Ch 3 Smartbook

Identify the accounts below that would be classified as current liabilities on a classified balance sheet. (check all that apply). -Accounts Payable -Notes Payable (due in three years) -Mortgage Payable -Taxes Payable -Unearned Rent -Accounts Receivable -Notes Payable (due in three months)

-Accounts Payable -Taxes Payable -Unearned Rent -Notes Payable (due in three months)

Determine which of the following transactions may require adjustments. (Check all that apply.) -a 24-month insurance policy was prepaid -Supplies were purchased at the beginning of the year, but not all were used. -Six months of rent were paid in advance. -Rent was paid for the month. -An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. -a one-month premium on an insurance policy was paid -An employee was paid his weekly wages in full at the end of the week. -Equipment was purchased in the middle of the year.

-a 24-month insurance policy was prepaid -Supplies were purchased at the beginning of the year, but not all were used. -Six months of rent were paid in advance. -An advance payment was received from a customer earlier in the month, but only partially earned by the end of the month. -Equipment was purchased in the middle of the year.

Explain your understanding of what an accrued expense is by selecting the statements below which are correct. (Check all that apply.) -Adjustments involve increasing both an expense and a liability account. -They refer to costs that are incurred in a period, but are both unpaid and unrecorded. -Examples of accrued expenses are wages expense and interest expense. -They refer to earnings which have been earned, but not yet billed. -They are also called accounts receivable. -They are reported on an income statement.

-Adjustments involve increasing both an expense and a liability account. -They refer to costs that are incurred in a period, but are both unpaid and unrecorded. -Examples of accrued expenses are wages expense and interest expense. -They are reported on an income statement.

Recall the column headings of a work sheet used to prepare financial statements. Which of the following items would be seen on such a worksheet. (Check all that apply.) -Balance Sheet columns -Adjustment columns -Adjusted Trial Balance columns -Unadjusted Trial Balance columns -Income Statement columns -Statement of Cash Flows columns

-Balance Sheet columns -Adjustment columns -Adjusted Trial Balance columns -Unadjusted Trial Balance columns -Income Statement columns

Review the following statements and select the ones that are CORRECT regarding sorting accounts from the Adjusted Trial Balance columns of a work sheet to the Income Statement and Balance Sheet columns in order to prepare for our last step of completing the worksheet. (Check all that apply) -Expense accounts go to the Income Statement Debit column. -Liabilities go to the Balance Sheet Credit column. -Dividends go to the Income Statement Debit column. -Dividends go to the Balance Sheet Debit column.

-Expense accounts go to the Income Statement Debit column. -Liabilities go to the Balance Sheet Credit column. -Dividends go to the Balance Sheet Debit column.

Which of the following statements describes why accrual accounting better reflects a business's performance? (Check all that apply.) -Expenses are always recognized in the period in which they are incurred. -Revenues are always recorded in the period in which they are earned. -It provides a better focus and understanding of how cash is spent and why it is received. -Comparability of financial statements is improved.

-Expenses are always recognized in the period in which they are incurred. -Revenues are always recorded in the period in which they are earned. -Comparability of financial statements is improved.

A plant asset can be defined by which of the following statements? (Check all that apply.) -It is a tangible long-term asset. -Its original cost (minus any salvage value) is expensed over its useful life. -Its original cost is expensed in the period in which it was purchased. -It has a life within the business greater than one year or the current operating cycle, whichever is longer. -It is reported on the balance sheet.

-It is a tangible long-term asset. -Its original cost (minus any salvage value) is expensed over its useful life. -It has a life within the business greater than one year or the current operating cycle, whichever is longer. -It is reported on the balance sheet.

Select the statement(s) below which CORRECTLY describe how to use the work sheet in the adjustment process. (Check all that apply) -A work sheet is a journal. -Journalizing and posting adjusting entries is required after adjustments are entered in a work sheet. -Information from the Adjustments columns are used for the adjusting journal entries. -Journalizing and posting adjusting entries are not mandatory when a work sheet is involved.

-Journalizing and posting adjusting entries is required after adjustments are entered in a work sheet. -Information from the Adjustments columns are used for the adjusting journal entries.

Select the statements below that describe the purpose of a post-closing trial balance. (Check all that apply.) -One purpose is to verify that all permanent accounts have zero balances. -One purpose is to verify that all temporary accounts have zero balances. -One purpose is to confirm that if debits equal credits then no errors in journalizing and positing occurred during the period. -One purpose is to verify that total debits equal total credits for all temporary accounts. -One purpose is to verify that total debits equal total credit for permanent accounts.

-One purpose is to verify that all temporary accounts have zero balances. -One purpose is to verify that total debits equal total credit for permanent accounts.

A classified balance sheet can be described as a balance sheet that: (check all that apply) -Organizes assets and liabilities into important subgroups. -Lists current assets in the order of how quickly they can be converted to cash. -Lists all assets according to the size of their balance with larger dollar amounts listed first. -Contains subgroups for expenses and revenues. -Is more useful to decision makers.

-Organizes assets and liabilities into important subgroups. -Lists current assets in the order of how quickly they can be converted to cash. -Is more useful to decision makers.

Which statements below are true regarding permanent and temporary accounts? (Check all that apply.) -Permanent accounts will appear on a post-closing trial balance. -Temporary accounts will appear on a post-closing trial balance. -Permanent accounts are reported on the balance sheet. -Temporary accounts are reported on the income statement. -Temporary accounts have a balance for one period only. -Retained Earnings is a permanent account, but Dividends is a temporary account.

-Permanent accounts will appear on a post-closing trial balance. -Permanent accounts are reported on the balance sheet. -Temporary accounts are reported on the income statement. -Temporary accounts have a balance for one period only. -Retained Earnings is a permanent account, but Dividends is a temporary account.

Which of the following statements CORRECTLY define(s) a profit margin? (Check all that apply) -Profit margin is the ratio of a business's net income to its accounts receivables. -Profit margin is the amount of revenue received on a sale. -Profit margin is the ratio of a business's net income to its net sales. -Profit margin is also called return on sales.

-Profit margin is the ratio of a business's net income to its net sales. -Profit margin is also called return on sales.

Explain what unearned revenues are by selecting the statements below which are correct. (Check all that apply.) -They refer to earnings which have been earned, but not yet billed. -They are also called accounts receivable. -They are reported on a balance sheet. -They are also called deferred revenues. -They refer to cash received in advance of performing a service or product. -They are a liability.

-They are reported on a balance sheet. -They are also called deferred revenues. -They refer to cash received in advance of performing a service or product. -They are a liability.

A 12-month insurance policy was purchased on Dec. 1 for $4,800 and the Prepaid insurance account was initially increased for the payment. The required adjusting journal entry on December 31 includes a: (Check all that apply.) -debit to Prepaid insurance for $400. -debit to Insurance expense for $4,800. -credit to Insurance expense for $400. -credit to Prepaid insurance for $400. -debit to Insurance expense for $400.

-credit to Prepaid insurance for $400. -debit to Insurance expense for $400.

The following categories are on a classified balance sheet. List them in the order that they would appear. -Current Assets -Long-Term Investments -Plant Assets -Long-Term Liabilities -Intangible Assets -Current Liabilities

1. Current Assets 2. Long-Term Investments 3. Plant Assets 4. Intangible Assets 5. Current Liabilities 6. Long-Term Liabilities

Explain the required steps to complete a work sheet by placing the following steps in the correct order. -Enter unadjusted trial balance. -Total financial statement columns, compute income or loss and balance columns. -Enter adjustments. -Prepare adjusted trial balance. -Sort adjusted trial balance amounts to financial statements.

1. Enter unadjusted trial balance. 2. Enter adjustments. 3. Prepare adjusted trial balance. 4. Sort adjusted trial balance amounts to financial statements. 5. Total financial statement columns, compute income or loss and balance columns.

Put in correct order. -Identify accounts to be closed. -Prepare a post closing trial balance. -Journalize and post closing entries.

1. Identify accounts to be closed. 2. Journalize and post closing entries. 3. Prepare a post closing trial balance.

Before sorting/transferring amounts to the financial statement columns on a worksheet, the Trial Balance (INCOME STATEMENT/ADJUSTMENTS) and Adjusted Trial Balance columns must (BALANCE/CLEAR).

ADJUSTMENTS/BALANCE

By the end of the accounting period, employees have earned salaries of $500, but they will not be paid until the following pay period. Which of the following is the proper adjusting entry? A. Credit Salaries expense for $500. B. Debit Salaries expense for $500. C. Debit Salaries payable for $500. D. Credit Unearned revenues for $500.

B. Debit Salaries expense for $500.

Describe an unclassified balance sheet. A. An unclassified balance sheet lists all operating expenses separate from its non-operating expenses. B. An unclassified balance sheet organizes assets and liabilities into important subgroups. C. An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity. D. An unclassified balance sheet is one where assets are separated into operating assets and non-operating assets.

C. An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity.

Which of the following statements is CORRECT regarding a work sheet and the adjustment process? A. After keying adjustments in the work sheet, it is not necessary to journalize the adjustments in a journal. B. Adjusting journal entries are prepared from the Adjusted Trial Balance columns. C. Adjusting journal entries are journalized in the work sheet. D. Adjusting journal entries are prepared from the Adjustments columns of a work sheet.

D. Adjusting journal entries are prepared from the Adjustments columns of a work sheet.

A company borrowed $4,000 from the bank at an interest rate of 9%. By the end of the accounting period, the loan had been outstanding for 30 days. Demonstrate the required adjusting entry by choosing the correct statement below. A. Debit Interest payable for $30. B. Credit Interest expense for $30. C. Credit Unearned revenues for $30. D. Debit Interest expense for $30.

D. Debit Interest expense for $30.

Mouse Inc. uses the alternative method of accounting for prepayments and purchased a $1,200, 6-month insurance policy. The company immediately debited the Insurance expense account. By the end of the period, $400 of the policy had expired. Demonstrate the required adjustment needed at the end of the period. A. Debit prepaid insurance for $400. B. Debit Insurance expense $400. C. Credit Prepaid Insurance $800. D. Debit Prepaid insurance $800.

D. Debit Prepaid insurance $800.

An advance payment of $1,000 for services was received on December 1 and was recorded as a liability. By the end of the year, $400 had been earned. Demonstrate the December 31 adjusting entry by choosing the correct statement below. A. Debit Unearned revenues for $600. B. Credit Unearned revenues for $400. C. Debit Service revenue for $400. D. Debit Unearned revenues for $400.

D. Debit Unearned revenues for $400.

After an adjusted trial balance is prepared, what is the next step in completing the work sheet used in preparing financial statements? A. Sort adjusted trial balance amounts to the Adjustments columns. B. Sort adjusted trial balance amounts to the Trial Balance columns. C. Sort adjusted trial balance amounts to the post-closing Trial Balance columns. D. Sort adjusted trial balance amounts to the financial statement columns.

D. Sort adjusted trial balance amounts to the financial statement columns.

Describe the final step in the adjusting process. A. The final step is to determine the correct balance of an account. B. The final step is to determine the current balance of an account. C. The final step is to post to a trial balance so financial statements can be prepared. D. The final step is to create an adjusting journal entry to get from step 1 to step 2.

D. The final step is to create an adjusting journal entry to get from step 1 to step 2.

A company borrowed $10,000 from the bank at 5% interest. The loan has been outstanding for 45 days. Demonstrate the required adjusting entry for this company by completing the following sentence. The required adjusting entry would be to debit the Interest (EXPENSE/PAYABLE/RECEIVABLE) account and (DEBIT/CREDIT) the Interest (EXPENSE/PAYABLE/RECEIVABLE) account.

EXPENSE/CREDIT/PAYABLE

By the end of the accounting period, employees have earned salaries of $650, but they will not be paid until the following pay period. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the Salaries (EXPENSE/PAYABLE) account and (DEBIT/CREDIT) the Salaries (EXPENSE/PAYABLE/UNEARNED) account.

EXPENSE/CREDIT/PAYABLE

For the current year, a business has earned (but not recorded or received) $200 of interest from investments. Demonstrate the required adjusting entry by completing the following sentence. The required adjusting entry would be to debit the (UNEARNED REVENUE/ACCOUNTS RECEIVABLE/CASH/INTEREST RECEIVABLE) account and (DEBIT/CREDIT) the (CASH/ACCOUNTS RECEIVABLE/INTEREST REVENUE/INTEREST RECEIVABLE) account.

INTEREST RECEIVABLE/CREDIT/INTEREST REVENUE

Match the statements with the definitions. Income Statement Balance Sheet Work Sheet Trial Balance Statement of Cash Flows -Reports a business's assets, liabilities, and equity on a specific date. -Reports the inflows and outflows of cash during a period of time. -Reports a business's revenues and expenses for a period of time. -An internal accounting aid which helps in preparing financial statements. -A list of accounts and their balances at a point in time.

Income Statement: Reports a business's revenues and expenses for a period of time. Balance Sheet: Reports a business's assets, liabilities, and equity on a specific date. Work Sheet: An internal accounting aid which helps in preparing financial statements. Trial Balance: A list of accounts and their balances at a point in time. Statement of Cash Flows: Reports the inflows and outflows of cash during a period of time.

Illustrate your understanding of how to use the adjusted trial balance to prepare a statement of retained earnings by completing the following sentence. In order to prepare the statement of retained earnings, the balance of the (RETAINED EARNINGS/CASH) account as well as any debit balance in the (DIVIDENDS/SUPPLIES) account is transferred from the adjusted trial balance and is used along with the reported net income (loss) from the Income statement.

RETAINED EARNINGS/DIVIDENDS

Rather than debiting an asset account, which of the following statements explains an alternate recording procedure to journalize prepaid expenses, such as prepaid rent or supplies. (Check all that apply.) -Record all prepaid expenses with credits to expense accounts. -Record all prepaid expenses with debits to expense accounts. -Record all prepaid expenses with credits to liability accounts. -Any unused prepaids existing at end of period are transferred to asset accounts.

-Record all prepaid expenses with debits to expense accounts. -Any unused prepaids existing at end of period are transferred to asset accounts.

Which of the statements below is (are) CORRECT regarding the accounting cycle? (Check all that apply) -The accounting cycle takes place anytime the general ledger accounts need adjusting. -The accounting cycle refers to steps followed by a company to prepare its financial statements. -The cycle contains steps for adjusting and closing accounts. -The accounting cycle contains 10 steps (including an optional step). -The accounting cycle is a series of steps repeated each reporting period. -The accounting cycle refers to the steps that occur within a company to approve expenses for payment.

-The accounting cycle refers to the steps that occur within a company to approve expenses for payment. -The cycle contains steps for adjusting and closing accounts. -The accounting cycle contains 10 steps (including an optional step). -The accounting cycle is a series of steps repeated each reporting period.

What is the difference between an adjusted trial balance and an unadjusted trial balance? (Check all that apply.) -The adjusted trial balance is used to prepare financial statements. -The adjusted trial balance generally has more accounts listed than the unadjusted trial balance. -The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted. -The unadjusted trial balance is more up to date and should be used to prepare financial statements.

-The adjusted trial balance is used to prepare financial statements. -The adjusted trial balance generally has more accounts listed than the unadjusted trial balance. -The adjusted trial balance is a list of accounts and their balances after adjusting entries have been posted.

Which of the following describes accrued revenue? (Check all that apply) -They refer to revenues that are earned in a period, but have not been received and are unrecorded. -They refer to earnings which have been earned but not yet billed. -The adjustment causes an increase in an asset account and an increase in a revenue account. -Accounts receivable is usually increased when accruing revenues. -Adjustments involve increasing both an expense account and a liability account.

-They refer to revenues that are earned in a period, but have not been received and are unrecorded. -They refer to earnings which have been earned but not yet billed. -The adjustment causes an increase in an asset account and an increase in a revenue account. -Accounts receivable is usually increased when accruing revenues.

Put in the correct order. -Determine what the correct account balance should be. -Determine what the current account balance is. -Record an adjusting entry.

1. Determine what the current account balance is. 2. Determine what the correct account balance should be. 3. Record an adjusting entry.

Choose the statement below that explains what "closing" means. A. Closing means to bring an account balance to zero. B. Closing means to transfer the balance in an account to an asset account. C. Closing means to transfer an expense account's balance to the income statement. D. Closing means to adjust an account's balance to its correct amount.

A. Closing means to bring an account balance to zero.

Vito Co. had current assets of $9,000 and current liabilities of $6,000 at the end of the year. Net income during the year was $21,000. The current ratio for the period is: A. 28% B. 1.5 C. 2.33 D. 67%

B. 1.5

When does the closing process take place? A. Multiple times throughout a month to determine net income B. Before financial statements are prepared C. At the end of an accounting period D. At the beginning of an accounting period

C. At the end of an accounting period

Brown Co. had current assets of $15,000, total assets of $30,000 and current liabilities of $9,000 at the end of the year. The current ratio for the period is: A. 0.5 B. 2.0 C. 3.33 D. 1.67

D. 1.67

The closing process takes place at the (END/BEGINNING) of an accounting period, after the (ADJUSTED/UNADJUSTED) trial balance is prepared and (AFTER/BEFORE) the financial statements are prepared.

END/ADJUSTED/AFTER