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Exam 3: Adjusting Accounts for Financial Statements

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Question 41

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Profit margin = ___________________ divided by net sales.

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Question 42

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The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries.

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Question 43

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Closing entries are required at the end of each accounting period to close all ledger accounts.

Revenues, expenses, and dividend accounts, which are closed at the end of each accounting period are:

Rogers Company's employees are paid a total of $1,600 per day for a 5-day workweek. The employees are paid each Friday. This year the accounting period ends on Tuesday. Prepare the December 31 year-end adjusting journal entry Rogers Company should make to accrue wages.

Use the information in the adjusted trial balance presented below to calculate current assets for Taron Company, Inc.: Account $\begin{array} { l r r } \quad { \text { Account Title } } & \text { Debit } & { \text { Credit } } \\\text { Cash } & 50,000 & \\\text { Accounts receivable } & 25,000 & \\\text { Prepaid insurance } & 10,200 & \\\text { Equipment } & 190,000 & \\\text { Accumulated Depreciation - } & & 95,000 \\\text { Equipment } & 104,000 & \\\text { Land } & & 26,000 \\\text { Accounts payable } && 4,650 \\\text { Interest payable } & & 7,700 \\\text { Unearned revenue } & & 57,000 \\\text { Long-term notes payable } & & 1,900 \\\text { Common stock } & & 186,950 \\\text { Retained earnings } & & \\& & \\\text { Totals }&379,200&379,200\end{array}$

Flagg, Inc. records adjusting entries at its December 31 year end. At December 31, employees had earned $12,000 of unpaid and unrecorded salaries. The next payday is January 3, at which time $30,000 will be paid. Prepare the journal on January 3 to record payment assuming the adjusting and reversing entries were made on December 31 and January 1.

The balances in the unadjusted columns of a work sheet will agree with:

Using the table below, indicate the impact of the following errors made during the adjusting entry process. Use a "+" for overstatements, a "-" for understatements, and a "0" for no effect. The first one is provided as an example. $\begin{array} { | l | l | c | c | c | c | c | } \hline & \text { Error } & \text { Revenues } & \text { Expenses } & \text { Assets } & \text { Liabilities } & \text { Equity } \\\hline \text { Ex } & \text { Did not record depreciation for this period } & 0 & - & + & 0 & + \\\hline \text { 1. } & \text { Did not record unpaid telephone bill } & & & & & \\\hline \text { 2. } & \begin{array} { l } \text { Did not adjust unearned revenue acoount for revenue } \\\text { earned this period. }\end{array} & & & & & \\\hline \text { 3. } & \text { Did not adjust shop supplies for supplies used this period } & & & & & \\\hline \text { 4. } & \text { Did not accrue employee salaries for this period } & & & & & \\\hline \text { 5. } & \begin{array} { l } \text { Recorded rent expense owed with a debit to insurance } \\\text { expense and a credit to rent payable }\end{array} & & & & & \\\hline\end{array}$

The closing process resets ________, __________, and ________ account balances to zero at the end of each accounting period. Answers can appear in any order

Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are:

The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements, and recording closing and adjusting entries.

Financial statements can be prepared directly from the information in the adjusted trial balance.

Which of the following is the usual final step in the accounting cycle?

What is an adjusted trial balance? Why is it prepared?

Income Summary is a temporary account only used for the closing process.

Which of the following statements is incorrect?

Interim financial statements report a company's business activities for a one-year period.

On April 1, Griffith Publishing Company received $1,548 from Santa Fe, Inc. for 36-month subscriptions to several different magazines. The company credited Unearned Fees for the amount received and the subscriptions started immediately. What is the adjusting entry that should be recorded by Griffith Publishing Company on December 31 of the second year?

Discuss how accrual accounting enhances the usefulness of financial statements.