Deck 4: Accrual Accounting and Adjusting Entries

Question 1

Which one of the following is an example of an accrued liability?

A) Rent that has been incurred, but have not been paid at the end of the period.
B) Equipment that will benefit several periods has been purchased.
C) An insurance policy that expires in a future period has been acquired.
D) Supplies are purchased and used over several months.

Answer 1

A

Question 2

Under accrual accounting, revenue is recognized:

A) when cash is received, and expenses, when cash is paid.
B) when cash is received, and expenses, when they are incurred.
C) when it is earned, and expenses, when the costs are incurred.
D) When it is earned, and expenses when cash is paid.

Answer 2

C

Question 3

Which of the following concepts is important to accrual accounting?

A) Time period, because accrual accounting divides earnings into time periods.
B) Market basis, because inflation is a big factor in the environment.
C) Cash basis, because if cash is not received, revenue is not accrued.
D) Entity concept, because personal transactions must be separated from business transactions.

Answer 3

A

Question 4

Joe's Auto Company uses the accrual basis of accounting. Which situation violates the matching principle during 2012?

A) Sales commissions are charged to expense in 2012 on all sales revenue recognized in 2012 even though some of the commissions have not been paid.
B) Insurance expense is recognized for the total cost of a 1-year policy purchased in May, 2012.
C) Rent expenses are recognized as expenses in 2012 even though the last bill received in 2012 will not be paid until 2013.
D) Sales commissions paid in 2012 for 2013 commissions are recorded as prepaid expenses for 2012.

Question 5

Using the accrual basis of accounting, when is revenue from the sale of merchandise normally recognized?

A) On the date the sale is made.
B) On the date the customer pays for the merchandise.
C) Either on the date on which the sale occurs, or the date on which the customer pays.
D) When the merchandise is sold, if sold for cash, or when payment is received, if sold on credit.

Question 6

Glass Corporation sold merchandise to a customer for $30,000 on credit on July 15. The customer paid Glass the amount due on July 31. Under the accrual basis of accounting, how should Glass record the transaction?

A) Glass should recognize the revenue on July 31.
B) The July 15th transaction increases revenue, but has no effect on assets because cash has not been received.
C) Revenue is recognized after the cost of the merchandise sold has been paid by Glass Corporation
D) Revenue is recognized on July 15. The July 31st transaction has no effect on total assets under the accrual basis.

Question 7

GMC sells cars and pays each salesperson a commission of $800 for each car sold. During the month of December, a salesperson, Tom, sold 3 new cars. GMC pays commissions on the 5th day of the month following the sale. Tom operates on the cash basis; the car dealer operates on the accrual basis. Which of the following statements is true?

A) Tom will recognize commission revenue earned in the amount of $2,400 in December.
B) GMC will recognize commission expense in the amount of $2,400 in December.
C) Tom will recognize commission expense in the amount of $2,400 in January.
D) Tom will recognize revenue in the same month that the car dealer recognizes expense.

Question 8

Accrued expenses originate from:

A) previously unrecorded expenses that have been incurred but not yet paid in cash.
B) items paid in advance, but not incurred.
C) collecting cash from customers.
D) paying off liabilities.

Question 9

Under accrual basis of accounting, expenses are be matched against revenue:

A) if the earnings process is not complete.
B) when cash is collected from the sale of products.
C) in the same period as the revenue that it helped to generate.
D) when payment is made for costs related to revenue.

Question 10

What effect does "recognizing revenue at the end of the accounting period for rent previously received in advance" have on the accounting equation for the insurance company?

A) Assets increase and liabilities decrease.
B) Assets increase and stockholders' equity increases.
C) Assets decrease and liabilities decrease.
D) Liabilities decrease and stockholders' equity increases.

Question 11

FedZ is a local package delivery service. If FedZ uses accrual basis of accounting, when should it recognize revenue from its package delivery service?

A) At the date the customer places the order
B) At the date the packages are delivered
C) At the date the invoice is mailed to the customer
D) At the date the customer's payment is received

Question 12

What happens to the accounting equation when the adjustment for depreciation expense for the accounting period is recorded?

A) Assets and stockholders' equity decrease
B) Assets and stockholders' equity increase
C) Assets and liabilities decrease
D) Liabilities increase and stockholders' equity decreases

Question 13

Brooks Company sells merchandise to customers. Under the accrual basis of accounting, Brooks should normally recognize:

A) revenue and the related expenses in the same accounting period as earned, whether payment is received or not.
B) revenue when cash is collected and expenses when Brooks pays its creditor for the merchandise.
C) revenue and expenses after all payments are made.
D) expenses in the period the merchandise is sold and defer revenue recognition until the customer pays for the merchandise.

Question 14

Under which accounting method are revenues and expenses recognized in the same accounting period that cash receipts and payments occur?

A) Under the cash basis of accounting
B) Under the accrual basis of accounting
C) Under the percentage of sales method of accounting
D) Under the direct write-off method of accounting

Question 15

Assets become expenses when:

A) purchased for cash or on credit.
B) asset is delivered.
C) they are paid for in cash.
D) their economic benefits expire.

Question 16

Adjusting journal entries are made at the end of the period when:

A) the cash basis of accounting is used for all accounting periods.
B) cash receipts and payments occur before or after the point in time when revenues and expenses should be recognized under the accrual basis of accounting.
C) management reports its adjustments on the statement of cash flows.
D) the company reports revenue in the same period cash is collected.

Question 17

What effect does "recognizing accrued interest revenue at the end of the accounting period" have on the accounting equation?

A) Assets increase and stockholders' equity decreases.
B) Assets increase and stockholders' equity increases.
C) Assets decrease and liabilities decrease.
D) Liabilities increase and stockholders' equity decreases.

Question 18

What does the phrase, "Revenue is recognized when earned" mean?

A) Revenue is recorded in the accounting records when the goods are received from a supplier, and reported on the income statement when sold to the customer.
B) Revenue is recorded in the accounting records and reported on the income statement when the cash is received from the customer.
C) Revenue is recorded in the accounting records when the goods are sold to a customer, and reported on the income statement when the cash payment is received from the customer.
D) Revenue is recorded in the accounting records and reported on the income statement when goods are sold and delivered to a customer.

Question 19

Which one of the following is an example of a deferred revenue?

A) Sales are made to customers on credit.
B) Revenue has been earned but not yet recorded.
C) Payments are received prior to providing the services to customers.
D) Cash sales are made to customers.

Question 20

Which of the following statements present financial information based on the cash basis of accounting?

A) Balance Sheet
B) Income Statement
C) Statement of Retained Earnings
D) Statement of Cash Flows

Question 21

Pine Corporation makes adjusting entries monthly. Property, Plant, and Equipment depreciates at a rate of $9,000 per month. No entry for depreciation has been recorded in the month of March. What adjusting entry is necessary at March 31?

A)
B)
C)

D)
Depreciation Expense 9,000
Property, Plant & Equipment 9,000

Question 22

Suppose that a business sells 6-month subscriptions to its monthly magazine. On January 1, the company receives a total of $600 for 10 subscriptions. To record this transaction, the company debits "Cash" for $600 and credits "Unearned Subscription Revenue" for $600. As of January 31, the company has provided one month of magazines and has earned one month of revenue. What adjusting entry is necessary at January 31?

A)

B)

C)

D)

Question 23

Which of the following accounts will appear in a post-closing trial balance?

A) Dividends
B) Retained Earnings
C) Operating Expense
D) Fees Earned

Question 24

The post-closing trial balance differs from the adjusted trial balance in that it:

A) does not take into account closing entries.
B) does not take into account adjusting entries.
C) does not include balance sheet accounts.
D) does not include income statement accounts.

Question 25

Which one of the following is the last step in the accounting cycle?

A) Journalizing and posting accounting transactions
B) Journalizing and posting adjusting entries
C) Preparing a post-closing trial balance
D) Preparing financial statements

Question 26

Which of the following entries properly closes a temporary account?

A)

B)

C)

D)

Question 27

The Dividend account is a(n):

A) temporary account
B) asset account
C) real account
D) liability account

Question 28

What happens to the accounting equation when the adjustment is recorded to recognize earned revenue previously recorded as unearned revenue?

A) Assets and liabilities increase
B) Liabilities decrease and stockholders' equity increases
C) Assets and liabilities decrease
D) Stockholders' equity increases and decreases by the same amount

Question 29

Which of the following does not occur during the closing process?

A) Journal entries are made to return the balance in all temporary accounts to zero.
B) Journal entries are made to transfer the net income or loss to retained earnings.
C) Journal entries are made to return the balance in all permanent accounts to zero.
D) Journal entries are made to transfer the dividends to retained earnings.

Question 30

Income statement accounts are also known as which of the following?

A) Temporary accounts
B) Real accounts
C) Permanent accounts
D) Asset accounts

Question 31

There are three closing entries. The first one is to close ____, the second one is to close ____, and the last one is to close ____.

A) revenues, expenses, dividends
B) expenses, assets, capital stock
C) capital stock, dividends, assets
D) dividends, expenses, assets

Question 32

Suppose a company received a $2,500 utility bill for the month of March but has not yet recorded the transaction or paid the bill. What adjusting entry is necessary at March 31?

A)

B)

C)
D) No Entry

Question 33

Accumulated Depreciation:

A) increases with a debit.
B) decreases with a credit.
C) increases with a credit.
D) is an adjunct account.

Question 34

The entry to close the Insurance Expense account at the end of the accounting period is to:

A) debit Retained Earnings and credit Prepaid Insurance
B) debit Prepaid Insurance and credit Retained Earnings
C) debit Insurance Expense and credit Retained Earnings
D) debit Retained Earnings and credit Insurance Expense

Question 35

Which one of the following adjustments will increase assets?

A) Interest incurred on money borrowed during the period but not yet paid to the bank.
B) Rent revenue is recorded for amounts owed by a tenant but not yet paid.
C) The use of supplies is recorded.
D) Depreciation for the period is recorded.

Question 36

Which of the following entries properly closes a temporary account?

A)

B)

C)

D)

Question 37

Adjustments for which of the following involves the cash account?

A) Deferred revenues
B) Accrued expenses
C) Deferred liabilities
D) None of these

Question 38

Suppose that a business purchases a 6-month general liability insurance policy for $24,000 on January 1. To record this transaction, the company debits "Prepaid Insurance" for $24,000 and credits "Cash" for $24,000. As of January 31, the company has consumed one month of insurance. What adjusting entry is necessary at January 31?

A)

B)

C)

D)

Question 39

The accounting cycle requires three trial balances be prepared. In what order are they prepared?

A) Post-closing, unadjusted, and adjusted
B) Unadjusted, post-closing, and adjusted
C) Unadjusted, adjusted, and post-closing
D) Post-closing, adjusted, and unadjusted

Question 40

Pine Corporation makes adjusting entries monthly. As of March 31, the general ledger shows Prepaid Rent to have a debit balance of $6,000. Rent expires at a rate of $1,200 per month. No entry for rent has been recorded in the month of March. What adjusting entry is necessary at March 31?

A) Prepaid Rent 500
Cash 500
B)
Rent Expense 1,200
Cash 1,200
C)

D)
Prepaid Rent 6,000
Rent Expense 6,000

Question 41

Duck Insurance Company received advance payments from customers during 2012 of $100,000. At December 31, 2012, $15,000 of the advance payments still had not been earned. After the adjustments are recorded and posted at December 31, 2012, what will the balances be in the Unearned Insurance Revenue and Insurance Revenue accounts? Unearned Insurance Revenue Insurance Revenue

A) $ 85,000 $ 15,000
B) $ 0 $100,000
C) $ 15,000 $ 15,000
D) $ 15,000 $ 85,000

Question 42

Some of the steps in the accounting cycle are listed below. Select the choice that places these steps in the correct order.

A) 2, 3, 4, 5, and 1
B) 3, 2, 4, 5, and 1
C) 3, 2, 4, 1, and 5
D) 3, 2, 5, 4, and 1

Question 43

The financial statements are prepared immediately after:

A) business transactions are recorded.
B) adjustments are recorded.
C) the accounts are closed.
D) the adjusted trial balance is prepared.

Question 44

Blackrock Company received a 6-month, 15% note for $100,000 from its president on November 1, 2012. The note is due on April 30, 2013. If Blackrock's accounting period ends on December 31, how much interest revenue should Blackrock recognize during 2012 and 2013? 2012 2013

A) $5,000 $ 2,500
B) $2,500 $ 5,000
C) $ 0 $15,000
D) $ 0 $ 7,500

Question 45

Sharp Inc. purchased equipment at a cost of $700,000 in January, 2003. As of January 1, 2012, depreciation of $315,000 had been recorded on this asset. Depreciation expense for 2012 is $35,000. After the adjustments are recorded and posted at December 31, 2013, what are the balances of Equipment and Accumulated Depreciation? Equipment Accumulated Depreciation

A) $700,000 $350,000
B) $700,000 $ 0
C) $385,000 $ 35,000
D) $350,000 $350,000

Question 46

Buster Corporation purchased supplies at a cost of $20,000 during 2012. At January 1, 2012, the beginning balance in the supplies account was $1,300. For 2012, supplies expense was $11,200. How much "Supplies" are on hand as of December 31, 2012?

A) $10,100
B) $10,400
C) $20,000
D) $21,300

Question 47

Andre's Tennis Club sells season memberships for $1,500 each. During January of 2012, 50 season memberships were sold. As of March 31, 2012, only $45,000 of season membership fees had been collected from customers. The tennis season runs for 6 months starting April 01, 2012. Which one of the following is an amount reported on the Balance Sheet dated March 31, 2012?

A) Unearned tennis membership revenue of $45,000
B) Unearned tennis membership revenue of $37,500
C) Accounts Receivable $75,000
D) Tennis membership revenue of $45,000

Question 48

Staple Corp. purchased supplies at a cost of $2,581 during the year. At December 31, supplies on hand are $1,492. Supplies expense for the year was $6,213. How much were supplies on hand at January 1?

A) $7,705
B) $8,794
C) $6,213
D) $5,124

Question 49

A company forgot to record four adjustments during 2012. Which one of the following omissions of adjustments will understate assets?

A) Unearned revenue is not reduced for the portion that has been earned
B) Interest on money loaned out has not yet been recorded
C) Prepaid insurance is not reduced for the portion of the policy that has expired during the period
D) Income taxes owed but not yet paid are ignored

Question 50

A company forgot to record four adjustments during 2012. Which one of the following omissions of adjustments will understate income?

A) Unearned revenue is not reduced for the portion that has been earned
B) Interest on money borrowed has not yet been recorded.
C) Prepaid insurance is not reduced for the portion of the policy that has expired during the period.
D) Income taxes owed but not yet paid are ignored.

Question 51

Point Corporation purchased supplies at a cost of $14,500 during the year. At January 1, supplies on hand were $1,000. At December 31, supplies on hand are $3,500. Determine the amount of supplies expense for the year.

A) $14,500
B) $12,000
C) $13,500
D) $17,000

Question 52

On October 1, 2012, Zane Corporation paid $18,000 rent in advance. The rent per month is $1,500. If Zane's accounting period ends on December 31, 2012, what will be reported on the financial statements?

A) Prepaid Rent of $13,500 on its balance sheet at December 31, 2012
B) Prepaid Rent of $18,000 on its balance sheet at December 31, 2012
C) Rent Expense of $18,000 on its 2012 income statement
D) Rent Revenue of $13,500 on its 2012 income statement

Question 53

Which one of the following steps in the accounting cycle is completed only at the end of an accounting period?

A) Business transactions are analyzed
B) Adjustments are recorded
C) Transactions are journalized
D) Journal entries are posted to the ledger

Question 54

Federer Corporation had $12,400 of supplies on hand at January 1. During the year, supplies with a cost of $24,000 were purchased. At December 31, the actual supplies on hand amount to $8,000. After the adjustments are recorded and posted at December 31, determine the balances in the Supplies and Supplies Expense accounts. Supplies Supplies Expense

A) $12,400 $4,400
B) $8,000 $28,400
C) $12,400 $24,000
D) $24,000 $12,400

Question 55

Timberland Company received advance payments from customers during 2012 of $240,000. At December 31, 2012, $20,000 of the advance payments still had not been earned. After the adjustments are recorded and posted at December 31, 2012, what will the balances be in the Unearned Service Revenue and Service Revenue accounts? Unearned Service Revenue Service Revenue

A) $ 20,000 $220,000
B) $220,000 $ 20,000
C) $ 0 $240,000
D) $240,000 $ 0

Question 56

On December 31, 2012, Bosco Corporation signed a one-year contract to provide services to Cosco Company for $120,000. Cosco will pay for the services on January 1, 2013. Using the accrual basis of accounting, when should Bosco Corporation recognize revenue?

A) On January 1, 2013, when the cash is received from Cosco.
B) On December 31, 2013 (the end of the next year), when all services have been provided.
C) Equally throughout the year 2013, as the revenue is earned.
D) On December 31, 2012, when the contract is signed.

Question 57

Axis Corporation purchased equipment at a cost of $100,000 in January, 2003. As of January 1, 2012, depreciation of $45,000 had been recorded on this asset. Depreciation expense for 2012 is $5,000. After the adjustments are recorded and posted at December 31, 2012, what are the balances for the Depreciation Expense and Accumulated Depreciation? Depreciation Expense Accumulated Depreciation

A) $ 5,000 $50,000
B) $45,000 $45,000
C) $ 5,000 $45,000
D) $45,000 $50,000

Question 58

Court Corporation purchased supplies at a cost of $24,000 during 2012. At January 1, 2012, supplies on hand were $2,000. At December 31, 2012, supplies on hand are $2,100. Calculate supplies expense for 2012.

A) $24,000
B) $23,900
C) $24,100
D) $28,100

Question 59

Match Incorporated recorded salary expense of $120,000 in 2012. However, additional salaries of $9,000 had been earned, but not paid or recorded at December 31, 2012. After the adjustments are recorded and posted at December 31, 2012, the balances in the Salaries Expense and Salaries Payable accounts will be Salaries Expense Salaries Payable

A) $129,000 $9,000
B) $120,000 $ 0
C) $120,000 $9,000
D) $109,000 $ 0

Question 60

Peckham Corporation received a 9-month, 9% note for $100,000 from its agent on July 1, 2012. The note is due on March 31, 2013. If Peckham's accounting period ends on December 31, 2012, how much interest revenue should Peckham recognize during 2012 and 2013? 2012 2013

A) $2,250 $4,500
B) $4,500 $2,250
C) $9,000 $ 0
D) $4,500 $4,500

Question 61

Graystone Company's plant operates five days per week with a daily payroll of $100,000. Employees are paid every Tuesday for the prior week's work (Monday through Friday). The last day of the month is Tuesday, April 30. What effect does the accrual at April 30 have on Graystone's net income?

A) Increase by $200,000
B) Decrease by $300,000
C) Decrease by $200,000
D) Increase by $300,000

Question 62

Wolf Industries plant operates five days per week with a daily payroll of $50,000. Employees are paid every Saturday for the work week just completed (Monday through Friday). The last day of the month is Wednesday, May 31. The correct adjusting entry at May 31 is

A)

B)

C)

D)

Question 63

What is the effect on the accounting equation when a company recognizes rent as earned that had previously been received in advance from customers?

A) Assets increase
B) Assets decrease
C) Liabilities increase
D) Equity increases

Question 64

Thompson Company borrowed $100,000 on a one-year, 10% note on September 1, 2012, with interest and principal to be paid at maturity. How much interest payable will be reported on Thompson's balance sheet as of November 30, 2012?

A) $ 2,500
B) $ 7,500
C) $10,000
D) $ 3,333

Question 65

Failure to record depreciation expense for the period results in which of the following?

A) Net income being overstated
B) No effect on total assets
C) Stockholders' equity being overstated
D) Total assets being understated

Question 66

Youngblood Company borrowed $100,000 on a one-year, 10% note on October 1, 2012, with interest and principal to be paid at maturity. How much interest should Stone Company report on its income statement for the year ending December 31, 2013?

A) $10,000
B) $12,500
C) $ 2,500
D) $ 7,500

Question 67

Based on its income for the month, Bates Company estimates that it will owe $23,000 of federal income taxes for the month of May. What is the effect of the adjustment on the financial statements?

A) Increase stockholders' equity
B) Increase income taxes expense
C) Increase retained earnings
D) Decrease income taxes payable

Question 68

Failure to record accrued interest expense would result in which of the following?

A) Assets being overstated
B) Assets being understated
C) Liabilities being overstated
D) Liabilities being understated

Question 69

Failure to record the supplies used during the year would result in which of the following?

A) Net income being understated
B) An overstatement of liabilities
C) Assets and Stockholders' equity being overstated
D) Total assets being understated

Question 70

The supplies account has a balance of $1,000 on January 1. During January, the company purchased $25,000 of supplies on account and the liability was appropriately recorded. A count of supplies at the end of January indicates a balance of $3,000. Which one of the following is a correct amount to be reported on the company's financial statements for the month ending January 31?

A) Supplies expense - $23,000
B) Supplies on hand - $1,000
C) Accounts payable - $28,000
D) Supplies expense - $26,000

Question 71

Saturn Co. rented out office space to a tenant on January 1 and received a total of $90,000 for the first nine months of rent. The amount was recorded as Rent Collected in Advance when received. Adjustments are recorded only at the end of every quarter. What effect does the adjustment at March 31 have on Saturn's net income for the quarter ending March 31?

A) Increase by $90,000
B) Decrease by $60,000
C) Decrease by $30,000
D) Increase by $30,000

Question 72

Game Systems Corporation has grown significantly over the past year. The end-of-year supplies on hand totaled $200, and purchases totaled $3,000, and supplies on hand at the beginning of the year amounted to $180. How much will Game Systems report as supplies expense for the current year?

A) $2,980
B) $3,180
C) $3,200
D) $3,000

Question 73

Failure to record amounts earned for services provided to customers but cash not yet received results in which of the following?

A) Net income being overstated
B) No effect on total assets
C) Stockholders' equity being overstated
D) Total assets being understated

Question 74

On October 1, 2012, Glover Company borrowed $200,000 on a two-year, 12% note, with interest and principal to be paid at maturity. How much interest expense will Glover report on its income statement for the year ending December 31, 2012?

A) $ 6,000
B) $18,000
C) $24,000
D) $12,000

Question 75

Pro Incorporated operates five days per week with a daily payroll of $5,000. Employees are paid every Saturday for the workweek just completed (Monday through Friday). The last day of the month is Wednesday, October 31. What is the effect of the correct adjustment at October 31?

A) Increases stockholders' equity and wages payable by $15,000
B) Increases wages payable and decreases cash by $10,000
C) Decreases stockholders' equity and increases wages payable by 15,000
D) Increases wages payable and increases wages expense by $25,000

Question 76

Failure to record dividends paid would result in which of the following?

A) Net income being understated
B) An increase in total liabilities
C) Stockholders' equity being overstated
D) Net income being overstated

Question 77

Which one of the following adjustments decreases net income for the period?

A) Recognition of depreciation on plant assets.
B) Recognition of interest earned on a note receivable.
C) Recognition of services that had been provided to customers but the cash has not yet been received.
D) Recognition of rent earned that had been received in advance from customers.

Question 78

The asset account, Supplies, has a balance of $10,000 on January 1. During January, $22,000 of supplies were purchased on account and the liability was appropriately recorded. A count of supplies at the end of January indicates a balance of $2,000. What adjusting entry is necessary at January 31?

A)

B) S

C)

D)

Question 79

Failure to record the earned portion of unearned revenue would result in which of the following?

A) Net income being understated
B) No effect on total liabilities
C) Stockholders' equity being overstated
D) Total assets being understated

Question 80

Which one of the following adjustments increases net income for the period?

A) Recognition of the amount of supplies used.
B) Recognition of the revenue earned, but not yet received.
C) Recognition of the wages earned, but not paid to employees.
D) Recognition of rent costs that had been paid to the landlord in advance.