Question 1

An expense that has been incurred but not yet paid is called a(n):

Accepted Answer

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

Question 2

The contra asset accounts, like Accumulated Depreciation, always have normal debit balances.

Accepted Answer

A) True 
 B)False

Question 3

Duncan Services records prepaid expenses as expenses when incurred, and unearned revenues as revenues when the payment is received in advance. At the end of the year, Duncan makes the necessary adjustments based on accrual basis accounting. On July 1, Duncan paid rent for an office in the amount of $24,000 for the period July 1 through June 30 of the following year. Provide the year-end adjusting entry for rent prepayment.

Accepted Answer

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Question 4

Healthy Living, a diet magazine, collected $500,000 in subscription revenue in May. Each subscriber will receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. Provide the journal entry for collection of cash in May. Assume the magazine initially records a liability for the subscription revenue.

Accepted Answer

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Question 5

On July 1, Alpha Company paid rent of $15,000 for a small equipment storage area for the period of July 1 till December 31. Provide the adjusting journal entry on July 31. Assume the prepaid expense is initially recorded as an asset.

Accepted Answer

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Question 6

The employees of Robert Rogers, CPA, worked the last two weeks of December. They received their paychecks on January 2. Which of the following accounts should appear on the balance sheet as of December 31 as per the matching principle?

Accepted Answer

A)  Accounts Payable 
B)  Salaries Payable 
C)  Salary Expense 
D)  Prepaid Expense 
A)  Accounts Payable 
B)  Salaries Payable 
C)  Salary Expense 
D)  Prepaid Expense

Question 7

The owner of Recipes.org purchased $2,000 of supplies on account. Under the accrual basis of accounting, no entry is made until the $2,000 is paid.

Accepted Answer

A) True 
 B)False

Question 8

The accountant of Barnes Architectural Services failed to make an adjusting entry to record $7,000 of depreciation expense. Which of the following statements is true?

Accepted Answer

A)  The total revenue will be overstated. 
B)  The total revenue will be understated. 
C)  The total expenses will be overstated. 
D)  The total expenses will be understated. 
A)  The total revenue will be overstated. 
B)  The total revenue will be understated. 
C)  The total expenses will be overstated. 
D)  The total expenses will be understated.

Question 9

Unearned Revenue is a ________ account and carries a ________ normal balance.

Accepted Answer

A)  liability; credit 
B)  asset; credit 
C)  revenue; debit 
D)  asset; debit 
A)  liability; credit 
B)  asset; credit 
C)  revenue; debit 
D)  asset; debit

Question 10

The entry to record depreciation includes a debit to:

Accepted Answer

A)  the Equipment account. 
B)  the Cash account. 
C)  the Accumulated Depreciation account. 
D)  the Depreciation Expense account. 
A)  the Equipment account. 
B)  the Cash account. 
C)  the Accumulated Depreciation account. 
D)  the Depreciation Expense account.

Question 11

Smith borrowed $21,000 on a one year Note payable with an interest rate of 10% per year on June 1. He will repay the principal and interest at the end of the one-year period. Smith makes accrual adjustments at the end of each month. He should record interest expense of $2,100 on June 30.

Accepted Answer

A) True 
 B)False

Question 12

Smith Technical Services is working on a six-month job for a client, starting February 1. They will collect $30,000 from their customer when the job is finished. On March 1, their Accounts Receivable account had a debit balance of $5,000. At the end of March, after monthly adjusting entries have been made, what will be the balance in Accounts Receivable?

Accepted Answer

A)  Debit balance of $5,000 
B)  Credit balance of $25,000 
C)  Debit balance of $10,000 
D)  Debit balance of $30,000 
A)  Debit balance of $5,000 
B)  Credit balance of $25,000 
C)  Debit balance of $10,000 
D)  Debit balance of $30,000

Question 13

The accountant of Isabella Consulting Company failed to make an adjusting entry to record $6,000 for unearned service revenues that were earned before the end of the fiscal year. Assume the company initially recorded a liability. Which of the following statements is true?

Accepted Answer

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

Question 14

All of a company's accounts and their balances appear on the:

Accepted Answer

A)  statement of retained earnings. 
B)  balance sheet. 
C)  adjusted trial balance. 
D)  income statement. 
A)  statement of retained earnings. 
B)  balance sheet. 
C)  adjusted trial balance. 
D)  income statement.

Question 15

What is the effect of the adjusting entry for Depreciation Expense?

Accepted Answer

A)  It increases total liabilities and increases total expenses. 
B)  It increases total assets and increases total expenses. 
C)  It decreases total assets and increases total expenses. 
D)  It decreases total liabilities and increases total expenses. 
A)  It increases total liabilities and increases total expenses. 
B)  It increases total assets and increases total expenses. 
C)  It decreases total assets and increases total expenses. 
D)  It decreases total liabilities and increases total expenses.

Question 16

Under accrual basis accounting, an expense is recorded only when the cash is paid.

Accepted Answer

A) True 
 B)False

Question 17

The time period concept states that:

Accepted Answer

A)  financial statements can be prepared for specific periods. 
B)  all expenses should be recorded when they are incurred during the period. 
C)  companies should record revenue when it has been earned. 
D)  expenses incurred during a period should be matched against the revenues of the period. 
A)  financial statements can be prepared for specific periods. 
B)  all expenses should be recorded when they are incurred during the period. 
C)  companies should record revenue when it has been earned. 
D)  expenses incurred during a period should be matched against the revenues of the period.

Question 18

Adjusting entries are needed to correctly measure the:

Accepted Answer

A)  ending balance in the Cash account. 
B)  net income (loss) on the balance sheet. 
C)  net income (loss) on the income statement. 
D)  beginning balance in the Cash account. 
A)  ending balance in the Cash account. 
B)  net income (loss) on the balance sheet. 
C)  net income (loss) on the income statement. 
D)  beginning balance in the Cash account.

Question 19

The accountant for Sparks Electric Company failed to make an adjusting entry to record $3,000 of telephone expenses for the last two months of the year. Which of the following statements is true?

Accepted Answer

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

Question 20

Classic Artists' Services has hired a maintenance man to maintain a building they use for instruction. He will begin work on February 1 and work through till May 31. Classic Artists' will pay the maintenance man $4,000 at the end of May. It accrues Maintenance Expense at the end of every month. What is the balance in the Accounts Payable account for amounts owed to the maintenance man at the end of March?

Accepted Answer

A)  Debit balance of $4,000 
B)  Credit balance of $2,000 
C)  Debit balance of $2,000 
D)  Credit balance of $4,000 
A)  Debit balance of $4,000 
B)  Credit balance of $2,000 
C)  Debit balance of $2,000 
D)  Credit balance of $4,000

Exam 3: The Adjusting Process

An expense that has been incurred but not yet paid is called a(n):

The contra asset accounts, like Accumulated Depreciation, always have normal debit balances.

On July 1, Alpha Company paid rent of $15,000 for a small equipment storage area for the period of July 1 till December 31. Provide the adjusting journal entry on July 31. Assume the prepaid expense is initially recorded as an asset.

The employees of Robert Rogers, CPA, worked the last two weeks of December. They received their paychecks on January 2. Which of the following accounts should appear on the balance sheet as of December 31 as per the matching principle?

The owner of Recipes.org purchased $2,000 of supplies on account. Under the accrual basis of accounting, no entry is made until the $2,000 is paid.

The accountant of Barnes Architectural Services failed to make an adjusting entry to record $7,000 of depreciation expense. Which of the following statements is true?

Unearned Revenue is a ________ account and carries a ________ normal balance.

The entry to record depreciation includes a debit to:

Smith borrowed $21,000 on a one year Note payable with an interest rate of 10% per year on June 1. He will repay the principal and interest at the end of the one-year period. Smith makes accrual adjustments at the end of each month. He should record interest expense of $2,100 on June 30.

The accountant of Isabella Consulting Company failed to make an adjusting entry to record $6,000 for unearned service revenues that were earned before the end of the fiscal year. Assume the company initially recorded a liability. Which of the following statements is true?

All of a company's accounts and their balances appear on the:

What is the effect of the adjusting entry for Depreciation Expense?

Under accrual basis accounting, an expense is recorded only when the cash is paid.

The time period concept states that:

Adjusting entries are needed to correctly measure the:

The accountant for Sparks Electric Company failed to make an adjusting entry to record $3,000 of telephone expenses for the last two months of the year. 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

Filters

Unearned Revenue is a account and carries a normal balance.