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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 21

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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?

A) It will have no effect on income.
B) It will overstate assets and liabilities by $9,000
C) It will understate net income by $9,000.
D) It will understate assets by $9,000.
E) It will understate expenses and overstate net income by $9,000.

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Question 22

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The cash basis of accounting recognizes revenues when cash payments from customers are received.

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Question 23

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___________________ is the process of allocating the cost of plant assets to their expected useful lives.

Which of the following statements in incorrect:

______________________ are required at the end of the accounting period because certain internal transactions and events remain unrecorded.

In accrual accounting,accrued revenues are recorded as liabilities.

A company paid $9,000 for a six-month insurance policy.The policy coverage began on February 1.On February 28,$150 of insurance expense must be recorded.

An _______________________ is a listing of all of the accounts in the ledger with their account balances before adjustments are made.

Two main accounting principles used in accrual accounting are matching and full closure.

Financial statements can be prepared directly from the information in the adjusted trial balance.

A company purchased new computers at a cost of $14,000 on September 30.The computers are estimated to have a useful life of 4 years and a salvage value of $2,000.The company uses the straight-line method of depreciation.How much depreciation expense will be recorded for the computers for the first year ended December 31?

A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31.This oversight would:

Depreciation expense is an example of an accrued expense.

The following two separate situations require adjusting journal entries to prepare financial statements as of the fiscal year ended April 30.For each situation,present both the April 30 adjusting entry and the subsequent entry during May to record the payment of the accrued expenses or receipt of the accrued revenue. a.Cage Company has 10 employees,who earn a total of $2,900 in salaries each working day.They are paid on Monday for the five-day workweek ending on the previous Friday.Assume that fiscal year ended April 30,is a Thursday and all employees will be paid salaries for five full days on the following Monday.All employees worked each day. b.Services of $4,000 have been performed for a client through April 30.The client will pay the entire amount of the contract when services are completed on May 23. c.Paid the employees salaries on May 4. d.Received payment from the client in the amount of $11,500 for services that are now completed on May 23.

If a company reporting on a calendar year basis,paid $18,000 cash on January 1 for one year of rent in advance and adjusting entries are made at the end of each month,the balance of Prepaid Rent as of December 1 should be $1,500.

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used,representing the expense of using the assets,is called:

The matching principle does not aim to record expenses in the same accounting period as the revenue earned as a result of these expenses.

Net income for a period will be overstated if accrued salaries are not recorded at the end of the accounting period.

The difference between the cost of an asset and the accumulated depreciation for that asset is called

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