Deck 3: Adjusting Accounts for Financial Statements

Question 1

The chart of accounts is a tabular record in which business activities are analyzed in terms of debits and credits and recorded in chronological order.

Answer 1

False

Question 2

The chart of accounts is also known as the book of original entry.

Answer 2

False

Question 3

An adjusted trial balance is a listing of all the year-end balance sheet accounts, since all the income statement accounts have been closed to zero.

Answer 3

False

Question 4

Prepaid rent is an example of a contra account, and is used to record a reduction to its related account, rent expense.

Question 5

Adjusting entries always impact the income statement and the cash account.

Question 6

The income statement, statement of stockholders' equity, and statement of cash flows report on time periods that depict flows.

Question 7

All accounts in the general ledger are closed at a company's fiscal year end in order to facilitate preparation of the financial statements and to ready the accounts for the activities of the next year.

Question 8

The book value of a building is equivalent to its historical cost.

Question 9

Adjusting unearned revenues causes a liability to decline.

Question 10

A company's fiscal year may:

A) Be any portion of a year including a month or quarter
B) Be for a period either greater or less than 12 months
C) Be the same as the calendar year
D) All of the above are true of a company's fiscal year

Question 11

Which of the following journal entries will record the payment of a $1,350 accounts payable originally incurred for Office Supplies?

A) Debit Office Supplies; credit Cash
B) Debit Office Supplies; credit Accounts Payable
C) Debit Cash; credit Accounts Payable
D) Debit Accounts Payable; credit Cash

Question 12

A company bills customers for services rendered on account. Which of the following is one part of recording this transaction?

A) Debit Service Revenue
B) Credit Cash
C) Debit Accounts Receivable
D) Credit Unearned Revenue

Question 13

Use the following information to answer questions below
On the last day of December 2016, Camrey's Trucks entered into a transaction that resulted in a receipt of $216,000 cash in advance related to services that will be provided during January 2017. During December of 2016, the company also performed $128,000 of services which were neither billed nor paid. Prior to December adjustments and before these two transactions were recorded, the company's trial balance showed service revenue of $1,165,470 at December 31, 2016. There are no other prepaid services yet to be delivered, and during the month all outstanding accounts receivable from prior months were collected.

-If Camrey's Trucks makes the appropriate adjusting entry, how much will service revenue will be reflected on the December 31, 2016 income statement?

A) $1,165,470
B) $1,715,000
C) $1,623,000
D) $1,293,470

Question 14

Use the following information to answer questions below
On the last day of December 2016, Camrey's Trucks entered into a transaction that resulted in a receipt of $216,000 cash in advance related to services that will be provided during January 2017. During December of 2016, the company also performed $128,000 of services which were neither billed nor paid. Prior to December adjustments and before these two transactions were recorded, the company's trial balance showed service revenue of $1,165,470 at December 31, 2016. There are no other prepaid services yet to be delivered, and during the month all outstanding accounts receivable from prior months were collected.

-If Camrey's Trucks makes the appropriate adjusting entry, how much will be reported on the December 31, 2016 balance sheet as unearned revenue?

A) $ 90,000
B) $216,000
C) $ 64,000
D) $ 98,000

Question 15

Use the following information to answer questions below
On the last day of December 2016, Camrey's Trucks entered into a transaction that resulted in a receipt of $216,000 cash in advance related to services that will be provided during January 2017. During December of 2016, the company also performed $128,000 of services which were neither billed nor paid. Prior to December adjustments and before these two transactions were recorded, the company's trial balance showed service revenue of $1,165,470 at December 31, 2016. There are no other prepaid services yet to be delivered, and during the month all outstanding accounts receivable from prior months were collected.

-If Camrey's Trucks makes the appropriate adjusting entry, how much will be reported on the December 31, 2016 balance sheet as accounts receivable?

A) $108,000
B) $256,000
C) $ 64,000
D) $128,000

Question 16

Use the following information to answer questions below
On April 1, 2016, SBD Corp. paid $120,000 for rent on warehouse space one year in advance. On October 1, 2016, SBD Corp. entered into a lease agreement to rent out its old warehouse space it was no longer using. This agreement calls for SBD to receive $8,000 per month from the lessee, due and payable at the end of the 4-month lease term. At December 31, 2016, none of the rental payments from the lessee had yet been received.

-If SBD makes the appropriate adjusting entry, how much will be reported on the December 31, 2016 income statement for rent expense?

A) $85,000
B) $49,000
C) $15,000
D) $90,000

Question 17

Use the following information to answer questions below
On April 1, 2016, SBD Corp. paid $120,000 for rent on warehouse space one year in advance. On October 1, 2016, SBD Corp. entered into a lease agreement to rent out its old warehouse space it was no longer using. This agreement calls for SBD to receive $8,000 per month from the lessee, due and payable at the end of the 4-month lease term. At December 31, 2016, none of the rental payments from the lessee had yet been received.

-If SBD makes the appropriate adjusting entry, how much will be reported on the December 31, 2016 balance sheet as prepaid rent and rent receivable, respectively?

A) $30,000 and $24,000
B) $15,000 and $16,000
C) $30,000 and $15,000
D) $30,000 and $12,000

Question 18

Which of the following is a distinguishing characteristic of a deferral?

A) It affects at least one liability account.
B) It always impacts the cash account.
C) It includes the adjustment of an amount previously recorded in a balance sheet account.
D) It increases a balance sheet account and decreases an income statement account.

Question 19

A company provides services to clients during the period that are neither paid for, nor billed to the clients. What must the company do?

A) Bill the client prior to year-end in order to recognize the revenue.
B) Record the revenues as a liability at the end of the year.
C) Accrue revenue by making an adjusting entry at the end of the period.
D) All of the above are true.

Question 20

Which statement is true of the statement of stockholders' equity?

A) It reports a company's assets, liabilities, and equities.
B) It reports a company's revenue and expenses for a period.
C) It is prepared using the unadjusted trial balance in order to facilitate the closing process.
D) It shows a company's stock issuances and dividends paid to shareholders.

Question 21

Magic Corporation has the following normal account balances in its general ledger at the end of a period:
Sales revenue $ 1,060,000
Advertising expense 180,000
Which of the following gives the correct entry required to close only the accounts above?

A)
B)
C)
D) None of the above. These accounts are not closed.

Question 22

Use the following information to answer questions below
Horton's Donuts has 12 employees who are paid $18 per hour. The company purchases its inventory, on account, daily. At December 31, 2016, each of Horton's Donuts' employees had worked 20 hours which had not been paid or recorded. Also on this date, the company had taken receipt of $74,880 of inventory from its suppliers which had not been recorded in the accounts. As of the beginning of 2016, the company had equipment totaling $1,440,000 which was depreciated at $144,000 per year. Prior to adjustments, the company's trial balance showed $205,680 in the wages expense account and $100,320 of inventory.

-If Horton's Donuts makes the appropriate adjusting entry, how much will be reported on the December 31, 2016 income statement as wage expense?

A) $102,840
B) $210,000
C) $ 4,320
D) $208,790

Question 23

Use the following information to answer questions below
Horton's Donuts has 12 employees who are paid $18 per hour. The company purchases its inventory, on account, daily. At December 31, 2016, each of Horton's Donuts' employees had worked 20 hours which had not been paid or recorded. Also on this date, the company had taken receipt of $74,880 of inventory from its suppliers which had not been recorded in the accounts. As of the beginning of 2016, the company had equipment totaling $1,440,000 which was depreciated at $144,000 per year. Prior to adjustments, the company's trial balance showed $205,680 in the wages expense account and $100,320 of inventory.

-If Horton's Donuts makes the appropriate adjusting entry, how much will be reported on the December 31, 2016, balance sheet as accounts payable?

A) $0
B) $71,770
C) $38,995
D) $74,880

Question 24

Use the following information to answer questions below
Horton's Donuts has 12 employees who are paid $18 per hour. The company purchases its inventory, on account, daily. At December 31, 2016, each of Horton's Donuts' employees had worked 20 hours which had not been paid or recorded. Also on this date, the company had taken receipt of $74,880 of inventory from its suppliers which had not been recorded in the accounts. As of the beginning of 2016, the company had equipment totaling $1,440,000 which was depreciated at $144,000 per year. Prior to adjustments, the company's trial balance showed $205,680 in the wages expense account and $100,320 of inventory.

-If Horton's Donuts makes the appropriate adjusting entry, which of the following is one part of the journal entry that will be made when the payment of wages is made in January?

A) Debit Wages Payable for $4,320
B) Debit Wages Expense for $1,555
C) Credit Wages Payable for $4,320
D) Credit Cash for $38,995

Question 25

What is a 'flow' as it relates to financial statements?

A) An amount that varies over time
B) A change in a level over a period of time
C) An amount depicted on the balance sheet
D) A balance at the end of the period that appears on the income statement

Question 26

When adjusting for depreciation, which of the following is one effect of the adjustment?

A) Accumulated depreciation is debited.
B) The asset's book value declines.
C) The cost of the equipment declines.
D) The market value of the equipment declines.

Question 27

Packer Wings Company received an advance payment of $144,000 for a consulting contract during the year. The balance in the Unearned Consulting Fees account at the beginning of the year was $12,000. At the end of the year, $8,000 was still unearned. Create T-accounts for the accounts involved in the adjusting entry needed at year end, and post all amounts to them, including the adjusting entry necessary, and calculate the account balances. How much will Packer Wings report as Consulting Revenue on its income statement for the year?

Question 28

Below are several accounts from Denison Company's accounting records. Columns representing the accounting equation appear to the right of each transaction listed below. Next to each transaction in the column of the respective account classification, write the 1) name of each account, 2) the dollar amount by which each account increases or decreases, and 3) either debit or credit to indicate the effect on the account, for each of the adjustments necessary at the end of May 2016. The company records adjustments monthly.

Question 29

Kirsten Corporation took out a 3-year insurance policy and paid a $216,000 premium for coverage beginning on July 1, 2016. Fill the missing parts of the statements below:

Question 30

Jamie's Cleaning provides janitorial services for commercial customers. On December 31, 2015, the credit balance of the Common Stock and Retained Earnings accounts were $48,000 and $22,000, respectively. During 2016, the company issued $16,800 of stock, and paid $15,200 in dividends. The income statement resulted in a profit of $84,800.
Prepare a 2016 statement of stockholders' equity for Jamie's Cleaning.

Question 31

Swim Clean offers pool and spa cleaning services to hotels and residential customers. Commercial (hotels) customers pay on a monthly contract basis, while residential customers pay an hourly rate based on services provided.
In July 2016, Swim Clean signed a 6-month contract with Holiday Hotels to provide pool and spa cleaning services for 3 hotel sites. The contract price of $168,000 was collected on July 1, 2016. The services will be provided evenly over the 6 months.
During July 2016, Swim Clean also provided 80 hours of residential pool services at $64 per hour. These services have not yet been billed to residential customers. The company uses the account, Fees Receivable, to reflect amounts due but not yet billed.

Question 32

Use the following adjusted trial balance for Andersen Corporation to answer Exercises below

-Use Andersen's adjusted trial balance to prepare the company's income statement.

Question 33

Use the following adjusted trial balance for Andersen Corporation to answer Exercises below

-Use Andersen's adjusted trial balance to prepare Andersen's statement of stockholders' equity for 2016. There were no stock issuances or repurchases during 2016.

Question 34

Use the following adjusted trial balance for Andersen Corporation to answer Exercises below

-Use Andersen's adjusted trial balance above to prepare Andersen's balance sheet for the current year-end.

Question 35

Use the following adjusted trial balance for Andersen Corporation to answer Exercises below

-Use Andersen's adjusted trial balance to prepare entries to close Andersen's temporary accounts in journal entry form.

Question 36

Use the T-account below, to answer the following questions.
A. What journal entry is most likely represented by $ 3,600,400 in the T-account? What business event caused this?
B. What journal entry is most likely represented by the $2,812,000 in the T-account? What business event caused this?
C. What is the balance of Accounts Receivable on December 31?

Question 37

Kramer's Kitchen sells pre-packaged meals to consumers. During 2016, the company purchased inventory on account at a cost of $16,920,000. The following T-accounts reflect information contained in the company's 2016 and 2015 balance sheets.
A. Prepare the journal entry, using the financial statement effects template and in journal entry form, to record Kramer's Kitchen's purchases during 2016.
B. How much will Kramer's Kitchen report at December 31, 2016 on its balance sheet for inventory? For Accounts Payable?
C. How much will Kramer's Kitchen report for the year ending December 31, 2016 on its income statement as Cost of Goods Sold?

Question 38

Kramer's Kitchen sells pre-packaged meals to consumers. During 2016, the company purchased inventory on account at a cost of $16,920,000. The following T-accounts reflect information contained in the company's 2015 and 2016 balance sheets.
A. What amount did Kramer's Kitchen pay in cash to its suppliers during 2016?
B. What amount will Kramer's Kitchen report as Accounts Payable on its balance sheet at December 31, 2016?

Question 39

Rabbit Company closes its accounts on December 31 each year. On December 31, 2016, Rabbit Company accrued interest income totaling $640 that was earned on a $40,000 investment but not yet received or recorded (the investment will pay interest of $1,100 cash on January 31, 2017). On January 31, 2017, the company received the $1,100 cash as interest on the investment.
Prepare journal entries to:
A. Accrue the interest earned on December 31, 2016.
B. Close the Interest Income account on December 31, 2016 (the account has a year-end balance of $2,600 after adjustments).
C. Record the cash receipt of interest on January 31, 2017.

Question 40

On January 18, 2016, Sunflower Co. paid $48,960 for a two-year insurance premium that covers February 1, 2016 through January 31, 2018. Sunflower's year end is March 31, 2016.
A. What entry is made on January 18, 2016?
B. What adjusting entry should be made on March 31, 2016 before the financial statements are prepared for the year ending March 31, 2016?

Question 41

On January 1, 2016, the first month of the fiscal year, the Gift Certificates account had a credit balance of $9,000. During January, customers purchased an added $85,200 worth of gift certificates. As of January 31, 2016, $13,600 of certificates were unredeemed.
A. How will the adjustment gift certificates redeemed affect the income statement for the month ending January 31, 2016?
B. How will the adjustment gift certificates redeemed affect the balance sheet prepared at January 31, 2016?

Question 42

The publisher of Business Success Monthly, a monthly business magazine, received $64,800 for three-year subscriptions on January 1, 2016.
A. What entry would be made to record the cash receipt on January 1, 2016?
B. What entry should be made before the financial statements are prepared for the month ending January 31, 2016?

Question 43

Andrew's Aviation pays employees each Friday for the five day work-week ending on that day. Ignoring taxes and other withholdings, the company's normal gross weekly payroll is $28,800.
If the last Friday of the month falls on January 25, what adjusting entry should be made on January 31, the fiscal year end?

Question 44

Andrew's Aviation earns 3% annual interest on its $84,000 of investments. Interest is paid every six months on June 30 and December 31.
A. If monthly financial statements are prepared, what adjusting entry should be made on January 31?
B. What effect on the January 31 balance sheet does the adjusting entry have?

Question 45

Cellular and More operates a kiosk in a local mall selling cell phones and other equipment. During 2015, the company purchased $124,000 of inventory, all on account. The following T-accounts reflect information contained in the company's 2016 and 2015 balance sheets.
A. Prepare the journal entry, using the financial statement effects template and in journal entry form, to record Cellular and More's purchases during 2016.
B. How much will Cellular and More report at December 31, 2016 on its balance sheet for Inventory? For Accounts Payable?
C. If Cellular and More pays $26,000 of the amounts due for inventory on January 4, 2017, how much will the liability be on that date immediately after payment?
D. How much will Cellular and More report for the year ending December 31, 2016 on its income statement as Cost of Goods Sold?

Question 46

Badger Bagels had the following separate situations occur during 2016.The company's accountant is preparing the annual financial statements at December 31, 2016 and has asked you to prepare the adjusting entries for each situation using the financial statement effects template.
a. On June 1, 2016, Badger Bagels paid the annual lease amount on its warehouse space. The annual lease is $26,400 and was recorded by debiting Prepaid Rent and crediting Cash. No adjusting entries have been prepared since June 1, 2016.
b. The Unearned Revenue account has an unadjusted balance of $8,000 consisting of gift cards sold to customers. Redeemed gift cards that have not yet been recorded total $4,800.
c. The company has not yet received a bill or paid for utilities for the month of December. The expense is estimated to be $3,360
d. On December 1, 2016, Badger Bagels received $6,000 cash from a customer related to a special order. The special order was delivered to the customer on December 29 but no entry has been made to record the delivery.
e. At December 31, 2016, employee wages of $9,200 have been incurred but not paid or recorded.
f. At December 31, 2016, $1,760 of interest has been incurred, but not yet paid or recorded.
g. Unrecorded depreciation on equipment is $11,200.

Question 47

Badger Bagels had the following separate situations occur during 2016. The company's accountant is preparing the annual financial statements at December 31, 2016 and has asked you to prepare the adjusting entries for each situation using the journal entry form.
a. On June 1, 2016, Badger Bagels paid the annual lease amount on its warehouse space. The annual lease is $26,400 and was recorded by debiting Prepaid Rent and crediting Cash. No adjusting entries have been prepared since June 1, 2016.
b. The Unearned Revenue account has an unadjusted balance of $8,000 consisting of gift cards sold to customers. Redeemed gift cards that have not yet been recorded total $4,800.
c. The company has not yet received a bill or paid for utilities for the month of December. The expense is estimated to be $3,360
d. On December 1, 2016, Badger Bagels received $6,000 cash from a customer related to a special order. The special order was delivered to the customer on December 29 but no entry has been made to record the delivery.
e. At December 31, 2016, employee wages of $9,200 have been incurred but not paid or recorded.
f. At December 31, 2016, $1,760 of interest has been incurred, but not yet paid or recorded.
g. Unrecorded depreciation on equipment is $11,200.

Question 48

Spirit Corp. has been in operation since January, 2001. Selected T-account balances for Spirit Corp. are shown below as of January 31, 2016. Adjusting entries have already been posted. The firm uses a calendar-year accounting period but prepares monthly adjustments.

Question 49

Purrfect Pet provides pet grooming and boarding services for domestic cats. The company has been in existence for 12 years. At December 31, 2016, Purrfect Pet's adjusted trial balance is as follows:
A. Prepare closing entries in journal entry form.
B. After Purrfect Pet's closing entries are posted, what is the balance in the Retained Earnings account?
C. Prepare Purrfect Pet's post-closing trial balance.

Question 50

Winter South is a national grocery chain. Selected balance sheet data follows:
A. During its year ending June 31, 2016, Winter South purchased on account, $2,442,278 thousand of inventory for sale in its stores. Prepare the entry, using the financial statement effects template and in journal entry form, to record cost of goods sold for the year ended June 31, 2016.
B. What amount of cash did Winter South pay to its suppliers during its year ending June 31, 2016?

Question 51

Third Avenue Grill, an upscale restaurant on the beach, has just completed its first full year of operations on December 31, 2016. It provides meals both in its restaurant and catering. Selected balances from its general ledger before year-end adjustments follow. (All balances are normal.)
An analysis of the firm's records reveals the following.

1. The balance in Prepaid Advertising represents the amount paid for newspaper advertising for one year. The agreement, which calls for the same amount of space each month, covers the period from February 1, 2016, to January 31, 2017. Third Avenue Grill did not advertise during its first month of operations.
2. Equipment purchased January 1, 2016, has an estimated life of eight years.
3. Utilities expense does not include the expense for December, estimated at $ 1,000. The bill will not arrive until January, 2016.
4. At year-end, employees have earned $12,800 in wages that will not be paid until January.
5. Supplies available at year-end amounted to $2,600.
6. At year-end, unpaid interest of $ 480 has accrued on the notes payable.
7. The firm's lease calls for rent of $2,000 per month payable on the first of each month, plus an amount equal to 2% of annual sales. The rental percentage is payable within 15 days after the end of the year.
Prepare adjusting entries in journal entry form.

Question 52

Why would a company want to have a fiscal year-end that does not match the calendar year-end?

Question 53

Do the steps in the accounting cycle occur with equal frequency? Why or why not?