each.What is the adjusting entry required on December 31,2010?

Accepted Answer

The answer of On December 31,2010,the manager of Jordan Creek...

Question 5

Prepaid expenses are reported as assets at the time of the initial cash flow and when they are consumed in the future,both expenses and liabilities increase.

Accepted Answer

A) True 
 B)False

Question 6

The trial balance is a listing of account balances that are found in the general ledger.

Accepted Answer

A) True 
 B)False

Question 7

What is the effect on the financial statements when a company fails to accrue interest expense at year-end?

Accepted Answer

A) Net income is overstated and assets are overstated. 
B) Expenses are understated and liabilities are understated. 
C) Expenses are understated and stockholders' equity is understated. 
D) Net income is overstated and liabilities are overstated.

Question 8

Which of the following correctly describes the effects of recording deferred revenues when cash is received from a customer?

Accepted Answer

A) Revenues are increased. 
B) Liabilities are not affected. 
C) Retained earnings increases. 
D) Net income is not affected.

Question 9

Which of the following does not correctly describe the following journal entry? Interest receivable 
$ \quad $$ \quad $Interest income

Accepted Answer

A) Total assets increase. 
B) The transaction is an example of an accrual. 
C) Stockholders' equity is not affected. 
D) Net income increases.

Question 10

Which of the following correctly describes the effects of accruing income tax expense at year-end?

Accepted Answer

A) A cash payment is made to pay the taxes due. 
B) Liabilities are not affected. 
C) Retained earnings decreases. 
D) Net income is not affected.

Question 11

Which of the following transactions will not decrease the net profit margin ratio?

Accepted Answer

A) Accruing interest expense at year-end. 
B) The recording of depreciation expense. 
C) Using cash to pay for previously accrued salaries. 
D) Accruing utilities expense at year-end.

Question 12

On December 31,2011,The Bates Company's revenues total $300,000 and expenses total $160,000 before consideration of the following:
 Accrued wages total $11,000;
 Accrued revenues total $36,000;
 Depreciation expense is $17,000;
 Rental revenue of $9,000 was earned; the rent was prepaid by a tenant and was recorded by Bates as unearned rent revenue;
The income tax rate is 40%.
What is Bates' net income after consideration of the above information?

Accepted Answer

A) $94,200 
B) $157,000 
C) $140,000 
D) $88,800

Question 13

Morgan Company purchased supplies inventory for $2,000.Due to an error in posting to the general ledger,the inventory account was debited for only $200 while accounts payable was credited for $2,000.During which phase of the accounting cycle would this error be first discovered?

Accepted Answer

A) Recording the transaction in the general journal. 
B) Preparation of the financial statements. 
C) Preparation of the trial balance. 
D) Preparation of the income statement.

Question 14

Which of the following will result in an increase in earnings per share?

Accepted Answer

A) Accruing expenses at year-end. 
B) Selling additional shares of common stock during the year. 
C) Accruing revenue at year-end. 
D) Receiving cash from a tenant which was recorded as unearned revenue.

Question 15

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

Accepted Answer

A) Prepare financial statements, journalize and post adjusting entries, journalize and post the closing entries, and prepare a post-closing trial balance. 
B) Prepare an unadjusted trial balance, journalize and post adjusting entries, journalize and post the closing entries, and prepare financial statements. 
C) Journalize and post adjusting entries, journalize and post the closing entries, prepare financial statements, and prepare an adjusted trial balance. 
D) Prepare an unadjusted trial balance, journalize and post adjusting entries, prepare financial statements, and journalize and post the closing entries.

Question 16

Which of the following transactions results in an increase in liabilities and a decrease in net income?

Accepted Answer

A) The accrual of salaries expense at year-end. 
B) Collecting cash from a customer for services to be provided in the future. 
C) The accrual of revenue earned at year-end. 
D) Adjustment of the unearned revenue account for revenue earned during the period.

Question 17

Which of the following statements is correct?

Accepted Answer

A) Balance sheet accounts are permanent accounts and do not retain their balances from one period to the next. 
B) Balance sheet accounts are temporary accounts and do retain their balances from one period to the next. 
C) Income statement accounts are permanent accounts and do retain their balances from one period to the next. 
D) Income statement accounts are temporary accounts and do not retain their balances from one period to the next.

Question 18

Depreciation expense is an estimated allocation of the cost of long-term assets and is recorded in a contra-asset called accumulated depreciation.

Accepted Answer

A) True 
 B)False

Question 19

Modern Mother Magazine has received cash subscriptions on April 1,2011 in the amount of $3,600,000 for the next three years.Their year-end is December 31,2011.Magazine delivery occurs monthly and started on April 1,2011.These were the only subscription sales for the year.
Answer the following questions for the year ended December 31,2011:
a.What amount of cash should be reported for the year on the statement of cash flows?
b.What amount of subscriptions revenue should be reported on the income statement?
c.What amount would be reported as unearned subscriptions revenue on the balance sheet as of December 31,2011?

Accepted Answer

The answer of Modern Mother Magazine has received cash subscriptions...

Question 20

Which of the following correctly describes the closing entry process?

Accepted Answer

A) The closing process reduces the balances in the permanent accounts to zero at the end of each period. 
B) The closing entries are usually prepared prior to adjusting entries. 
C) The closing process creates a zero balance in all temporary accounts at the end of each period. 
D) The closing process creates a zero balance at the end of each period for all accounts on the year-end trial balance.

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

Which of the following statements does not correctly describe the relationship between the income statement and the ending retained earnings balance?

On December 31,2010,the manager of Jordan Creek Apartments noticed that four tenants had not paid their December rent amounting to $500 each.What is the adjusting entry required on December 31,2010?

Prepaid expenses are reported as assets at the time of the initial cash flow and when they are consumed in the future,both expenses and liabilities increase.

The trial balance is a listing of account balances that are found in the general ledger.

What is the effect on the financial statements when a company fails to accrue interest expense at year-end?

Which of the following correctly describes the effects of recording deferred revenues when cash is received from a customer?

Which of the following does not correctly describe the following journal entry? Interest receivable $\quad$ $\quad$ Interest income

Which of the following correctly describes the effects of accruing income tax expense at year-end?

Which of the following transactions will not decrease the net profit margin ratio?

Morgan Company purchased supplies inventory for $2,000.Due to an error in posting to the general ledger,the inventory account was debited for only $200 while accounts payable was credited for $2,000.During which phase of the accounting cycle would this error be first discovered?

Which of the following will result in an increase in earnings per share?

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

Which of the following transactions results in an increase in liabilities and a decrease in net income?

Which of the following statements is correct?

Depreciation expense is an estimated allocation of the cost of long-term assets and is recorded in a contra-asset called accumulated depreciation.

Which of the following correctly describes the closing entry process?

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

Which of the following statements does not correctly describe the relationship between the income statement and the ending retained earnings balance?

On December 31,2010,the manager of Jordan Creek Apartments noticed that four tenants had not paid their December rent amounting to $500 each.What is the adjusting entry required on December 31,2010?

Prepaid expenses are reported as assets at the time of the initial cash flow and when they are consumed in the future,both expenses and liabilities increase.

The trial balance is a listing of account balances that are found in the general ledger.

What is the effect on the financial statements when a company fails to accrue interest expense at year-end?

Which of the following correctly describes the effects of recording deferred revenues when cash is received from a customer?

Which of the following does not correctly describe the following journal entry? Interest receivable \quad \quad Interest income

Which of the following correctly describes the effects of accruing income tax expense at year-end?

Which of the following transactions will not decrease the net profit margin ratio?

Morgan Company purchased supplies inventory for $2,000.Due to an error in posting to the general ledger,the inventory account was debited for only $200 while accounts payable was credited for $2,000.During which phase of the accounting cycle would this error be first discovered?

Which of the following will result in an increase in earnings per share?

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

Which of the following transactions results in an increase in liabilities and a decrease in net income?

Which of the following statements is correct?

Depreciation expense is an estimated allocation of the cost of long-term assets and is recorded in a contra-asset called accumulated depreciation.

Which of the following correctly describes the closing entry process?

Which of the following does not correctly describe the following journal entry? Interest receivable $\quad$ $\quad$ Interest income