Question 1

Which statement is correct?

Accepted Answer

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 matching principles. 
C)  The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received. 
D)  As long as management is ethical, there are no problems with using the cash basis of accounting. 
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 matching principles. 
C)  The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received. 
D)  As long as management is ethical, there are no problems with using the cash basis of accounting. B

Question 2

Adjusting entries are

Accepted Answer

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. 
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. B

Question 3

The following is selected information from Alpha-Beta-Gamma Corporation for the fiscal year ending October 31, 2010.   Based on the accrual basis of accounting, what is Alpha-Beta-Gamma Corporation's net income for the year ending October 31, 2010?

Accepted Answer

A)  $114,000 
B)  $134,000 
C)  $82,000 
D)  $150,000 
A)  $114,000 
B)  $134,000 
C)  $82,000 
D)  $150,000 B

Question 4

Match the statements below with the appropriate terms by entering the appropriate letter code in the spaces provided.
TERMS:
A. Prepaid Expenses
B. Unearned Revenues
C. Accrued Revenues
D. Accrued Expenses
STATEMENTS:
1. A revenue not yet earned; collected in advance.
2. Office supplies on hand that will be used in the next period.
3. Interest revenue collected; not yet earned.
4. Rent not yet collected; already earned.
5. An expense incurred; not yet paid or recorded.
6. A revenue earned; not yet collected or recorded.
7. An expense not yet incurred; paid in advance.
8. Interest expense incurred; not yet paid.

Accepted Answer

1. B 5. D

Question 5

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

Accepted Answer

A)  owner's equity will be understated. 
B)  expense will be understated. 
C)  assets will be understated. 
D)  net income will be understated. 
A)  owner's equity will be understated. 
B)  expense will be understated. 
C)  assets will be understated. 
D)  net income will be understated.

Question 6

A liability-revenue account relationship exists with an unearned rent revenue adjusting entry.

Accepted Answer

A) True 
 B)False

Question 7

Jeff Anderer Enterprises purchased computer equipment on May 1, 2010 for $4,500. The company expects to use the equipment for 3 years. It has no salvage value.
1. What adjusting journal entry should the company make at the end of each month if monthly financials are prepared (annual depreciation is $1,500)?
2. What is the book value of the equipment at May 31, 2010?

Accepted Answer

The answer of Jeff Anderer Enterprises purchased computer equipment on...

Question 8

Joyce's Gifts 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 $50,000 with annual interest of 12%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?

Accepted Answer

The answer of Joyce's Gifts signs a three-month note payable...

Question 9

If an adjusting entry is not made for an accrued revenue,

Accepted Answer

A)  assets will be overstated. 
B)  expenses will be understated. 
C)  owner's equity will be understated. 
D)  revenues will be overstated. 
A)  assets will be overstated. 
B)  expenses will be understated. 
C)  owner's equity will be understated. 
D)  revenues will be overstated.

Question 10

Ron's Hot Rod Shop follows the revenue recognition principle. Ron services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Ron on August 5. Ron receives the check in the mail on August 6. When should Ron show that the revenue was earned?

Accepted Answer

A)  July 31 
B)  August 1 
C)  August 5 
D)  August 6 
A)  July 31 
B)  August 1 
C)  August 5 
D)  August 6

Question 11

Adjusting entries are often made because some business events are not recorded as they occur.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following time periods would not be referred to as an interim period?

Accepted Answer

A)  Monthly 
B)  Quarterly 
C)  Semi-annually 
D)  Annually 
A)  Monthly 
B)  Quarterly 
C)  Semi-annually 
D)  Annually

Question 13

Expenses incurred but not yet paid or recorded are called

Accepted Answer

A)  prepaid expenses. 
B)  accrued expenses. 
C)  interim expenses. 
D)  unearned expenses. 
A)  prepaid expenses. 
B)  accrued expenses. 
C)  interim expenses. 
D)  unearned expenses.

Question 14

An accumulated depreciation account

Accepted Answer

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. 
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.

Question 15

Which of the following are in accordance with generally accepted accounting principles?

Accepted Answer

A)  Accrual basis accounting 
B)  Cash basis accounting 
C)  Both accrual basis and cash basis accounting 
D)  Neither accrual basis nor cash basis accounting 
A)  Accrual basis accounting 
B)  Cash basis accounting 
C)  Both accrual basis and cash basis accounting 
D)  Neither accrual basis nor cash basis accounting

Question 16

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 Legal Fees. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause

Accepted Answer

A)  expenses to be overstated. 
B)  net income to be overstated. 
C)  liabilities to be understated. 
D)  revenues to be understated. 
A)  expenses to be overstated. 
B)  net income to be overstated. 
C)  liabilities to be understated. 
D)  revenues to be understated.

Question 17

In general, adjusting entries are required each time financial statements are prepared.

Accepted Answer

A) True 
 B)False

Question 18

Sail & Surf Cruises purchased a five-year insurance policy for its ships on April 1, 2010 for $100,000. Assuming that April 1 is the effective date of the policy, the adjusting entry on December 31, 2010 is

Accepted Answer

The answer of Sail & Surf Cruises purchased a five-year...

Question 19

Which of the following is not a common time period chosen by businesses as their accounting period?

Accepted Answer

A)  Daily 
B)  Monthly 
C)  Quarterly 
D)  Annually 
A)  Daily 
B)  Monthly 
C)  Quarterly 
D)  Annually

Question 20

The matching principle matches

Accepted Answer

A)  customers with businesses. 
B)  expenses with revenues. 
C)  assets with liabilities. 
D)  creditors with businesses. 
A)  customers with businesses. 
B)  expenses with revenues. 
C)  assets with liabilities. 
D)  creditors with businesses.

Exam 3: Adjusting the Accounts

Which statement is correct?

Adjusting entries are

The following is selected information from Alpha-Beta-Gamma Corporation for the fiscal year ending October 31, 2010. Based on the accrual basis of accounting, what is Alpha-Beta-Gamma Corporation's net income for the year ending October 31, 2010?

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

A liability-revenue account relationship exists with an unearned rent revenue adjusting entry.

If an adjusting entry is not made for an accrued revenue,

Ron's Hot Rod Shop follows the revenue recognition principle. Ron services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Ron on August 5. Ron receives the check in the mail on August 6. When should Ron show that the revenue was earned?

Adjusting entries are often made because some business events are not recorded as they occur.

Which of the following time periods would not be referred to as an interim period?

Expenses incurred but not yet paid or recorded are called

An accumulated depreciation account

Which of the following are in accordance with generally accepted accounting principles?

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 Legal Fees. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause

In general, adjusting entries are required each time financial statements are prepared.

Sail & Surf Cruises purchased a five-year insurance policy for its ships on April 1, 2010 for $100,000. Assuming that April 1 is the effective date of the policy, the adjusting entry on December 31, 2010 is

Which of the following is not a common time period chosen by businesses as their accounting period?

The matching principle matches

Accounting in Action

The Recording Process

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories

Accounting Information Systems

Fraud, Internal Control, and Cash

Accounting for Receivables

Plant Assets, Natural Resources, and Intangible Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Corporations: Organization and Capital Stock Transactions

Corporations: Dividends, Retained Earnings, and Income Reporting

Long-Term Liabilities

Investments

Statement of Cash Flows

Financial Analysis: the Big Picture

Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit

Incremental Analysis

Budgetary Planning

Budgetary Control and Responsibility Accounting

Standard Costs and Balanced Scorecard

Filters