Question 1

A company had $7,000,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin.
A)85.4%.
B)117.1%.
C)53.9%.
D)217.1%.
E)46.1%.

Accepted Answer

The answer of A company had $7,000,000 in net income...

Question 2

If the January 1 balance in the Supplies account for a company was $520, the company purchased an additional $380 of supplies during the month, and a physical count of the supplies indicates that $235 of supplies is on hand at the end of January, the adjusting entry on January 31 for supplies should be:
A) 
B) 
C) 
D) 
E)

Accepted Answer

The answer of If the January 1 balance in the...

Question 3

On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:
A)Debit Prepaid Insurance, $1,800; credit Cash, $1,800.
B)Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.
C)Debit Prepaid Insurance, $360; credit Insurance Expense, $360.
D)Debit Insurance Expense, $360; credit Prepaid Insurance, $360.
E)Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440.

Accepted Answer

The correct adjusting entry at the end of the first year is to debit Insurance Expense for $360 and credit Prepaid Insurance for $360. This reflects the expense of one year of the insurance policy ($1,800/5 years = $360 per year) and reduces the Prepaid Insurance account accordingly.

Question 4

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:
A)Is referred to as depreciation expense.
B)Is referred to as accumulated depreciation.
C)Is shown on the income statement of the final period.
D)Is only recorded when the asset is disposed of.
E)Is referred to as an accrued asset.

Accepted Answer

Accumulated depreciation is the total amount of depreciation recorded against an asset over its entire useful life. It is a contra-asset account that is subtracted from the original cost of the asset to determine its book value. It is shown on the balance sheet as a deduction from the asset being depreciated.

Question 5

Unearned revenue is reported in the financial statements as:
A)A revenue on the balance sheet.
B)A liability on the balance sheet.
C)An unearned revenue on the income statement.
D)An asset on the balance sheet.
E)A financing activity on the statement of cash flows.

Accepted Answer

Unearned revenue represents advance payments received from customers for goods or services not yet delivered. As such, it is a liability on the balance sheet as the company has an obligation to fulfill the product or service at a later date. It is not reported as revenue until the product or service has been delivered or performed.

Question 6

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):
A)Accrued expense.
B)Contra account.
C)Accrued revenue.
D)Intangible asset.
E)Adjunct account.

Accepted Answer

This describes a contra account, which is linked to another account with an opposite normal balance and is also subtracted from the balance of the related account. Examples include accumulated depreciation and contra revenue accounts.

Question 7

Which of the following assets is not depreciated?
A)Store fixtures.
B)Computers.
C)Land.
D)Buildings.
E)Equipment.

Accepted Answer

Land is not depreciated because it is considered to have an unlimited useful life and does not wear out or become obsolete.

Question 8

On August 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will the balance be in the Prepaid Insurance account on the Balance Sheet for the current year ended December 31?
A)$1,200.
B)$2,400.
C)$1,000.
D)$400.
E)$1,400.

Accepted Answer

The answer of On August 1, a company paid the...

Question 9

On August 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. Assuming no previous adjustments have been made for the expired insurance, the correct adjusting entry on December 31 would be:
A) 
B) 
C) 
D) 
E)

Accepted Answer

The answer of On August 1, a company paid the...

Question 10

Which of the following does not require an adjusting entry at year-end?
A)Accrued interest on notes payable.
B)Supplies used during the period.
C)Cash invested by stockholder.
D)Accrued wages.
E)Expired portion of prepaid insurance.

Accepted Answer

Cash invested by stockholder is not an expense or revenue transaction, and therefore does not require an adjusting entry at year-end. Adjusting entries are required for transactions that have occurred but have not been recorded in the accounts or have been recorded but not yet adjusted to reflect the correct amounts as of the end of the accounting period. Accrued interest on notes payable, accrued wages, and expired portion of prepaid insurance are examples of transactions that require adjusting entries to properly record and report them in the financial statements. Supplies used during the period is also an example of a transaction that requires an adjusting entry to reflect the amount of supplies that have been used up and to adjust the balance of the supplies account accordingly.

Question 11

Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:
A)Debit Office Supplies $105 and credit Office Supplies Expense $105.
B)Debit Office Supplies Expense $105 and credit Office Supplies $105.
C)Debit Office Supplies Expense $254 and credit Office Supplies $254.
D)Debit Office Supplies $254 and credit Office Supplies Expense $254.
E)Debit Office Supplies $105 and credit Supplies Expense $254.

Accepted Answer

The correct adjusting entry is to debit Office Supplies Expense for $254 and credit Office Supplies for $254. This adjusts the Office Supplies account to its actual ending balance of $105 by recognizing the $254 of supplies used.

Question 12

A company earned $3,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:
A)3%.
B)30%.
C)33%.
D)333%.
E)$7,000.

Accepted Answer

The answer of A company earned $3,000 in net income...

Question 13

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the current year ended December 31?
A)$1,200.
B)$2,400.
C)$1,000.
D)$400.
E)$1,400.

Accepted Answer

The insurance policy covers for one year and it started on July 1. Hence, the policy will cover for only 6 months in the current year (July 1 to December 31).

The insurance expense on the annual income statement for the current year ended December 31 will be the portion of the premium paid that applies to the 6 months of coverage in the current year.

This can be calculated as follows:

Insurance expense = (premium paid / number of months covered by policy) x number of months covered in the current year

Insurance expense = ($2,400 / 12) x 6 = $1,200

Therefore, the answer is choice A) $1,200.

Question 14

Profit margin is defined as:
A)Revenues divided by net sales.
B)Net sales divided by assets.
C)Net income divided by net sales.
D)Net income divided by assets.
E)Net sales divided by net income.

Accepted Answer

Profit margin is calculated by dividing the net income by net sales, as it reflects the percentage of revenue that turns into profit.

Question 15

On July 1 Plum Co. paid $7,500 cash for management services to be performed over a two-year period. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Plum should record:
A)A debit to an expense and credit to a prepaid expense for $7,500.
B)A debit to an expense and credit to Cash for $7,500.
C)A debit to a prepaid expense and a credit to Cash for $7,500.
D)A credit to a prepaid expense and a debit to Cash for $7,500.
E)A debit to Cash for $7,500 and a credit to an expense for $7,500.

Accepted Answer

When a company pays for a service in advance, it is considered a prepaid expense. The appropriate journal entry is to debit prepaid expense and credit cash. This increases the asset account (prepaid expense) and decreases the cash account. Choice A and E are incorrect as they debit the expense account, which is not appropriate until the service has been performed. Choice B is incorrect as it only credits cash and does not account for the prepaid expense. Choice D is incorrect as it credits the prepaid expense account instead of debiting it.

Question 16

Prior to recording adjusting entries, the Office Supplies account had a $1,750 debit balance. A physical count of the supplies at the end of the period showed $925 of unused supplies on hand. The required adjusting entry is:
A) 
B) 
C) 
D) 
E)

Accepted Answer

The adjusting entry required is to debit Office Supplies Expense (to reduce the asset) and credit Office Supplies (to record the actual amount of supplies on hand). The difference between the beginning balance of $1,750 and the actual amount on hand of $925 is $825.

Therefore the adjusting entry is:
Office Supplies Expense    825
       Office Supplies           825

Choice B represents this entry.

Question 17

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:
A)Debit Cash and credit Legal Fees Earned.
B)Debit Cash and credit Unearned Legal Fees.
C)Debit Unearned Legal Fees and credit Legal Fees Earned.
D)Debit Legal Fees Earned and credit Unearned Legal Fees.
E)Debit Unearned Legal Fees and credit Accounts Receivable.

Accepted Answer

The adjusting entry must recognize the portion of the unearned fees that have been earned during the accounting period. Therefore, the entry should debit the Unearned Legal Fees account (a liability account that represents revenue received in advance) and credit Legal Fees Earned (a revenue account that represents revenue earned during the period). Option A is incorrect because it records cash, which is not relevant to the adjustment. Option B is incorrect because it records a debit to cash when the adjustment is related to revenue recognition. Option D is incorrect because it records a debit to Legal Fees Earned and a credit to Unearned Legal Fees, which is the opposite of what is required. Option E is incorrect because it records a credit to Accounts Receivable, which is not relevant to the adjustment.

Question 18

If a company failed to make the end-of-period adjustment to move the amount of management fees that were earned from the Unearned Management Fees account to the Management Fees Revenue account, this omission would cause:
A)An overstatement of net income.
B)An overstatement of assets.
C)An overstatement of liabilities.
D)An overstatement of equity.
E)An understatement of liabilities.

Accepted Answer

The answer of If a company failed to make the...

Question 19

Cleaver Corporation has determined that the annual depreciation amount on its equipment is $7,100. The correct adjusting entry to record the depreciation for the period is:
A) 
B) 
C) 
D) 
E)

Accepted Answer

The answer of Cleaver Corporation has determined that the annual...

Question 20

Victor Company received $3,200 from a customer in March of the current year as an advance payment on services. At the end of the year, $1,400 worth of services have been provided. The year-end adjusting entry that Victor should make to account for the revenue earned is:
A) 
B) 
C) 
D) 
E)

Accepted Answer

The answer of Victor Company received $3,200 from a customer...

Quiz 3: Adjusting Accounts for Financial Statements

A company had $7,000,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin.

On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

The total amount of depreciation recorded against an asset over the entire time the asset has been owned:

Unearned revenue is reported in the financial statements as:

An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n) :

Which of the following assets is not depreciated?

On August 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will the balance be in the Prepaid Insurance account on the Balance Sheet for the current year ended December 31?

On August 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. Assuming no previous adjustments have been made for the expired insurance, the correct adjusting entry on December 31 would be:

Which of the following does not require an adjusting entry at year-end?

Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:

A company earned $3,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the current year ended December 31?

Profit margin is defined as:

On July 1 Plum Co. paid $7,500 cash for management services to be performed over a two-year period. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Plum should record:

Prior to recording adjusting entries, the Office Supplies account had a $1,750 debit balance. A physical count of the supplies at the end of the period showed $925 of unused supplies on hand. The required adjusting entry is:

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

If a company failed to make the end-of-period adjustment to move the amount of management fees that were earned from the Unearned Management Fees account to the Management Fees Revenue account, this omission would cause:

Cleaver Corporation has determined that the annual depreciation amount on its equipment is $7,100. The correct adjusting entry to record the depreciation for the period is:

Victor Company received $3,200 from a customer in March of the current year as an advance payment on services. At the end of the year, $1,400 worth of services have been provided. The year-end adjusting entry that Victor should make to account for the revenue earned is: