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Exam 3: Adjusting Accounts for Financial Statements

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Question 61

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Assuming prepaid expenses are originally recorded in balance sheet accounts,the adjusting entry to record use of a prepaid expense is:

A) Increase an expense; increase a liability.
B) Increase an asset; increase revenue.
C) Decrease a liability; increase revenue.
D) Increase an expense; decrease an asset.
E) Increase an expense; decrease a liability.

F) C) and D)
G) C) and E)

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Question 62

Multiple Choice

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Use the information in the adjusted trial balance presented below: -To calculate current assets for Wicked Wicker Company:

A) $21,200.
B) $45,600.
C) $24,400.
D) $95,600.
E) $41,200.

F) D) and E)
G) A) and B)

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Question 63

Multiple Choice

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All of the following statements regarding profit margin are true except:

The accrual basis of accounting reflects the principle that revenue is recorded when it is earned,not when cash is received.

Identify the types of adjusting entries and explain the purpose of each type.

Two common subgroups for liabilities on a classified balance sheet are:

The adjusted trial balance must be prepared before the adjusting entries are made.

The following information is available for Hatter Co. From the information provided,calculate Hatter's profit margin ratio for each of the three years.In 2016,economic conditions and a slowing economy impacted the results of operations.Comment on the results,assuming that the industry average for the profit margin ratio is 7% for each of the three years.

At the beginning of the year,a company's balance sheet reported the following balances: Total Assets = $225,000; Total Liabilities = $25,000; Total Paid-in capital of $100,000; and Retained earnings = $100,000.During the year,the company reported revenues of $46,000 and expenses of $30,000.In addition,dividends for the year totaled $20,000.Assuming no other changes to Retained earnings,the balance in the Retained earnings account at the end of the year would be:

A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31.Which of the following statements is true?

Accrued expenses at the end of one accounting period are expected to result in cash payments in a future period.

Profit margin is defined as:

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:

A fiscal year refers to an organization's accounting period that spans twelve consecutive months or 52 weeks.

An adjusting entry that increases an asset and increases a revenue is known as a(n) :

Recording revenues early overstates current-period income; recording revenues late understates current period income.

A trial balance prepared after adjustments have been recorded is called a(n) :

The current ratio is used to help assess a company's ability to pay its debts in the near future.

On April 1,Otisco,Inc.paid Garcia Publishing Company $1,548 for 36-month subscriptions to several different magazines.Otisco debited the prepayment to a Prepaid Subscriptions account,and the subscriptions started immediately. -Assuming adjustments are only made at year-end,What is the adjusting entry that should be recorded by Garcia Publishing Company on December 31 of the second year?

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