Introductory to Financial Accounting - Chapter 4

On October 31, 2020, the $12,000 premium on a one-year insurance policy for the building was paid and recorded as Prepaid Insurance. On December 31, 2020 (end of the accounting period), what adjusting entry is needed?

• Insurance expense (+E) 2,000
  

  Prepaid insurance expense (-A) 2,000

  
  

• Insurance expense (+E) 3,000

   Prepaid insurance expense (−A) 3,000

• Prepaid insurance expense (+A) 3,000
  

  Insurance expense (-E) 3,000

  
  

• Prepaid insurance expense (+A)
  Insurance expense (-E) 9,0009,000

  
  

An adjusted trial balance

• Shows the ending account balances in a “debit” and “credit” format before posting the adjusting
  journal entries.
  

• Is prepared after closing entries have been posted.

• Shows the ending account balances resulting from the adjusting journal entries in a “debit” and

  “credit” format.

• Is a tool used by financial analysts to review the performance of publicly traded companies
  

JJ Company owns a building. Which of the following statements regarding depreciation as used by accountants is false?

• As depreciation is recorded, stockholders’ equity is reduced
  

• Depreciation is an estimated expense to be recorded over the building’s estimated useful life

• As depreciation is recorded, the net book value of the asset is reduced
  

• As the value of the building decreases over time, it “depreciates.”

According to GAAP, what ratio must be reported on the financial statements or in the notes to the statements?

• Earnings per share ratio.

• Return on equity ratio.

• Net profit margin ratio.

• Current ratio.

Failure to make an adjusting entry to recognize accrued salaries payable would cause which of the following?

• An understatement of expenses, liabilities, and stockholders’ equity.

• An understatement of expenses and liabilities and an overstatement of stockholders’ equity.

• An overstatement of assets and stockholders’ equity.

• An overstatement of assets and liabilities.

If a company is successful in acquiring several large buildings at the end of the year, what is the effect on the total asset turnover ratio?

• The ratio will increase.

• The ratio will not change.

• The ratio will decrease.

• Either (a) or (c)

Which of the following accounts would not appear in a closing entry?

• Salary Expense

• Interest Income

• Accumulated Depreciation

• Retained Earnings

On June 1, 2019, Oakcrest Company signed a three-year $110,000 note payable with 9 percent interest. Interest is due on June 1 of each year beginning in 2020. What amount of interest expense should be reported on the income statement for the year ended December 31, 2019?

• $5,250

• $9,900

• $4,950

• $5,775

Which account is least likely to appear in an adjusting journal entry?

• Cash

• Interest Receivable

• Property Tax Expense

• Salaries Payable

At the beginning of the current year, Donna Company had $1,000 of supplies on hand. During the current year, the company purchased supplies amounting to $6,400 (paid for in cash and debited to Supplies). At the end of the current year, a count of supplies reflected $2,000. The adjusting entry Donna Company would record at the end of the current year to adjust the Supplies account would include a

• Debit to Supplies for $2,000.

• Credit to Supplies Expense for $5,400.

• Credit to Supplies for $5,400.

• Debit to Supplies Expense for $4,400.