A201 Exam 2

When are adjusting entries recorded? Multiple choice question. -After the financial statements are prepared but prior to recording the closing entries -At the end of the accounting period prior to preparing the financial statements -Daily but prior to posting all other journal entries to the general ledger -Daily but after posting all other journal entries to the gen

-At the end of the accounting period prior to preparing the financial statements

Expenses and losses have debits balances. They should be closed with a Debit.

FALSE They should be closed with credits.

Which financial statement reports the amount of supplies used during the accounting period? Multiple choice question. Income statement Balance sheet Statement of stockholders' equity Statement of cash flows

Income Statement

What is the earnings per share equation?

Net Income / Average # of common shares outstanding during the period = Earnings per share ratio

What is treasury stock?

Stock bought back the company, decreasing the amount of shares outstanding

T/F Adjusting entries affect both a balance sheet account and an income statement account

TRUE

Fill in the blank: After the adjustments have been completed, the balance in the Rent Expense account represents the ______.

cost of rent for the accounting period

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) ________ in the period the benefit expires. (Enter one word per blank.)

expense

Which financial statement reports the amount of prepaid expenses used during the accounting period? Multiple choice question. Income statement Statement of stockholders' equity Statement of cash flows Balance sheet

income statement

Deferred revenue that is not expected to be earned within the year is classified as a ______ on the balance sheet. Multiple choice question. current asset current liability noncurrent liability noncurrent asset

noncurrent liability

What is accrued revenue?

revenues that have been earned but not yet recorded at the end of the accounting period

Identify the impact on the accounting equation of a prepayment of an expense paid in cash. Multiple select question. -Prepaid expenses, an asset account, increases -Liabilities increase -Cash increases -Cash decreases

-Prepaid expenses, an asset account, increases -Cash decreases

Financial statement formats and disclosures ______. -are the same for companies within the same industry -differ slightly among companies -are the same for companies from all industries

-differ slightly among companies

For a note receivable that was created on November 1, 2018 and is due for repayment on October 31, 2019, what is the time fraction needed to compute interest revenue for the year ended December 31, 2018? Multiple choice question. 10/12 2/12 12/12

2/12

What is the adjusting entry if cash will be paid?

Accrued Expense Expense(+E,-SE): Debit Payable(+L): Credit

What is the name for resources with probable future benefits to the company?

Assets

Fill in the blank: Accrual adjustments to record amounts earned but not yet collected include a debit to an asset account and a credit to a(n) _____________ account.

Revenue

T/F Cash is never affected by an adjusting entry

TRUE

T/F Revenues and gains have a credit balance, and should be closed with debits.

TRUE

What change does the statement of stockholders equity explain?

The statement of stockholders equity explains the change in every stockholders equity account listed on the balance sheet.

When would it be useful to use the asset turnover ratio?

When a company uses assets to drive their sales. -For example an amusement park has more rides to bring in revenue -For an insurance firm the assets turnover ratio would not be useful since they are not bringing in revenue with their assets, but with their services

On November 1, Movers, Inc. paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). The entry to record this transaction requires a ______. (Select all that apply.) Multiple select question. debit to Prepaid Rent of $24,000 credit to Prepaid Rent of $24,000 credit to Cash of $24,000 credit to Prepaid Rent of $1,000 debit to Rent Expense of $24,000

debit to Prepaid Rent of $24,000 credit to Cash of $24,000

Fill in the blank: In accrual accounting, to defer means to ____________ recording the other side of the cash transaction as a revenue or expense. Instead the other side of the cash entry is recorded as liability or prepaid.

postpone

Deferring a revenue or expense account in accounting means that the amount ______. will not be reported in the accounting records was reported as a revenue or an expense in a prior period will be reported as a revenue or an expense in a later period will be reported as a revenue or an expense in the current period

will be reported as a revenue or an expense in a later period

After adjusting entries have been recorded, select which statements are true regarding supplies. (Select all that apply.) Multiple select question. - Supplies expense on the income statement reports the amount of paid for supplies during the accounting period. - Supplies on the income statement reports the amount of supplies on hand at the end of the accounting period. - Supplies expense on the income statement reports the amount of supplies used during the accounting period. - Supplies on the balance sheet reports the amount of supplies on hand at the end of the accounting period. - Supplies expense on the balance sheet reports the amount of supplies used during the accounting period.

- Supplies expense on the income statement reports the amount of supplies used during the accounting period. - Supplies on the balance sheet reports the amount of supplies on hand at the end of the accounting period.

What are the effects on the accounting equation from the adjustment for revenue earned during the accounting period that had previously been recorded as a liability? Multiple choice question. -Total liabilities will decrease and total stockholders' equity will increase. -Total liabilities will increase and total stockholders' equity will increase. -Total liabilities will increase and total stockholders' equity will decrease. -Total liabilities will decrease and total stockholders' equity will decrease.

-Total liabilities will decrease and total stockholders' equity will increase.

Adjusting entries are typically recorded ______. (Check all that apply.) Multiple select question. -to update the Cash account -daily to ensure balances are up to date -at the end of the accounting period -to ensure revenues and expenses are recorded in the period in which they occur, even though the cash will be collected or paid in a future period

-at the end of the accounting period -to ensure revenues and expenses are recorded in the period in which they occur, even though the cash will be collected or paid in a future period

Which of the following events require adjusting entries? (Check all that apply.) -owing interest on notes payable. -issuing stock for cash -the use of supplies during the period -the use of equipment during the period -incurring wages expense that will be paid in the following period -payment of wages

-owing interest on notes payable. -the use of supplies during the period -the use of equipment during the period -incurring wages expense that will be paid in the following period

Accumulated amortization is ______. (Select all that apply.) -similar to depreciation except it is netted against intangible assets instead of tangible assets -a contra-asset account similar to accumulated depreciation -a liability and reports the amount owed on mortgages -an expense

-similar to depreciation except it is netted against intangible assets instead of tangible assets -a contra-asset account similar to accumulated depreciation

In a deferral adjustment for revenues collected in advance that are now earned, ______. Multiple choice question. -the liability recorded when cash was received is decreased by the adjustment for the revenue being earned -a liability is increased because cash will be paid for an expense in the future -a liability is decreased because cash is being paid for an expense incurred at the time of the adjustment -the liability recorded when cash was received is increased by the adjustment for the revenue being earned

-the liability recorded when cash was received is decreased by the adjustment for the revenue being earned

After the adjustments have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies ______. Multiple choice question. -used during the accounting period -purchased during the accounting period -on hand at the end of the accounting period -purchased, but not yet paid for, at the end of the accounting

-used during the accounting period

What are the steps of closing entries?

1) Transfer Net Income(or loss) to retained earnings 2)Establish zero balance in each of the TEMPORARY accounts to start the accumulation in the next accounting period -Temporary: revenue and gain accounts, expense and loss accounts, and dividends declared, if used

What are the three steps in the adjusting process?

1)Was revenue earned or and expense incurred that is not yet recorded? 2)Was the cash received or paid in the PAST OR will it be received or paid in the FUTURE? 3)Compute the amount of revenue earned or expense incurred. -Sometimes the amount is given or known, sometimes it must be computed, and sometimes the amount must be estimated.

Fill in the blank: ___________ adjustments involve adjusting entries where the revenue has been earned or the expense has been incurred, and the cash will be collected or paid in the future.

Accrued

What is the adjusting entry if cash will be received?

Accrued Revenue Receivable(+A): Debit Revenue(+R,+SE): Credit

What does AOCI stand for?

Accumulated other comprehensive income -Use to balance the accounting equation -It is within the stockholders equity section of the balance sheet -Cannot be included in retained earnings or shown on the income statement -Something could be a change of

When are adjusting entries recorded?

At the end of the accounting period prior to preparing the financial statements -Preparing daily or weekly is way too time consuming and would be too costly

What is the retained earnings equation?

Beg. Retained earnings + Net Income(from income statement) - Dividends Declared = Retained Earnings

What is the common stock equation?

Beginning common stock + Stock Issuance = Common stock

In practice, almost every account, except _____, could require an adjusting entry. Multiple choice question. Accounts receivable Cash Prepaid expense Unearned revenue

Cash

Fill in the blank: ____________________ financial statements report financial statement values for the current period and one or more other prior periods.

Comparative

If used, the dividends declared account must also be closed out. What is the entry for this?

Debit retained earnings Credit Dividends Declared

What is the adjusting entry: Investments owned earn $1 in interest revenue for the quarter, but won't be received til next quarter.

Debit: -Interest receivable $1 Credit -Interest Revenue $1

What is the adjusting entry for: A customer redeems a portion of their gift card for $52.

Debit: -Unearned Revenue $52 Credit: -Revenue $52

What is the adjusting entry if cash was paid and previously recorded?

Deferred Expense Expense(+E,-SE): Debit Prepaid Expense(-A): Credit

What is the adjusting entry if cash was received and previously recorded?

Deferred Revenue Unearned Revenue(-L): Debit Revenue(+R,+SE): Credit

T/F The retained earnings account is transferred from the trial balance to the balance sheet.

FALSE - The trial balance amount in retained earnings needs to be calculated -Calculate net income on income statement, then transfer to statement of stockholders equity, calculate new balance in retained earning and use that new number for retained earnings

T/F Adjustments ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

FALSE -Adjustments reduce assets for the amounts used or expired during the period, leaving a balance that represents the economic benefit remaining in the account.

T/F Adjusting entries are not required every time a company prepares financial statements

FALSE Adjusting entries ARE required EVERY TIME a company prepares financial statements

T/F Balance sheet accounts are temporary and do not retain their balances from one period to the next.

FALSE Balance sheet accounts are PERMANENT and RETAIN their balances from one period to the next -Common stock, APIC, and retained earnings are permanent accounts

The adjustment for supplies used during the period will result in a(n) ______ to the Supplies Expense account.

Increase -As supplies are used the expense account is increased (debited) and the asset account is decreased (credited).

What does the asset turnover ratio assess?

It assesses how efficiently the management is using assets to generate sales - The higher the asset turnover is, the more efficient assets are being utilized to generate revenues. - Does not necessarily say that a company is profitable.

What is the purpose of the post-closing trial balance?

It is an additional step of the accounting information processing cycle, and should be prepared as a check that debits still equal credits and that all temporary accounts have been closed.

What financial statement is the. earnings per share reported on?

It is reported on the income statement

What is earnings per share ratio used to evaluate?

It is used to evaluate the operating performance and profitability of a company

What is the total asset turnover ratio equation?

Net sales / Average Total Assets = Total Asset Turnover Ratio -Average = (Beginning Balance + Ending Balance) / 2

Which balance sheet account would most likely require an adjusting entry to avoid understating liabilities? Multiple choice question. -Notes Payable -Unearned Revenue -Common Stock -Prepaid Expenses

Notes Payable

The 3 variables needed to calculate interest are the ______. (Check all that apply.) Multiple select question. interest payment annual interest rate principal agent time period covered in the interest calculation

Principle amount x Annual interest rate x time period fraction = Interest calculation

If a company records unearned revenue representing a promise to perform a or deliver goods or services in the future, when is revenue actually recorded?

Recognition of the revenue is postponed(deferred) until the company meets its obligation

T/F The post closing trial balance for retained earnings is considered up to date and should match the amount on the balance sheet. The balance is carried forward as the balance for the next period

TRUE

T/F Revenue, expense, gain, and loss are temporary accounts. Their balances accumulate but start with a zero balance at the beginning of the next period

TRUE -Revenues and expenses are are temporary accounts

T/F Even though the balance sheet account balances carry forward from. period to period, the income statement account and dividend declared account balances do not carry forward.

TRUE Income statement account and the dividend account balances do NOT carry forward

Companies often use comparative financial statements to allow users to compare performance from period to period, companies report financial values for the current period and one or more prior periods. How long are the balance sheet and other financial statements reported for?

The balance sheet is usually reported for TWO years. The other three financial statements are usually reported for THREE years.

What financial statement are gains and losses found on?

They are found on the income statement

The adjusting entry to record the amount earned that previously had been collected in advance will ______. Multiple choice question. decrease liabilities and decrease revenues decrease liabilities and increase revenues increase liabilities and increase revenues increase liabilities and decrease revenues

decrease liabilities and increase revenues

The adjusting entry to record the supplies used during the period will result in a(n) ______. Multiple choice question. increase to Supplies and a decrease to Supplies Expense decrease to Supplies and an increase to Supplies Expense decrease to Supplies and a decrease to Supplies Expense increase to Supplies and an increase to Supplies Expense

decrease to Supplies and an increase to Supplies Expense

After the adjustments have been completed, the adjusted balance in the Accumulated Depreciation account represents the ______.

total depreciation taken on the long-lived assets since their purchase