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Exam 3: Adjusting Accounts for Financial Statements

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Question 91

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An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year?

A) $\begin{array} { | l | r | r | } \hline \text { Salaries Expense } & 3,000 & \\\hline \text { Cash } & & 3,000 \\\hline\end{array}$
B) $\begin{array} { | l | r | r | } \hline \text { Salaries Payable } & 3,000 & \\\hline \text { Cash } & & 3,000 \\\hline\end{array}$
C) $\begin{array} { | l | r | r | } \hline \text { Salaries Payable } & 1,200 & \\\hline \text { Cash } & & 1,200 \\\hline\end{array}$
D) $\begin{array} { | l | r | r | } \hline \text { Salaries Expense } & 1,200 & \\\hline \text { Salaries Payable } & & 1,200 \\\hline\end{array}$
E) $\begin{array} { | l | r | r | } \hline \text { Salaries Payable } & 1,200 & \\\hline \text { Salaries Expense } & 1,800 & \\\hline \text { Cash } & & 3,000 \\\hline\end{array}$

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

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Question 92

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Intangible assets are assets that are long-term, have physical form, and are used to produce or sell products and services.

A) True
B) False

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Question 93

Multiple Choice

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The total amount of depreciation recorded against an asset over the entire time the asset has been owned:

_____________ expenses are those costs that are incurred in a period but are both unpaid and unrecorded.

A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:

Under the cash basis of accounting, no adjustments are made for prepaid, unearned, and accrued items.

Depreciation expense for a period is the portion of a plant asset's cost that is allocated to that period.

The current ratio:

Accrued revenues at the end of one accounting period are expected to result in cash collections in a future period.

Describe a work sheet and explain why it is useful.

Prepare adjusting entries for the year ended December 31, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance are initially recorded as liabilities. a. The Prepaid Rent account has a debit balance of $8,000 before adjustment, representing a prepayment for four months' rent made on December 1 of the current year. b. One-third of the work related to $18,000 of cash received in advance was performed during this period. c. Unpaid accrued salaries at December 31 amounts to $15,000. d. Work was completed for a client on December 31 in the amount of $21,000, but was not previously billed or recorded. e. Estimated depreciation on office equipment is $27,000.

If a company plans to continue business into the future, closing entries are not required.

Financial statements are typically prepared in the following order:

___________________ is the process of allocating the cost of plant assets to the income statement over their expected useful lives.

The cash basis of accounting commonly increases the comparability of financial statements from period to period.

Which of the following accounts are permanent (real) accounts?

Accrued expenses at the end of one accounting period are expected to result in cash payments in a future period.

Permanent accounts include all of the following except:

_______________ are long-term resources used to produce or sell products and services; they generally lack physical form and their benefits are highly uncertain.

What is the purpose of a post-closing trial balance?