Deck 3: Adjusting the Accounts

Question 1

An interim period of a company can be any time period of less than one year.

Answer 1

True

Question 2

The cash basis of accounting is not in accordance with generally accepted accounting principles.

Answer 2

True

Question 3

Many business transactions will affect more than one accounting period.

Answer 3

True

Question 4

The cash basis of accounting is more useful than the accrual basis as the balance in the bank account is always reflected in the financial statements.

Question 5

Adjusting entries are often made because some business events are NOT recorded as they occur.

Question 6

The accrual basis of accounting requires adjustments to be made for prepaid, unearned, and accrued items.

Question 7

The fiscal year of the company must be the same as a calendar year.

Question 8

In the accrual basis of accounting, revenue is recognized when the cash for the transaction is received.

Question 9

Expense recognition is tied to revenue recognition when there is a direct association between the cost incurred and the earning of revenue.

Question 10

Adjusting entries are needed every time financial statements are prepared.

Question 11

Revenue is recognized when there is a decrease in assets or an increase in liabilities as the result of the company's business activities with its customers.

Question 12

A company needs to divide the life of its business into accounting periods in order to provide useful and relevant information to the people who use its financial statements.

Question 13

In the accrual basis of accounting, expenses are recognized when the services are used or the goods are consumed, not when the cash is paid.

Question 14

Because accounting often requires estimates to be made to assess the effect of a transaction, the shorter the time period, the easier it becomes to determine the proper adjustments.

Question 15

The accrual basis of accounting is more complex than the cash basis of accounting as it involves such decisions as determining when to record revenues and expenses.

Question 16

An expense is recognized when there is an increase in assets or a decrease in liabilities from consuming a service or asset in the company's business activities with its customers.

Question 17

Revenue recognition is restricted to situations when the service has been performed and the revenue can be reliably measured and a collection is reasonably certain.

Question 18

There is always a direct relationship between revenues and expenses.

Question 19

Adjusting entries are NOT necessary if the trial balance debit and credit columns balances are equal.

Question 20

Accounting time periods that are more than one year in length are referred to as interim periods.

Question 21

The useful life of an asset is always known at the time the asset is purchased.

Question 22

The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same.

Question 23

Accumulated depreciation is shown in the liability section of the balance sheet because its normal balance is a credit.

Question 24

Accrued expenses are expenses that have been incurred but have not been recorded yet in the records.

Question 25

Prepayments must always be debited to an asset account and credited to a liability account.

Question 26

An adjusting entry will always debit an asset to increase the asset.

Question 27

Prepayments are typically made with cash.

Question 28

Unearned revenue is a prepayment that requires an adjusting entry when services are performed.

Question 29

Accumulated depreciation is shown as a deduction from the asset on the company's balance sheet.

Question 30

The normal balance of the accumulated depreciation is always a debit.

Question 31

The straight-line method of depreciation will allocate a portion of the cost of the asset to each year of useful life of the asset.

Question 32

An adjusting entry will credit a liability to increase the liability.

Question 33

Unearned revenue, a cash payment which has been received in advance, is recorded as an asset of the business.

Question 34

To decrease an unearned revenue account, a credit entry to that account must be made.

Question 35

The difference between the cost of the asset and its accumulated depreciation is called the "carrying amount" of the asset.

Question 36

If prepaid costs are initially recorded as an asset, no adjusting entries will be required in the future.

Question 37

An adjusting entry always involves two balance sheet accounts.

Question 38

The annual depreciation expense can be calculated by dividing the cost of the asset by the useful life of the asset (in years).

Question 39

Adjusting journal entries are only necessary when year-end financial statements are prepared.

Question 40

Accumulated depreciation is a contra asset account.

Question 41

If the debits equal the credits in the adjusted trial balance, it means that all of the entries have been made.

Question 42

Which of the following is NOT considered an interim reporting period for a calendar year end of December 31, 2017?

A) March 31, 2017
B) June 30, 2017
C) September 30, 2017
D) all of the above are interim reporting periods

Question 43

The fiscal year of a business is usually determined by

A) the Canada Revenue Agency.
B) the Tax Act.
C) the business.
D) provincial securities and exchange commissions.

Question 44

Management usually desires ______ financial statements and the Canada Revenue Agency requires all businesses to file ______ tax returns.

A) annual, annual
B) monthly, annual
C) quarterly, monthly
D) monthly, monthly

Question 45

The revenue recognition criteria states that revenue of a business is recognized

A) when cash is received.
B) when it is earned.
C) at the end of the year.
D) in the period that the expenses to earn that revenue are incurred.

Question 46

If an Interest Receivable account is debited in an adjusting entry, then the account credited will be Interest Revenue.

Question 47

In a service-type business, revenue is considered earned

A) at the end of the month.
B) at the end of the year.
C) when the service is performed.
D) when cash is received.

Question 48

An accounting time period that is one year in length, which could, but does not need to begin on January 1, is referred to as

A) a fiscal year.
B) an interim period.
C) final reporting period.
D) a reporting period.

Question 49

Shifter Corporation owes its employees $9,000 for the week ended September 30. The company will pay the employees October 5. The adjusting journal entry prepared on September 30 will include a debit to Salaries Expense and a credit to Cash for $9,000.

Question 50

Financial statements should be prepared directly from the information in the unadjusted trial balance.

Question 51

An adjusted trial balance is necessary to prepare financial statements.

Question 52

Which of the following is NOT a common accounting period chosen by businesses?

A) daily
B) monthly
C) quarterly
D) annually

Question 53

A business will divide the life of its business into specific accounting periods because

A) a transaction can only affect one period of time.
B) the number of transactions will be more evenly divided between periods.
C) adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations.
D) it will provide useful information to the business's users.

Question 54

Expenses should be recognized, excluding transactions with owners, when which of the following occurs?

A) There is an increase in assets.
B) There is an increase of liabilities.
C) There is a decrease in liabilities.
D) None of the above.

Question 55

Revenue will be recognized when the following occurs as a result of a business activity with a customer.

A) There is an increase in assets.
B) There is an increase in liabilities.
C) There is a decrease in assets.
D) None of the above.

Question 56

In general, the shorter the time period, the difficulty of making the proper adjustments to accounts

A) is increased.
B) is decreased.
C) is unaffected.
D) depends on the number of transactions in the period.

Question 57

Which of the following accounting periods would NOT be referred to as an interim period?

A) monthly
B) quarterly
C) semi-annually
D) annually

Question 58

A company is required to prepare adjusting entries for its financial statements because

A) Canada Revenue Agency requires adjusting entries.
B) the cash balance would not be properly reflected.
C) long-term assets must be expensed when purchased.
D) transactions may relate to more than one accounting period.

Question 59

In the adjusted trial balance, if some of your adjusting entries have been posted twice, the debit totals will equal the credit totals on the trial balance.

Question 60

If an Interest Expense account is debited in an adjusting entry, then the account credited will be Interest Revenue.

Question 61

Expense recognition is tied to revenue recognition when

A) cash has been received for the revenue.
B) efforts should be matched with accomplishments.
C) when there is a direct association with the costs incurred and when the revenue is earned.
D) cash payments have been expended in the same accounting period.

Question 62

Martin's Cove Marina has a September 30 year end. On August 15, 2017, it purchased a new marine crane to assist it with the autumn pull out of the boats in the marina. The physical life of the crane is expected to be 15 years, but Martin plans to keep the crane for only 10 years as this represents the asset's useful life to the company and at which point they will trade it in for a newer model. The original cost of the crane is $50,000. The amount of depreciation that Martin should show in its financial statements for the year ended September 30, 2017 is

A) $3,333.
B) $5,000.
C) $ 417.
D) $ 625.

Question 63

An adjusting entry

A) affects two balance sheet accounts.
B) affects two income statement accounts.
C) affects a balance sheet account and an income statement account.
D) is always a compound entry.

Question 64

Which of the following items is NOT classified as an adjusting entry?

A) prepaid expenses
B) accrued expenses
C) unearned revenues
D) owner's capital

Question 65

Adjusting entries are needed to ensure that revenue is recorded when ______ and expenses are recorded when ______.

A) earned, incurred
B) collected, paid
C) earned, paid
D) collected, incurred

Question 66

Adjusting entries are needed

A) every time cash is received.
B) every time financial statements are prepared.
C) every time expenses are incurred or revenue is performed.
D) never if you are reporting on an annual basis.

Question 67

Once an unadjusted trial balance has been prepared, the next step in the accounting cycle is

A) calculate profit.
B) calculate owner's capital at the end of the period.
C) analyze the accounts for adjusting entries which need to be made.
D) prepare financial statements.

Question 68

Accounts often need to be adjusted because

A) there is difficulty in determining which period a transaction should be recorded.
B) many transactions affect more than one accounting period.
C) there are always errors made in recording transactions.
D) management may direct expenses to be recorded in future periods to increase this period's profit.

Question 69

Companies reporting under IFRS must prepare adjusting entries every

A) month.
B) day.
C) year.
D) quarter.

Question 70

A 52 week period is called a(n)

A) fiscal year.
B) interim period.
C) quarter.
D) business period.

Question 71

Adjusting entries are

A) not necessary if the accounting system is operating properly.
B) usually required before financial statements are prepared.
C) made when the cash basis of accounting is used.
D) made to income statements accounts only.

Question 72

Tantramar Construction has an October 31 year end. On October 20 Tantramar received a payment from Cantech Industries in the amount of $25,000 as an advance on the construction for the new head office of Cantech. Construction was to have started October 25 but due to an early snowfall, construction did not start until November 7. Construction is scheduled to be completed December 31. Following the revenue recognition criteria, the revenue which Tantramar should record in its October 31 Financial Statements is

A) $10,000.
B) $5,000.
C) 0.
D) none of the above.

Question 73

On June 28, Bronnie's provided consulting services to Maisie Company. Bronnie's billed Maisie on July 2 for $800 related to these services. On July 5, Maisie paid the invoice in full. Bronnie's only cost related to this sale was $250 in Salaries Expense. Bronnie's paid the salaries on July 3. Assuming Bronnie's Company has a June 30 year end, the company's profit for the Maisie's job on the June 30 financial statements should be

A) 0.
B) $800.
C) $550.
D) $250.

Question 74

Adjusting entries are required

A) because some costs expire with the passage of time and have not yet been journalized.
B) when the company's profits are below the budget.
C) when expenses are recorded in the period in which they are earned.
D) when revenues are recorded in the period in which they are earned.

Question 75

A company spends $10 million dollars for an office building. Over what period of time should the cost be written off?

A) when the $10 million is expended in cash
B) all in the first year
C) over the useful life of the building
D) over the physical life of the building

Question 76

A dress shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and payment from the customer is received on December 10. The dress shop follows GAAP and recognizes revenue accordingly. When is the $1,000 considered to be earned?

A) December 5
B) December 10
C) November 30
D) December 1

Question 77

A furniture factory's employees work overtime to finish an order that is sold on February 28. The office sends a statement to the customer in early March and payment is received by mid-March. According to the expense recognition criteria the overtime wages should be expensed in

A) February.
B) March.
C) the period when the workers receive their cheques.
D) either in February or March depending on when the pay period ends.

Question 78

Under the accrual basis of accounting

A) cash must be disbursed before an expense is recognized.
B) profit is calculated by matching cash outflows against cash inflows.
C) events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
D) the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.

Question 79

What is the "maximum" time frame for preparing adjusting entries under both ASPE and IFRS?

A) ASPE prepares adjusting entries monthly, IFRS prepares adjusting entries monthly.
B) IFRS prepares adjusting entries quarterly, ASPE prepares adjusting entries quarterly.
C) ASPE prepares adjusting entries annually, IFRS prepares adjusting entries quarterly.
D) IFRS prepares adjusting entries annually, ASPE prepares adjusting entries quarterly.

Question 80

When using accrual basis accounting, financial statement preparers must

A) provide a supplementary note detailing that accrual accounting has been used.
B) state within a note that cash basis accounting is not acceptable under GAAP.
C) provide no supplementary note because the underlying assumption is that accrual basis of accounting is used on all financial statements.
D) none of the above.