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Exam 4: Adjustments, Financial Statements, and the Quality of Earnings

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Question 1

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Air Cargo Company recorded the following adjusting entries at the end of the accounting year, December 31, 2016: Wages expense 2,000 Wages payable 2,000 Interest receivable 1,000 Interest revenue 1,000 Before these adjusting entries were recorded, a partial unadjusted trial balance reflected the following: Account Balance Debits Credits Service revenue 80,000 Operating expenses 53,000 Wage expense 28,000 Wages payable -0- Interest receivable 8,000 Interest revenue 9,000 Required: Prepare the closing entries for Air Cargo Company at December 31, 2016.

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Question 2

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On December 31, 2016, Krug Company prepared adjusting entries that included the following items: Depreciation expense: $31,000. Accrued sales revenue: $29,000. Accrued expenses: $12,000. Used insurance: $9,000; the insurance was initially recorded as prepaid. Rent revenue earned: $7,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue. If Krug Company reported total liabilities of $110,000 prior to adjusting entries, how much are Krug's total liabilities after the adjusting entries?

A) $115,000.
B) $141,000.
C) $86,000.
D) $110,000.

E) C) and D)
F) All of the above

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Question 3

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What is the effect on the financial statements when a company fails to adjust the prepaid insurance expense account at year-end for insurance coverage that has been used?

Which of the following accounts is used to initially record a deferral?

Rent of $4,000 collected in advance was recorded as unearned rent revenue. At the end of the accounting period, half the rent was earned. The related adjusting entry should be a credit to rent revenue for $2,000 and a debit to unearned rent revenue for $2,000.

On December 31, 2016, Krug Company prepared adjusting entries that included the following items: Depreciation expense: $31,000. Accrued sales revenue: $29,000. Accrued expenses: $12,000. Used insurance: $9,000; the insurance was initially recorded as prepaid. Rent revenue earned: $7,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue. If Krug Company reported stockholders' equity of $280,000 prior to the adjusting entries, how much is Krug's stockholders' equity after the adjusting entries?

What is the effect on the financial statements when a company fails to adjust the unearned revenue account for revenues earned at year-end?

On July 1, 2016, Allen Company signed a $100,000, one-year, 6 percent note payable. The principal and interest will be paid on June 30, 2017. How much interest expense should be reported on the income statement for the year ended December 31, 2016?

On December 31, 2016, Krug Company prepared adjusting entries that included the following items: Depreciation expense: $31,000. Accrued sales revenue: $29,000. Accrued expenses: $12,000. Used insurance: $9,000; the insurance was initially recorded as prepaid. Rent revenue earned: $7,000; the rent was initially prepaid by the tenant and credited to unearned rent revenue. If Krug Company reported total assets of $390,000 prior to the adjusting entries, how much are Krug's total assets after the adjusting entries?

Which of the following does not correctly describe the following adjusting journal entry?

What is the effect on the financial statements when a company fails to accrue revenue earned at year-end?

For each of the following transactions, indicate the direction of effects of the adjusting entry on the elements of the balance sheet and income statement. Using the following format, indicate + for increase, - for decrease, and NE for no effect. Do not leave any blank spaces. Transactions: A. Wages of $5,800 have been earned, but not paid to employees at the end of the year. B. Supplies in the amount of $2,000 were used during the year, which are currently recorded in the office supplies (inventory) account. C. Interest has accrued on a note payable.

On January 1, 2016, the general ledger of Global Corporation included supplies of $1,000. During 2016, supplies purchased amounted to $5,000. A physical count of inventory on hand at December 31, 2016 determined that the amount of supplies on hand was $1,200. How much is the supplies expense for year 2016?

At the time of the initial cash flow, deferred expenses are recorded as assets and when used in the future, expenses will increase, and liabilities will increase.

Which is the correct order of the following steps in the accounting cycle?

Which of the following accounts is used to record an accrual for expenses?

Which of the following statements is correct?

The adjusting entry to record an accrued expense results in a decrease in both assets and stockholders' equity.

Depreciation expense is an estimated allocation of the cost of long-term assets and is recorded in a contra-asset called accumulated depreciation.

Which of the following journal entries is used to record a deferral?