Deck 3: The Adjusting Process

Question 1

Under cash- basis accounting, revenue is recorded when it is earned, regardless of when cash is received.

Answer 1

False

Question 2

The owner of Recipes.org purchases $2 000 of supplies on credit. Under the accrual basis of accounting, no entry is made until the $2 000 is paid.

Answer 2

False

Question 3

If a company is using the accrual method of accounting, when is revenue recorded?

A)When cash is received, before the completion of the services
B)When cash is received, 30 days after the completion of the services
C)When cash is received, even though services may be rendered at a later date
D)When services are rendered, even though cash may be received at a later date

Answer 3

D

Question 4

Accrual accounting requires adjusting entries at regular intervals throughout the accounting period.

Question 5

Under cash- basis accounting, an expense is recorded ONLY when cash is paid out.

Question 6

Which of the following situations would result in an increase in income under the accrual method of accounting, but would NOT result in an increase in income under the cash- basis method of accounting?

A)Receipt of cash for services that were performed earlier on credit
B)Use of supplies purchased earlier
C)Purchase of supplies for cash
D)Performance of services on credit

Question 7

Which of the following accounts would be used under the accrual method of accounting, but NOT under the cash- basis method of accounting.

A)Unearned revenue
B)Salary expense
C)Cash
D)Equipment

Question 8

Every time supplies are used during the accounting period, the asset 'supplies' should be reduced and the 'supplies expense' should be increased.

Question 9

Accrual accounting records transactions ONLY when cash is received or paid.

Question 10

If a company is using the cash- basis method of accounting, when is revenue recorded?

A)When cash is received, at a time after the services were rendered
B)When services are rendered, even though cash may be received at a later date
C)When cash is received, prior to the services being rendered
D)When cash is received, either prior to the services being rendered or at a time after the services were rendered

Question 11

In cash- basis accounting, revenue is recognised when cash is received and expenses are recognised when they are paid.

Question 12

The purposes of the adjusting process are:

A)to adjust asset and liability balances to the proper accrual basis.
B)to adjust expenses and revenues to the proper accrual basis.
C)to adjust expenses and revenues as well as asset and liability balances to the proper accrual basis.
D)None of the above.

Question 13

Australian accounting standards require the use of accrual accounting.

Question 14

Which of the following accounts does cash- basis accounting ignore?

A)Expenses
B)Payables
C)Revenue
D)Cash

Question 15

Under accrual basis accounting, revenue is recorded ONLY when cash is received.

Question 16

Which of the following is TRUE?

A)Accrual accounting records expenses when incurred. Cash- basis accounting records expenses when cash is paid.
B)Accrual accounting records revenue when services are rendered. Cash- basis accounting records revenue when cash is received.
C)Accrual accounting is required by Australian accounting standards.
D)All of the above are true.

Question 17

Under accrual basis accounting, an expense is recorded ONLY when the cash is paid out.

Question 18

The end- of- period process starts with the:

A)balance sheet.
B)unadjusted trial balance.
C)income statement.
D)adjusted trial balance.

Question 19

Which of the following accounts would NOT be included in the adjusting entries made at the end of an accounting period?

A)Accounts payable
B)Accounts receivable
C)Prepaid insurance
D)Cash

Question 20

Adjusting entries assign revenues to the period when they are earned and expenses to the period when they are incurred.

Question 21

How do the adjusting entries differ from other journal entries?

A)Adjusting entries are made only at the end of the period.
B)Adjusting entries always either increase revenue or increase an expense.
C)Adjusting entries never affect cash.
D)All of the above are true.

Question 22

A contra account has two characteristics: (1)a contra account is paired with its related account, and
(2)a contra account's normal balance is the same as that of the related account.

Question 23

Smith borrows $10 000 on a one- year loan payable that charges interest at 12% per year. He will repay the principal and interest at the end of the one- year period. Smith makes accrual adjustments and each month, he records interest expense of $1 200.

Question 24

In the case of Unearned revenue, the adjusting entry at the end of the period includes a credit to Service revenue.

Question 25

At 1 January, Smith has a beginning balance in Unearned revenue of $1 000. During January, he earns $800 of that amount. He also collects $4 000 from a new customer for services to be rendered the following month. As of the end of January, the Unearned revenue account had a balance of $4 800.

Question 26

Argyle Designs has a contract to design 20 new dresses for a customer, and will collect a total of $40 000 when the design services are complete. They start on 1 June. As of 30 June, Argyle has finished 4 of the 20 designs. They will make an adjusting entry at the end of June to accrue $10 000 of service revenue.

Question 27

To accrue revenue means that the cash receipt is recorded before the revenue is earned.

Question 28

If supplies have been used up during the accounting period, the correct adjusting entry would be:

A)increase the asset 'supplies' and increase 'supplies expense.'
B)increase the asset 'supplies' and reduce the 'supplies expense.'
C)reduce the asset 'supplies' and reduce the 'supplies expense.'
D)reduce the asset 'supplies' and increase the 'supplies expense.'

Question 29

At 1 January, Smith has $1 200 of supplies on hand. During January, Smith purchases $3 000 worth of new supplies. At the end of the month, a count reveals $500 worth of supplies remaining on the shelves. The adjustment entry needed will include a debit to Supply expense of $3 700.

Question 30

Prepaid insurance is an asset account.

Question 31

In the case of Unearned revenue, the cash is received first, and the revenue is earned later.

Question 32

In the case of a prepaid expense, the adjusting entry required at the end of a period consists of a debit to Prepaid expense.

Question 33

Smith owns manufacturing equipment that originally cost $12 600 and has an estimated useful life of 7 years. Smith records depreciation monthly in the amount of $100.

Question 34

At 1 January, Smith has a beginning balance in Prepaid insurance expense of $1 200. Smith pays insurance premiums once a year, and his total premium is $4 800. As of the end of February, the balance in prepaid insurance is $2 000.

Question 35

Smith signed a contract with a service provider for security services at a rate of $250 per month for the period of January through June. He will pay the service provider the entire amount at the end of June. Smith makes adjusting entries each month. During the month of February, Smith will record total security services expense of $500.

Question 36

In the case of Unearned revenue, the adjusting entry at the end of the period includes a debit to Service revenue.

Question 37

Contra asset accounts like Accumulated depreciation have normal debit balances.

Question 38

Prepaid rent is an expense account.

Question 39

Adjusting entries NEVER involve:

A)expenses.
B)revenues.
C)liabilities.
D)cash.

Question 40

In the case of a prepaid expense, the adjusting entry required at the end of a period consists of a credit to Prepaid expense.

Question 41

At the end of the current year, the accountant for Navistar Graphics forgot to make an adjusting entry to accrue Wages payable to the company's employees for the last week in December. The wages will be paid to the employees in January. Which of the following is one of the effects of this error?

A)Liabilities are overstated.
B)Profit is understated.
C)Expenses are overstated.
D)Profit is overstated.

Question 42

Entries that record an expense before the cash is paid are:

A)prepaid expenses.
B)accrued expenses.
C)unearned revenues.
D)accrued revenues.

Question 43

The accountant for Noble Jewellery Repair Services forgot to make an adjusting entry for Depreciation expense for the current year. Which of the following is one of the effects of this error?

A)Total assets are understated.
B)Profit is overstated.
C)Total liabilities are understated.
D)Profit is understated.

Question 44

What is the effect of the adjusting entry for Depreciation expense?

A)The entry decreases total liabilities and increases total expenses.
B)The entry decreases total assets and increases total expenses.
C)The entry increases total assets and increases total expenses.
D)The entry increases total liabilities and increases total expenses.

Question 45

Unearned revenue would be classified as a(n)account.

A)equity
B)asset
C)liability
D)revenue

Question 46

The entry to record depreciation includes a credit to which account?

A)Equipment
B)Depreciation expense
C)Accumulated depreciation
D)Cash

Question 47

Accrued revenue is revenue that:

A)will be collected and earned in the future.
B)has been collected and earned.
C)the business has earned, but not collected.
D)the business has collected, but not yet earned.

Question 48

An adjusting entry that credits Salaries payable is an example of a(n):

A)unearned revenue.
B)accrued revenue.
C)prepaid expense.
D)accrued expense.

Question 49

An adjusting entry that debits Accounts receivable is an example of a(n):

A)accrued expense.
B)accrued revenue.
C)unearned revenue.
D)prepaid expense.

Question 50

An entry that reflects the using up of a portion of a fixed asset's value would be a(n) entry.

A)prepaid expense
B)depreciation
C)accrued expense
D)accrued revenue

Question 51

Robert Rogers, CPA performed accounting services for a client in June. A bill was mailed to the client on 29 June. Roberts received a cheque in the mail on 5 July. Which of the following accounts would appear on the income statement for the year ended 30 June?

A)Service revenue
B)Prepaid expense
C)Unearned revenue
D)Accounts payable

Question 52

Unearned revenue is revenue that:

A)has been collected and earned.
B)the business has earned, but not collected.
C)the business has collected, but not yet earned.
D)will be collected and earned in the future.

Question 53

The accountant for Noble Jewellery Repair Services forgot to make an adjusting entry for Depreciation expense for the current year. What is the effect of this error on total assets?

A)Total assets are understated.
B)Total assets are overstated.
C)Total assets are not affected.
D)There is not enough information presented to answer the question.

Question 54

If an adjusting entry includes a debit to Rent expense, that would indicate that the payment of rent had been previously recorded as a(n)entry.

A)accrued revenue
B)depreciation
C)prepaid expense
D)accrued expense

Question 55

Which of the following accounts would NOT be adjusted at the end of an accounting period?

A)Unearned revenue
B)Accounts receivable
C)Equipment
D)Prepaid insurance

Question 56

Entries that record revenues earned before the cash is collected are:

A)accrued revenues.
B)accrued expenses.
C)prepaid expenses.
D)unearned revenues.

Question 57

The entry to record depreciation includes a debit to which account?

A)Cash
B)Depreciation expense
C)Equipment
D)Accumulated depreciation

Question 58

Which of the following is a contra account?

A)Accumulated depreciation
B)Unearned revenue
C)Earned revenue
D)Depreciation expense

Question 59

Real Losers, a diet magazine, collected $360 000 in subscription revenue in May. Each subscriber will receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. What is the balance in the Unearned revenue account at the end of December?

A)$0
B)$330 000
C)$360 000
D)$150 000

Question 60

Real Losers, a diet magazine, collected $360 000 in subscription revenue in May. Each subscriber will receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. By the end of December, how much Subscription revenue has been earned?

A)$120 000
B)$210 000
C)$12 000
D)$360 000

Question 61

Smith Technical Services is working on a six- month job for a client, starting 1 February. They will collect $48 000 from their customer when the job is finished. On 1 March, their Accounts receivable account has a debit balance of $8 000. At the end of March, after monthly adjusting entries have been made, what will the balance in Accounts receivable be?

A)Credit balance of $8 000
B)Debit balance of $12 000
C)Debit balance of $16 000
D)Debit balance of $48 000

Question 62

Entries that record cash collected before the revenues are earned are:

A)accrued revenues.
B)unearned revenues.
C)prepaid expenses.
D)accrued expenses.

Question 63

A business pays salaries of $140 000 on the first and fifteenth day of every month. Which of the following is the adjusting entry required on 30 June 2014?

A)A debit of $140 000 to Salaries expense and a credit of $140 000 to Salaries receivable.
B)A debit of $140 000 to Salaries expense and a credit of $140 000 to Salaries payable.
C)A debit of $140 000 to Salaries receivable and a credit of $140 000 to Salaries payable.
D)No adjusting entry is required.

Question 64

What type of account is Accumulated depreciation and what is its normal balance?

A)Liability and credit
B)Expense and debit
C)Contra asset and credit
D)Revenue and debit

Question 65

ABC Company signed a one- year $12 000 loan payable at 8% interest on 1 November 2013. If ABC only adjusts their accounts once a year, how much interest expense must be accrued on 30 June 2014?

A)$320
B)$640
C)$960
D)$474

Question 66

Classic Artists' Services has hired a maintenance man to maintain a building they use for instruction. He will begin work on 1 February and work through until 31 May. They will pay the maintenance man $2 000 at the end of May. Classic Artists' Services accrue Maintenance expense at the end of every month. What is the balance in the Accounts payable account for amounts owed to the maintenance man at the end of March?

A)Credit balance of $1 000
B)Credit balance of $2 000
C)Debit balance of $2 000
D)Debit balance of $1 000

Question 67

ABC Company signed a one- year $12 000 loan payable at 8% interest on 1 May 2013. How much interest expense must be accrued on 31 May 2013?

A)$80
B)$960
C)$40
D)$320

Question 68

On 1 January 2014, Lexmark Company's Accounts receivable account had a debit balance of $10 000. During January 2014, the company billed customers for services in the amount of $300 000. Also during January, the company collected $240 000 from its customers on credit. What was the balance in the Accounts receivable account at the end of January?

A)$250 000
B)$70 000
C)$60 000
D)$10 000

Question 69

On 1 March 2013, Joy Company paid $4 000 in advance for an 8- month rental space covering the period of March 2013 to October 2013. The business makes adjusting entries once a year on 30 June. The adjusting entry at 30 June 2013 would include a:

A)credit of $2 000 to Rent expense on 30 June 2013.
B)debit of $2 000 to Rent expense on 30 June 2013.
C)debit of $4 000 to Prepaid rent expense on 30 June 2013.
D)debit of $2 000 to Prepaid rent expense on 30 June 2013.

Question 70

The adjusting entry to record Depreciation expense accomplishes which of the following?

A)Updates a contra asset
B)Records an expense
C)Updates a liability
D)Both A and B

Question 71

Active Education sells tickets in advance for their weekly productions and records the proceeds as Unearned revenue. At the end of each month, they make an adjusting entry to account for the tickets used during the month (Ticket revenue.)At 1 March, the Unearned revenue account had a credit balance of $3 000. During March, they sold 300 tickets at $20 each, and 250 tickets were used during the month. What is the balance in Unearned revenue at the end of March?

A)Debit balance of $2 000
B)Credit balance of $2 000
C)Credit balance of $4 000
D)Debit balance of $4 000

Question 72

In accounting, depreciation is the:

A)sale of an asset.
B)decline in market value of an asset.
C)method of spreading the cost of an asset over its useful life.
D)estimation of an asset's current value.

Question 73

On 1 August 2013, Xcel Auto Repair paid $6 000 in advance for six months' rent. Xcel makes proper adjusting entries at the end of every month. What is the balance of Prepaid rent on 31 December 2013?

A)$2 000
B)$4 000
C)$1 000
D)$6 000

Question 74

The Supplies account for Vulcan Cleaning Services had a debit balance of $200 at the beginning of the month. Additional supplies of $1 400 were purchased during the month. A physical count of supplies revealed that $600 of supplies was still on hand at the end of the month. What was total Supplies expense for the month?

A)$1 400
B)$1 000
C)$600
D)$100

Question 75

The Accumulated depreciation account is:

A)a contra account to the asset being depreciated.
B)an expense account.
C)a record of the sum of all the depreciation recorded.
D)both a record of the sum of all the depreciation recorded and a contra account to the asset being depreciated.

Question 76

On 31 December 2012, the balance in Pinnacle Exploration Company's Unearned revenue account is credit of $4 200. In January 2013, the company received an advance payment of $12 000 from a new customer for services to be performed. By 31 January, adjustments had been made to recognise $8 500 of the revenue which had been earned during January. What would be the balance in Unearned revenue on 31 January 2013?

A)$3 500 credit
B)$7 700 credit
C)$16 200 credit
D)$8 500 debit

Question 77

A business pays its insurance premium of $2 400 on 1 May of each year. On 1 July (after 30 June adjustments), the Prepaid insurance account has a debit balance of:

A)$400.
B)$2 400.
C)$2 000.
D)$1 200.

Question 78

The beginning balance in the Supplies account was $3 000. Purchases of supplies during the year were $25 000. The business makes adjusting entries for supplies once a year. A count of supplies at year- end revealed that the ending balance in the Supplies account should be $1 500. What is the amount of the adjusting entry?

A)$25 000
B)$26 500
C)$3 000
D)$1 500

Question 79

Entries that record cash paid out before the expense is incurred are:

A)unearned revenues.
B)prepaid expenses.
C)accrued revenues.
D)accrued expenses.

Question 80

A business acquires equipment for $140 000 on 1 July 2013. The equipment depreciation will be $20 000 each year for the seven years of the asset's expected life. The business records depreciation once a year on 30 June. Which of the following is the adjusting entry required on 30 June 2014?

A)A debit of $20 000 to Depreciation expense and a credit of $20 000 to Equipment.
B)A debit of $20 000 to Depreciation expense and a credit of $20 000 to Accumulated depreciation.
C)A debit of $140 000 to Equipment and a credit of $140 000 to Cash.
D)A debit of $140 000 to Depreciation expense and a credit of $140 000 to Accumulated depreciation.