Question 1

Carroll Co. is a multi-million dollar business. The business results for the year have been impacted significantly by a slowing economy. The company wants to increase its net income. It has incurred
$2,900,000 in unpaid salaries at the end of the year and wants to leave those amounts unrecorded at the end of the year. (a) How would this omission affect the financial statements of Carroll? (b) Which accrual basis of accounting principles does this omission violate? (c) Would this be considered an ethical problem?

Accepted Answer

a. The net income would be overstated be...

Question 2

On April 1, Santa Fe, Inc. paid Griffith Publishing Company $1,548 for 36-month subscriptions to several different magazines. Santa Fe debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately.
- What amount should appear in the Prepaid Subscription account for Santa Fe, Inc. after adjustments on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustment has been made?

Accepted Answer

A)   $387.
B)   $1,548.
C)   $0.
D)   $516.
E)   $1,161.F) A) and C)
G) A) and D)

Question 3

Show the December 31 adjusting entry to record $750 of earned but unpaid salaries of employees at the end of the current accounting period.

Accepted Answer

None...

Question 4

On December 31, Carmack Company's Prepaid Insurance account had a balance before adjustment of $6,000. The insurance was purchased on July 1 of the same year for one year of insurance coverage, with coverage beginning on that date. The adjusting entry needed on December 31 is:

Accepted Answer

A)   Debit Prepaid Insurance $6,000; credit Cash $6,000.
B)   Debit Insurance Expense $3,000; credit Prepaid Insurance $3,000.
C)   Debit Insurance Expense $3,000; credit Accounts Payable $3,000.
D)   Debit Insurance Expense $6,000; credit Accounts Payable $6,000.
E)   Debit Cash $6,000; credit Prepaid Insurance $6,000.F) C) and D)
G) A) and D)

Question 5

Adjusting entries are necessary so that asset, liability, revenue, and expense account balances are correctly recorded.

Accepted Answer

A) True 
 B)False

Question 6

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

Accepted Answer

A)   $2,400.
B)   $1,200.
C)   $400.
D)   $1,400.
E)   $1,000.F) B) and E)
G) All of the above

Question 7

If a company failed to make the end-of-period adjustment to move the amount of management fees that were earned from the Unearned Management Fees account to the Management Fees Revenue account, this omission would cause:

Accepted Answer

A)   An overstatement of liabilities.
B)   An overstatement of assets.
C)   An understatement of liabilities.
D)   An overstatement of net income.
E)   An overstatement of equity.F) A) and B)
G) A) and C)

Exam 3: Adjusting Accounts and Preparing Financial Statements

On December 31, Carmack Company's Prepaid Insurance account had a balance before adjustment of $6,000. The insurance was purchased on July 1 of the same year for one year of insurance coverage, with coverage beginning on that date. The adjusting entry needed on December 31 is:

Correct Answer
verified

Show the December 31 adjusting entry to record $750 of earned but unpaid salaries of employees at the end of the current accounting period.

Correct Answer
verified
None...
View Answer

Correct Answer
verified
a. The net income would be overstated be...
View Answer

If a company failed to make the end-of-period adjustment to move the amount of management fees that were earned from the Unearned Management Fees account to the Management Fees Revenue account, this omission would cause:

Correct Answer
verified

Correct Answer
verified

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

Correct Answer
verified

Adjusting entries are necessary so that asset, liability, revenue, and expense account balances are correctly recorded.

Correct Answer
verified

Exam 3: Adjusting Accounts and Preparing Financial Statements

On December 31, Carmack Company's Prepaid Insurance account had a balance before adjustment of $6,000. The insurance was purchased on July 1 of the same year for one year of insurance coverage, with coverage beginning on that date. The adjusting entry needed on December 31 is:

Correct AnswerverifiedShow Answer

Show the December 31 adjusting entry to record $750 of earned but unpaid salaries of employees at the end of the current accounting period.

Correct AnswerverifiedNone...View AnswerShow Answer

Correct Answerverifieda. The net income would be overstated be...View AnswerShow Answer

If a company failed to make the end-of-period adjustment to move the amount of management fees that were earned from the Unearned Management Fees account to the Management Fees Revenue account, this omission would cause:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

Correct AnswerverifiedShow Answer

Adjusting entries are necessary so that asset, liability, revenue, and expense account balances are correctly recorded.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
None...
View Answer

Correct Answer
verified
a. The net income would be overstated be...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified