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Exam 3: The Financial Reporting Process

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Question 1

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Adjusting entries are primarily needed for:

A) Cash-basis accounting.
B) Accrual-basis accounting.
C) Current value accounting.
D) Manual accounting systems.

E) A) and B)
F) B) and C)

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B

Question 2

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After closing entries are prepared, the balance of Retained Earnings is updated to reflect the activity in the revenue, expense, and dividend accounts for the period.

A) True
B) False

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Question 3

Multiple Choice

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The primary difference between accrual-basis and cash-basis accounting is:

A company performs $2,800 of services during the month and bills customers. The customers are expected to pay next month. Record the customer billing using (a) accrual-basis accounting and (b) cash-basis accounting.

On December 31, 2012, employees who earn $500 per day have worked eight days and will be paid on January 6, 2013. The adjusting entry on December 31, 2012, includes a debit to Salaries Expense for $4,000.

At December 31, 2012, a company has received, but not paid, a utility bill for $250. The amount of utility expense for the current period equals $250.

Accrued revenues involve the receipt of cash after the revenue has been earned and an asset has been recorded.

At the beginning of December, Global Corporation had $2,000 in supplies on hand. During the month, supplies purchased amounted to $3,000, but by the end of the month the supplies balance was only $800. What is the appropriate month-end adjusting entry?

The post-closing trial balance does not include any assets or liabilities, because these accounts all have zero balances after closing entries.

The adjusting entry for a prepaid expense always includes a debit to an expense account and a credit to a liability account.

Which of the following regarding adjusting entries is correct?

The post-closing trial balance is a list of all accounts and their balances at a particular date after the account balances have been updated for closing entries.

Suppose a customer rents a vehicle for four months from Rent-A-Car on October 1, paying $4,000 ($1,000/month). Record Rent-A-Car's adjusting entry on December 31.

Adjusting entries:

On April 1, a $4,800 premium on a one-year insurance policy on equipment was paid and charged to Prepaid Insurance. At the end of the year, the financial statements would report:

The purpose of closing entries is to transfer:

Long-term liabilities are liabilities due in more than one year.

The following answers point out the key phrases that should appear in students' answers. They are not intended to be examples of complete student responses. It might be helpful to provide detailed instructions to students on how brief or in-depth you want their answers to be. -Describe what is meant by unearned revenues and give two examples.

Adjusting entries should be prepared after financial statements are prepared.

The adjusting entry for an unearned revenue has the effects of reducing liabilities and increasing net income.