Deck 4: Adjustments, Financial Statements, and Financial Results

Question 1

A deferral adjustment may involve one asset and one expense account.

Answer 1

True

Question 2

Corporate income taxes cannot be calculated until all other adjustments are made.

Answer 2

True

Question 3

Depreciation is a measure of the decline in market value of an asset.

Answer 3

False

Question 4

After posting the closing entries,all the revenue accounts and all the expense accounts are zero and the Retained Earnings account has been debited for $4,000.This implies that the company had a net income of $4,000.

Question 5

You mistakenly include a contra account of $20,000 in the same column of your trial balance as the account it offsets.All other things equal,your debit and credit column totals will differ by $40,000.

Question 6

As a company uses supplies,an adjustment should be made to decrease an asset account and increase an expense account.

Question 7

Adjusting entries often involve cash.

Question 8

The adjusted trial balance is completed to check that debits still equal credits after the income statement is prepared.

Question 9

A company forgot to make an adjusting entry to record wages incurred but unpaid at the end of the period.This would understate Total Liabilities and overstate Retained Earnings on the Balance Sheet.

Question 10

If a company failed to record depreciation expense on equipment for a period,the financial statements would show total assets overstated and total stockholders' equity understated on the balance sheet.

Question 11

A post-closing trial balance should include only permanent accounts.

Question 12

The purpose of adjusting entries is to transfer net income and dividends to retained earnings.

Question 13

A contra account is added to the account it offsets.

Question 14

All asset accounts,all liability accounts,contributed capital,and retained earnings accounts are called permanent accounts.

Question 15

The amount charged for a good or service provided to a customer on account is recorded only after the payment is received.

Question 16

The amounts of all the accounts reported on the balance sheet can be taken from the adjusted trial balance.

Question 17

One of the purposes of the closing entries is to bring the balances in all asset,liability,revenue,and expense accounts down to zero to start the next accounting period.

Question 18

The carrying value of an asset is an approximation of the asset's market value.

Question 19

The closing process includes a transfer of the Dividends Declared account balance to the Retained Earnings account.

Question 20

Prepaid expense accounts are reported as assets on the balance sheet.

Question 21

Which of the following statements regarding timing issues associated with the closing entries is true?

A)Closing entries are recorded at the end of each reporting period which could be monthly,quarterly or annually.
B)After closing entries are posted,the balances of the income statement accounts will be zero.
C)Closing entries are made to zero out the balances of the permanent accounts on the balance sheet.
D)After closing entries are posted,the only temporary account with a balance is the Dividends Declared account.

Question 22

One major difference between deferral and accrual adjustments is:

A)deferral adjustments involve previously recorded transactions and accruals involve previously unrecorded events.
B)deferral adjustments are made after taxes and accrual adjustments are made before taxes.
C)deferral adjustments are made annually and accrual adjustments are made monthly.
D)deferral adjustments are influenced by estimates of future events and accrual adjustments are not.

Question 23

A company makes a deferral adjustment that reduces a liability.This must mean:

A)an expense account is decreasing by the same amount.
B)an expense account is increasing by the same amount.
C)a revenue account is increasing by the same amount.
D)a revenue account is decreasing.

Question 24

Which of the following is not a term for the value at which an asset is reported on a financial statement?

A)Carrying value.
B)Book value.
C)Equipment,net.
D)Accrual value.

Question 25

If certain assets are partially used up during the accounting period,then:

A)nothing is recorded on the financial statements until they are completely used up.
B)a liability account is decreased or eliminated and an expense is recorded.
C)an asset account is decreased or eliminated and an expense is recorded.
D)nothing is recorded on the financial statements until they are replaced or replenished.

Question 26

A company owes rent at a rate of $6,000 per month.The company pays the rent owed on the tenth of each month for the previous month.At the end of each month,what kind of adjustment is required?

A)An accrual adjustment.
B)A closing adjustment.
C)A deferral adjustment.
D)No adjustment.

Question 27

When existing assets are used up in the ordinary course of business:

A)an expense is recorded.
B)unearned revenue is recorded.
C)an accrual is recorded.
D)a prepaid expense is recorded.

Question 28

Which of the following statements regarding the presentation of a trial balance is correct?

A)The adjusted trial balance shows the end-of-year balance for Retained Earnings.
B)An adjusted trial balance presents account balances in the same level of detail as in the presentation of the financial statements.
C)The order of accounts is assets,liabilities,stockholders' equity,dividends,revenues and expenses.
D)The adjusted trial balance shows all the debit and credit postings to all the ledger accounts.

Question 29

Which of the following statements regarding adjusting entries is not true?

A)Adjustments are needed to ensure that the accounting system includes all of the revenues and expenses of the period.
B)Adjustments help to ensure the related accounts on the balance sheet and income statement are up to date and complete.
C)Adjusting entries often affect the cash account.
D)Adjusting entries generally include one balance sheet and one income statement account.

Question 30

Which of the following statements regarding the need for adjustments is not true?

A)Without adjustments,the financial statements present an incomplete and misleading picture of the company.
B)Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance.
C)Adjustments help the financial statements to present the best picture of whether the company's activities were profitable for the period.
D)Adjustments help the financial statements to present the economic resources the company owns and owes at the end of the period.

Question 31

At the end of the month,the adjusting journal entry to record the use of supplies would include:

A)A debit to supplies and a credit to supplies expense.
B)A debit to supplies expense and a credit to supplies.
C)A debit to supplies and a credit to revenue.
D)A debit to supplies and a credit to cash.

Question 32

Which of the following statements regarding financial statements and the trial balance is correct?

A)Financial statements are prepared only after the adjusted trial balance has shown that debits equal credits.
B)A post-closing trial balance should be prepared before temporary accounts are closed.
C)An adjusted trial balance reflects the amount of retained earnings to be shown on the Balance Sheet.
D)A post-closing trial balance lists all the accounts that are shown on the Income Statement.

Question 33

If an expense has been incurred but will be paid later,then:

A)nothing is recorded on the financial statements.
B)a liability account is created or increased and an expense is recorded.
C)an asset account is decreased or eliminated and an expense is recorded.
D)a revenue and an expense are accrued.

Question 34

The company uses up $5,000 of an existing asset.The company adjusts its accounts accordingly.Which of the following is a true statement?

A)This is an accrual adjustment.
B)This is a closing adjustment.
C)This is a deferral adjustment.
D)This is an unethical adjustment.

Question 35

The book value of equipment is equal to which of the following?

A)Cost of equipment plus accumulated depreciation.
B)Accumulated depreciation less depreciation expense.
C)Cost of equipment less accumulated depreciation.
D)Accumulated depreciation plus depreciation expense.

Question 36

Which of the following statements regarding the trial balance is correct?

A)The adjusted trial balance is prepared after the financial statements to verify that the numbers are accurate.
B)The primary purpose of the post-closing trial balance is to see whether revenues are greater than expenses.
C)The adjusted trial balance is a check that the accounting records are still in balance after posting all adjustments to the accounts.
D)The post-closing trial balance debit column total is the amount to be shown as Total Assets on the Balance Sheet.

Question 37

Which of the following statements regarding types of adjusting entries is true?

A)An accrual adjustment that increases an asset will include an increase in an expense.
B)A deferral adjustment that decreases an asset will include an increase in an expense.
C)An accrual adjustment that increases an expense will include an increase in assets.
D)A deferral adjustment that increases a contra account will include an increase in an asset.

Question 38

One major difference between deferral and accrual adjustments is:

A)accrual adjustments affect income statement accounts and deferral adjustments affect balance sheet accounts.
B)deferral adjustments increase net income and accrual adjustments decrease net income.
C)deferral adjustments are made under the cash basis of accounting and accrual adjustments are made under the accrual basis of accounting.
D)accounts affected by an accrual adjustment always go in the same direction (i.e. ,both accounts are increased or both accounts are decreased)and accounts affected by a deferral adjustment always go in opposite directions.

Question 39

Which of the following statements regarding the effect of a net loss on the closing process is true?

A)If a company has a net loss during the current accounting period,then the ending retained earnings will be smaller than the beginning retained earnings.
B)When closing entries are prepared,contributed capital is debited if a company has a net loss.
C)If a company has a net loss,the closing entry will include debits to the revenue accounts,credits to the expense accounts,and a credit to Retained earnings.
D)If a company has a net loss,the amount of revenues to be closed will be greater than the amount of expenses to be closed in the closing process.

Question 40

Accrual adjustments involve:

A)increasing assets and revenues or increasing liabilities and expenses moving in the same direction.
B)increasing assets and expenses or increasing liabilities and revenues.
C)increasing assets and decreasing revenues or increasing liabilities and decreasing expenses.
D)increasing assets and decreasing expenses or increasing liabilities and decreasing revenues.

Question 41

Accumulated depreciation:

A)is an expense account.
B)is a liability account.
C)is an asset account.
D)is a contra-asset account.

Question 42

Your business declared a $200 dividend on August 31,payable in September.On August 31,which of the following journal entries would be made?

A)Debit Dividends Receivable for $200;credit Dividends Declared for $200.
B)Debit Dividends Declared for $200;credit Dividends Payable for $200.
C)Debit Dividends Payable for $200;credit Dividends Declared for $200.
D)Debit Dividends Declared for $200;credit Dividends Receivable for $200.

Question 43

To calculate the company's income tax expense for the current period,it is necessary to know:

A)the company's operating revenue and tax bill from prior periods.
B)the company's income before income taxes and the company's tax rate.
C)the company's operating expenses and revenue.
D)the company's revenues,expenses,and dividends.

Question 44

A company has an asset account,Prepaid Insurance,with a balance of $3,750 at the beginning of the month.The company used $980 of insurance during the month.Which of the following statements is true?

A)The company should credit Insurance Expense for $980 and debit Prepaid Insurance for $980.
B)Retained earnings should decrease and stockholders' equity should increase because of this event.
C)The company should debit Insurance Expense for $980 and credit Prepaid Insurance for $980.
D)Retained earnings and stockholders' equity should increase because of this event.

Question 45

Recording an adjusting journal entry to recognize depreciation would cause which of the following?

A)An increase in liabilities and expenses,and a decrease in stockholders' equity.
B)A decrease in assets and stockholders' equity,and an increase in expenses.
C)A decrease in assets,an increase in liabilities,and an increase in expenses.
D)An increase in assets,an increase in liabilities,and a decrease in expenses.

Question 46

Declared dividends:

A)are an expense of doing business.
B)are not a legal obligation that a company must pay.
C)are a way to distribute the company's profits to its stockholders.
D)are reported on the balance sheet.

Question 47

A count of supplies revealed $400 worth on hand at 12/31/13.The adjusting entry would include

A)a debit to supplies expense for $400.
B)a debit to supplies expense for $600.
C)a debit to supplies for $400.
D)a debit to supplies for $600.

Question 48

A company pays wages every two weeks.Wages amount to $100 a day,7 days a week.On March 31,the company pays wages for the two weeks ending March 24.At the end of the month,the related adjusting journal entry will include a

A)debit to Wages Payable for $1,400 and a credit to Wages Expense for $1,400.
B)debit to Wage Expense for $700 and a credit to Wages Payable for $700.
C)debit to Wages Payable for $700 and a credit to Cash for $700.
D)debit to Wages Expense for $1,400 and a credit to Wages Payable for $1,400.

Question 49

Contra-accounts:

A)are used to increase the original value of the account they offset.
B)always appear in the same column of the trial balance as the account they offset.
C)are used to decrease the original value of the account they offset.
D)reduce the asset to its fair value.

Question 50

Purrfect Pets had $6,000 of supplies at the end of October.During November,the company bought $2,000 of supplies.At the end of November,the company had $1,000 of supplies remaining.Which of the following statements is not true?

A)During November,the company used $7,000 of supplies.
B)Supplies should be reported at $1,000 on the balance sheet.
C)An expense should be debited for $7,000 in November.
D)An asset should be debited for $1,000 in November.

Question 51

During the month,a company uses up $4,000 of supplies.At the end of the month,the related adjusting journal entry would result in:

A)a decrease in an asset and an equal decrease in expenses.
B)an increase in an asset and an equal increase in expenses.
C)a decrease in an asset and an equal increase in expenses.
D)an increase in an asset and a decrease in expenses.

Question 52

A company has a loan that accrues interest at a rate of $20 a day.The company pays the interest once a quarter.Which of these would be an accurate adjustment for a month in which no payments are made?

A)Debit Interest Payable and credit Interest Expense.
B)Debit Notes Payable and credit Cash.
C)Debit Interest Expense and credit Interest Payable.
D)Debit Cash and credit Notes Payable.

Question 53

At the end of the year,accrual adjusting entries could include a:

A)debit to an expense and a credit to an asset.
B)credit to a revenue and a debit to an expense.
C)debit to cash and a credit to contributed capital.
D)debit to an expense and a credit to a liability.

Question 54

Unearned insurance premiums were $5,500 at the beginning of the year and $7,500 at the end of the year.Insurance premiums collected were $42,000.How much in insurance premiums were earned this year?

A)$40,000
B)$44,000
C)$55,000
D)$29,000

Question 55

An adjusting journal entry that includes an increase to an asset contra-account would include an increase in a(n):

A)related asset account.
B)liability account.
C)revenue account.
D)expense account.

Question 56

Which of these accounts would normally not be affected by an adjustment?

A)Supplies.
B)Revenues.
C)Expenses.
D)Cash.

Question 57

Purrfect Pets had income before income tax of $164,000 last quarter and a 34% tax rate.Its net income should be reported as:

A)$55,760.
B)$108,240.
C)$219,760.
D)$482,353.

Question 58

The insurance policy covers four years and was purchased by Sneetch on 1/1/13.The adjusting entry on December 31,2013 would include

A)a debit to prepaid insurance for $1,200.
B)a credit to prepaid insurance for $1,200.
C)a debit to insurance expense for $3,600.
D)a credit to prepaid insurance for $3,600.

Question 59

Your business purchased a certificate of deposit on April 1 that will pay $90 interest three months from that date.On April 30,which of the following adjusting entries would be made?

A)Debit Interest Receivable for $90;credit Interest Revenue for $90.
B)Debit Interest Revenue for $30;credit Interest Receivable for $30.
C)Debit Interest Receivable for $30;credit Interest Revenue for $30.
D)Debit Interest Revenue for $90;credit Interest Receivable for $90.

Question 60

When a dividend has been declared but not yet paid,

A)assets will increase and stockholders' equity will decrease.
B)assets will decrease and stockholders' equity will increase.
C)no accounts will be affected until the dividend is paid.
D)liabilities will increase and stockholders' equity will decrease.

Question 61

Which of the following would appear in the debit column of an adjusted trial balance?

A)Service revenue.
B)Dividends declared.
C)Accumulated depreciation.
D)Unearned revenue.

Question 62

Which of the following statements about dividends is not true?

A)Dividends Declared has a debit balance.
B)Dividends reduce retained earnings.
C)Dividends Declared is an expense.
D)Dividends Declared is a balance sheet account.

Question 63

Which of the following would appear in the credit column of an adjusted trial balance?

A)Income tax payable.
B)Depreciation expense.
C)Prepaid insurance.
D)Interest receivable.

Question 64

Which of the following statements about an adjusted trial balance is true?

A)Debits should equal credits both before and after adjustments are made.
B)Debits will equal credits after adjustments are made but not necessarily before.
C)Debits will equal credits before adjustments are made but not necessarily after.
D)Debits do not have to equal credits in the adjusted trial balance but they must be equal in the post-closing trial balance.

Question 65

Which of the following trial balances are used as a source for preparing the income statement?

A)Unadjusted trial balance.
B)Pre-adjusted trial balance.
C)Adjusted trial balance.
D)Post-closing trial balance.

Question 66

Which of the following is performed last at the end of the year?

A)Prepare adjusting entries.
B)Prepare an adjusted trial balance.
C)Prepare closing journal entries.
D)Prepare a post-closing trial balance.

Question 67

Three-fifths (60%)of the amount recorded as unearned revenue remains unearned as of 12/31/13.The adjusting entry would include

A)a credit to service revenue for $3,000.
B)a credit to unearned revenue for $3,000.
C)a credit to service revenue for $2,000.
D)a credit to unearned revenue for $2,000.

Question 68

One of the major advantages of making adjustments in order to improve the quality of financial statements is that they:

A)ensure that revenues and expenses are recognized during the period they are earned and incurred.
B)ensure that all estimates of future activities are eliminated from consideration.
C)ensure that revenues and expenses are recognized conservatively during the period hey are paid.
D)provide an opportunity to manipulate the numbers to the best effect.

Question 69

After net income has been determined,it is then transferred to:

A)the balance sheet.
B)the income statement.
C)the statement of cash flows.
D)the statement of retained earnings.

Question 70

The office equipment depreciates at a rate of $1,000 per year.The adjusting entry would include

A)a debit to accumulated depreciation for $1,000.
B)a credit to office equipment for $1,000.
C)a credit to depreciation expense for $1,000.
D)a credit to accumulated depreciation for $1,000.

Question 71

After preparing adjusting entries,the equality of recorded debits and credits is checked by preparing a(n):

A)post-closing trial balance.
B)adjusted trial balance.
C)income statement.
D)balance sheet.

Question 72

An adjusted trial balance should be prepared immediately:

A)after the financial statements,but before closing.
B)before posting adjusting entries.
C)after posting adjusting entries.
D)after journalizing adjusting entries.

Question 73

Accrued salaries at 12/31/13 are $2,000.The adjusting entry would include

A)a debit to salaries payable for $2,000.
B)a debit to salaries expense for $28,000.
C)a credit to salaries payable for $2,000.
D)a credit to salaries expense for $28,000.

Question 74

If total debits are not equal to total credits in an adjusted trial balance,which of the following errors may have occurred?

A)Posting Wage Expense to Administrative Expenses.
B)Debiting Interest Payable instead of debiting Interest Expense.
C)Recording a transaction twice.
D)Posting a credit to Wages Payable as a debit.

Question 75

Which of the following actions would aid the CEO in making 2014 net income results look more impressive?

A)Overstating the cost of machinery purchased in 2014.
B)Prepaying 2014 expenses in 2013.
C)Deferring 2014 expenses to 2015 and accruing revenues in 2014 that don't exist.
D)Recording 2014 revenue as unearned revenue.

Question 76

Which of the following is performed first at the end of each accounting period?

A)Prepare adjusting entries.
B)Prepare a post closing trial balance.
C)Prepare closing journal entries.
D)Prepare the statement of retained earnings.

Question 77

After adjusting entries are prepared and posted,but before closing entries are prepared and posted,the balance in retained earnings is equal to

A)zero.
B)the difference between total assets and total liabilities.
C)the amount that is to be reported in the current year's balance sheet.
D)the amount that was reported on the previous year's balance sheet.

Question 78

Which of the following actions would not be considered unethical?

A)Overstating the cost of machinery purchased in 2014.
B)Prepaying 2014 expenses in 2013.
C)Deferring 2014 expenses to 2015 and accruing revenues in 2014 that don't exist.
D)Recording 2014 revenue as unearned revenue.

Question 79

In a trial balance a contra-account appears:

A)just before the account it offsets but in the opposite column.
B)just after the account it offsets and in the same column.
C)just after the account it offsets but in the opposite column.
D)just before the account it offsets and in the same column.

Question 80

The first financial statement prepared after the adjusted trial balance is:

A)the balance sheet.
B)the income statement.
C)the statement of cash flows.
D)the statement of retained earnings.