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

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Question 41

True/False

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Depreciation expense is an estimated allocation of the cost of long-term assets and is recorded in a contra-asset called accumulated depreciation.

A) True
B) False

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Question 42

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Morgan Company purchased supplies inventory for $2,000.Due to an error in posting to the general ledger,the inventory account was debited for only $200 while accounts payable was credited for $2,000.During which phase of the accounting cycle would this error be first discovered?

A) Recording the transaction in the general journal.
B) Preparation of the financial statements.
C) Preparation of the trial balance.
D) Preparation of the income statement.

E) A) and D)
F) C) and D)

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Question 43

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

Modern Mother Magazine has received cash subscriptions on April 1,2011 in the amount of $3,600,000 for the next three years.Their year-end is December 31,2011.Magazine delivery occurs monthly and started on April 1,2011.These were the only subscription sales for the year. Answer the following questions for the year ended December 31,2011: a.What amount of cash should be reported for the year on the statement of cash flows? b.What amount of subscriptions revenue should be reported on the income statement? c.What amount would be reported as unearned subscriptions revenue on the balance sheet as of December 31,2011?

On December 31,2010,the manager of Jordan Creek Apartments noticed that four tenants had not paid their December rent amounting to $500 each.What is the adjusting entry required on December 31,2010?

Which of the following correctly describes the effects of accruing income tax expense at year-end?

On December 31,2011,The Bates Company's revenues total $300,000 and expenses total $160,000 before consideration of the following: Accrued wages total $11,000; Accrued revenues total $36,000; Depreciation expense is $17,000; Rental revenue of $9,000 was earned; the rent was prepaid by a tenant and was recorded by Bates as unearned rent revenue; The income tax rate is 40%. What is Bates' net income after consideration of the above information?

Prepaid expenses are reported as assets at the time of the initial cash flow and when they are consumed in the future,both expenses and liabilities increase.

On December 31,2010,Madison Company prepared an income statement and a balance sheet.In making the adjusting entries at year-end,Madison failed to record the adjusting entry for wages earned by employees,but not yet paid,amounting to $5,000 for the last four days of the year.The income statement reported net income of $52,000.The balance sheet reported total assets of $254,000,total liabilities of $170,000 and stockholders' equity of $84,000. Complete the following tabulation to show the correct amounts for the financial statements (ignore income taxes). $\begin{array} { | l | l | l | l | l | } \hline \text { Item } & \text { Net Income } & \text { Assets } & \text { Liabilities } & \begin{array} { l } \text { Stockholders' } \\\text { Equity }\end{array} \\\hline \text { Balances reported } & \$ 52,000 & \$ 254,000 & \$ 170,000 & \$ 84,000 \\\hline \text { Correction for wages } & & & & \\\hline \text { Corrected balances } & & & & \\\hline\end{array}$

Which of the following transactions will not decrease the net profit margin ratio?

Which of the following does not correctly describe the following journal entry? Interest receivable $\quad$$\quad$ Interest income

Which is the correct order of the following steps in the accounting cycle?

Which of the following correctly describes the closing entry process?

The trial balance is a listing of account balances that are found in the general ledger.

Which of the following will result in an increase in earnings per share?

Which of the following statements is correct?

Which of the following transactions results in an increase in liabilities and a decrease in net income?

On December 31,2011,Krug Company reported pretax income of $120,000 prior to the following adjusting entries: Depreciation expense was $31,000; Accrued service revenues totaled $29,000; Accrued expenses totaled $12,000; Expired insurance which was prepaid totaled $9,000; Rent revenue earned was $7,000; the rent was prepaid by the tenant and credited to unearned rent revenue. How much is Krug's pretax income after adjusting entries?

Which of the following correctly describes the effects of recording deferred revenues when cash is received from a customer?

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