CH.3

The entries to close the revenue and expense accounts for Jefferson Company are shown below. The next closing entry in the closing process would include: (Check all that apply.)

A credit to the Retained Earnings account for $7,100. A debit to Income Summary for $7,100.

Describe an unclassified balance sheet.

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

A company had the following selected balances:

Debit Income Summary $9,400; and credit Retained Earnings $9,400.

At year-end, Zagnut Company is beginning its closing process. Use the following account balances to demonstrate the closing of its expense accounts. (Check all that apply.)

A debit to Income Summary for $1,600. Credit Insurance Expense for $900. Credit to Supplies Expense for $700.

Identify which of the accounts below would be classified as a current asset. (Check all that apply.)

Cash Prepaid rent Office supplies Accounts receivable

Which of the following statements describes why accrual accounting better reflects a business's performance? (Check all that apply.)

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.

Regarding the order of assets and liabilities on a classified balance sheet, select the statements which are correct. (Check all that apply.)

Current assets are listed before noncurrent assets. Current liabilities are listed before noncurrent liabilities.

At year-end, ABC Company is beginning its closing process. Use the following account balances to demonstrate the closing of its revenue accounts. (Check all that apply.)

Debit to Consulting Revenue for $12,000. Debit Service Fees for $15,000. A credit to Income Summary for $27,000.

Select the statement below that describes a post-closing trial balance.

It is a listing of all permanent accounts and their balances after closing.

Which of the following describe the Salaries payable account? (Check all that apply.)

It is reported on the balance sheet. It is a liability account. It reports amounts owed to employees. It is increased with a credit.

dentify the accounts below that would be classified as long-term liabilities on a classified balance sheet. (Check all that apply.)

Mortgage payable Bonds payable (due in five years)

Review the statements below and select the items that are correct regarding the operating cycle for a business. (Check all that apply.)

Most operating cycles are less than one year. The operating cycle is the time span from when cash is used to acquire goods and services until cash is received from the sale of goods or services. Most companies use a one-year period or operating cycle in deciding which assets and liabilities are current. The length of a company's operating cycle depends on its activities.

Which of the following statements correctly define(s) a profit margin? (Check all that apply.)

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

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 net sales. Profit margin is also called return on sales.

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 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 contains 10 steps (including an optional step). The cycle contains steps for adjusting and closing accounts. The accounting cycle is a series of steps repeated each reporting period. The accounting cycle refers to steps followed by a company to prepare its financial statements.

Using the financial information of ABC Co. below, evaluate the company's current ratio. Select all answers which apply.

The company's ratio is above the industry's ratio, so this company is able to cover its debt better than others in this industry. The company's ability to pay short-term obligations is not in doubt since its current ratio is greater than 1.0

Determine which of the statements below are correct regarding the current ratio. (Check all that apply.)

The current ratio can affect interest rates charged by creditors when lending money to a business. The current ratio helps a supplier determine whether it wants to extend credit to a customer. A current ratio of less than 1.0 would indicate that a company would have a problem paying off short term debt. The current ratio is one measure of a company's ability to pay its short-term debts.

Review the following statements and determine which is (are) correct regarding an adjusted trial balance and how it is used In preparing financial statements. (Check all that apply.)

The ending Retained Earnings account balance on the Balance Sheet is taken from the Statement of Retained Earnings. Financial statements are easier to prepare using the adjusted trial balance than the general ledger. The income statement is the first financial statement prepared after preparing the adjusted trial balance

Review the following statements and determine which is (are) correct regarding an adjusted trial balance and how it is used In preparing financial statements. (Check all that apply.)

The income statement is the first financial statement prepared after preparing the adjusted trial balance The ending Retained Earnings account balance on the Balance Sheet is taken from the Statement of Retained Earnings. Financial statements are easier to prepare using the adjusted trial balance than the general ledger.

All of the following are on an unclassified balance sheet: (Check all that apply).

Total assets Total liabilities

Which of the following is (are) true regarding timeliness and the importance of periodic reporting? (Check all that apply.)

Useful information must reach decision makers frequently and promptly. Businesses report financial information at regular intervals to ensure timeliness of data. The value of information is often linked to its timeliness.

Accrual basis accounting is defined as: (Check all that apply.)

an accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred. an accounting system which is consistent with generally accepted accounting principles. an accounting system that uses the matching principle to determine when to recognize revenues and expenses.

Accounting for salaries expense without using a reversing entry requires the following on the date of payment:

compound entry that debits the expense and liability accounts and credits cash

A reversing entry can be described as a(n): (Check all that apply.)

entry that is the exact opposite of an accrual adjusting entry. entry that is used for adjusting entries involving accrued revenues and accrued expenses. entry whose purpose is to simplify a company's record keeping. optional entry.