Question 1

Under cash basis accounting, revenue is recorded when it is earned, regardless of when cash is received.

Accepted Answer

A) True 
 B)False  False

Question 2

Unearned revenue is revenue that:

Accepted Answer

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

Question 3

Which of the following accounts does cash basis accounting ignore?

Accepted Answer

A)  Payables 
B)  Revenue 
C)  Cash 
D)  Expenses 
A)  Payables 
B)  Revenue 
C)  Cash 
D)  Expenses A

Question 4

Argyle Designs has entered into a contract to design 20 new dresses for a customer. It will collect a total of $40,000 after the design services are complete. Argyle started design work on June 1. As of June 30, Argyle finished 4 of the 20 designs. Argyle will make an adjusting entry at the end of June to accrue $10,000 of service revenue.

Accepted Answer

A) True 
 B)False

Question 5

A contra account's normal balance (debit or credit) is the opposite of the normal balance of the related account.

Accepted Answer

A) True 
 B)False

Question 6

If a company fails to make an adjusting entry for prepaid expense, the assets will be overstated. Assume the prepaid expense is initially recorded as an asset.

Accepted Answer

A) True 
 B)False

Question 7

To fill the unadjusted trial balance columns in a worksheet, the account balances before adjustments are copied directly from the:

Accepted Answer

A)  ledger. 
B)  adjusted trial balance. 
C)  chart of accounts. 
D)  balance sheet of previous year. 
A)  ledger. 
B)  adjusted trial balance. 
C)  chart of accounts. 
D)  balance sheet of previous year.

Question 8

The sum of all the depreciation expense recorded to date for a depreciable asset is called residual value.

Accepted Answer

A) True 
 B)False

Question 9

An adjusting entry is completed:

Accepted Answer

A)  at the beginning of the accounting period. 
B)  at the end of the accounting period. 
C)  when the balance sheet is prepared. 
D)  when accounts need to be balanced in the ledger. 
A)  at the beginning of the accounting period. 
B)  at the end of the accounting period. 
C)  when the balance sheet is prepared. 
D)  when accounts need to be balanced in the ledger.

Question 10

Financial statements are prepared from the balances in a(n):

Accepted Answer

A)  general journal. 
B)  chart of accounts. 
C)  unadjusted trial balance. 
D)  adjusted trial balance. 
A)  general journal. 
B)  chart of accounts. 
C)  unadjusted trial balance. 
D)  adjusted trial balance.

Question 11

A business hired a repairman to overhaul their plumbing system. The repairman began work on September 15 and intends to complete it on October 15. The business will pay him $4,000 when the work is completed. As of September 30, the work was 50% complete. Provide the adjusting entry to accrue repair expense as of the end of September.

Accepted Answer

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Question 12

On the first day of January, Patricia borrowed $2,000 on a one-year note payable bearing interest at 4% per year. The note specifies that principal and interest must be paid in full at the end of the one-year period. On June 30, the adjusted trial balance will show Interest Payable of:

Accepted Answer

A)  $40 credit. 
B)  $40 debit. 
C)  $80 credit. 
D)  $80 debit. 
A)  $40 credit. 
B)  $40 debit. 
C)  $80 credit. 
D)  $80 debit.

Question 13

The accountant for Noble Jewelry Repair Services forgot to make an adjusting entry for Depreciation Expense for the current year. Which of the following is an effect of this error?

Accepted Answer

A)  Revenues are understated. 
B)  Total assets are understated. 
C)  Net income is overstated. 
D)  Total liabilities are understated. 
A)  Revenues are understated. 
B)  Total assets are understated. 
C)  Net income is overstated. 
D)  Total liabilities are understated.

Question 14

The revenue recognition principle guides accountants in:

Accepted Answer

A)  ensuring only revenues received in cash are recorded. 
B)  determining when to record expenses. 
C)  determining when to record revenues. 
D)  ensuring expenses are deducted from revenues. 
A)  ensuring only revenues received in cash are recorded. 
B)  determining when to record expenses. 
C)  determining when to record revenues. 
D)  ensuring expenses are deducted from revenues.

Question 15

Which of the following statements is true of accrual basis accounting?

Accepted Answer

A)  Accrual basis accounting is allowed by Generally Accepted Accounting Principles (GAAP). 
B)  Accrual basis accounting records expenses only when cash has been paid for them. 
C)  Accrual basis accounting records revenue only when cash is received. 
D)  It always results in greater net income than cash basis accounting. 
A)  Accrual basis accounting is allowed by Generally Accepted Accounting Principles (GAAP). 
B)  Accrual basis accounting records expenses only when cash has been paid for them. 
C)  Accrual basis accounting records revenue only when cash is received. 
D)  It always results in greater net income than cash basis accounting.

Question 16

The accounting principle that ensures that all expenses are recorded when they are incurred during the period, and compares those expenses against the revenues of the period is called the ________ principle.

Accepted Answer

A)  comparison 
B)  accrual 
C)  matching 
D)  revenue recognition 
A)  comparison 
B)  accrual 
C)  matching 
D)  revenue recognition

Question 17

On March 1, 2014, Nuggets Inc. paid $60,000 for office rent covering the three-month period ending May 31, 2014. Journalize the entry on March 1 by using the alternative treatment of prepaid expenses.

Accepted Answer

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Question 18

Qwerty Inc. prepaid $3,600 on November 1, 2014 for a one-year insurance premium. On January 1, 2015 of the next year (after December 31 adjustments), the Prepaid Insurance account will have a debit balance of:

Accepted Answer

A)  $3,300. 
B)  $3,900. 
C)  $3,600. 
D)  $3,000. 
A)  $3,300. 
B)  $3,900. 
C)  $3,600. 
D)  $3,000.

Question 19

At the end of the current year, the accountant for Colorful Graphics forgot to make an adjusting entry to accrue Wages Payable to the company's employees for the last week in December. The wages will be paid to the employees in January. Which of the following is an effect of this error?

Accepted Answer

A)  Net income is overstated. 
B)  Liabilities are overstated. 
C)  Net income is understated. 
D)  Expenses are overstated. 
A)  Net income is overstated. 
B)  Liabilities are overstated. 
C)  Net income is understated. 
D)  Expenses are overstated.

Question 20

The accountant of Linda Legal Services failed to make an adjusting entry for supplies that had been used for the year. Assume the supplies were initially recorded as an asset. Which of the following statements is true?

Accepted Answer

A)  The total liabilities will be overstated. 
B)  The equity will be understated. 
C)  The total assets will be overstated. 
D)  The total assets will be understated. 
A)  The total liabilities will be overstated. 
B)  The equity will be understated. 
C)  The total assets will be overstated. 
D)  The total assets will be understated.

Exam 3: The Adjusting Process

Under cash basis accounting, revenue is recorded when it is earned, regardless of when cash is received.

Unearned revenue is revenue that:

Which of the following accounts does cash basis accounting ignore?

A contra account's normal balance (debit or credit) is the opposite of the normal balance of the related account.

If a company fails to make an adjusting entry for prepaid expense, the assets will be overstated. Assume the prepaid expense is initially recorded as an asset.

To fill the unadjusted trial balance columns in a worksheet, the account balances before adjustments are copied directly from the:

The sum of all the depreciation expense recorded to date for a depreciable asset is called residual value.

An adjusting entry is completed:

Financial statements are prepared from the balances in a(n):

On the first day of January, Patricia borrowed $2,000 on a one-year note payable bearing interest at 4% per year. The note specifies that principal and interest must be paid in full at the end of the one-year period. On June 30, the adjusted trial balance will show Interest Payable of:

The accountant for Noble Jewelry Repair Services forgot to make an adjusting entry for Depreciation Expense for the current year. Which of the following is an effect of this error?

The revenue recognition principle guides accountants in:

Which of the following statements is true of accrual basis accounting?

The accounting principle that ensures that all expenses are recorded when they are incurred during the period, and compares those expenses against the revenues of the period is called the ________ principle.

On March 1, 2014, Nuggets Inc. paid $60,000 for office rent covering the three-month period ending May 31, 2014. Journalize the entry on March 1 by using the alternative treatment of prepaid expenses.

Qwerty Inc. prepaid $3,600 on November 1, 2014 for a one-year insurance premium. On January 1, 2015 of the next year (after December 31 adjustments), the Prepaid Insurance account will have a debit balance of:

At the end of the current year, the accountant for Colorful Graphics forgot to make an adjusting entry to accrue Wages Payable to the company's employees for the last week in December. The wages will be paid to the employees in January. Which of the following is an effect of this error?

The accountant of Linda Legal Services failed to make an adjusting entry for supplies that had been used for the year. Assume the supplies were initially recorded as an asset. Which of the following statements is true?

Accounting and the Business Environment

Recording Business Transactions

Completing the Accounting Cycle

Merchandising Operations

Merchandise Inventory

Accounting Information Systems

Internal Control and Cash

Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll

Partnerships

Corporations

Long-Term Liabilities

Investments

The Statement of Cash Flows

Financial Statement Analysis

Introduction to Managerial Accounting

Job Order Costing

Process Costing

Cost-Volume-Profit Analysis

Master Budgets

Flexible Budgets and Standard Cost Systems

Cost Allocation and Responsibility Accounting

Short-Term Business Decisions

Capital Investment Decisions

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