Question 1

Explain the purpose of adjusting entries at the end of a period.

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Question 2

Explain how the owner of Cheezburger Network uses the accrual basis of accounting.

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Question 3

Describe the types of entries required in later periods that result from accruals.

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Question 4

A company issued financial statements for the year ended December 31, but failed to include the following adjusting entries:
A. Accrued service fees earned of $2,200.
B. Depreciation expense of $8,000.
C. Portion of office supplies (an asset) used $3,100.
D. Accrued salaries of $5,200.
E. Revenues of $7,200, originally recorded as unearned, have been earned by the end of the year.

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Question 5

Ned's net income was $780,000; its net assets were $5,200,000; and its net sales were $9,000,000. Calculate its profit margin ratio.

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Question 6

Explain how accounting adjustments affect financial statements.

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Question 7

Given the table below, indicate the impact of the following errors made during the adjusting entry process. Use a "+" followed by the amount for overstatements, a "-" followed by the amount for understatements, and a "0" for no effect. The first one is done as an example.
Ex. Failed to recognize that $600 of unearned revenues, previously recorded as liabilities, had been earned by year-end.
1. Failed to accrue salaries expense of $1,200.
2. Forgot to record $2,700 of depreciation on office equipment.
3. Failed to accrue $300 of interest on a note receivable.

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Question 8

On December 31, the year end, a company forgot to record $7,000 of depreciation on office equipment. In the current year financial statements, what is the effect of this error on assets, net income, and equity?

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Question 9

Identify the types of adjusting entries and explain the purpose of each type.

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Question 10

What are the types of adjusting entries used for prepaid expenses, depreciation and unearned revenues?

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Question 11

How is profit margin calculated? Discuss its use in analyzing a company's performance.

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Question 12

What is the usual order in which financial statements are prepared from the adjusted trial balance? Why are they prepared in that order?

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Question 13

What is an adjusted trial balance? Why is it prepared?

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Question 14

Identify the differences between accrual accounting and cash basis accounting.

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Question 15

What are the types of adjusting entries used for accrued expenses and accrued revenues?

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Question 16

Reed's net income was $180,000; its total assets were $1,050,000; and its net sales were $3,500,000. Calculate the company's profit margin ratio.

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Question 17

Using the table below, indicate the impact of the following errors made during the adjusting entry process. Use a "+" for overstatements, a "-" for understatements, and a "0" for no effect. The first one is provided as an example

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Question 18

List the three-steps of the adjusting process.

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Question 19

Describe the two alternate methods used to account for prepaid expenses.

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Question 20

From the information provided, calculate Wooden's profit margin ratio for each of the three years. Comment on the results, assuming that the industry average for the profit margin ratio is 6% for each of the three years.

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Quiz 3: Adjusting Accounts and Preparing Financial Statements