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Exam 3: Adjusting Accounts for Financial Statements

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Question 101

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Permanent accounts carry their balances into the next accounting period.

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Question 102

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The Retained earnings account has a credit balance of $37,000 before closing entries are made.Total revenues for the period are $55,200,total expenses are $39,800,and dividends are $9,000. -What is the correct closing entry for the revenue accounts?

A) Debit Income Summary $55,200; credit Revenue accounts $55,200.
B) Debit Revenue accounts $37,000; credit Retained earnings $37,000.
C) Debit Revenue accounts $55,200; credit Retained earnings $37,000.
D) Debit Revenue accounts $55,200; credit Income Summary $55,200.
E) Debit Income Summary $37,000; credit Retained earnings $37,000.

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Question 103

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The Dividends account is normally closed by debiting it.

A company had revenues of $75,000 and expenses of $62,000 for the accounting period.Dividends of $8,000 were paid in cash during the same period.Which of the following entries could not be a closing entry?

For the year ended December 31,a company has revenues of $317,000 and expenses of $196,000.The company paid $50,000 in dividends during the year.The balance in the Retained earnings account before closing is $81,000.Which of the following entries would be used to close the dividends account?

Explain how a company uses the accrual basis of accounting.

A benefit of using a work sheet is that it aids in the preparation of the financial statements.

In its first year of operations,Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers) ; Incurred expenses of $35,000 ($31,000 cash paid toward them) ; Prepaid $8,000 cash for costs that will not be expensed until next year.Net income under the cash basis of accounting is:

The adjusting entry to record an accrued expense is:

The closing process is a step in the accounting cycle that prepares accounts for the next accounting period.

It is obvious that an error occurred in the preparation and/or posting of closing entries if:

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

Since the revenue recognition principle requires that revenues be recorded when earned,there are no unearned revenues in accrual accounting.

Permanent accounts include all of the following except:

The first step in the accounting cycle is to analyze transactions and events to prepare for journalizing.

Before an adjusting entry is made to accrue employee salaries,Salaries Expense and Salaries Payable are both understated.

________ expenses are those costs that are incurred in a period but are both unpaid and unrecorded.

Adjusting entries are designed primarily to correct accounting errors.

The unadjusted trial balance and the adjustment data for Porter Business Institute are shown below along with adjusting entry information.What is the impact of the adjusting entries on the balance sheet? Show the calculation for total assets,total liabilities,and equity without the adjustments; show the calculation for total assets,total liabilities,and equity with the adjustments.Which one provides the most accurate presentation of the balance sheet? Additional information items: a.The Prepaid Insurance account consists of a payment for a 1 year policy.An analysis of the insurance invoice indicates that one half of the policy has expired by the end of the December 31 year-end. b.A cash payment for space sublet for 8 months was received on July 1 and was credited to Unearned Rent. c.Accrued interest expense on the note payable of $1,000 has been incurred but not paid.

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called: