Question 1

Accrual accounting records transactions ONLY when cash is received or paid.

Accepted Answer

A) True 
 B)False

Question 2

Prepaid rent is an expense account.

Accepted Answer

A) True 
 B)False

Question 3

A business pays its insurance premium of $2 400 on 1 May of each year. On 1 July (after 30 June adjustments), the Prepaid insurance account has a debit balance of:

Accepted Answer

A) $400. 
B) $2 400. 
C) $2 000. 
D) $1 200. 
A) $400. 
B) $2 400. 
C) $2 000. 
D) $1 200.

Question 4

Australian accounting standards require the use of accrual accounting.

Accepted Answer

A) True 
 B)False

Question 5

The adjusting entry to record Depreciation expense accomplishes which of the following?

Accepted Answer

A) Updates a contra asset 
B) Records an expense 
C) Updates a liability 
D) Both A and B 
A) Updates a contra asset 
B) Records an expense 
C) Updates a liability 
D) Both A and B

Question 6

ABC Company signed a one- year $12 000 loan payable at 8% interest on 1 November 2013. If ABC only adjusts their accounts once a year, how much interest expense must be accrued on 30 June 2014?

Accepted Answer

A) $320 
B) $640 
C) $960 
D) $474 
A) $320 
B) $640 
C) $960 
D) $474

Question 7

Which of the following reports a company's revenues, expenses and profit?

Accepted Answer

A) Balance sheet 
B) Adjusted trial balance 
C) Income statement 
D) Statement of changes in equity 
A) Balance sheet 
B) Adjusted trial balance 
C) Income statement 
D) Statement of changes in equity

Question 8

In the case of a prepaid expense, the adjusting entry required at the end of a period consists of a debit to Prepaid expense.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following accounts would NOT be included in the adjusting entries made at the end of an accounting period?

Accepted Answer

A) Accounts payable 
B) Accounts receivable 
C) Prepaid insurance 
D) Cash 
A) Accounts payable 
B) Accounts receivable 
C) Prepaid insurance 
D) Cash

Question 10

Pattie's Event Planning Service has just prepared the unadjusted trial balance, which shows the following balances: Salary expense: Debit $6 000 Service revenues: Credit $20 000 Interest expense: 0
Pattie's salaries are $2 000 per week and are paid out at the end of the day on Fridays. The end of the month falls on a Thursday. Pattie will make the appropriate accrual adjustment and post to the ledger. The final adjusted balance of Salary payable, as shown on the adjusted trial balance, will be a:

Accepted Answer

A) debit balance of $3 600. 
B) credit balance of $1 600. 
C) credit balance of $400. 
D) credit balance of $3 600. 
A) debit balance of $3 600. 
B) credit balance of $1 600. 
C) credit balance of $400. 
D) credit balance of $3 600.

Question 11

Which of the following accounts would be used under the accrual method of accounting, but NOT under the cash- basis method of accounting.

Accepted Answer

A) Unearned revenue 
B) Salary expense 
C) Cash 
D) Equipment 
A) Unearned revenue 
B) Salary expense 
C) Cash 
D) Equipment

Question 12

If a company is using the cash- basis method of accounting, when is revenue recorded?

Accepted Answer

A) When cash is received, at a time after the services were rendered 
B) When services are rendered, even though cash may be received at a later date 
C) When cash is received, prior to the services being rendered 
D) When cash is received, either prior to the services being rendered or at a time after the services were rendered 
A) When cash is received, at a time after the services were rendered 
B) When services are rendered, even though cash may be received at a later date 
C) When cash is received, prior to the services being rendered 
D) When cash is received, either prior to the services being rendered or at a time after the services were rendered

Question 13

ABC Company signed a one- year $12 000 loan payable at 8% interest on 1 May 2013. How much interest expense must be accrued on 31 May 2013?

Accepted Answer

A) $80 
B) $960 
C) $40 
D) $320 
A) $80 
B) $960 
C) $40 
D) $320

Question 14

Overstating expenses could be an unethical strategy used to improve the profit result.

Accepted Answer

A) True 
 B)False

Question 15

Accrued revenue is revenue that:

Accepted Answer

A) will be collected and earned in the future. 
B) has been collected and earned. 
C) the business has earned, but not collected. 
D) the business has collected, but not yet earned. 
A) will be collected and earned in the future. 
B) has been collected and earned. 
C) the business has earned, but not collected. 
D) the business has collected, but not yet earned.

Question 16

The accountant for Noble Jewellery Repair Services forgot to make an adjusting entry for Depreciation expense for the current year. Which of the following is one of the effects of this error?

Accepted Answer

A) Total assets are understated. 
B) Profit is overstated. 
C) Total liabilities are understated. 
D) Profit is understated. 
A) Total assets are understated. 
B) Profit is overstated. 
C) Total liabilities are understated. 
D) Profit is understated.

Question 17

In the case of a prepaid expense, the adjusting entry required at the end of a period consists of a credit to Prepaid expense.

Accepted Answer

A) True 
 B)False

Question 18

An adjusting entry that debits Accounts receivable is an example of a(n):

Accepted Answer

A) accrued expense. 
B) accrued revenue. 
C) unearned revenue. 
D) prepaid expense. 
A) accrued expense. 
B) accrued revenue. 
C) unearned revenue. 
D) prepaid expense.

Question 19

Which of the following strategies may be considered an unethical way to increase reported profit?

Accepted Answer

A) record $100 received from a customer as unearned revenue instead of revenue 
B) sell inventory at reduced prices in a special Saturday Sale 
C) recognise $3 000 of accrued wages when in reality $2 000 wages are owing 
D) depreciate a machine over 8 years , when its estimated life is 6 years 
A) record $100 received from a customer as unearned revenue instead of revenue 
B) sell inventory at reduced prices in a special Saturday Sale 
C) recognise $3 000 of accrued wages when in reality $2 000 wages are owing 
D) depreciate a machine over 8 years , when its estimated life is 6 years

Question 20

The purposes of the adjusting process are:

Accepted Answer

A) to adjust asset and liability balances to the proper accrual basis. 
B) to adjust expenses and revenues to the proper accrual basis. 
C) to adjust expenses and revenues as well as asset and liability balances to the proper accrual basis. 
D) None of the above. 
A) to adjust asset and liability balances to the proper accrual basis. 
B) to adjust expenses and revenues to the proper accrual basis. 
C) to adjust expenses and revenues as well as asset and liability balances to the proper accrual basis. 
D) None of the above.

Exam 3: The Adjusting Process

Accrual accounting records transactions ONLY when cash is received or paid.

Prepaid rent is an expense account.

A business pays its insurance premium of $2 400 on 1 May of each year. On 1 July (after 30 June adjustments), the Prepaid insurance account has a debit balance of:

Australian accounting standards require the use of accrual accounting.

The adjusting entry to record Depreciation expense accomplishes which of the following?

ABC Company signed a one- year $12 000 loan payable at 8% interest on 1 November 2013. If ABC only adjusts their accounts once a year, how much interest expense must be accrued on 30 June 2014?

Which of the following reports a company's revenues, expenses and profit?

In the case of a prepaid expense, the adjusting entry required at the end of a period consists of a debit to Prepaid expense.

Which of the following accounts would NOT be included in the adjusting entries made at the end of an accounting period?

Which of the following accounts would be used under the accrual method of accounting, but NOT under the cash- basis method of accounting.

If a company is using the cash- basis method of accounting, when is revenue recorded?

ABC Company signed a one- year $12 000 loan payable at 8% interest on 1 May 2013. How much interest expense must be accrued on 31 May 2013?

Overstating expenses could be an unethical strategy used to improve the profit result.

Accrued revenue is revenue that:

The accountant for Noble Jewellery Repair Services forgot to make an adjusting entry for Depreciation expense for the current year. Which of the following is one of the effects of this error?

In the case of a prepaid expense, the adjusting entry required at the end of a period consists of a credit to Prepaid expense.

An adjusting entry that debits Accounts receivable is an example of a(n):

Which of the following strategies may be considered an unethical way to increase reported profit?

The purposes of the adjusting process are:

The Role of Accounting in Business

Recording Business Transactions

Completing the Accounting Cycle

Retailing Operations

Retail Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Non-Current Assets: Property, Plant and Equipment, and Intangibles

Current Liabilities and Payroll

Non-Current Liabilities, Debentures Payable and Classification of Liabilities on the Balance Sheet

Partnerships

Companies: Share Capital and the Balance Sheet

Companies: Effects on Retained Earnings, Share Splits and Buy-Backs, and the Income Statement

The Cash Flow Statement

The Framework of Accounting

Financial Statement Analysis

Introduction to Managerial Accounting and the Master Budget

Job Costing

Short-Term Business Decisions

Capital Investment Decisions and the Time Value of Money

Appendix

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