Question 1

Discuss how accrual accounting enhances the usefulness of financial statements.

Accepted Answer

The accrual accounting method recognizes

Question 2

Accrued expenses reflect transactions where cash is paid before a related expense is recognized.

Accepted Answer

A) True 
 B)False

Question 3

Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:

Accepted Answer

A) Debit Office Supplies $254 and credit Office Supplies Expense $254. 
B) Debit Office Supplies $105 and credit Supplies Expense $254. 
C) Debit Office Supplies $105 and credit Office Supplies Expense $105. 
D) Debit Office Supplies Expense $254 and credit Office Supplies $254. 
E) Debit Office Supplies Expense $105 and credit Office Supplies $105. 
A) Debit Office Supplies $254 and credit Office Supplies Expense $254. 
B) Debit Office Supplies $105 and credit Supplies Expense $254. 
C) Debit Office Supplies $105 and credit Office Supplies Expense $105. 
D) Debit Office Supplies Expense $254 and credit Office Supplies $254. 
E) Debit Office Supplies Expense $105 and credit Office Supplies $105.

Question 4

Earned but uncollected revenues are recorded during the adjusting process with a credit to a revenue account and a debit to an expense account.

Accepted Answer

A) True 
 B)False

Question 5

Interim financial statements refer to financial reports:

Accepted Answer

A) That show the assets above the liabilities and the liabilities above the equity. 
B) That cover less than one year, usually spanning one, three, or six-month periods. 
C) That are prepared before any adjustments have been recorded. 
D) Where the adjustment process is used to assign revenues to the periods in which they are earned and to match expenses with revenues. 
E) Where revenues are reported on the income statement when cash is received and expenses are reported when cash is paid. 
A) That show the assets above the liabilities and the liabilities above the equity. 
B) That cover less than one year, usually spanning one, three, or six-month periods. 
C) That are prepared before any adjustments have been recorded. 
D) Where the adjustment process is used to assign revenues to the periods in which they are earned and to match expenses with revenues. 
E) Where revenues are reported on the income statement when cash is received and expenses are reported when cash is paid.

Question 6

A company purchased new furniture at a cost of $14,000 on September 30. The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. What is the book value of the furniture on December 31 of the first year?

Accepted Answer

A) $12,500.00 
B) $13,625.00 
C) $13,562.50 
D) $12,250.00 
E) $13,500.00 
A) $12,500.00 
B) $13,625.00 
C) $13,562.50 
D) $12,250.00 
E) $13,500.00

Question 7

The expense recognition (matching)principle requires that expenses get recorded in the same accounting period as the revenues that are earned as a result of the expenses, not when cash is paid.

Accepted Answer

A) True 
 B)False

Question 8

Complete the following by filling in the blanks:
1()The Prepaid Insurance account had a $545 debit balance at the beginning of the current year;
$650 of insurance premiums were paid during the year; and the year-end balance sheet showed $420 of prepaid insurance; consequently, the income statement for the year must have shown $________ of insurance expense.
2()The Office Supplies account began the current year with a $235 debit balance; the income statement for the year showed $475 of office supplies expense; and the year-end balance sheet showed the current asset, office supplies, at $275; consequently, if all supplies were accounted for,
$ of office supplies must have been purchased during the year.

Accepted Answer

(1)$775 = $545 + $65

Question 9

The correct adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31 is:

Accepted Answer

A) debit Salary Expense, $9,000; credit Cash, $9,000 
B) debit Salary Expense, $9,000; credit Fees Earned, $9,000 
C) debit Salary Expense, $9,000; credit Salaries Payable, $9,000 
D) debit Salary Expense, $9,000; credit Prepaid Salary, $9,000 
E) debit Salaries Payable, $9,000; credit Salary Expense $9,000 
A) debit Salary Expense, $9,000; credit Cash, $9,000 
B) debit Salary Expense, $9,000; credit Fees Earned, $9,000 
C) debit Salary Expense, $9,000; credit Salaries Payable, $9,000 
D) debit Salary Expense, $9,000; credit Prepaid Salary, $9,000 
E) debit Salaries Payable, $9,000; credit Salary Expense $9,000

Question 10

The adjusted trial balance contains information pertaining to:

Accepted Answer

A) All general ledger accounts. 
B) Balance sheet accounts only. 
C) Revenue accounts only. 
D) Income statement accounts only. 
E) Asset accounts only. 
A) All general ledger accounts. 
B) Balance sheet accounts only. 
C) Revenue accounts only. 
D) Income statement accounts only. 
E) Asset accounts only.

Question 11

A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31. Which of the following statements is true?

Accepted Answer

A) It will understate assets by $9,000. 
B) It will overstate assets and liabilities by $9,000. 
C) It will understate net income by $9,000. 
D) It will have no effect on income. 
E) It will understate expenses and overstate net income by $9,000. 
A) It will understate assets by $9,000. 
B) It will overstate assets and liabilities by $9,000. 
C) It will understate net income by $9,000. 
D) It will have no effect on income. 
E) It will understate expenses and overstate net income by $9,000.

Question 12

Explain how accounting adjustments affect financial statements and provide an example of an adjustment that would impact the statements if not recorded.

Accepted Answer

Adjusting entries bring assets, liabilit

Question 13

Profit margin reflects the percent of profit in each dollar of revenue.

Accepted Answer

A) True 
 B)False

Question 14

Under the cash basis of accounting, no adjustments are made for prepaid, unearned, and accrued items.

Accepted Answer

A) True 
 B)False

Question 15

Adjustments are necessary to bring an asset or liability account to its proper amount and also update a related expense or revenue account.

Accepted Answer

A) True 
 B)False

Question 16

Adjusting entries:

Accepted Answer

A) Affect only income statement accounts. 
B) Affect only equity accounts. 
C) Affect cash accounts. 
D) Affect only balance sheet accounts. 
E) Affect both income statement and balance sheet accounts. 
A) Affect only income statement accounts. 
B) Affect only equity accounts. 
C) Affect cash accounts. 
D) Affect only balance sheet accounts. 
E) Affect both income statement and balance sheet accounts.

Question 17

Two accounting principles central to accrual accounting basis that are relied on in the adjusting process are:

Accepted Answer

A) Revenue recognition and going-concern. 
B) Revenue recognition and monetary unit. 
C) Expense recognition (matching)and cost. 
D) Revenue recognition and Expense recognition (matching). 
E) Expense recognition (matching)and business entity. 
A) Revenue recognition and going-concern. 
B) Revenue recognition and monetary unit. 
C) Expense recognition (matching)and cost. 
D) Revenue recognition and Expense recognition (matching). 
E) Expense recognition (matching)and business entity.

Question 18

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Accepted Answer

A) Cash basis accounting. 
B) Revenue recognition accounting. 
C) Current basis accounting. 
D) Accrual basis accounting. 
E) Operating cycle accounting. 
A) Cash basis accounting. 
B) Revenue recognition accounting. 
C) Current basis accounting. 
D) Accrual basis accounting. 
E) Operating cycle accounting.

Question 19

On January 1, a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

Accepted Answer

A) Debit Prepaid Insurance, $360; credit Insurance Expense, $360. 
B) Debit Prepaid Insurance, $1,800; credit Cash, $1,800. 
C) Debit Insurance Expense, $360; credit Prepaid Insurance, $360. 
D) Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440. 
E) Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440. 
A) Debit Prepaid Insurance, $360; credit Insurance Expense, $360. 
B) Debit Prepaid Insurance, $1,800; credit Cash, $1,800. 
C) Debit Insurance Expense, $360; credit Prepaid Insurance, $360. 
D) Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440. 
E) Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.

Question 20

Discuss the importance of periodic reporting and the time period assumption.

Accepted Answer

For information to be valuable to decisi

Discuss how accrual accounting enhances the usefulness of financial statements.

Accrued expenses reflect transactions where cash is paid before a related expense is recognized.

Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:

Earned but uncollected revenues are recorded during the adjusting process with a credit to a revenue account and a debit to an expense account.

Interim financial statements refer to financial reports:

A company purchased new furniture at a cost of $14,000 on September 30. The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. What is the book value of the furniture on December 31 of the first year?

The expense recognition (matching)principle requires that expenses get recorded in the same accounting period as the revenues that are earned as a result of the expenses, not when cash is paid.

The correct adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31 is:

The adjusted trial balance contains information pertaining to:

A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31. Which of the following statements is true?

Explain how accounting adjustments affect financial statements and provide an example of an adjustment that would impact the statements if not recorded.

Profit margin reflects the percent of profit in each dollar of revenue.

Under the cash basis of accounting, no adjustments are made for prepaid, unearned, and accrued items.

Adjustments are necessary to bring an asset or liability account to its proper amount and also update a related expense or revenue account.

Adjusting entries:

Two accounting principles central to accrual accounting basis that are relied on in the adjusting process are:

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

On January 1, a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

Discuss the importance of periodic reporting and the time period assumption.

Accounting in Business

Analyzing and Recording Transactions

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Filters

Exam 3: Adjusting Accounts and Preparing Financial Statements

Discuss how accrual accounting enhances the usefulness of financial statements.

Accrued expenses reflect transactions where cash is paid before a related expense is recognized.

Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:

Earned but uncollected revenues are recorded during the adjusting process with a credit to a revenue account and a debit to an expense account.

Interim financial statements refer to financial reports:

A company purchased new furniture at a cost of $14,000 on September 30. The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. What is the book value of the furniture on December 31 of the first year?

The expense recognition (matching)principle requires that expenses get recorded in the same accounting period as the revenues that are earned as a result of the expenses, not when cash is paid.

The correct adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31 is:

The adjusted trial balance contains information pertaining to:

A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31. Which of the following statements is true?

Explain how accounting adjustments affect financial statements and provide an example of an adjustment that would impact the statements if not recorded.

Profit margin reflects the percent of profit in each dollar of revenue.

Under the cash basis of accounting, no adjustments are made for prepaid, unearned, and accrued items.

Adjustments are necessary to bring an asset or liability account to its proper amount and also update a related expense or revenue account.

Adjusting entries:

Two accounting principles central to accrual accounting basis that are relied on in the adjusting process are:

The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

On January 1, a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

Discuss the importance of periodic reporting and the time period assumption.

Accounting in Business

Analyzing and Recording Transactions

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Filters