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Exam 3: Adjusting Accounts for Financial Statements

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Question 101

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A salary owed to employees is an example of an accrued expense.

A) True
B) False

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Question 102

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Sanborn Company has 10 employees, who earn a total of $1,800 in salaries each working day. They are paid on Monday for the five-day workweek ending on the previous Friday. Assume that year ended December 31, is a Wednesday and all employees will be paid salaries for five full days on the following Monday. The adjusting entry needed on December 31 is:

A) Debit Salaries Expense, $5,400; credit Salaries Payable, $5,400.
B) Debit Salaries Expense, $3,600; credit Salaries Payable, $3,600.
C) Debit Salaries Expense, $9,000; credit Salaries Payable, $9,000.
D) Debit Salaries Payable, $5,400; credit Salaries Expense, $5,400.
E) Debit Salaries Expense, $5,400; credit Cash, $5,400.

F) C) and E)
G) All of the above

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Question 103

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The work sheet is a required report made available to external decision makers.

On May 1, Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 this year to April 30 of the following year. The Cash receipt was recorded as unearned fees and at year-end on December 31, $1,000 of the fees had been earned. The adjusting entry on December 31 would be:

The steps in the accounting cycle are shown below. List them in the correct order in which they are completed: Prepare adjusted trial balance Post transactions Prepare an unadjusted trial balance Journalize transactions Prepare the financial statements Close the temporary accounts Adjust the ledger accounts Prepare a post-closing trial balance Analyze transactions

A company's December 31 work sheet for the current period appears below. Based on the information provided, what is net income for the current period? Unadjusted Trial Balance Adjustments Debit Credit Debit Credit Cash 1,975 Accounts Receivable 1,000 875 Prepaid insurance 1,600 650 Supplies 330 115 Equipment 8,320 Accumulated depreciation-equipment 720 190 Accounts payable 1,140 Common stock 9,110 Dividends 1,050 Fees earned 7,250 875 Rent expense 1,300 Salaries expense 2,300 Utilities expense 345 Insurance expense 650 Supplies expense 115 Depreciation expense-equipment 190 Total 18,220 18,220 1,830 1,830

A contra account is an account linked with another account; it is added to that account to show the proper amount for the item recorded in the associated account.

A post-closing trial balance is a list of permanent accounts and their balances from the ledger after all closing entries are journalized and posted.

Accrual accounting and the adjusting process rely on two principles: the ___________________ principle and the ________________________ principle.

Profit margin can also be called return on sales.

On November 1, Phan Company borrowed $50,000, at 6% annual interest, from First Security Bank. Interest will be paid when the loan matures one year from the issue date. What is correct adjusting entry related to the interest that Phan must make on December 31, the end of the company's fiscal year?

Presented below are the year-end balances at December 31 of Becca's Dry Cleaning Service, Inc. (All accounts have normal balances.) (a) Prepare the necessary closing entries at December 31. (b) Prepare a post-closing trial balance at December 31.

Flo's Flowers' current ratio is 1.3. The industry average for the current ratio is 1.2. This indicates that Flo's can cover its short term liabilities with its short term assets.

Use the information in the adjusted trial balance presented below to calculate current assets for Taron Company, Inc.:

Explain the purpose of reversing entries.

Kline Company, Inc. accrued wages of $7,350 that were earned by employees unpaid at the end of 2014. Assuming Kline uses reversing entries, which of the following entries is appropriate for reversing the accrued wages at the beginning of 2015?

On a work sheet, if the Debit total exceeds the Credit total of the Income Statement columns, a net loss is indicated.

Why are financial statements prepared in a specific order? What is the usual order in which financial statements are prepared from the adjusted trial balance?

______________ revenues are liabilities requiring delivery of products and for services.

Calculate the current ratio in each of the following separate cases and identify the company case with the strongest liquidity position.