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Exam 3: Adjusting Accounts and Preparing Financial Statements

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Question 81

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The expense recognition (matching) principle requires that expenses get recorded in the same accounting period as the revenues that are earned as a result of the expenses, not when cash is paid.

A) True
B) False

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Question 82

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Accrued expenses reflect transactions where cash is paid before a related expense is recognized.

A) True
B) False

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Question 83

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From the information provided, calculate Giuseppe's profit margin ratio for each of the three years. Comment on the results, assuming that the industry average for the profit margin ratio is 6% for each of the three years. $\begin{array}{lrccc}&\underline{2017}&\underline{2016}&\underline{2015}\\\text { Net income } & \$ 2,630 & \$ 2,100 & \$ 1,850 \\\text { Net Sales } & 36,500 & 32,850 & 31,200 \\\text { Total Assets } & 400,000 & 385,000 & 350,000\end{array}$

A ________ account is an account linked with another account, having an opposite normal balance, and reported as a subtraction from that other account's balance.

Prior to recording adjusting entries at the end of an accounting period, some accounts may not show correct balances even though all transactions were properly recorded.

The accounting principle that requires revenue to be recorded when earned is the:

Earned but uncollected revenues are recorded during the adjusting process with a credit to a revenue account and a debit to an expense account.

A fiscal year refers to an organization's accounting period that spans twelve consecutive months or 52 weeks.

All of the following are true regarding unearned revenues except:

Assuming prepaid expenses are originally recorded in balance sheet accounts, the adjusting entry to record use of a prepaid expense is:

The revenue recognition principle is the basis for making adjusting entries that pertain to unearned and accrued revenues.

The adjusting entry to record an accrued expense is:

List the three-steps of the adjusting process.

How is profit margin calculated? Discuss its use in analyzing a company's performance.

Werner Company had $1,300 of store supplies at the beginning of the current year. During this year, Werner purchased $6,250 worth of store supplies. On December 31, $1,125 worth of store supplies remained. Calculate the amount of Werner Company's store supplies expense for the current year.

All plant assets, including land, are depreciated.

If a company reporting on a calendar year basis, paid $18,000 cash on January 1 for one year of rent in advance (lease beginning January 1), and adjusting entries are made at the end of each month, the balance remaining in Prepaid Rent on December 1 should be $1,500.

________ are required at the end of the accounting period because certain internal transactions and events remain unrecorded.

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. -Assuming adjustments are only made at year-end, What is the adjusting entry that should be recorded by Griffith Publishing Company on December 31 of the second year?

A company purchased $6,000 worth of supplies in August and recorded the purchase in the Supplies account. On August 31, the fiscal year-end, the physical count of supplies indicates the cost of unused supplies is $3,200. The adjusting entry would include a $2,800 debit to Supplies.