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Exam 4: Adjustments, Financial Statements, and the Quality of Earnings

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Question 61

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Earnings per share are calculated by dividing net income by the average number of shares of common stock outstanding.

A) True
B) False

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Question 62

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Which of the following journal entries would not be used to record a deferral? A. Prepaid rent $\quad$ Cash B. Cash $\quad$ Service revenue C. Supplies $\quad$ Cash D. Cash $\quad$ Unearned revenues

A) Option A
B) Option B
C) Option C
D) Option D

E) A) and B)
F) A) and C)

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Question 63

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What is the effect on the financial statements when a company fails to record depreciation expense at year-end?

Which one of the following accounts would not be closed at the end of the accounting year?

On January 1, 2014 the balance in the prepaid insurance account was $2,500. On December 31, 2014, after the 2014 adjusting entries were made, the balance of the prepaid insurance account was $1,200. During 2014, cash payments for insurance premiums amounted to $5,000, which was debited to the prepaid insurance account. Prepare the adjusting entry, which must have been made at December 31, 2014.

On November 1, 2014, Bug Busters collected $6,000 in advance for three months of service to be provided beginning on that date. Bug credited unearned rent revenue for $6,000. The books are adjusted only at year-end. Required: Prepare the adjusting entry required on December 31, 2014.

The adjusting entry to record accrued revenues results in an increase in assets and an increase in stockholders' equity.

Income taxes incurred but not yet paid at the end of the accounting period is an example of an accrued expense.

Which of the following does not correctly describe the following adjusting journal entry? Rent expense $\quad$ Prepaid rent

The year-end closing process transfers net income to retained earnings.

The total asset turnover ratio is computed by dividing sales revenue by average total assets.

The total asset turnover ratio measures sales dollars generated per dollar of assets and is a measure of efficient management of assets.

Which of the following accounts would not be included in the closing process at year-end?

Income statement accounts are temporary accounts because their balances are closed out at the end of the accounting year.

Which of the following statements does not correctly describe the relationship between the income statement and the ending retained earnings balance?

Which of the following does not correctly describe the following journal entry? Supplies $\quad$ Cash

Which of the following best describes the difference between an unadjusted trial balance and an adjusted trial balance?

Closing the revenue and gain accounts at year-end requires that these accounts be debited.

Determine the effect of the following errors on the financial statements. Code your answers as follows and do not leave any blank spaces: O: If the error results in an overstatement of the financial statement component. U: If the error results in an understatement of the financial statement component. N. If the error does not affect the financial statement component. Error 1: A company failed to adjust the prepaid insurance account for insurance that was used during the period. Revenues_____ Expenses_____ Net income_____ Assets_____ Liabilities_____ Stockholders' equity_____ Error 2: A company failed to record depreciation expense at year-end. Revenues_____ Expenses_____ Net income_____ Assets_____ Liabilities_____ Stockholders' equity_____ Error 3: A company did not adjust the unearned revenue account for revenue earned during the year. Revenues_____ Expenses_____ Net income_____ Assets_____ Liabilities_____ Stockholders' equity_____

Below are two related transactions for Golden Corporation. The annual accounting period ends December 31. The books are adjusted only at year-end. A. October 1, 2014: Golden Corporation borrowed $100,000 and signed a note providing for 8% interest. The principal and interest are due in one year on September 30, 2015. B. December 31, 2014: End of the annual accounting period. Required: Prepare the required journal entry at October 31 and December 31, 2014 for each of the above items.