Accounting Priciples Adjusting the account

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CHAPTER 3 - ANSWER:

ADJUSTING THE ACCOUNTS

TRUE - FALSE STATEMENT

1 TRUE The periodicity assumption states that the economic life of a business entitycan be divided into artificial time periods.

2 FALSE The periodicity assumption is recognition principle. not often referred to as the expense

3 TRUE The revenue recognition principle dictates that revenue be recognized inthe accounting period in which it is earned.

4 TRUE Expense recognition is tied to revenue recognition

5 TRUE The revenue recognition principle and the expense recognition principle arehelpful guides used in determining net income or net loss for a period

6 TRUE The expense recognition principle requires that efforts be related toaccomplishments

7 TRUE Recognizing when an expense contributes to the production of a revenue iscritical

8 TRUE The expense recognition principle is frequently referred to as the matching

principle

9 FALSE Income will not always be greater under the cash basis of accounting than

under the accrual basis of accounting

10 TRUE The cash basis of accounting is not in accordance with generally acceptedaccounting principles

11 TRUE Adjusting entries are often made because some business events are notrecorded as they occur

12 FALSE Adjusting entries are recorded in the general journal and posted to theaccounts in the general ledger.

13 FALSE Adjusting entries are recorded in the general journal and posted to theaccounts in the general ledger.

Adjusting entries are made at the end of an accounting period after a trialbalance is prepared to adjust the revenues and expenses for the period inwhich they occurred

15 TRUE An adjusting entry to a prepaid expense is required to recognize expiredexpenses

16 FALSE Adjusting entries always involve a balance sheet account (Interest Payable, Prepaid Insurance, Accounts Receivable, etc.)

17 TRUE An adjusting entry always involves a balance sheet account and an incomestatement account

18 TRUE Revenue received before it is recognized and expenses used or consumedbefore being paid are both initially recorded as liabilities

19 TRUE Revenue received before it is earned and expenses used or consumedbefore being paid are both initially recorded as liabilities.

20 FALSE Accrued revenues are revenues that have been recognized but not yet

recorded

21 TRUE Accrued revenues are revenues that have been recognized but not yetrecorded

The difference between unearned revenue and accrued revenue is thataccrued revenue is capital not earned on services already provided,unearned revenue is capital already earned on services not yet provided

If prepaid costs are initially recorded as an asset, adjusting entries will beneeded during the six months to be certain that the current month'sinsurance expense is reported on each month's income statement

24 FALSE Net book value is the cost of an asset subtracted by its accumulateddepreciation.

25 FALSE Since book value is strictly an accounting and tax calculation, it may not

always perfectly align with the fair market value of an asset

26 FALSE Accumulated depreciation is a contra asset account has a credit normalaccount balance

27 TRUE A liability—revenue account relationship exists with an unearned rentrevenue adjusting entry.

29 TRUE Unearned revenue is a prepayment that required an adjusting entry when

services are performed

30 FALSE The adjusting entry for unearned revenues results in a debitaccount and credit to a revenue account. to a liability

31 TRUE Asset prepayments become expenses when they expire

32 TRUE A contra asset account is subtracted from a related account in the balance

sheet

33 FALSE Accrued revenue is revenue that has been earned butbeen received before customers pay for which no cash has

34 FALSE The adjusting entry for accrued salaries requires a debit to the salariesexpense account, and a credit to the accrued salaries account.

35 FALSE The accrued interest for a three month note payable of $10,000 dated

December 1, 2011 at an interest rate of 6% is $50 on December 31, 2011

Without an adjusting entry for accrued interest expense, liabilities andinterest expense are understated, and net income and stockholder' equityare overstated

37 TRUE Financial statements can be prepared from the information provided by anadjusted trial balance

38 FALSE An adjusted trial balance must be prepared after the adjusting entries can berecorded.

39 FALSE Closing entries deals with temporary accounts viz expense and revenueaccounts

40 TRUE The only accounts that are closed are temporary accounts

41 FALSE When closing entries are prepared, each income statement account is

closed directly to income summary account

42 FALSE Cash is a permanent account

43 TRUE The post-closing trial balance will contain only permanent balance sheet accounts

44 TRUE Accounts receivable is a permanent account

45 FALSE The Dividends account is closed to the Retained Earnings account at theend of the year

46 FALSE A revenue account is closed with a credit to the Income Summary account

47 TRUE An expense account is closed with a credit to the expense account and a

debit to the Income Summary account

48 TRUE Financial statements must be prepared before the closing entries are made

49 FALSE In the accounting cycle, closing entries are prepared after adjusting entries

50 TRUE Closing entries result in the transfer of net income or net loss into theRetained Earnings account

51 TRUE The post closing trial balance will have fewer accounts than the adjustedtrial balance

52 FALSE The accounting cycle begins with the analysis of transactions recorded onsource documents

53 FALSE A 10-column work sheet is a working tool for the accountant and not a

permanent accounting record

MULTIPLE CHOICE QUESTIONS

54 The periodicity assumption states that:

a a transaction can only affect one period of time

b estimates should not be made if a transaction affects more than one time

period

c adjustments to the enterprise's accounts can only be made in the time

period when the business terminates its operations

d the economic life of a business can be divided into artificial time periods.

55 One of the accounting concepts upon which adjustments for prepayments and

accruals are based is:

57 Adjustments would not be necessary if financial statements were prepared to

reflect net income from:

a monthly operations

b fiscal year operations

59 Expenses are recognized when:

a they contribute to the production of revenue

b they are paid.

c they are billed by the supplier

d the invoice is received

60 Which of the following is not generally an accounting time period?

a A week.

b A month

c A quarter

d A year

61 The revenue recognition principle dictates that revenue should be recognized

in the accounting records:

a when cash is received

b when it is earned.

c at the end of the month

d in the period that income taxes are paid

62 In a service-type business, revenue is considered earned:

a at the end of the month

b at the end of the year

c when the service is performed.

d when cash is received

63 The expense recognition principle matches:

a customers with businesses

b expenses with revenues.

c assets with liabilities

d creditors with businesses

64 Otto’s Tune-Up Shop follows the revenue recognition principle Otto services

a car on August 31 The customer picks up the vehicle on September 1 andmails the payment to Otto on September 5 Otto receives the check in the mail

on September 6 When should Otto show that the revenue was earned?

a August 31

b August 1

c September 5

d September 6

65 A company spends $20 million dollars for an office building Over whatperiod should the cost be written off?

a When the $20 million is expended in cash

b All in the first year

c After $20 million in revenue is earned

d None of the above.

66 The expense recognition principle states that expenses should be matched withrevenues Another way of stating the principle is to say that:

a assets should be matched with liabilities

b efforts should be matched with accomplishments

c dividends should be matched with stockholder investments

d cash payments should be matched with cash receipts

67 Which principle dictates that efforts (expenses) be recorded withaccomplishments (revenues)?

a Cost principle

b Periodicity principle

c Revenue recognition principle

d Expense recognition principle.

68 A flower shop makes a large sale for $1,000 on November 30 The customer

is sent a statement on December 5 and a check is received on December 10.The flower shop follows GAAP and applies the revenue recognition principle.When is the $1,000 considered to be earned?

a December 5

b December 10

c November 30

d December 1

69 A furniture factory's employees work overtime to finish an order that is sold

on January 31 The office sends a statement to the customer in early Februaryand payment is received by mid-February The overtime wages should beexpensed in:

a January.

b February

c the period when the workers receive their checks

d either January or February depending on when the pay period ends

70 Which is not an application of revenue recognition?

a Recording revenue as an adjusting entry on the last day of the accountingperiod

b Accepting cash from an established customer for services to be performed over the next three months.

c Billing customers on June 30 for services completed during June

d Receiving cash for services performed

71 Why do generally accepted accounting principles require the application of therevenue recognition principle?

a Failure to apply the revenue recognition principle could lead to a

d Accounting software has made the revenue recognition easy to apply.

72 On April 1, 2011, nPropel Corporation paid $48,000 cash for equipment thatwill be used in business operations The equipment will be used for fouryears nPropel records depreciation expense of $48,000 for the calendar yearending December 31, 2011 Which accounting principle has been violated?

a Depreciation principle

b No principle has been violated

c Cash principle

d Expense recognition principle.

73 Under the cash basis of accounting:

a Revenue is recognized when services are performed

b Expenses are matched with the revenue that is produced

c cash must be received before revenue is recognized.

d a promise to pay is sufficient to recognize revenue

74 Under the accrual basis of accounting:

a cash must be received before revenue is recognized

b net income is calculated by matching cash outflows against cash inflows

c events that change a company's financial statements are recognized in theperiod they occur rather than in the period in which cash is paid orreceived

d the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.

75 Using accrual accounting, expenses are recorded and reported only:

a when they are incurred whether or not cash is paid.

b when they are incurred and paid at the same time

c if they are paid before they are incurred

d if they are paid after they are incurred

76 A small company may be able to justify using a cash basis of accounting ifthey have:

a sales under $1,000,000

b no accountants on staff

c few receivables and payables.

d all sales and purchases on account

77 Which statement is correct?

Cash paid for computers on November 1, 2010 that will be used for 3 years 48,000

Expenses incurred including any depreciation 216,000Proceeds from a bank loan, part of which was used to pay for the computers 100,000

a As long as a company consistently uses the cash basis of accounting,generally accepted accounting principles allow its use

b The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.

c The cash basis of accounting is objective because no one can be certain ofthe amount of revenue until the cash is received

d As long as management is ethical, there are no problems with using thecash basis of accounting

78 The following is selected information from L Corporation for the fiscal yearending October 31, 2011

Based on the accrual basis of accounting, what is L Corporation’s net incomefor the year ending October 31, 2011?

a $184,000

b $154,000

c $152,000

d $170,000

370000 (Revenue Earned) - 216000 (Expenses Incurred)

79 The following is selected information from C Corporation for the fiscal yearending October 31, 2011

Cash paid for computers on November 1, 2010 that will be used for 3 years 24,000

Proceeds from a bank loan, part of which was used to pay for the computers 50,000

Based on the accrual basis of accounting, what is C Corporation’s net incomefor the year ending October 31, 2011?

• Collected $2,000 for services to be performed in 2012

• Paid $1,375 cash in salaries for 2011

• Purchased airline tickets for $250 in December for a trip to take place in

2012

What is La More’s 2011 net income using accrual accounting?

a $3,375

b $5,375

c $5,125

d $3,125

4500 (Sales on account) - 1375 (Paid Cash)

81 La More Company had the following transactions during 2011

• Sales of $4,500 on account

• Collected $2,000 for services to be performed in 2012

• Paid $1,125 cash in salaries

• Purchased airline tickets for $250 in December for a trip to take place in 2012

What is La More’s 2011 net income using cash basis accounting?

a $5,375

b $875

c $5,125

d $625

2000 (Revenue) - 1125 (Paid Cash) - 250 (Purchased)

82 Wang Company had the following transactions during 2011:

• Sales of $5,400 on account

• Collected $2,400 for services to be performed in 2012

• Paid $1,550 cash in salaries for 2011

• Purchased airline tickets for $300 in December for a trip to take place in 2012

What is Wang’s 2011 net income using accrual accounting?

• Collected $2,400 for services to be performed in 2012

• Paid $1,550 cash in salaries

• Purchased airline tickets for $300 in December for a trip to take place in2012

What is Wang’s 2011 net income using cash basis accounting?

a $550

b $1,150

c $6,250

d $850

84 Given the data below for a firm in its first year of operation, determine netincome under the cash basis of accounting.

Accounts payable (related to expenses) 750

Revenue recognized would include cash and credit sales.

86 Given the data below for a firm in its first year of operation, determine net

income under the cash basis of accounting

Cash received from customers $44,000

Accounts payable (related to expenses) 3,000

Accounts payable (related to expenses) 3,000

89 Which of the following would be unethical?

a Recording accrued salaries and wages expense

b Recording accrued interest revenue

c Recording backdated revenue.

d Recording prepaid expense adjustments

90 Why was Apple required to spread their iPhone revenues over a two yearperiod?

a Because of its newness, their returns might exceed the normal level ofreturns

b Because they were required to provide software updates over that two year period.

c Because that was the estimated life of the iPhone

d Because they needed to defer revenue recognition since they had a swapprogram available for future models

91 According to some U.S companies what gives foreign firms a competitive

advantage in the capital market?

a The foreign companies don’t have standards similar to GAAP

b The foreign companies don’t have strict ethical codes.

c The Sarbanes-Oxley Act which requires more stringent internal controls

on U.S firms.

d The foreign companies don’t have to be audited

92 The primary difference between prepaid and accrued expenses is that prepaidexpenses have:

a been incurred and accrued expenses have not

b not been paid and accrued expenses have

c been recorded and accrued expenses have not.

d not been recorded and accrued expenses have

93 The primary difference between accrued revenues and unearned revenues isthat accrued revenues have:

a not been earned and accrued revenues have been

b been paid and unearned revenues have not

c been recorded and unearned revenues have not

d not been recorded and unearned revenues have.

94 The general term employed to indicate an expense that has not been paid orrevenue that has not been received and has not yet been recognized in theaccounts is:

a contra asset

b prepayment

c asset

d accrued.

95 Accounts often need to be adjusted because:

a there are never enough accounts to record all the transactions

b many transactions affect more than one time period.

c there are always errors made in recording transactions

d management can't decide what they want to report

96 Adjusting entries are made to ensure that:

a expense are recognized in the period in which they are incurred

b revenues are recorded in the period in which they are earned

c balance sheet and income statement accounts have correct balances at theend of an accounting period

d All of the above.

97 Adjusting entries are:

a not necessary if the accounting system is operating properly

b usually required before financial statements are prepared.

c made whenever management desires to change an account balance

d made to balance sheet accounts only

98 Each of the following is a major type (or category) of adjusting entry except:

a earned expenses.

b prepaid expenses

c accrued expenses

d accrued revenues.

99 Adjusting entries are required:

a because some costs expire with the passage of time and have not yet been journalized.

b when the company's profits are below the budget

c when expenses are recorded in the period in which they are earned

d None of the above

100 Which one of the following is not a justification for adjusting entries?

a Adjusting entries are necessary to ensure that the revenue recognitionprinciple is followed

b Adjusting entries are necessary to ensure that the expense recognitionprinciple is followed

c Adjusting entries are necessary to enable financial statements to be inconformity with GAAP

d Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

101 An adjusting entry:

a affects two balance sheet accounts

b affects two income statement accounts

c affects a balance sheet account and an income statement account.

d is always a compound entry

102 Adjusting entries are:

a the same as correcting entries

b needed to ensure that the expense recognition principle is followed.

c optional

d rarely needed

103 The preparation of adjusting entries is:

a Straight forward because the accounts that need adjustment will be out ofbalance

b needed to ensure that the expense recognition principle is followed.

c only required for accounts that do not have a normal balance

d optional when financial statements are prepared

104 If a resource has been consumed but a bill has not been received at the end of

the accounting period, then:

a an expense should be recorded when the bill is received

b an expense should be recorded when the cash is paid out

c an adjusting entry should be made recognizing the expense.

d it is optional whether to record the expense before the bill is received

105 An asset–expense relationship exists with:

a liability accounts

b revenue accounts

c prepaid expense adjusting entries.

d accrued expense adjusting entries

106 A liability–revenue relationship exists with:

a asset accounts

b revenue accounts

c unearned revenue adjusting entries.

d accrued expense adjusting entries

107 Adjusting entries can be classified as:

a postponements and advances

b accruals and deferrals.

c deferrals and postponements

d accruals and advances

108 Adjusting entries can be classified as:

a postponements and advances

b accruals and advances

c deferrals and postponements

d accruals and deferrals.

109 Accrued expenses are:

a incurred but not yet paid or recorded

b paid and recorded in an asset account after they are used or consumed

c paid and recorded in an asset account before they are used or consumed

d incurred and already paid or recorded

110 Accrued revenues are:

a received and recorded as liabilities before they are earned

b earned and recorded as liabilities before they are received

c earned but not yet received or recorded.

d earned and already received and recorded

111 Prepaid expenses are:

a paid and recorded in an asset account before they are used or consumed.

b paid and recorded in an asset account after they are used or consumed

c incurred but not yet paid or recorded

d incurred and already paid or recorded

112 Goods purchased for future use in the business, such as supplies, are called:

a prepaid expenses.

b revenues

c stockholders’ equity

d liabilities

113 Accrued expenses are:

a paid and recorded in an asset account before they are used or consumed

b paid and recorded in an asset account after they are used or consumed

c incurred but not yet paid or recorded.

d incurred and already paid or recorded

114 Unearned revenues are:

a received and recorded as liabilities before they are earned.

b earned and recorded as liabilities before they are received

c earned but not yet received or recorded

d earned and already received and recorded

115 Adjusting entries affect at least:

a one revenue and one expense account

b one asset and one liability account

c one revenue and one balance sheet account

d one income statement account and one balance sheet account.

116 An architecture firm earned $2,000 for architecture services provided with the

fee to be paid in the future No entry was made at the time the service wasprovided If the fee has not been paid by the end of the accounting period and

no adjusting entry is made, this would cause:

a revenues to be overstated

b net income to be overstated

c liabilities to be understated

d revenues to be understated.

117 An adjusting entry can include a:

a debit to an asset and a credit to a liability.

b debit to a revenue and a credit to an asset

c debit to a liability and a credit to a revenue

d debit to an expense and a credit to a revenue

118 A law firm received $2,000 cash for legal services to be rendered in the future

The full amount was credited to the liability account Unearned ServiceRevenue If the legal services have been rendered at the end of the accountingperiod and no adjusting entry is made, this would cause:

a expenses to be overstated

b net income to be overstated

c liabilities to be understated

d revenues to be understated.

119 On January 1, 2011, M Johanson Company purchased equipment for $30,000

The company is depreciating the equipment at the rate of $500 per month Thebook value of the equipment at December 31, 2011 is:

120 The Vintage Laundry Company purchased $6,500 worth of laundry supplies

on June 2 and recorded the purchase as an asset On June 30, an inventory ofthe laundry supplies indicated only $2,000 on hand The adjusting entry that

should be made by the company on June 30 is:

a debit Laundry Supplies Expense, $2,000; credit Laundry Supplies, $2,000

b debit Laundry Supplies, $4,500; credit Laundry Supplies Expense, $4,500

c debit Laundry Supplies, $2,000; credit Laundry Supplies Expense, $2,000

d debit Laundry Supplies Expense, $4,500; credit Laundry Supplies, $4,500.

121 Greese Company purchased office supplies costing $4,000 and debited Office

Supplies for the full amount At the end of the accounting period, a physicalcount of office supplies revealed $1,100 still on hand The appropriateadjusting journal entry to be made at the end of the period would be:

a debit Office Supplies Expense, $1,100; credit Office Supplies, $1,100

b debit Office Supplies, $2,900; credit Office Supplies Expense, $2,900

c debit Office Supplies Expense, $2,900; credit Office Supplies, $2,900.

d debit Office Supplies, $1,100; credit Office Supplies Expense, $1,100

122 A company purchased office supplies costing $3,000 and debited Office

Supplies for the full amount At the end of the accounting period, a physicalcount of office supplies revealed $600 still on hand The appropriate adjustingjournal entry to be made at the end of the period would be:

a debit Office Supplies Expense, $3,600; credit Office Supplies, $3,600

b debit Office Supplies, $600; credit Office Supplies Expense, $600

c debit Office Supplies Expense, $2,400; credit Office Supplies, $2,400.

d debit Office Supplies, $2,400; credit Office Supplies Expense, $2,400

123 Unearned revenue is classified as a(n):

a asset account

b revenue account

c contra revenue account

d liability.

124 Boyce Company purchased office supplies costing $5,000 and debited Office

Supplies for the full amount At the end of the accounting period, a physicalcount of office supplies revealed $1,400 still on hand The appropriateadjusting journal entry to be made at the end of the period would be:

a debit Office Supplies Expense, $3,600; credit Office Supplies, $3,600

b debit Office Supplies, $1,400; credit Office Supplies Expense, $1,400

c debit Office Supplies Expense, $1,400; credit Office Supplies, $1,400.

d debit Office Supplies, $3,600; credit Office Supplies Expense, $3,600

125 On July 1 the Fisher Shoe Store paid $15,000 to Acme Realty for 6 months

rent beginning July 1 Prepaid Rent was debited for the full amount Iffinancial statements are prepared on July 31, the adjusting entry to be made bythe Fisher Shoe Store is:

a debit Rent Expense, $15,000; credit Prepaid Rent, $2,500

b debit Prepaid Rent, $2,500; credit Rent Expense, $2,500

c debit Rent Expense, $2,500; credit Prepaid Rent, $2,500.

d debit Rent Expense, $15,000; credit Prepaid Rent, $12,500

126 The balance in the prepaid rent account before adjustment at the end of the

year is $12,000 and represents three months rent paid on December 1 Theadjusting entry required on December 31 is:

a debit Prepaid Rent, $4,000; credit Rent Expense $4,000.

b debit Prepaid Rent, $8,000; credit Rent Expense, $8,000

c debit Rent Expense, $12,000; credit Prepaid Rent, $12,000

d debit Rent Expense, $4,000; credit Prepaid Rent, $4,000.

127 If a business has received cash in advance of services performed and credits a

liability account, the adjusting entry needed after the services are performedwill be:

a debit Unearned Revenue and credit Cash

b debit Unearned Revenue and credit Revenue Earned.

c debit Unearned Revenue and credit Prepaid Expense

d debit Unearned Revenue and credit Accounts Receivable

128 Accumulated Depreciation is a(n):

a expense account

b stockholders’ equity account

c liability account

d contra asset account.

129 The Harris Company purchased a computer for $3,000 on December 1 It is

estimated that annual depreciation on the computer will be $600 If financialstatements are to be prepared on December 31, the company should make thefollowing adjusting entry:

a debit Depreciation Expense, $600; credit Accumulated Depreciation, $600

b debit Depreciation Expense, $50; credit Accumulated Depreciation, $50.

c debit Depreciation Expense, $2,400; credit Accumulated Depreciation,

$2,400

d debit Office Equipment, $3,000; credit Accumulated Depreciation, $3,000

130 Adjustments for unearned revenue:

a decrease liabilities and increase revenues.

b increase liabilities and increase revenues

c increase assets and increase revenues

d decrease revenues and decrease assets

131 Leyland Realty Company received a check for $12,000 on July 1, which

represents a 6-month advance payment of rent on a building it rents to a client.Unearned Rental Revenue was credited for the full $12,000 Financialstatements will be prepared on July 31 Leyland Realty should make thefollowing adjusting entry on July 31:

a debit Unearned Rental Revenue, $2,000; credit Rental Revenue, $2,000.

b debit Rental Revenue, $2,000; credit Unearned Rental Revenue, $2,000

c debit Unearned Rental Revenue, $12,000; credit Rental Revenue, $12,000

d debit Cash, $12,000; credit Rental Revenue, $12,000

132 As prepaid expenses expire with the passage of time, the correct adjustingentry will be a:

a debit to an asset account and a credit to an expense account

b debit to an expense account and a credit to an asset account

c debit to an asset account and a credit to an asset account.

d debit to an expense account and a credit to an expense account.

133 Adjustments for unearned revenue:

a decrease liabilities and increase revenues.

b increase liabilities and increase revenues

c increase assets and increase revenues

d decrease revenues and decrease assets

134 Payments of expenses that will benefit more than one accounting period are

a adding the supplies on hand to the balance of the Supplies account

b summing the amount of supplies purchased during the period

c taking the difference between the supplies purchased and the supplies paidfor during the period

d taking the difference between the balance of the Supplies account and the cost of supplies on hand.

136 If a company fails to make an adjusting entry to record supplies expense, then:

a stockholders’ equity will be understated

b expense will be understated.

c assets will be understated

d net income will be understated

137 Supplies are recorded as assets when purchased Therefore, the credit to

supplies in the adjusting entry is for the amount of supplies:

a remaining

b purchased

c used.

d either used or remaining

138 If a company fails to adjust for accrued revenues:

a liabilities will be understated and revenues will be understated.

b liabilities will be overstated and revenues will be understated

c assets will be overstated and revenues will be understated

d assets will be understated and revenues will be understated

139 If a company fails to adjust a Prepaid Rent account for rent that has expired,

what effect will this have on that month's financial statements?

a Failure to make an adjustment does not affect the financial statements

b Expenses will be overstated and net income and stockholders’ equity will

be under- stated

c Assets will be overstated and net income and stockholders’ equity will beunderstated

d Assets will be overstated and net income and stockholders’ equity will be overstated.

140 If a company fails to adjust an Unearned Rent account for rent that has been

earned, what effect will this have on that month’s financial statements?

a Assets will be understated and revenues will be understated

b Liabilities will be understated and revenues will be understated

c Liabilities will be overstated and revenues will be understated.

d Assets will be overstated and revenues will be understated

141 If a company fails to adjust for accrued expenses, what effect will this have on

that month's financial statements?

a Failure to make an adjustment does not affect the financial statements

b Expenses will be understated and net income and stockholders’ equity will

142 On January 1, 2010, Leardon Inc purchased equipment for $45,000 The

company is depreciating the equipment at the rate of $600 per month AtJanuary 31, 2011, the balance in Accumulated Depreciation is:

143 At December 31, 2011, before any year-end adjustments, Dallis Company's

Prepaid Insurance account had a balance of $2,700 It was determined that

$1,000 of the Prepaid Insurance had expired The adjusted balance forInsurance Expense for the year would be:

a $1,000.

b $1,700

c $2,700

d $1,400

144 At December 31, 2011, before any year-end adjustments, Janus Company's

Prepaid Insurance account had a balance of $2,400 It was determined that

$1,000 of the Prepaid Insurance had expired The adjusted balance for PrepaidInsurance for the year would be:

145 At the end of the fiscal year, the usual adjusting entry for depreciation on

equipment was omitted Which of the following statements is true?

a Net income will be overstated for the current year.

b Total assets will be understated at the end of the current year

c The balance sheet and income statement will be misstated but the Retained

Earnings statement will be correct for the current year

d Total expenses will be overstated at the end of the current year

Depreciation is defined as the reduction in the value of an asset over the period of it's useful life.

The deductions are calculated and taken out of the asset value on the balance sheet.

The adjusting entry for depreciation at the end of year is a debit to Depreciation Expense and

a credit to Accumulated depreciation.

If this entry is no passed it means that Depreciation Expense is not recognised for that year.

Net income will be overstated because generally expenses will be understated.

146 The trial balance for Greenway Corporation appears as follows:

Greenway Corporation

Trial BalanceDecember 31, 2011

a debit to Supplies for $30

b credit to Supplies for $30

c debit to Supplies Expense for $110.

d credit to Supplies Expense for $110

147 The trial balance for Greenway Corporation appears as follows:

Greenway Corporation

Trial BalanceDecember 31, 2011

a debit to Prepaid Insurance for $45

b credit to Prepaid Insurance for $15

c debit to Insurance Expense for $45.

d debit to Prepaid Insurance for $15

Debit to insurance expense for $15

$60 - $15 = $45

148 The trial balance for Greenway Corporation appears as follows:

Greenway Corporation

Trial BalanceDecember 31, 2011

entry would contain a:

a credit to Accumulated Depreciation, Office Equipment for $800

b credit to Depreciation Expense, Office Equipment for $800

c debit to Accumulated Depreciation, Office Equipment for $800.

d credit to Office Equipment for $800

149 The trial balance for Greenway Corporation appears as follows:

Greenway Corporation

Trial BalanceDecember 31, 2011

If as of December 31, 2011, rent of $120 for December had not been recorded

or paid, the adjusting entry would include a:

a credit to Accumulated Rent for $120

b credit to Cash for $120

c debit to Rent Payable for $120

d debit to Rent Expense for $120

150 The trial balance for Greenway Corporation appears as follows:

Greenway Corporation

Trial BalanceDecember 31, 2011

Rent Expense 500 0

If service for $125 had been performed but not billed, the adjusting entry torecord this would include a:

a debit to Service Revenue for $125

b credit to Unearned Service Revenue for $125

c credit for Service Revenue for $125.

d debit to Unearned Revenue for $125

151 Depreciation is the process of:

a valuing an asset at its fair market value

b increasing the value of an asset over its useful life in a rational andsystematic manner

c allocating the cost of an asset to expense over its useful life in a rational and systematic manner.

d writing down an asset to its real value each accounting period

152 The difference between the balance of a plant asset account and the related

accumulated depreciation account is termed:

a market value

b contra asset

c book value.

d liability

153 A new accountant working for Metcalf Company records $800 Depreciation

Expense on store equipment as follows:

Dr Cr

Depreciation Expense ……… 800

Cash .800

The effect of this entry is to:

a adjust the accounts to their proper amounts on December 31

b understate total assets on the balance sheet as of December 31

c overstate the book value of the depreciable assets at December 31.

d understate the book value of the depreciable assets as of December 31

154 From an accounting standpoint, the acquisition of long-lived assets is

155 If a business pays rent in advance and debits a Prepaid Rent account, the

company receiving the rent payment will credit:

a cash

b prepaid rent.

c unearned rent revenue.

d accrued rent revenue

156 An accumulated depreciation account:

a is a contra liability account

b increases on the debit side

c is offset against total assets on the balance sheet

d has a normal credit balance.

157 The difference between the cost of a depreciable asset and its related

accumulated depreciation is referred to as the:

a market value of the asset

b blue book value of the asset

c book value of the asset.

d depreciated difference of the asset

158 Which of the following would not result in unearned revenue?

a Rent collected in advance from tenants

b Services performed on account.

c Sale of season tickets to football games

d Sale of two-year magazine subscriptions

159 The policy at Adler Corporation is to expense all office supplies at the time of

purchase On the last day of the accounting period, there are $1,400 of unusedoffice supplies on hand and the balance of supplies expense is $3,500 Whatshould the accountant do?

a Debit Supplies and credit Supplies Expense for $1,400.

b Nothing, company policy says to expense supplies when purchased

c Convince management to change its policy to avoid problems in the future

d Debit Supplies Expense for $2,100 and credit Supplies for $2,100

160 Which statement is correct?

a Accumulated Depreciation should always have a debit balance in theAdjusted Trial Balance

b Accumulated Depreciation is added to the long-term liabilities on theBalance Sheet

c Accumulated Depreciation, Office Equipment represents the total cost of office equipment that has expired up to the date of the Balance Sheet.

d Accumulated Depreciation is used to reveal the value of the related asset

on the date of the Balance Sheet

161 Walton Company collected $7,200 in May of 2010 for 4 months of service

which would take place from October of 2010 through January of 2011 Therevenue reported from this transaction during 2010 would be:

a $0

b $5,400

c $7,200

d $1,800

162 Skypress Company collected $5,600 in May of 2010 for 4 months of service

which would take place from October of 2010 through January of 2011 Therevenue reported from this transaction during 2010 would be:

a $0

b $4,200

c $5,600

d $1,400

163 Masterfalls Corporation purchased a one-year insurance policy in January

2010 for $60,000 The insurance policy is in effect from March 2010 throughFebruary 2011 If the company neglects to make the proper year-endadjustment for the expired insurance:

a net income and assets will be understated by $50,000

b net income and assets will be overstated by $50,000

c net income and assets will be understated by $10,000

d net income and assets will be overstated by $10,000

164 James & Younger Corporation purchased a one-year insurance policy in

January 2010 for $36,000 The insurance policy is in effect from March 2010through February 2010 If the company neglects to make the proper year-endadjustment for the expired insurance:

a net income and assets will be understated by $30,000

b net income and assets will be overstated by $30,000.

c net income and assets will be understated by $6,000

d net income and assets will be overstated by $6,000

165 At March 1, 2011, Candy Inc had supplies on hand of $1,500 During the

month, Candy purchased supplies of $2,900 and used supplies of $1,800 TheMarch 31 balance sheet should report what balance in the supplies account?

a $1,500

b $2,600

c $1,800

d $2,900

166 Darting Company purchased a computer system for $5,400 on January 1,

2011 The company expects to use the computer system for 3 years It has nosalvage value Monthly depreciation expense on the asset is:

a $0

b $150

c $1,800

d $5,400

167 Fleet Services Company purchased equipment for $8,000 on January 1, 2011

The company expects to use the equipment for 5 years It has no salvagevalue What balance would be reported on the December 31, 2011 balancesheet for Accumulated Depreciation?

a $0 because Accumulated Depreciation is reported on the Income Statement

b $1,600

c $6,400

d $8,000

168 Green Realty Company received a check for $24,000 on July 1 which

represents a 6 month advance payment of rent on a building it rents to a client.Unearned Rent was credited for the full $24,000 Financial statements will beprepared on July 31 Green Realty should make the following adjusting entry

on July 31:

a debit Unearned Rent, $4,000; credit Rental Revenue, $4,000

b debit Rental Revenue, $4,000; credit Unearned Rent, $4,000

c debit Unearned Rent, $24,000; credit Rental Revenue, $24,000.

d debit Cash, $24,000; credit Rental Revenue, $24,000

169 Oakville Inc purchased a 12-month insurance policy on March 1, 2011 for

$1,200 At March 31, 2011, the adjusting journal entry to record expiration ofthis asset will include:

a a debit to Prepaid Insurance and a credit to Cash for $1,200

b a debit to Prepaid Insurance and a credit to Insurance Expense for $120

c a debit to Insurance Expense and a credit to Prepaid Insurance for $100

d a debit to Insurance Expense and a credit to Cash for $100

170 Hoosher Enterprises purchased an 18-month insurance policy on May 31,

2011 for $5,400 The December 31, 2011 balance sheet would report PrepaidInsurance of:

a $0 because Prepaid Insurance is reported on the Income Statement

b $2,100

c $3,300

d $5,400

171 At March 1, I Repo Inc reported a balance in Supplies of $200 During

March, the company purchased supplies for $950 and consumed supplies of

$800 If no adjusting entry is made for supplies:

a stockholders' equity will be overstated by $800.

b expenses will be understated by $950

c assets will be understated by $350

d net income will be understated by $800

172 Regions Inc pays its rent of $60,000 annually on January 1 and makes

monthly adjusting entries If the February 28 monthly adjusting entry forprepaid rent is omitted, which of the following are true?

a Failure to make the adjustment does not affect the February financialstatements

b Expenses will be overstated by $5,000 and net income and stockholders'equity will be understated by $5,000

c Assets will be overstated by $10,000 and net income and stockholders'equity will be understated by $10,000

d Assets will be overstated by $5,000 and net income and stockholders' equity will be overstated by $5,000.

173 An adjusting entry can include a:

a debit to an asset and a credit to a revenue.

b debit to a revenue and a credit to an asset

c credit to an expense and a debit to a revenue.

d debit to an expense and a credit to a revenue

174 A revenue–asset relationship exists with:

a prepaid expense adjusting entries

b accrued expense adjusting entries

c unearned revenue adjusting entries

d accrued revenue adjusting entries.

175 The accounts of a business before an adjusting entry is made to record accrued

revenue reflect an:

a understated liability and an overstated revenue

b overstated asset and an understated revenue

c understated expense and an overstated revenue

d understated asset and an understated revenue.

176 Adjustments for accrued revenues:

a increase assets and increase revenues.

b increase assets and increase liabilities

c decrease assets and increase revenues

d decrease liabilities and increase revenues

177 Failure to prepare an adjusting entry at the end of the period to record an

accrued expense would cause:

a net income to be understated

b an overstatement of assets and an overstatement of liabilities

c an understatement of expenses and an understatement of liabilities.

d an overstatement of expenses and an overstatement of liabilities

178 Failure to prepare an adjusting entry at the end of a period to record an

accrued revenue would cause:

a net income to be overstated

b an understatement of assets and an understatement of revenues

c an understatement of revenues and an understatement of liabilities.

d an understatement of revenues and an overstatement of liabilities

179 An adjusting entry made to record accrued interest on a note receivable due

next year consists of a:

a debit to Interest Expense and a credit to Interest Payable

b debit to Interest Receivable and a credit to Interest Earned.

c debit to Interest Expense and a credit to Notes Payable

d debit to Interest Expense and a credit to Cash

180 Raxon Company borrowed $30,000 from the bank signing a 6%, 3-month note

on September 1 Principal and interest are payable to the bank on December 1

If the company prepares monthly financial statements, the adjusting entry thatthe company should make for interest on September 30, would be:

a debit Interest Expense, $1,800; credit Interest Payable, $1,800

b debit Interest Expense, $150; credit Interest Payable, $150.

c debit Note Payable, $1,800; credit Cash, $1,800

d debit Cash, $450; credit Interest Payable, $450.

181 Nacron Company borrowed $8,000 from the bank signing a 6%, 3-month note

on September 1 Principal and interest are payable to the bank on December 1

If the company prepares monthly financial statements, the adjusting entry thatthe company should make for interest on September 30, would be:

a debit Interest Expense, $40; credit Interest Payable, $40.

b debit Interest Expense, $480; credit Interest Payable, $480

c debit Note Payable, $480; credit Cash, $480

d debit Cash, $40; credit Interest Payable, $40

182 Mary Richardo has performed $500 of CPA services for a client but has not

billed the client as of the end of the accounting period What adjusting entrymust Mary make?

a Debit Cash and credit Unearned Revenue

b Debit Accounts Receivable and credit Unearned Revenue

c Debit Accounts Receivable and credit Service Revenue

d Debit Unearned Revenue and credit Service Revenue

183 Mary Richardo, CPA, has billed her clients for services performed She

subsequently receives payments from her clients What entry will she makeupon receipt of the payments?

a Debit Unearned Revenue and credit Service Revenue

b Debit Cash and credit Accounts Receivable

c Debit Accounts Receivable and credit Service Revenue

d Debit Cash and credit Service Revenue

184 Amos Real Estate signed a four-month note payable in the amount of $12,000

on September 1 The note requires interest at an annual rate of 9% Theamount of interest to be accrued at the end of September is:

a $360

b $90.

c $1,080

d $120

185 DeNova Real Estate signed a four-month note payable in the amount of

$6,000 on September 1 The note requires interest at an annual rate of 6% Theamount of interest to be accrued at the end of September is:

a $360

b $90

c $30.

d $60

186 A gift shop signs a three-month note payable to help finance increases in

inventory for the Christmas shopping season The note is signed on November

1 in the amount of $40,000 with annual interest of 6% What is the adjustingentry to be made on December 31 for the interest expense accrued to that date,

if no entries have been made previously for the interest?

a Interest Expense 400

187 Ye Olde Christmas shop signs a three-month note payable to help finance

increases in inventory for the Christmas shopping season The note is signed

on October 1 in the amount of $20,000 with annual interest of 9% What is theadjusting entry to be made on December 31 for the interest expense accrued tothat date, if no entries have been made previously for the interest?

188 Snelling Tables paid employee wages on and through Friday, January 26, and

the next payroll will be paid in February There are three more working days inJanuary (29–31) Employees work 5 days a week and the company pays $800

a day in wages What will be the adjusting entry to accrue wages expense atthe end of January?

d No adjusting entry is required

189 Jill Clown earned a salary of $500 for the last week of October She will be

paid on November 1 The adjusting entry for Jill’s employer October 31 is:

190 At the end of the fiscal year, the usual adjusting entry for accrued salaries

owed to employees was omitted Which of the following statements is true?

a Salary Expense for the year is overstated

b Liabilities at the end of the year are understated.

c Assets at the end of the year are understated

d Stockholders’ equity at the end of the year is understated

191 A company shows a balance in Salaries Payable of $30,000 at the end of the

month The next payroll amounting to $45,000 is to be paid in the followingmonth What will be the journal entry to record the payment of salaries?

192 De Meaning Corporation issued a one-year 6% $200,000 note on April 30,

2011 Interest expense for the year ended December 31, 2011 was:

a $12,000

b $9,000

c $8,000

d $7,000

193 Bluing Corporation issued a one-year 9% $200,000 note on April 30, 2011

Interest expense for the year ended December 31, 2011 was:

a $18,000

b $13,500

c $12,000

d $10,500

194 Employees at Biquell Corporation are paid $8,000 cash every Friday for

working Monday through Friday The calendar year accounting period ends onWednesday, December 31 How much salary expense should be recorded twodays later on January 2?

195 An adjusted trial balance:

a is prepared after the financial statements are completed

b proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.

c is a required financial statement under generally accepted accountingprinciples

d cannot be used to prepare financial statements

196 Which of the statements below is not true?

a An adjusted trial balance should show ledger account balances

b An adjusted trial balance can be used to prepare financial statements

c An adjusted trial balance proves the mathematical equality of debits andcredits in the ledger

d An adjusted trial balance is prepared before all transactions have been journalized.

197 Which statement is incorrect concerning the adjusted trial balance?

a An adjusted trial balance proves the equality of the total debit balances andthe total credit balances in the ledger after all adjustments are made

b The adjusted trial balance provides the primary basis for the preparation offinancial statements

c The adjusted trial balance lists the account balances in order of their magnitude.

d The adjusted trial balance is prepared after the adjusting entries have beenjournalized and posted

198 Can financial statements be prepared directly from the adjusted trial balance?

a They cannot The general ledger must be used

b Yes, adjusting entries have been recorded in the general journal and posted to the ledger accounts.

c No, the adjusted trial balance merely proves the equality of the total debitand total credit balances in the ledger after adjustments are posted It has

b post-closing trial balance

c general trial balance

d adjusted trial balance.

200 Which of the following accounts will reflect the account’s beginning balance

on the adjusted trial balance?

a Prepaid rent

b Retained earnings

c Prepaid insurance

d Unearned revenue

201 The following accounts show balances on the adjusted trial balance Which of

these account balances will not appear the same on the balance sheet?

a Retained earnings

b Accounts receivable

c Common stock

d Notes payable

202 Which trial balance will consist of the greatest number of accounts?

a Post-closing trial balance

b Trial balance

c Adjusted trial balance

d All of the above will contain the same number of accounts

203 Based on the account balances below, what is the total of the debit and credit

columns of the adjusted trial balance?

Total $7,396 $7,396After closing entries have been posted, the balance in retained earnings will be:

c $3,440

d $3,354

208 Closing entries:

a are prepared before the financial statements

b reduce the number of permanent accounts

c cause the revenue and expense accounts to have zero balances.

d summarize the activity in every account

209 Which of the following is a true statement about closing the books of a

corporation?

a Expenses are closed to the Expense Summary account

b Only revenues are closed to the Income Summary account

c Revenues and expenses are closed to the Income Summary account.

d Revenues, expenses, and the Dividends account are closed to the IncomeSummary account

210 The closing entry process consists of closing:

a all asset and liability accounts

b out the Retained Earnings account

c all permanent accounts

d all temporary accounts.

211 Which account will have a zero balance after closing entries have been

journalized and posted?

a Service revenue.

b Advertising Supplies

c Prepaid Insurance

d Accumulated Depreciation

212 A post-closing trial balance will show:

a zero balances for all accounts

b zero balances for balance sheet accounts

c only balance sheet accounts.

d only income statement accounts

213 Which types of accounts will appear in the post-closing trial balance?

a Permanent accounts.

b Temporary accounts

c Accounts shown in the income statement columns of a work sheet

d None of the above

214 The purpose of the post-closing trial balance is to:

a prove that no mistakes were made

b prove the equality of the permanent account balances that are carried forward into the next accounting period.

c prove the equality of the temporary account balances that are carriedforward into the next accounting period

d list all the balance sheet accounts in alphabetical order for easy reference

215 Which statement is correct concerning the adjusted trial balance?

a An adjusted trail balance eliminates the need for the preparation offinancial statements

b The purpose of an adjusted trial balance is to prove the equality of the total debit balances and the total credit balances in the ledger.

c An adjusted trial balance will contain only permanent—balance sheet—accounts

d The adjusted trial balance is prepared after the adjusting entries have beenjournalized but before they have been posted

216 Which of the following account’s balance will change between the adjusted

trial balance and the post-closing trial balance?

219 Given the following adjusted trial balance, what will be the totals for the debit

and credit columns of the post-closing trial balance?