This is “End-of-Chapter Exercises”, section 5.4 from the book Business Accounting (v. 2.0).
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Which of the following accounts is closed at the end of the year after financial statements are produced?
Jenkins Company received $600 from a client in December for work to be performed by Jenkins over the following months. That cash collection was properly recorded at that time. The accountant for Jenkins believes that this work is really three separate jobs. What adjusting entry is recorded by this accountant on December 31 if one of these jobs is substantially completed by that time?
Which of the following accounts increases retained earnings when closing entries are prepared?
Which of the following is the sequence of the accounting process?
On September 1, Year Three, the LaToya Corporation paid $42,000 for insurance for the next six months. The appropriate journal entry was made at that time. On December 31, LaToya’s accountant forgot to make the adjusting entry that was needed. Which of the following is true about the Year Three financial statements?
Starting on December 21, Year One, the Shakespeare Corporation begins to incur an expense of $1,000 per day. On January 21, Year Two, the company makes a payment of $31,000 for the previous thirty-one days. Assume the company failed to make an adjusting entry at December 31, Year One. Which of the following is true for the Year One financial statements?
Starting on December 21, Year One, the Shakespeare Corporation begins to incur an expense of $1,000 per day. On January 21, Year Two, the company makes a payment of $31,000. The company made the proper adjusting entry at December 31. When the payment was eventually made, what account or accounts were debited?
Starting on December 21, Year One, the Shakespeare Corporation begins to incur an expense of $1,000 per day. On January 21, Year Two, the company makes a payment of $31,000 for the previous thirty-one days. Assume the company failed to make the proper year-end adjusting entry. However, when payment was made, the journal entry was prepared as if the adjusting entry had been made (the accountant did not realize the adjusting entry was not made). After recording the erroneous journal entry, which of the following is true?
The Cone Company has prepared a trial balance that includes the following: accounts receivable—$19,000, inventory—$30,000, cost of goods sold—$72,000, sales revenue—$191,000, prepaid rent—$8,000, salary payable—$12,000, rent expense—$23,000, salary expense—$34,000, and dividends paid—$7,000. What should be reported as net income for the period?
A company pays $40,000 to rent a building for forty days. After nineteen days, financial statements are to be prepared. If the company originally recorded the $40,000 payment in rent expense, which of the following adjusting entries should be made prior to producing financial statements.
Professor Joe Hoyle discusses the answers to these two problems at the links that are indicated. After formulating your answers, watch each video to see how Professor Hoyle answers these questions.
Your roommate is an English major. The roommate’s parents own an ice cream shop in a resort community in Florida. One day, on the way to the local shopping center, your roommate blurts out this question: “My parents write down every penny they get and spend in their business. They are meticulous in their record keeping. However, at the end of each year, they pay money to hire an accountant. If they keep such perfect records every day, why could they possibly need an accountant after they have done all the work?” How would you respond?
Your uncle and two friends started a small office supply store at the beginning of the current year. Your uncle knows that you are taking a financial accounting class and asks you the following question: “We keep very careful records of all our transactions. At the end of the year, we will prepare financial statements to help us file our income taxes. We will also show the statements to the officers at the bank that gave us the loan that got us started. I know that we will need to make some changes in our records before we produce those financial statements, but I do not know what kinds of changes I should be making. Can you give me some suggestions on what kinds of changes I should think about making?” How would you respond?
Determine if the following adjusting entries involve the following:
For each of the following adjusting entries, describe what has probably taken place that necessitated these entries.
For each of the following transactions of the Marlin Corporation determine if an adjusting entry is now needed. If an adjustment is required, provide that entry. Assume each journal entry was made properly.
Keating Inc. rents its headquarters from Starling Enterprises for $10,000 per month. On September 1, 20XX, Keating pays Starling $60,000 for six months worth of rent.
The accountant for the Osgood Company is preparing to produce financial statements for December 31, Year One, and the year then ended. The accountant has uncovered several interesting figures within the company’s trial balance at the end of the year:
Figure 5.19 Financial Figures Reported by the Osgood Company
The company did work for a customer throughout December and finished on December 30. Because it was so late in the year, no journal entry was recorded, and no part of the $17,000 payment has been received.
The Warsaw Corporation began business operations on December 1, Year One. The company had the following transactions during the time when it was starting:
A job was completed near the end of the year, and the customer will pay Warsaw all $8,000 early in the following year. Because of the late date, no entry was made at that time.
The Rohrbach Company has the following trial balance at the end of Year Four before adjusting entries are prepared. During the year, all cash transactions were recorded, but no other journal entries were made.
Figure 5.20 Rohrbach Company Unadjusted Trial Balance, December 31, Year Four
Employees are paid $8,000 for each month with payments seven days after the end of the month.
The following trial balance (at the end of Year Three) was produced by an accountant working for the Washburn Company. No adjusting entries have yet been made. During the year, all cash transactions were recorded, but no other journal entries were prepared.
Figure 5.21 Washburn Company Unadjusted Trial Balance, December 31, Year Three
Employees are paid $10,000 for each month with payments two weeks after the end of the month.
Leon Jackson is an entrepreneur who plans to start a Web site design and maintenance business called Webworks. The First National Bank just approved a loan so he is now ready to purchase needed equipment, hire administrative help, and begin designing sites. During June, his first month of business, the following events occur.
Webworks pays taxes of $200 in cash.
Webworks only used half of the supplies purchased in (d) above.
Jan Haley owns and operates Haley’s Dry Cleaners. The ledger for this company is presented in the next figure with balances as of December 1, Year Two. The following occurred during that month.
Haley paid tax of $750 in cash.
Prepare all necessary T-accounts with opening balances for the month of December.
Figure 5.22 Opening T-Account Balances for Haley’s Dry Cleaners
An inventory of supplies shows $400 in supplies remaining on December 31.
On January 1, Kevin Reynolds, a student at State U, decides to start a business. Kevin has noticed that various student organizations around campus are having more and more need for mass produced copies of programs on CDs. While a lot of students have a CD drive on their computers that can write to CDs, it is a slow process when a high volume of CDs is needed.
Kevin believes that with a beginning investment in specialty equipment, he can provide a valuable product to the college community and earn some profit. On January 1, Year One, Kevin officially begins “Kevin’s CD Kopies.”
The following occur during January:
KCDK incurs $40 in tax expense. The taxes will be paid in February.
KCDK incurs $10 in interest expense. The interest will be paid with the note at the end of the year.
The following occur in February:
KCDK incurs $80 in tax expense. The taxes will be paid in March.
KCDK incurs $10 in interest expense. The interest will be paid with the note.
A company places an ad in a newspaper late in Year Five. Is this an expense or an asset? When unsure, companies often investigate how other companies handle such costs.
Go to http://www.jnj.com/. At the Johnson & Johnson Web site, click on “Our Company” at the top right side. Scroll down and under “Company Publications,” click on “2010 Annual Report On-Line.” Click on “Financial Results” at the top of the next page.
Next, click on “Consolidated Balance Sheets.” Under assets, what amount is reported by the company as “prepaid expenses and other receivables?”
Assume the question has been raised whether any amount of advertising is included in the prepaid expense figure reported by Johnson & Johnson. Close down the balance sheet page to get back to the “Financial Results” page. Click on “Notes to Consolidated Financial Statements.” Scroll to page 47 and find the section for “Advertising.” What does the first sentence tell decision makers about the handling of these costs?