Question 1

________ basis accounting means that revenues are recognized when cash is received and that expenses are recorded when cash is paid. ________ basis accounting means that the financial effects of revenues and expenses are recorded when earned or incurred.

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Question 2

Using the information given below, prepare a balance sheet for Rapid Car Services from the adjusted trial balance. Owner Stella Grafton did not make any additional investments in the company during the year.
Rapid Car Services Adjusted Trial Balance
For the year ended December 31
 $\begin{array}{l}
\text { Cash } & \$ 33,000 \
\text { Accounts receivable } & 14,200 \
\text { Office supplies } & 1,700 \
\text { Vehides } & 100,000\
\text { Accumulated depreciation - Vehicles }&&45,000\
\text { Accounts payable}&&11,500\
\text { Stella Grafton, Capital}&&71,000\
\text { Stella Grafton, Withdrawals } & 40,000 \
\text { Fees earned } &&155,000 \
\text { Rent expense } & 13,000\
\text { Office supplies expense } & 2,000 \
\text { Utilities expense } & 2,500 \
\text { Depreciation Expense - Vehicles } & 15,000 \
\text { Salary expense } & 50,000 \
\text { Fuel expense } & 12,000
\end{array}$
$\text {Totals}\quad\quad\quad\quad\quad\quad\$ 283,400 \quad \$ 283,400$

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Question 3

Using the selected information given below for Luk Company, calculate the return on assets, debt ratio, and profit margin. Comment on the results of operations and the financial position of the company for the year.
 $$\begin{array} { | l | l | } 
\hline \text { Sales } & 1,050,000 \
\hline \text { Expenses } & 795,000 \
\hline \text { Assets (begining of the year) } & 1,500,000 \
\hline \text { Assets (end of the year) } & 1,900,000 \
\hline \text { Labilities } & 850,000 \
\hline
\end{array}$$

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The answer of Using the selected information given below for...

Question 4

On November 1 of the current year, Salinger Company paid $9,600 cash for a one-year insurance policy that took effect on that day. On the date of the payment, Salinger recorded the following entry:
$\begin{array}{lll}
\text { Nov. } 01 & \text { Insurance Expense } &9,600\
&\text { Cash }&&9,600
\end{array}$ 
Assuming Salinger only prepares adjustments at year-end, prepare the required adjusting entry at December 31 of the current year.

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Question 5

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

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Question 6

Profit margin =____________ divided by net sales.

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Question 7

Abdulla, Co. collected 6-months' rent in advance from a tenant on October 1 of the current year. When it collected the cash, it recorded the following entry:
$\begin{array} { l l l } \text { Oct. } 01 &\text { Cash } & 15,000\
&\text { Rent Revenue Earned} && 15,000
 \end{array}$
Assuming Abdulla only prepares adjustments at year-end, prepare the required adjusting entry at December 31 of the current year.

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Question 8

If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be ________ and equity would be ________.

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Question 9

Carroll Co. is a multi-million dollar business. The business results for the year have been impacted significantly by a slowing economy. The company wants to increase its net income. It has incurred
$2,900,000 in unpaid salaries at the end of the year and wants to leave those amounts unrecorded at the end of the year. (a) How would this omission affect the financial statements of Carroll? (b) Which accrual basis of accounting principles does this omission violate? (c) Would this be considered an ethical problem?

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The answer of Carroll Co. is a multi-million dollar business....

Question 10

________ refer to costs incurred in a period that are both unpaid and unrecorded. ________ refer to revenues earned in a period that are both unrecorded and not yet received in cash (or other assets).

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Question 11

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

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Question 12

The following information is available for Hatter Co.
 $$\begin{array} { | l | l | l | l | } 
\hline & 2017 & 2016 & 2015 \
\hline \text { Net in come } & 2,500 & 1,700 & 1,900 \
\hline \text { Net sales } & 37,000 & 35,000 & 32,000 \
\hline \text { Total asststs } & 420,000 & 395,000 & 375,000 \
\hline
\end{array}$$ 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.

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Question 13

Prepare adjusting entries for the year ended December 31, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance are initially recorded as liabilities.
a. The Prepaid Rent account has a debit balance of $8,000 before adjustment, representing a prepayment for four months' rent made on December 1 of the current year.
b. One-third of the work related to $18,000 of cash received in advance was performed during this period.
c. Unpaid accrued salaries at December 31 amounts to $15,000
d. Work was completed for a client on December 31 in the amount of $21,000, but was not previously billed or recorded.
e. Estimated depreciation on office equipment is $27,000.

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Question 14

Companies experiencing seasonal variations in sales often choose a fiscal year corresponding to their ________ year.

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Question 15

The ________ depreciation method allocates equal amounts of an asset's cost to depreciation during its useful life.

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Question 16

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

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Question 17

Adjusting is a three-step process (1) ________, (2) ________, and (3) ________.

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Question 18

The unadjusted trial balance and the adjustment data for Porter Business Institute are given below along with adjusting entry information. What is the impact on net income if these adjustments are not recorded? Show the calculation for net income without the adjustments and net income with the adjustments. Which one gives the most accurate net income? Which accounting principles are being violated if the adjustments are not made?
 $\begin{array}{c}\text {Porter Business Institute }\
\text {Unadjusted Trial Balance }\
\text {December 31}\
\text { (In millions)}\
\begin{array}{l|l||l}
\hline \text { Cash........ } & \$ 58,000 & \
\hline \text { Accounts receivable .............. } & 59,000 & \
\hline \text { Prepaid insurance ............. } & 12,000 & \
\hline \text { Equipment ... } & 8,000 & \
\hline \text { Accumulated depreciation-equipment .......... } & & \$ 2,000 \
\hline \text { Buildings..... } & 57,500 & \
\hline \text { Accumulated depreciation-buildings............. } & & 17,500
\end{array}\end{array}$

$$\begin{array} { l | l | | l } 
\hline \text { Land } & 55,000 & \
\hline \text { Unearned rent. } & & 16,000 \
\hline \text { Long-term notes payable } \ldots \ldots \ldots & & 50,000 \
\hline \text { Porter, Capital } & & 115,600 \
\hline \text { Tuition fees earned } \ldots \ldots \ldots \ldots & & 74,000 \
\hline \text { Training fees earned } \ldots \ldots \ldots & & 23,400 \
\hline \text { Wages expense } \ldots \ldots \ldots \ldots \ldots & 32,000 & \
\hline \text { Utilities expense } \ldots \ldots \ldots \ldots & 8,000 & \
\hline \text { Property taxes expense } \ldots \ldots & 5,000 & \
\hline \text { Interest expense } \ldots \ldots \ldots \ldots \ldots & 4,000 & \
\hline \text { Totals } \ldots \ldots \ldots & \$ 298,500 & \$ 298,500 \
\hline
\end{array}$$ 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.

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Question 19

Accrued revenues at the end of one accounting period often result in cash ________ in the next period.

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Question 20

For each of the following two separate situations, 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. Assume the company does not prepare reversing entries.
a. Nicolas Company has 5 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 worked each day and will be paid salaries for five full days on the following Monday.
b. Services of $3,000 have been performed for Clevenger Company 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 Clevenger Company for services that are now completed on May 23.

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The answer of For each of the following two separate...

Quiz 3: Adjusting Accounts and Preparing Financial Statements

basis accounting means that revenues are recognized when cash is received and that expenses are recorded when cash is paid. basis accounting means that the financial effects of revenues and expenses are recorded when earned or incurred.

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

Profit margin =____________ divided by net sales.

If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be and equity would be .

refer to costs incurred in a period that are both unpaid and unrecorded. refer to revenues earned in a period that are both unrecorded and not yet received in cash (or other assets).

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

Companies experiencing seasonal variations in sales often choose a fiscal year corresponding to their ________ year.

The ________ depreciation method allocates equal amounts of an asset's cost to depreciation during its useful life.

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

Adjusting is a three-step process (1) , (2) , and (3) .

Accrued revenues at the end of one accounting period often result in cash ________ in the next period.