Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
77. On January 1, 2011, Ryan Company paid the premium on a three-year insurance policy in
the amount of $6,000. At that time, the full amount paid was recorded as prepaid insurance.
After recording the adjusting entry for the insurance policy on December 31, 2011, Ryan
Company’s records would reflect what balance in the prepaid insurance account?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
78. Assume Idaho Company recorded the following adjusting journal entry at year-end:
If the beginning balance in prepaid insurance was $500 and $2,500 was paid for an insurance
premium during the year, what is the ending balance in the prepaid insurance account after the
above adjusting entry?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
79. Failure to make an adjusting entry to recognize rent revenue receivable would cause
which of the following?
80. Which of the following best describes the difference between an unadjusted trial balance
and an adjusted trial balance?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
81. Which of the following accounts would most likely not require an adjusting entry in the
future?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
82. On December 31, 2011, The Bates Company’s revenues total $300,000 and expenses total
$160,000 before consideration of the following:
• Accrued wages total $11,000;
• Accrued revenues total $36,000;
• Depreciation expense is $17,000;
• Rental revenue of $9,000 was earned; the rent was prepaid by a tenant and was recorded by
Bates as unearned rent revenue;
• The income tax rate is 40%.
What is Bates’ net income after consideration of the above information?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
83. Which of the following statements is correct?
84. Which of the following will result in an increase in earnings per share?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
85. Which of the following statements regarding earnings per share is not correct?
86. Which of the following statements does not correctly describe the relationship between
the income statement and the ending retained earnings balance?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
87. Which of the following statements regarding the balance sheet is false?
88. A calendar year reporting company preparing its annual financial statements should use
the phrase “As of December 31, 2011” in the heading of which financial statements?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
89. The declaration and payment of a $5,000 dividend by JLH Company would be reported on
which of JLH’s financial statements?
90. Which of the following transactions will not decrease the net profit margin ratio?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
91. Which of the following statements regarding the net profit margin ratio is false?
92. Which of the following correctly describes the closing entry process?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
93. Which of the following account balances would not be affected by closing journal
entries?
94. Which of the following account balances would be closed at year-end?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
95. Which of the following account balances would not be closed at year-end by debiting the
account?
96. Which of the following account balances would be closed at year-end by crediting the
account?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
97. Which one of the following accounts would not be closed at the end of the accounting
year?
98. A trial balance prepared after the closing entries have been posted would show a zero
balance in which one of the following accounts?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
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99. Which of the following correctly describes the accounts reported on the post-closing trial
balance?
100. Which of the following isn’t a correct closing entry?
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
101. Describe the adjusted trial balance.
102. What is the purpose of adjusting entries? Give two examples of accruals and deferrals.
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
103. What are the purposes of closing entries? Describe permanent and temporary accounts.
104. On November 1, 2011, Bug Busters collected $6,000 in advance for three months of
service to be provided beginning on that date. Bug credited unearned rent revenue for $6,000.
Prepare the adjusting entry required on December 31, 2011 (assuming that no adjusting
entries have been made during the year).
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
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105. Below are two related transactions for Golden Corporation. The annual accounting
period ends December 31. Prepare the journal entry for each of the following transactions. No
adjusting entries have been made during the year.
A. October 1, 2011—Golden Corporation borrowed $100,000 and signed a note providing for
8% interest. The principal and interest are due in one year (on September 30, 2012).
B. December 31, 2011—end of the annual accounting period. (If no entry is required, explain
why).
106. Bridge Company keeps a small inventory of supplies used for cleaning and maintenance
purposes. On January 1, 2011, the inventory of supplies on hand was $2,000. During the year,
supplies purchased were debited to the supplies inventory account in the amount of $6,500.
On December 31, 2011, the inventory count of supplies in the storeroom was $1,750. Give the
adjusting entry required at December 31, 2011, assuming that no adjusting entries were made
during the year.
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
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107. On November 1, 2010, Bruce Company leased some of its office space to Fairlane
Company and immediately collected twelve months rent in advance of $600,000. Bruce
debited cash and credited unearned rent revenue for $600,000. Prepare the December 31,
2010 adjusting entry Bruce should make in respect to the rent, assuming no adjusting entries
have been made during the year.
108. On December 1, 2011, Fleet Company paid $30,000 for three months rent and debited
prepaid rent for $30,000; the rent payment was for three was for three months beginning
December 1, 2011. Prepare Fleet’s adjusting entry required on December 31, 2011.
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings
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109. Center Company is completing the accounting cycle at the end of the annual accounting
period, December 31, 2011. No adjusting entries have been made during the year so three
adjusting entries must be made at this date to update the accounts. The following accounts,
selected from Center Company’s chart of accounts, are to be used for this purpose. They are
coded to the left for easy reference.
Chapter 04 – Adjustments, Financial Statements, and the Quality of Earnings