Question 1

Which of the following statements is incorrect?

Accepted Answer

A)  Working papers are useful aids in the accounting process 
B)  On the work sheet, the effects of the accounting adjustments are shown on the account balances 
C)  After the work sheet is completed, it can be used to help prepare the financial statements 
D)  On the work sheet, the adjusted amounts are sorted into columns according to whether the accounts are used in preparing the unadjusted trial balance or the adjusted trial balance 
E)  A worksheet is not a substitute for financial statements 
A)  Working papers are useful aids in the accounting process 
B)  On the work sheet, the effects of the accounting adjustments are shown on the account balances 
C)  After the work sheet is completed, it can be used to help prepare the financial statements 
D)  On the work sheet, the adjusted amounts are sorted into columns according to whether the accounts are used in preparing the unadjusted trial balance or the adjusted trial balance 
E)  A worksheet is not a substitute for financial statements

Question 2

If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be _______________ and equity would be __________.

Accepted Answer

Overstated

Question 3

The cash basis of accounting is an accounting system in which revenues are reported when cash is received and expenses are reported when cash is paid.

Accepted Answer

A) True 
 B)False

Question 4

It is acceptable to credit cash received in advance to revenue accounts when cash is received.

Accepted Answer

A) True 
 B)False

Question 5

Adjusting entries result in a better matching of revenues and expenses.

Accepted Answer

A) True 
 B)False

Question 6

The current ratio is computed by dividing current liabilities by current assets.

Accepted Answer

A) True 
 B)False

Question 7

Under the alternative method for accounting for unearned revenues, which of the following pairs of journal entry formats is correct?
$\begin{array}{|c|c|}
\hline \text { Initial Entry } & \text { Adjusting Entry } \
\hline
\end{array}$

Accepted Answer

A) $\begin{array} { | c | c | } 
\hline \text { Cash } & \text { Unearned Consulting Revenue } \
\hline \text { Unearned Consulting Revenue } & \text { Consulting Revenue } \
\hline
\end{array}$ 
B) $\begin{array} { | l | c | } 
\hline \text { Cash } & \text { Consulting Revenue } \
\hline \text { Consulting Revenue } & \text { Unearned Revenue } \
\hline
\end{array}$ 
C) $\begin{array} { | c | c | } 
\hline \text { Cash } & \text { Unearned Revenue } \
\hline \text { Unearned Revenue } & \text { Cash } \
\hline
\end{array}$ 
D) $\begin{array} { | c | c | } 
\hline \text { Consulting Revenue } & \text { Unearned Revenue } \
\hline \text { Cash } & \text { Consulting Revenue } \
\hline
\end{array}$ 
E) $\begin{array} { | l | c | } 
\hline \text { Cash } & \text { Consulting Revenue } \
\hline \text { Unearned Revenue } & \text { Unearned Revenue } \
\hline
\end{array}$ 
A) $\begin{array} { | c | c | } 
\hline \text { Cash } & \text { Unearned Consulting Revenue } \
\hline \text { Unearned Consulting Revenue } & \text { Consulting Revenue } \
\hline
\end{array}$ 
B) $\begin{array} { | l | c | } 
\hline \text { Cash } & \text { Consulting Revenue } \
\hline \text { Consulting Revenue } & \text { Unearned Revenue } \
\hline
\end{array}$ 
C) $\begin{array} { | c | c | } 
\hline \text { Cash } & \text { Unearned Revenue } \
\hline \text { Unearned Revenue } & \text { Cash } \
\hline
\end{array}$ 
D) $\begin{array} { | c | c | } 
\hline \text { Consulting Revenue } & \text { Unearned Revenue } \
\hline \text { Cash } & \text { Consulting Revenue } \
\hline
\end{array}$ 
E) $\begin{array} { | l | c | } 
\hline \text { Cash } & \text { Consulting Revenue } \
\hline \text { Unearned Revenue } & \text { Unearned Revenue } \
\hline
\end{array}$

Question 8

The following information is available for the Wooden Company:
$$\begin{array} { | l | r | r | r | } 
\hline & 2010 & 2009 & 2008 \
\hline \text { Net income } & \$ 2,630 & \$ 2,100 & \$ 1,850 \
\hline \text { Net Sales } & 36,500 & 32,850 & 31,200 \
\hline \text { Total assets } & 400,000 & 385,000 & 350,000 \
\hline
\end{array}$$
From the information provided, calculate Wooden's profit margin ratio for each of the three years. Comment on the results, assuming that the industry average for the profit margin ratio is 6% for each of the three years.

Accepted Answer

Analysis comment: The profit margin has

Question 9

Which of the following statements is incorrect?

Accepted Answer

A)  Prepaid expenses, depreciation and unearned revenues involve previously recorded assets and liabilities 
B)  Accrued expenses and accrued revenues involve assets and liabilities that were not previously been recorded 
C)  Adjusting entries can be used to record both accrued expenses and accrued revenues 
D)  Prepaid expenses, depreciation and unearned revenues often require adjusting entries to record the effects of the passage of time 
E)  Adjusting entries affect the cash account 
A)  Prepaid expenses, depreciation and unearned revenues involve previously recorded assets and liabilities 
B)  Accrued expenses and accrued revenues involve assets and liabilities that were not previously been recorded 
C)  Adjusting entries can be used to record both accrued expenses and accrued revenues 
D)  Prepaid expenses, depreciation and unearned revenues often require adjusting entries to record the effects of the passage of time 
E)  Adjusting entries affect the cash account

Question 10

If a company failed to make the end-of-period adjustment to remove the amount earned from the Unearned Management Fees account, there would be:

Accepted Answer

A)  An overstatement of net income 
B)  An overstatement of assets 
C)  An overstatement of liabilities 
D)  An overstatement of equity 
E)  An understatement of liabilities 
A)  An overstatement of net income 
B)  An overstatement of assets 
C)  An overstatement of liabilities 
D)  An overstatement of equity 
E)  An understatement of liabilities

Question 11

On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance Sheet Debit column.

Accepted Answer

A) True 
 B)False

Question 12

The 12-month period that ends when a company's activities are at their lowest point is called the:

Accepted Answer

A)  Fiscal year 
B)  Calendar year 
C)  Natural business year 
D)  Accounting period 
E)  Interim period 
A)  Fiscal year 
B)  Calendar year 
C)  Natural business year 
D)  Accounting period 
E)  Interim period

Question 13

A post-closing trial balance includes:

Accepted Answer

A)  All ledger accounts with balances, none of which can be temporary accounts 
B)  All ledger accounts with balances, none of which can be permanent accounts 
C)  All ledger accounts with balances, which include some temporary and some permanent accounts 
D)  Only revenue and expense accounts 
E)  Only asset accounts 
A)  All ledger accounts with balances, none of which can be temporary accounts 
B)  All ledger accounts with balances, none of which can be permanent accounts 
C)  All ledger accounts with balances, which include some temporary and some permanent accounts 
D)  Only revenue and expense accounts 
E)  Only asset accounts

Question 14

A company shows a $600 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results in:

Accepted Answer

A)  $200 less in net income 
B)  $200 more in net income 
C)  $200 difference between the debit and credit columns of the Unadjusted Trial Balance 
D)  $200 of prepaid insurance 
E)  An error in the financial statements 
A)  $200 less in net income 
B)  $200 more in net income 
C)  $200 difference between the debit and credit columns of the Unadjusted Trial Balance 
D)  $200 of prepaid insurance 
E)  An error in the financial statements

Question 15

If a company records prepayment of expenses in an asset account, the adjusting entry would:

Accepted Answer

A)  Result in a debit to an expense and a credit to an asset account 
B)  Cause an adjustment to prior expense to be overstated and assets to be understated 
C)  Cause an accrued liability account to exist 
D)  Result in a debit to a liability and a credit to an asset account 
E)  Decrease cash 
A)  Result in a debit to an expense and a credit to an asset account 
B)  Cause an adjustment to prior expense to be overstated and assets to be understated 
C)  Cause an accrued liability account to exist 
D)  Result in a debit to a liability and a credit to an asset account 
E)  Decrease cash

Question 16

The length of time covered by a set of periodic financial statements is referred to as the:

Accepted Answer

A)  Fiscal cycle 
B)  Natural business year 
C)  Accounting period 
D)  Business cycle 
E)  Operating cycle 
A)  Fiscal cycle 
B)  Natural business year 
C)  Accounting period 
D)  Business cycle 
E)  Operating cycle

Question 17

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Accepted Answer

A)  Debit Cash and credit Legal Fees Earned 
B)  Debit Cash and credit Unearned Legal Fees 
C)  Debit Unearned Legal Fees and credit Legal Fees Earned 
D)  Debit Legal Fees Earned and credit Unearned Legal Fees 
E)  Debit Unearned Legal Fees and credit Accounts Receivable 
A)  Debit Cash and credit Legal Fees Earned 
B)  Debit Cash and credit Unearned Legal Fees 
C)  Debit Unearned Legal Fees and credit Legal Fees Earned 
D)  Debit Legal Fees Earned and credit Unearned Legal Fees 
E)  Debit Unearned Legal Fees and credit Accounts Receivable

Question 18

Recording revenues before they are earned overstates current-period income; recording revenues in periods after they have been earned understates the recording period's income.

Accepted Answer

A) True 
 B)False

Question 19

On January 1, Denton Mabrey College received $1,200,000 in Unearned Tuition Revenue from its students for the spring semester, which spans four months beginning on January 2. What amount of tuition revenue should the college recognize on January 31?

Accepted Answer

A)  $300,000 
B)  $600,000 
C)  $800,000 
D)  $900,000 
E)  $1,200,000 
A)  $300,000 
B)  $600,000 
C)  $800,000 
D)  $900,000 
E)  $1,200,000

Question 20

Shown below are a company's ledger accounts and their end-of-period balances before closing entries are posted. What amount will be posted to Retained Earnings in the process of closing the Income Summary account? (Assume all accounts have normal balances.)
$$\begin{array} { | l | r | } 
\hline \text { Retained earnings } & \$ 14,000 \
\hline \text { Dividends } & 19,200 \
\hline \text { Sales Revenue } & 58,000 \
\hline \text { Rent expense } & 7,200 \
\hline \text { Salaries expense } & 14,400 \
\hline \text { Insurance expense } & 840 \
\hline \text { Depr. Expense - equipment } & 900 \
\hline \text { Accum depr. - equipment } & 2,500 \
\hline
\end{array}$$

Accepted Answer

A)  $16,780 debit 
B)  $15,460 credit 
C)  $48,660 credit 
D)  $34,660 credit 
E)  $17,960 credit 
A)  $16,780 debit 
B)  $15,460 credit 
C)  $48,660 credit 
D)  $34,660 credit 
E)  $17,960 credit

Exam 3: Adjusting Accounts and Preparing Financial Statements

Which of the following statements is incorrect?

If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be _______________ and equity would be __________.

The cash basis of accounting is an accounting system in which revenues are reported when cash is received and expenses are reported when cash is paid.

It is acceptable to credit cash received in advance to revenue accounts when cash is received.

Adjusting entries result in a better matching of revenues and expenses.

The current ratio is computed by dividing current liabilities by current assets.

Under the alternative method for accounting for unearned revenues, which of the following pairs of journal entry formats is correct? Initial Entry Adjusting Entry

Which of the following statements is incorrect?

If a company failed to make the end-of-period adjustment to remove the amount earned from the Unearned Management Fees account, there would be:

On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance Sheet Debit column.

The 12-month period that ends when a company's activities are at their lowest point is called the:

A post-closing trial balance includes:

A company shows a $600 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results in:

If a company records prepayment of expenses in an asset account, the adjusting entry would:

The length of time covered by a set of periodic financial statements is referred to as the:

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Recording revenues before they are earned overstates current-period income; recording revenues in periods after they have been earned understates the recording period's income.

On January 1, Denton Mabrey College received $1,200,000 in Unearned Tuition Revenue from its students for the spring semester, which spans four months beginning on January 2. What amount of tuition revenue should the college recognize on January 31?

Introducing Accounting in Business

Analyzing and Recording Transactions

Accounting for Merchandising Operations

Inventories and Cost of Sales

Cash and Internal Controls

Accounts and Notes Receivable

Long-Term Assets

Current Liabilities

Long-Term Liabilities

Corporate Reporting and Analysis

Reporting and Analyzing Cash Flows

Analyzing Financial Statements

Managerial Accounting Concepts and Principles

Job Order Costing and Analysis

Process Costing and Analysis

Activity-Based Costing and Analysis

Cost Behavior and Cost-Volume-Profit Analysis

Variable Costing and Performance Reporting

Master Budgets and Performance Planning

Flexible Budgets and Standard Costing

Decentralization and Performance Evaluation

Relevant Costing for Managerial Decisions

Capital Budgeting and Investment Analysis

Investments and International Operations

Accounting for Partnerships

Appendix : Accounting With Special Journals

Filters

If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be _____ and equity would be .