Question 1

A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:

Accepted Answer

A)  Understate net income by $28,000. 
B)  Overstate net income by $28,000. 
C)  Have no effect on net income. 
D)  Overstate assets by $28,000. 
E)  Understate assets by $28,000. 
A)  Understate net income by $28,000. 
B)  Overstate net income by $28,000. 
C)  Have no effect on net income. 
D)  Overstate assets by $28,000. 
E)  Understate assets by $28,000.

Question 2

A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:

Accepted Answer

A)  2%. 
B)  20%. 
C)  200%. 
D)  500%. 
E)  $8,000. 
A)  2%. 
B)  20%. 
C)  200%. 
D)  500%. 
E)  $8,000.

Question 3

Which of the following statements is incorrect?

Accepted Answer

A)  An income statement reports revenues earned less expenses incurred. 
B)  An unadjusted trial balance shows the account balances after they have been revised to reflect the effects of end-of-period adjustments. 
C)  Interim financial reports can be based on one-month or three-month accounting periods. 
D)  The fiscal year is any 12 consecutive months (or 52 weeks) used by a business as its annual accounting period. 
E)  Property, plant, and equipment are long-term tangible assets. 
A)  An income statement reports revenues earned less expenses incurred. 
B)  An unadjusted trial balance shows the account balances after they have been revised to reflect the effects of end-of-period adjustments. 
C)  Interim financial reports can be based on one-month or three-month accounting periods. 
D)  The fiscal year is any 12 consecutive months (or 52 weeks) used by a business as its annual accounting period. 
E)  Property, plant, and equipment are long-term tangible assets.

Question 4

______________________ revenues are liabilities requiring delivery of products and for services.

Accepted Answer

The answer of ______________________ revenues are liabilities requiring delivery of...

Question 5

Harrow Co. is a multi-million business. The business results for the year have been seriously impacted by a slowing economy. The company wants to improve its net income. It has incurred $2,500,000 in unpaid salaries at the end of the year and wants to leave those amounts unrecorded at the end of the year. (a) How would this omission affect the financial statements of Harrow? (b) Which accrual basis of accounting principles does this omission violate? (c) Would this be considered an ethical problem?

Accepted Answer

a. The net income would be overstated be

Question 6

On October 1 of the current year, Morton Company paid $9,600 cash for a one-year insurance policy that took effect on that day. On the date of the payment, Morton recorded the following entry:
Prepare the required adjusting entry at December 31 of the current year.

Accepted Answer

($9,600/12 mo. = $80

Question 7

Two accounting principles that are relied on in the adjusting process are:

Accepted Answer

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

Question 8

What are the types of adjusting entries used for prepaid expenses, depreciation and unearned revenues?

Accepted Answer

Prepaid expenses are deferrals, or expen

Question 9

Unearned revenue is reported in the financial statements as:

Accepted Answer

A)  A revenue on the balance sheet. 
B)  A liability on the balance sheet. 
C)  An unearned revenue on the income statement. 
D)  An asset on the balance sheet. 
E)  An operating activity on the statement of cash flows. 
A)  A revenue on the balance sheet. 
B)  A liability on the balance sheet. 
C)  An unearned revenue on the income statement. 
D)  An asset on the balance sheet. 
E)  An operating activity on the statement of cash flows.

Question 10

What is an adjusted trial balance? Why is it prepared?

Accepted Answer

An adjusted trial balance is a list of a

Question 11

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

Question 12

The adjusting entry to record an accrued expense is:

Accepted Answer

A)  Increase an expense; increase a liability. 
B)  Increase an asset; increase revenue. 
C)  Decrease a liability; increase revenue. 
D)  Increase an expense; decrease an asset. 
E)  Increase an expense; decrease a liability. 
A)  Increase an expense; increase a liability. 
B)  Increase an asset; increase revenue. 
C)  Decrease a liability; increase revenue. 
D)  Increase an expense; decrease an asset. 
E)  Increase an expense; decrease a liability.

Question 13

Under the alternative method for recording prepaid expenses, which is the correct set of journal entries?

Accepted Answer

A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D 
E)  Choice E 
A)  Choice A 
B)  Choice B 
C)  Choice C 
D)  Choice D 
E)  Choice E

Question 14

The cash basis of accounting commonly results in financial statements that are less comparable from period to period than the accrual basis of accounting.

Accepted Answer

A) True 
 B)False

Question 15

Before an adjusting entry is made to accrue employee salaries, Salaries Expense and Salaries Payable are both understated.

Accepted Answer

A) True 
 B)False

Question 16

It is acceptable to record prepayment of expenses as debits to expense accounts.

Accepted Answer

A) True 
 B)False

Question 17

An adjusting entry could be made for each of the following except:

Accepted Answer

A)  Prepaid expenses. 
B)  Depreciation. 
C)  Owner withdrawals. 
D)  Unearned revenues. 
E)  Accrued revenues. 
A)  Prepaid expenses. 
B)  Depreciation. 
C)  Owner withdrawals. 
D)  Unearned revenues. 
E)  Accrued revenues.

Question 18

Pfister Co. leases an office to a tenant at the rate of $5,000 per month. The tenant contacted Pfister and arranged to pay the rent for December on January 8 of the following year. Pfister agrees to this arrangement.
a.) Prepare the journal entry that Pfister must make at year ended December 31 to record the accrued rent revenue.
b.) Prepare the journal entry to record the receipt of the rent on January 8 of the following year.

Accepted Answer

The answer of Pfister Co. leases an office to a...

Question 19

The unadjusted trial balance and the adjustment data for Harris Training Institute are given below along with adjusting entry information. If these adjustments are not recorded, what is the impact on net income? Show calculation for net income without the adjustments and net income with the adjustments. Which one gives the most accurate net income? What accounting principles are being violated if the adjustments are not made?
Additional information items:
a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis of the insurance invoice indicates that one half of the policy has expired by the end of the December 31 year-end.
b. A cash payment for space sublet for 8 months was received on July 1 and was credited to Unearned Rent.
c. Accrued interest expense on the note payable of $1,000 has been incurred but not paid.

Accepted Answer

The accrual basis gives the most accurat

Question 20

A fiscal year refers to an organization's accounting period that spans twelve consecutive months or 52 weeks.

Accepted Answer

A) True 
 B)False

Exam 3: Adjusting Accounts and Preparing Financial Statements

A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:

A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:

Which of the following statements is incorrect?

______________________ revenues are liabilities requiring delivery of products and for services.

On October 1 of the current year, Morton Company paid $9,600 cash for a one-year insurance policy that took effect on that day. On the date of the payment, Morton recorded the following entry: Prepare the required adjusting entry at December 31 of the current year.

Two accounting principles that are relied on in the adjusting process are:

What are the types of adjusting entries used for prepaid expenses, depreciation and unearned revenues?

Unearned revenue is reported in the financial statements as:

What is an adjusted trial balance? Why is it prepared?

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:

The adjusting entry to record an accrued expense is:

Under the alternative method for recording prepaid expenses, which is the correct set of journal entries?

The cash basis of accounting commonly results in financial statements that are less comparable from period to period than the accrual basis of accounting.

Before an adjusting entry is made to accrue employee salaries, Salaries Expense and Salaries Payable are both understated.

It is acceptable to record prepayment of expenses as debits to expense accounts.

An adjusting entry could be made for each of the following except:

A fiscal year refers to an organization's accounting period that spans twelve consecutive months or 52 weeks.

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

Long-Term Assets

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

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