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

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Question 21

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

A) Net income increases the ending balance of retained earnings.
B) A net loss decreases the ending retained earnings balance.
C) A net loss does not affect the ending retained earnings balance.
D) Net income and net loss both affect the ending retained earnings balance.

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

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Question 22

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On July 1,2019,Goode Company borrowed $100,000.The company signed a note payable with interest at 6 percent per year.The note and interest are due on December 31,2019.On December 31,2019,Goode paid $103,000 to settle the debt in full.Assuming no accruals for interest have been made during the year,transaction analysis of the $103,000 cash payment on December 31,2019 should reflect which of the following?

A) A decrease in assets of $103,000 and a decrease in liabilities of $103,000.
B) A decrease in assets of $100,000,a decrease in stockholders' equity of $3,000,and a decrease in liabilities of $103,000.
C) A decrease in stockholders' equity of $100,000,a decrease in liabilities of $3,000,and a decrease in assets of $103,000.
D) A decrease in liabilities of $100,000,a decrease in stockholders' equity of $3,000,and a decrease in assets of $103,000.

E) None of the above
F) A) and B)

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Question 23

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For each of the following transactions,indicate the direction of effects of the adjusting entry on the elements of the balance sheet and income statement.Using the following format,indicate + for increase,- for decrease,and NE for no effect.Do not leave any blank spaces. Transactions: A.Wages of $5,800 have been earned,but not paid to employees at the end of the year. B.Supplies in the amount of $2,000 were used during the year,which are currently recorded in the office supplies (inventory)account. C.Interest has accrued on a note payable.

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. Revenue _____ Expenses _____ Net income _____ Assets _____ Liabilities _____ Stockholders' equity _____ Error 2: A company failed to record depreciation expense at year-end. Revenue _____ Expenses _____ Net income _____ Assets _____ Liabilities _____ Stockholders' equity _____ Error 3: A company did not adjust the unearned revenue account for revenue earned during the year. Revenue _____ Expenses _____ Net income _____ Assets _____ Liabilities _____ Stockholders' equity _____

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

The journal entry to adjust the prepaid rent account for rent used during the period results in an increase in expenses and a decrease in stockholders' equity.

The adjusting entry to record an accrued expense increases liabilities.

Which of the following journal entries is created to record an accrual?

On April 1,2019,the premium on a one-year insurance policy was purchased for $3,000 cash with the insurance coverage beginning on that date.The books are adjusted only at year-end.Which of the following correctly describes the effect on the financial statements of the December 31,2019 adjusting entry?

The CHS Company paid $30,000 cash to its landlord on November 1,2019 for rent covering the six-month period from November 1,2019 through April 30,2020.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 31,2019 adjusting entry?

Which of the following adjusting journal entries is not created as the result of an accrual?

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

Below are four transactions that were completed during 2019 by Timber Lodge.The annual accounting period ends on December 31.Each transaction will require an adjusting entry at December 31,2019. Prepare the 2019 adjusting entries required for Timber Lodge. A.On July 1,2019,Timber Lodge paid a two-year insurance premium for a policy on its facilities.This transaction was recorded as follows: B.On December 31,2019,a tenant renting some storage space from Timber Lodge had not paid the rent of $750 for December. C.On September 1,2019,Timber Lodge borrowed $25,000 cash and gave a one-year,6 percent,note payable.The interest is payable on the note's due date of August 31,2020.The September 1,2019 transaction was recorded as follows: D.On October 1,2019,Timber Lodge collected $10,000 from a tenant for two years rent beginning October 1,2019.The $10,000 collection was recorded as follows:

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

Which of the following accounts is used to initially record a deferral?

Which of the following is a false statement about the unadjusted trial balance?

What is the effect on the financial statements when a company fails to adjust the prepaid insurance expense account at year-end for insurance coverage that has been used?

Which of the following transactions and events results in a decrease in both total assets and net income?

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 _____

On January 1,2019,the balance in the prepaid insurance account was $2,500.On December 31,2019,after the 2019 adjusting entries were made,the balance of the prepaid insurance account was $1,200.During 2019,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 31,2019.