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1. Which of the following statements is true regardingdeclared dividends?

a) They are an expense of doing business.

b) Companies are legally obligated to declaredividends.

c) They are a way to distribute profits to a company’sstockholders.

d)They are reported on the balance sheet.

2. Net income would be understated due to which of thefollowing errors?

a) Employee wages that have not yet been paid are notrecorded.

b) Depreciation expense is not recorded.

c) Collection of accounts receivable is notrecorded.

d) Revenue that has been earned but not yet collectedhas not been recorded.

3. Regarding the need for adjustments, which statementis not true?

a) Adjusting entries are intended to change operatingresults to reflect management’s objectives for operatingperformance.

b) Adjustments help the financial statements present thebest picture of whether the company’s activities were profitablefor the period.

c) Adjustments help the financial statements present theeconomic resources the company owns and owes at the end of theperiod.

d) Without adjustments, financial statements present anincomplete and misleading picture of the company.

4. A company purchased a certificate of deposit on June1 that will pay $120 interest three months from that date. On June31, which of the following adjusting entries would bemade?

a) Debit Interest Receivable for $120; credit InterestRevenue for $120

b) Debit Interest Revenue for $40; credit INterestReceivable for $40

c) Debit Interest Receivable for $40; credit InterestRevenue for $40

d) Debit Interest Revenue for $120; credit InterestReceivable for $120

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Hubert Koch
Hubert KochLv2
28 Sep 2019
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Related questions

Financial statement disclosures You are the financial accountantfor Superstore Ltd, and are in the process of preparing itsfinancial statements for the year ended 30 June 2018. Whilstpreparing the financial statements, you become aware of thefollowing situations:

On 1 July 2017, the directors made a decision, using informationobtained over the last couple of years, to revise the useful lifeof an item of manufacturing equipment. The equipment was acquiredon 1 July 2015 for $800,000, and has been depreciated on astraight-line basis, based on an estimated useful life of 10 yearsand residual value of nil. Superstore Ltd uses the cost model formanufacturing equipment. The directors estimate that as at 1 July2017, the equipment has a remaining useful life of 6 years and aresidual value of nil. No depreciation has been recorded as yet forthe year ended 30 June 2018 as the directors were unsure how toaccount for the change in the 2018 financial statements, and unsurewhether the 2016 and 2017 financial statements will need to berevised as a result of the change.

In June 2018, the accounts payable officer discovered that aninvoice for repairs to equipment, with an amount due of $20,000,incurred in June 2017, had not been paid or provided for in the2017 financial statements. The invoice was paid on 12 July 2018.The repairs are deductible for tax purposes. The accountantresponsible for preparing the company’s income tax returns willamend the 2017 tax return, and the company will receive a taxrefund of $6,000 as a result (30% x $20,000). No journal entrieshave been done as yet in the accounting records of Superstore Ltd,as the directors are unsure how to account for this situation, andwhat period adjustments need to be made in.

Superstore Ltd holds shares in a listed public company, ABC Ltd,which are valued in the draft financial statements on 30 June 2018at their market value on that date - $600,000. A major fall in thestock market occurred on 10 July 2018, and the value ofSuperstore’s shares in ABC Ltd declined to $250,000.

On 21 July 2018, you discovered a cheque dated 20 April 2018 of$32,000 authorised by the company’s previous accountant, Max. Thepayment was for the purchase of a swimming pool at Max’s house. Thepayment had been recorded in the accounting system as anadvertising expense. You advise the directors of this fraudulentactivity, and they will investigate.

Assume that each event is material. Required:

i) State the appropriate accounting treatment for eachsituation. Provide explanations and references to relevantparagraphs in the accounting standards to support your answers.Where adjustments to Superstore Ltd’s financial statements arerequired, explain which financial statements need to be adjusted(ie. 2016, 2017, 2018 or 2019).

ii) Prepare any note disclosures and adjusting journal entriesthat are needed in the 2018 financial statements for eachsituation.

Business owners are given a choice between using the cash basis of accounting and the accrual basis of accounting, which of the two methods do you believe they would choose? Based on your selected method, will the financial statements presented show a true representation of the company's performance? Why or why not?

A company fails to recognize revenue for services performed but not yet received. Which of the following types of accounts are involved: (a) asset, (b) liability, (c) revenue, or (d) expense? For the accounts selected, indicate whether it would be debited or credited in the entry.

In what order should the financial statements be prepared in? or does the order not matter?

The accountant for Newman Production services failed to record an adjusting entry of $5,000 for unpaid taxes. How will this impact the current year financial statements? Be sure to state the type of account (Asset, Liability, Owner's Equity, Revenue or Expense) and whether it will be understated or overstated.

24-31 (objective 24-6)

In your audit of Aviary Industries for calendar year 2016,you found a number of matters that you believe represent possibleadjustments to the company’s books. These matters are describedbelow. Management’s attitude is that “once the books are closed,they’re closed,” and management does not want to make anyadjustments. Planning materiality for the audit was $100,000,determined by computing 5% of expected income before taxes. Actualincome before taxes on the financial statements prior to anyadjustments is $1,652,867. Possible adjustments:

1. Several credit memos that were processed and recordedafter year-end relate to sales and accounts receivable for 2016.These total $26,451.

2. Inventory cutoff tests indicate that $25,673 of inventoryreceived on December 30, 2016, was recorded as purchases andaccounts payable in 2017. These items were included in theinventory count at year-end and therefore were included in endinginventory.

3. Inventory cutoff tests indicate several sales invoicesrecorded in 2016 for goods that were shipped in early 2017. Thegoods were included in inventory even though they were set aside ina separate area. The total amount of these shipments was$41,814.

4. The company wrote several checks at the end of 2016 foraccounts payable that were held and not mailed until January 15,2017. These totaled $43,671. Recorded cash and accounts payable atDecember 31, 2016, are $2,356,553 and $2,666,290,respectively.

5. The company has not established a reserve forobsolescence of inventories. Your tests indicate that such areserve is appropriate in an amount somewhere between $15,000 and$30,000.

6. Your review of the allowance for uncollectible accountsindicates that it may be understated by between $35,000 and$55,000.

Required:

b. What may Aviary Industries’ management resist makingthese adjustments?

c. Explain what you consider themost positive way of approaching management personnel to convincethem to make your proposed changes.

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