Question 1

The matching rule is most closely related to the cash basis of accounting.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following accounts could not be credited in an adjusting entry?

Accepted Answer

A)  Service Revenue 
B)  Prepaid Rent 
C)  Office Supplies 
D)  Interest Receivable 
A)  Service Revenue 
B)  Prepaid Rent 
C)  Office Supplies 
D)  Interest Receivable D

Question 3

Answer the following questions. (Show your work.)
a. Revenue of $60,000 was earned, but only $45,000 was collected. Expenses of $36,000 were incurred, but only $30,000 was paid. What is reported net income?
b. Wages of $4,000 are paid every Friday for a five-day workweek. If year end falls on a Tuesday, the adjusting entry for wages would be recorded at what amount?
c. A company vehicle is purchased for $24,000. Assuming an eight-year useful life and zero value at that time, what is the balance of accumulated depreciation after five years?
d. Supplies Expense of $3,600 was recorded for a given year. Assuming that $2,400 in supplies were purchased during the year and that $640 in supplies remained at year end, what was the cost of supplies at the beginning of the year?

Accepted Answer

a. $24,000 ($60,000 - $36,000)
b. $1,600 ($4,000 $\times$ 2/5)
c. $15,000 ($24,000 ÷ 8 = $3,000 $\times$ 5)
d. $1,840 ($3,600 + $640 - $2,400)

Question 4

Net income results in a(n)

Accepted Answer

A)  increase in owner's equity. 
B)  increase in revenues. 
C)  decrease in expenses. 
D)  decrease in liabilities. 
A)  increase in owner's equity. 
B)  increase in revenues. 
C)  decrease in expenses. 
D)  decrease in liabilities.

Question 5

Which of the following transactions is most likely not to result in an adjusting entry at the end of the period?

Accepted Answer

A)  Performance of a service for which payment was received in advance 
B)  Payment of this month's rent 
C)  Purchase of office equipment 
D)  Purchase of a two-year insurance policy 
A)  Performance of a service for which payment was received in advance 
B)  Payment of this month's rent 
C)  Purchase of office equipment 
D)  Purchase of a two-year insurance policy

Question 6

Dowling Company had supplies on hand costing $1,920 at the beginning of the year and $2,400 at the end of the year. During the year, supplies totaling $3,800 were consumed. How much was the total cost of supplies purchased during the year?

Accepted Answer

($3,800 +

Question 7

In November, cash is received in advance of rendering services. Assuming that the services have been performed by December 31, the adjusting entry would be

Accepted Answer

A)  Unearned Service Revenue - Debit; Cash - Credit 
B)  Cash - Debit; Service Revenue - Credit 
C)  Unearned Service Revenue - Debit; Service Revenue - Credit 
D)  Service Revenue - Debit; Prepaid Services - Credit 
A)  Unearned Service Revenue - Debit; Cash - Credit 
B)  Cash - Debit; Service Revenue - Credit 
C)  Unearned Service Revenue - Debit; Service Revenue - Credit 
D)  Service Revenue - Debit; Prepaid Services - Credit

Question 8

Which of the following actions can distort company records and result in fraudulent financial reporting?

Accepted Answer

A)  Prepaying an expense and recording it as an asset 
B)  Collecting revenue in advance of earning it 
C)  Recording revenue that has not yet been earned 
D)  Recording an expense that has been incurred but has not yet been paid 
A)  Prepaying an expense and recording it as an asset 
B)  Collecting revenue in advance of earning it 
C)  Recording revenue that has not yet been earned 
D)  Recording an expense that has been incurred but has not yet been paid

Question 9

Revenue is equal to the cash received by a company during an accounting period.

Accepted Answer

A) True 
 B)False

Question 10

The 2010 income statement for Newton Company showed rent expense of $10,800 and salaries expense of $7,200. The related balance sheet account balances at year end for last year and this year were as follows:
 $\begin{array}{lrrr}& \text { December 31, 2010 } & \text { December 31, } 2009 \
\text { Prepaid rent } & \$ 1,200 & \$  0 \
\text { Salaries pavable } & 400 & 800
\end{array}$ 
a. Compute cash paid for rent during the year.
b. Compute cash paid for salaries during the year.

Accepted Answer

a. $12,000 ($10,800

Question 11

Net income provides a good measure of a business's debt-paying ability.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following is an example of an accrual?

Accepted Answer

A)  Bookkeeping fees collected but not yet earned 
B)  Six months' rent paid in advance 
C)  Interest earned but not yet received 
D)  Equipment purchased for use in the business 
A)  Bookkeeping fees collected but not yet earned 
B)  Six months' rent paid in advance 
C)  Interest earned but not yet received 
D)  Equipment purchased for use in the business

Question 13

Use this information to answer the following question. The trial balance for Sanchez Company appears as follows:
  If as of December 31, 2010, the rent of $100 for December had not been recorded or paid, the adjusting entry would include a

Accepted Answer

A)  debit to Rent Expense for $100. 
B)  debit to Rent Payable for $100. 
C)  credit to Cash for $100. 
D)  credit to Accumulated Rent for $100. 
A)  debit to Rent Expense for $100. 
B)  debit to Rent Payable for $100. 
C)  credit to Cash for $100. 
D)  credit to Accumulated Rent for $100.

Question 14

All increases to cash are from revenues.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following conditions is not a requirement by the SEC for the recognition of revenue?

Accepted Answer

A)  Delivery has occurred or services have been rendered. 
B)  Collectibility is reasonably certain. 
C)  A written agreement has been signed. 
D)  The seller's price to the buyer is fixed or determinable. 
A)  Delivery has occurred or services have been rendered. 
B)  Collectibility is reasonably certain. 
C)  A written agreement has been signed. 
D)  The seller's price to the buyer is fixed or determinable.

Question 16

In accounting, depreciation refers to the

Accepted Answer

A)  allocation of asset cost. 
B)  wearing away of an asset. 
C)  decline in value of an asset. 
D)  obsolescence of an asset. 
A)  allocation of asset cost. 
B)  wearing away of an asset. 
C)  decline in value of an asset. 
D)  obsolescence of an asset.

Question 17

Equipment might be depreciated over 15 years because

Accepted Answer

A)  it will lose most of its market value in 15 years. 
B)  it will be paid for in 15 years. 
C)  it will help to generate revenue for the company over 15 years. 
D)  income tax provisions require depreciation over 15 years. 
A)  it will lose most of its market value in 15 years. 
B)  it will be paid for in 15 years. 
C)  it will help to generate revenue for the company over 15 years. 
D)  income tax provisions require depreciation over 15 years.

Question 18

Which of the following pairs of accounts could not be included in the same adjusting entry?

Accepted Answer

A)  Unearned Revenue and Revenue from Services 
B)  Wages Expense and Wages Payable 
C)  Interest Expense and Interest Receivable 
D)  Rent Expense and Rent Payable 
A)  Unearned Revenue and Revenue from Services 
B)  Wages Expense and Wages Payable 
C)  Interest Expense and Interest Receivable 
D)  Rent Expense and Rent Payable

Question 19

Financial statements may be prepared from an adjusted trial balance.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following accounts could decrease as a result of adjusting entries?

Accepted Answer

A)  Office Supplies 
B)  Accumulated Depreciation-Buildings 
C)  Wages Expense 
D)  Revenue from Services 
A)  Office Supplies 
B)  Accumulated Depreciation-Buildings 
C)  Wages Expense 
D)  Revenue from Services

Exam 3: Measuring Business Income

The matching rule is most closely related to the cash basis of accounting.

Which of the following accounts could not be credited in an adjusting entry?

Net income results in a(n)

Which of the following transactions is most likely not to result in an adjusting entry at the end of the period?

Dowling Company had supplies on hand costing $1,920 at the beginning of the year and $2,400 at the end of the year. During the year, supplies totaling $3,800 were consumed. How much was the total cost of supplies purchased during the year?

In November, cash is received in advance of rendering services. Assuming that the services have been performed by December 31, the adjusting entry would be

Which of the following actions can distort company records and result in fraudulent financial reporting?

Revenue is equal to the cash received by a company during an accounting period.

Net income provides a good measure of a business's debt-paying ability.

Which of the following is an example of an accrual?

Use this information to answer the following question. The trial balance for Sanchez Company appears as follows: If as of December 31, 2010, the rent of $100 for December had not been recorded or paid, the adjusting entry would include a

All increases to cash are from revenues.

Which of the following conditions is not a requirement by the SEC for the recognition of revenue?

In accounting, depreciation refers to the

Equipment might be depreciated over 15 years because

Which of the following pairs of accounts could not be included in the same adjusting entry?

Financial statements may be prepared from an adjusted trial balance.

Which of the following accounts could decrease as a result of adjusting entries?

Uses of Accounting Information and the Financial Statements

Analyzing Business Transactions

Completing the Accounting Cycle

Financial Reporting and Analysis

The Operating Cycle and Merchandising Operations

Internal Control

Inventories

Cash and Receivables

Current Liabilities and Fair Value Accounting

Long Term Assets

Contributed Capital

Long Term Liabilities

The Corporate Income Statement and the Statement of Stockholders Equity

The Statement of Cash Flows

Financial Performance Measurement

Partnerships

The Changing Business Environment-A Managers Pers

Cost Concepts and Cost Allocation

Costing Systems: Job Order Costing

Costing Systems Process Costing

Activity-Based Systems-Abm and Lean

Cost Behavior Analysis

The Budgeting Process

Performance Management and Evaluation

Standard Costing and Variance Analysis

Short Run Decision Analysis

Capital Investment Analysis

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