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

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Question 21

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Center Company is completing the accounting cycle at the end of the annual accounting period, December 31, 2016. Adjusting entries have not been made during the year so three adjusting entries must be made at this date to update the accounts. The following accounts, selected from Center Company's chart of accounts, are to be used for this purpose. They are coded to the left of each title for convenient reference.

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Question 22

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Lane Company is completing the accounting cycle at the end of its annual accounting period, December 31, 2016. Adjusting entries have not been made during the year so three adjusting entries must be made to update the accounts. The following accounts, selected from the company's chart of accounts, are to be used for this purpose. They are coded to the left of each title for convenient reference.

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Question 23

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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 record accrued wage expense at year-end. Revenue _____ Expenses _____ Net income _____ Assets _____ Liabilities _____ Stockholders' equity _____ Error 2: A company failed to accrue revenue earned at year-end. Revenue _____ Expenses _____ Net income _____ Assets _____ Liabilities _____ Stockholders' equity _____ Error 3: A company recorded revenue when cash was received from a customer for services to be provided in the future. Revenue _____ Expenses _____ Net income _____ Assets _____ Liabilities _____ Stockholders' equity _____

Which of the following correctly describes the following adjusting journal entry?

Which of the following does not correctly describe an adjusting journal entry that debits rent expense and credits prepaid rent?

The CHS Company paid $30,000 cash to its landlord on November 1, 2016 for rent covering the six-month period from November 1, 2016 through April 30, 2017. The books are adjusted only at year-end. Which of the following does not correctly describe the effect on CHS Company's financial statements of the December 31, 2016 adjusting entry?

Accrued revenues are revenues that have been earned, but the customer has not yet paid for the goods or services.

What does the total asset turnover ratio measure and how is it calculated? Give two examples of transactions that decrease the ratio.

On September 1, 2016, Fast Track, Inc. was started with $30,000 invested by the owners as contributed capital. On September 30, 2016, the accounting records contained the following amounts: Required: Prepare a single-step income statement for September for the first month of Fast Track's operation. Ignore income taxes.

Explain how adjusting entries provide for potential manipulation by managers. In addition, discuss how compensation arrangements may result in incentives for such manipulation to occur.

On November 1, 2016, Bruce Company leased some of its office space to Fairlane Company and immediately collected $600,000 for twelve months rent in advance. Bruce debited cash and credited unearned rent revenue for $600,000. Required: Prepare the December 31, 2016 adjusting entry Bruce should make in respect to the rent, assuming no adjusting entries have been made during the year.

Which of the following statements is inaccurate with respect to the total asset turnover ratio?

A trial balance prepared after the closing entries have been posted would show a zero balance in which one of the following accounts?

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

Which of the following accounts would most likely not require an adjusting entry at year-end?

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

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

On September 1, 2016, Fast Track, Inc. was started with $30,000 invested by the owners as contributed capital. On September 30, 2016, the accounting records contained the following amounts: Required: Prepare a statement of stockholders' equity for September, the first month of operation. Ignore income taxes.

Three transactions described below were completed during 2016 by Story Company. A.On June 1, 2016, Story Company paid $12,600 for one year's rent beginning on that date.The rent payment was recorded as follows: B.On February 1, 2016, Story Company purchased office supplies during the year that cost $700 and placed the supplies in a storeroom for use as needed.The purchase was recorded as follows: At December 31, 2016, a count showed unused office supplies of $200 in the storeroom.There was no beginning inventory of supplies on hand. C.On December 31, 2016, Story Company owed employees $2,000 for wages earned during December.These wages had not been paid or recorded.Required: Prepare the adjusting entries as of December 31, 2016, assuming no adjusting entries have been made during the year.

Accounts that retain their balance from one period to the next are referred to as permanent accounts and include balance sheet accounts.