Chapter 3- Adaptive Study Plan

Using the following information, prepare a vertical analysis of 2 years' income statements. Fees Earned is $158,500 for Year 2 and $154,500 for Year 1. Operating expenses are $125,800 for Year 2 and $130,745 for Year 1. Which of the following statements is true?

Income from operations has increased as a percentage of revenue Income from operations increased as a percentage of revenue. $158,500 - $125,800 = $32,700, $32,700 ÷ $158,500 = 21% (Year 2); $154,500 - $130,745 = $23,755, $23,755 ÷ $154,500 = 15% (Year 1)

Using the following information, prepare a vertical analysis of 2 years' income statements. Fees Earned is $155,500 for Year 2 and $151,200 for Year 1. Operating expenses are $125,800 for Year 2 and $130,745 for Year 1. Which of the following statements is true?

Income from operations has increased as a percentage of revenue. Income from operations increased as a percentage of revenue. $155,500 - $125,800 = $29,700, $29,700 ÷ $155,500 = 19% (Year 2); $151,200 - $130,745 = $20,455, $20,455 ÷ $151,200 = 14% (Year 1)

Which of the following statements regarding vertical analysis is true?

It is useful in analyzing relationships within a financial statement.

If the beginning balance of Accumulated Depreciation—Equipment is $19,000 and an adjusting journal entry is recorded for depreciation on the equipment for $4,000, the balance of the accumulated depreciation account after the entry is recorded will be

$23,000. If an adjusting entry is recorded to adjust depreciation on the equipment, the ending balance of the accumulated depreciation account will be the beginning balance plus the depreciation expense for the period ($19,000 + $4,000 = $23,000).

Clever Computers has a 5-day work week and pays the office staff $6,700 each week. If the month ends on a Thursday, the adjusting entry will credit Wages Payable for

$5,360. The adjusting entry increases Wages Payable for 4 days' pay [($6,700 ÷ 5 days) = $1,340 × 4 days = $5,360] Monday through Thursday.

Clever Computers has a 5-day work week and pays the office staff $7,000 each week. If the month ends on a Thursday, the adjusting entry will credit Wages Payable for

$5,600 The adjusting entry increases Wages Payable for 4 days' pay [($7,000 ÷ 5 days) = $1,400 × 4 days = $5,600] Monday through Thursday.

Which of the following statements regarding adjusting entries is true?

Adjusting entries are not posted to the ledger. Adjusting entries are optional with accrual basis accounting. Adjusting entries are dated as of the first day of the new accounting period. (NONE OF THESE STATEMENTS ARE TRUE) Adjusting entries are recorded under accrual basis accounting, dated as of the last day of the period, and posted to the general ledger accounts.

Which of the following accounts will never require an adjusting entry?

Cash

Accrued revenues are revenues that

have been earned but have neither been paid for nor recorded in the books.

An adjusting entry debiting Unearned Rent and crediting Rent Revenue is an example of adjusting a(n)

deferred revenue.

The adjusted trial balance

is at a specific date.

Comparing each line of a financial statement with a total amount from the same financial statement

is referred to as vertical analysis.

The adjusting entry for accrued EXPENSES

is the same as the journal entry for expenses on account.

The adjusting entry for accrued REVENUE

is the same journal entry as for revenue on account.

Examples of fixed assets include

land, buildings, and equipment

Fixed assets are

long-term physical resources owned and used by a company as a part of the operations to generate revenue.

If the beginning balance of Accumulated Depreciation—Equipment is $20,000 and an adjusting journal entry for depreciation on the equipment for $3,700 is omitted at the end of the period, Accumulated Depreciation on the income statement will

not be impacted because Accumulated Depreciation is reported on the balance sheet. If an adjusting journal entry for depreciation on the equipment for $3,700 is omitted at the end of the period, Accumulated Depreciation on the income statement will not be impacted because Accumulated Depreciation is reported on the balance sheet.

Unearned revenue

represents future revenue.

Once the adjusted trial balance is balanced, it can be used to prepare

the income statement, the statement of owner's equity, and the classified balance sheet The adjusted trial balance can be used to prepare the financial statements, including the income statement, the statement of owner's equity, and the classified balance sheet, at the end of the accounting period since the balances of the accounts have been adjusted to actual.

The adjusted trial balance is prepared

to verify the equality of total debit and credit balances.

If an entry to adjust depreciation is not recorded at the end of the period, Depreciation Expense on the income statement will be

understated.

If an entry to adjust unearned rent and rent revenue is not recorded at the end of the period, Rent Revenue and net income on the income statement will be

understated.

Magazine subscriptions received in advance are an example of

unearned revenues.

After which of the following errors would the adjusted trial balance totals NOT agree?

A debit to Accounts Receivable was inadvertently posted as a credit to Accounts Payable.

The $23,400 balance in Fellows Company's prepaid insurance account represents 9 months of insurance. The insurance was purchased on December 1. Which of the following should be included in the adjusting journal entry on December 31?

Debit to Insurance Expense for $2,600 $23,400 ÷ 9 months = $2,600 expired insurance to be expensed.

If an adjustment for salaries earned but not recorded or paid in the amount of $89,000 were to be omitted, how would this affect the financial statements?

Net income would be overstated on the income statement by $89,000. Expenses would be understated on the income statement by $89,000. Liabilities would be understated on the balance sheet by $89,000. (ALL ARE CORRECT)

If the following adjusting entry is omitted, what effect will this have on the financial statements? Unearned Rent4,600 Rent Revenue 4,600

Revenues will be understated by $4,600.

Which of the following errors would cause the adjusted trial balance to be unequal?

The adjustment for depreciation of $3,805 was journalized as a debit to Depreciation Expense of $3,714 and a credit to Accumulated Depreciation of $3,805.

Which of the following would NOT cause the adjusted trial balance totals to be unequal?

The adjustment for prepaid insurance was omitted.

The adjusting entry for depreciation includes

a debit to an expense account.

When recording an adjusting entry for unearned revenue,

a liability account is debited.

The cash payment for accrued expenses occurs __________ the adjusting entry for the accrued expenses.

after

The adjusted trial balance is prepared

after adjusting entries are posted but before the financial statements are prepared.

All adjusting entries affect

at least one income statement account and one balance sheet account

Adjusting entries are dated

at the end of the accounting period.

Barry Company received full payment of $14,000 in advance for services that are 70% complete at the end of the period. The adjusting entry will

debit Unearned Revenue for $9,800 and credit Service Revenue for $9,800.