Deck 5: Accrual Accounting Adjustments

Question 1

What is the correct adjusting entry at June 30, the end of the financial year, based on a Supplies account balance, before adjustment, of $5200 and supplies inventory, on June 30, of $1200?

A) Dr Supplies $1200 Cr Supplies expense $1200
B) Dr Supplies expense $1200 Cr Supplies $1200
C) Dr Supplies expense $4000 Cr Supplies $4000
D) Dr Supplies $4000 Cr Supplies expense $4000

Answer 1

C

Question 2

The balance in the Prepaid rent account before adjustment at the end of the year is $15 000, which represents three months' rent paid on May 1. The adjusting entry required on June 30 is:

A) Dr Rent expense $10 000 Cr Prepaid rent $10 000
B) Dr Rent expense $5000 Cr Prepaid rent $5000
C) Dr Prepaid rent $10 000 Cr Rent expense $10 000
D) Dr Prepaid rent $5000 Cr Rent expense $5000

Answer 2

A

Question 3

A consultant performs accounting services for a client on 30 June 2016 and bills the client $350, to be paid within 60 days. Payment is received on 15 August 2016. Accrual accounting is used by both parties. What is the journal entry made by the consultant on 15 August 2016?

A) Dr Cash Cr Accounts receivable
B) Dr Cash Cr Service revenue
C) Dr Accounts receivable Cr Cash
D) None of the answers provided

Answer 3

A

Question 4

On 30 June 2016, TV Manufacture Ltd, which uses accrual accounting, estimates that it will incur warranty costs of $135 000 in the next financial year on products sold during the year just ended. On 7 October 2016, the manufacturer pays $21 000 under the warranty. What is the journal entry made by TV Manufacture Ltd on 7 October 2016?

A) Dr Warranty expense Cr Warranty liability
B) Dr Warranty liability Cr Warranty expense
C) Dr Warranty liability Cr Cash
D) Dr Cash Cr Warranty liability

Question 5

A consultant performs accounting services for a client on 30 June 2016 and bills the client $350, to be paid within 60 days. Payment is received on 15 August 2016. Accrual accounting is used by both parties. What is the journal entry made by the consultant on 30 June 2016?

A) Dr Service revenue Cr Accounts payable
B) Dr Accounts receivable Cr Cash
C) Dr Accounts receivable Cr Service revenue
D) None of the answers provided

Question 6

At the end of the financial year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following statements is true?

A) Total assets will be understated at the end of the current year.
B) The profit and loss statement will be misstated but the balance sheet will be correct for the current year.
C) Net profit will be overstated for the current year.
D) Total liabilities and total assets will be understated.

Question 7

Which of the following cash flows involve revenues or expenses?

A) Payment of dividend
B) Cash purchase of building
C) Issue of shares for cash
D) None of the answers provided

Question 8

If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry?

A) Increases the balance of a contra asset account
B) Increases the balance of an asset account
C) Decreases the balance of an asset account
D) Increases the balance of an expense account

Question 9

Which of the following entries is an example of asset consumption recognised over future time periods?

A) Dr Warranty expense Cr Warranty liability
B) Dr Supplies expense Cr Supplies inventory
C) Dr Customer deposits Cr Service revenue
D) None of the answers provided

Question 10

Which of the following entries is NOT an example of asset consumption, recognised over future time periods?

A) Dr Salaries expense Cr Cash
B) Dr Depreciation expense Cr Accumulated depreciation
C) Dr Insurance expense Cr Prepaid insurance
D) Dr Cost of goods sold Cr Inventory

Question 11

If the Prepaid rent account before adjustment at the end of the month has a debit balance of $1500, representing a payment made on the first day of the month, and if the monthly rent was $1000, the amount of prepaid rent that would appear on the balance sheet at the end of the month, after adjustment, is:

A) $500.
B) $1000.
C) $1500.
D) $2500.

Question 12

Which of the following would be recorded as an asset?

A) Prepayments
B) Accrued expenses
C) Revenue received in advance
D) All of the above would be recorded as assets

Question 13

In 2016, Zealous Ltd paid $1900 for 2015 expenses, $32 000 for 2016 expenses and $4000 advance payment for 2017 expenses. Additionally, during 2016 Zealous Ltd accrued $8000 for 2016 expenses to be paid in 2017. Furniture depreciation for 2016 was $5000. What was the accrual accounting expense for 2016?

A) $37 000
B) $40 000
C) $45 000
D) None of the answers provided

Question 14

On 30 June 2016, TV Manufacture Ltd, which uses accrual accounting, estimates that it will incur warranty costs of $135 000 in the next financial year on products sold during the year just ended. On 7 October 2016, the manufacturer pays $21 000 under the warranty. What is the journal entry made by TV Manufacture Ltd on 30 June 2016?

A) Dr Warranty liability Cr Cash
B) Dr Warranty liability Cr Warranty expense
C) Dr Warranty expense Cr Warranty liability
D) None of the answers provided

Question 15

Which of the following would be recorded as an asset?

A) Prepayments
B) Accrued expenses
C) Unearned revenue
D) All would be recorded as assets

Question 16

On 30 June 2016, LMO Ltd calculates that its 2016 income taxes are $4 570 000 with the payment due in July 2016. What is the journal entry made by LMO Ltd on 30 June 2016?

A) Dr Income tax payable Cr Income tax expense
B) Dr Income tax expense Cr Cash
C) Dr Income tax payable Cr Cash
D) None of the answers provided

Question 17

Which of the following does NOT appear in the balance sheet?

A) Commission payable
B) Prepaid commission
C) Commission revenue received in advance
D) Commission revenue

Question 18

Data Ltd uses accrual accounting and its financial year ends on 30 June. Expenses paid in advance are treated as assets. On 1 May 2016, Data Ltd pays $480 for a one-year fire insurance policy that expires on 30 April 2017. What is the journal entry made by Data Ltd on 1 May 2016?

A) Dr Insurance expense $80 Cr Prepaid insurance $80
B) Dr Insurance expense $480 Cr Prepaid insurance $480
C) Dr Prepaid insurance $480 Cr Cash $480
D) Dr Insurance expense $480 Cr Cash $480

Question 19

The Supplies account has a balance of $750 at the beginning of the year and was debited during the year for $2800, representing the total of supplies purchased during the year. If $950 of supplies are on hand at the end of the year, the supplies expense to be reported on the profit and loss statement for the year is:

A) $750.
B) $950.
C) $2600.
D) $4500.

Question 20

A payment for insurance on 1 June for $120 000, covering the period 1 June 2015 to 31 May 2016, was recorded as a prepayment. No adjusting entry was made at 30 June 2016. As a result:

A) profit and total assets were understated by $10 000.
B) profit and total assets were understated by $110 000.
C) profit was overstated by $10 000 and assets understated by $10 000.
D) none of the answers provided.

Question 21

On 1 July 2015, Green Ltd had office supplies costing $20 000. During the year ended 30 June 2016, the company purchased supplies costing $32 000. Of these, $4000 worth was returned to the supplier as unsatisfactory. At 30 June 2016, it was ascertained that $7000 worth of the supplies remained unused. What was the value of Green Ltd's office supplies expense for year ended 30 June 2016?

A) $7000
B) $41 000
C) $45 000
D) None of the answers provided

Question 22

On 1 May 2016, A Ltd pays $9600 for a one-year fire insurance policy that expires on 30 April 2017. What is the journal entry made by A Ltd on 30 June 2016?

A) Dr Insurance expense $1600 Cr Prepaid insurance $1600
B) Dr Prepaid insurance $9600 Cr Cash $9600
C) Dr Prepaid insurance $1600 Cr Insurance expense $1600
D) Dr Insurance expense $9600 Cr Prepaid insurance $9600

Question 23

On 27 September 2016, a builder received an advance of $50 000 from a client for future work. The work was completed to the client's satisfaction on 3 December 2016. What is the journal entry made by the builder on 3 December 2016?

A) Dr Cash Cr Unearned revenue
B) Dr Accrued revenue Cr Sales revenue
C) Dr Unearned revenue Cr Sales revenue
D) Dr Sales revenue Cr Unearned revenue

Question 24

If a company neglects to make an adjustment for accrued expenses:

A) profit will be overstated and liabilities understated.
B) profit will be overstated and liabilities overstated.
C) profit will be overstated and assets understated.
D) profit will be understated and liabilities overstated.

Question 25

The weekly salaries bill for Credo Ltd is $70 000 for a five-day working week. Employees are paid on Friday for work completed to Thursday. If 30 June 2016 fell on a Wednesday, what would be the accrued salaries payable on 30 June 2016?

A) $42 000
B) $28 000
C) $14 000
D) None of the answers provided

Question 26

On 15 September 2016, a surveyor received an advance of $7000 from a client for future services. The work was completed to the client's satisfaction on 10 October 2016. The surveyor uses accrual accounting. What is the journal entry made by the surveyor on 15 September 2016?

A) Dr Cash Cr Unearned revenue
B) Dr Unearned revenue Cr Cash
C) Dr Cash Cr Surveying revenue
D) Dr Customer deposits Cr Unearned revenue

Question 27

At the end of the financial year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true?

A) Salary expense for the year was overstated.
B) The total of the liabilities at the end of the year was overstated.
C) Net profit for the year was understated.
D) Shareholders' equity at the end of the year was overstated.

Question 28

H Ltd pays salaries each Friday afternoon to cover the previous five working days (up to and including Friday). The weekly wages' bill is $500 000. The end of the accounting period falls on a Monday. The adjusting journal entry will be:

A) Dr Wages expense $50 000 Cr Accrued wages $50 000
B) Dr Wages expense $100 000 Cr Accrued wages $100 000
C) Dr Accrued wages $50 000 Cr Wages expense $50 000
D) None of the answers provided

Question 29

The Supplies account has a balance of $975 at the beginning of the year and was debited during the year for $2800, representing the total of supplies purchased during the year. If $750 of supplies are on hand at the end of the year, the supplies expense to be reported on the profit and loss statement for the year is:

A) $750.
B) $975.
C) $2800.
D) $3025.

Question 30

T Ltd paid $240 000 in wages during the year. The opening balance of Accrued Wages was $8000 and the closing balance was $10 000. What was the wages expense for the year?

A) $238 000
B) $240 000
C) $242 000
D) None of the answers provided

Question 31

Data Ltd uses accrual accounting and its financial year ends on 30 June. Expenses paid in advance are treated as assets. On 1 May 2016, Data Ltd pays $480 for a one-year fire insurance policy that expires on 30 April 2017. What is the journal entry made by Data Ltd on 30 June 2016?

A) Dr Prepaid insurance $480 Cr Cash $480
B) Dr Prepaid insurance $80 Cr Insurance expense $80
C) Dr Insurance expense $480 Cr Prepaid insurance $480
D) Dr Insurance expense $80 Cr Prepaid insurance $80

Question 32

Brown Ltd has a $22 000 balance in its Unearned service revenue account. Where would this account appear in the financial statements?

A) As revenue in the income statement
B) As a current asset in the balance sheet
C) As a current liability in the balance sheet
D) None of the answers provided

Question 33

Able Ltd operates on a five-day working week. Employees are paid on Thursday for work completed to Wednesday. The weekly wages bill is $40 000. If 30 June 2016 fell on a Tuesday, what was the accrued wages payable on 30 June 2016?

A) $8000
B) $16 000
C) $32 000
D) None of the answers provided

Question 34

On 15 September 2016, a surveyor received an advance of $7000 from a client for future services. The work was completed to the client's satisfaction on 10 October 2016. The surveyor uses accrual accounting. What is the journal entry made by the surveyor on 10 October 2016?

A) Dr Cash Cr Unearned revenue
B) Dr Accrued revenue Cr Surveying revenue
C) Dr Unearned revenue Cr Surveying revenue
D) Dr Surveying revenue Cr Unearned revenue

Question 35

On 1 May 2016, A Ltd pays $9600 for a one-year fire insurance policy that expires on 30 April 2017. Which of the following will appear on A Ltd's balance sheet at 30 June 2016?

A) Prepaid insurance $1600
B) Prepaid insurance $8000
C) Prepaid insurance $8800
D) Prepaid insurance $9600

Question 36

On 27 September 2016, a builder received an advance of $50 000 from a client for future work. The work was completed to the client's satisfaction on 3 December 2016. What is the journal entry made by the builder on 27 September 2016?

A) Dr Cash Cr Unearned revenue
B) Dr Unearned revenue Cr Cash
C) Dr Cash Cr Sales revenue
D) Dr Customer deposits Cr Unearned revenue

Question 37

Which of the following entries records the receipt of cash for three months' rent? The cash was received in advance of providing the service.

A) Dr Cash Cr Rent revenue
B) Dr Cash Cr Unearned revenue
C) Dr Cash Cr Prepaid rent
D) Dr Cash Cr Rent expense

Question 38

A company had office supplies costing $50 at 1 July 2015. Purchases during the year amounted to $420 and a stocktake at 30 June 2016 disclosed supplies valued at $90. What is the amount to be debited to supplies expense account at 30 June 2016?

A) $50
B) $380
C) $420
D) $460

Question 39

A business pays weekly salaries of $25 000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the financial period ending on Wednesday is:

A) Dr Salaries payable $15 000 Cr Cash $15 000
B) Dr Salary expense $15 000 Cr Salaries payable $15 000
C) Dr Salary expense $10 000 Cr Salaries payable $10 000
D) Dr Salaries payable $10 000 Cr Cash $10 000

Question 40

Data Ltd uses accrual accounting and its financial year ends on 30 June. Expenses paid in advance are treated as assets. On 1 May 2016, Data Ltd pays $480 for a one-year fire insurance policy that expires on 30 April 2017. Which of the following will appear on Data Ltd's balance sheet at 30 June 2016?

A) Prepaid insurance $480.
B) Prepaid insurance $400.
C) Prepaid insurance $80.
D) Insurance expense $80.

Question 41

Which of the following statements about the perpetual inventory control method is NOT true?

A) When a sale is made, two journal entries are required.
B) When inventory is purchased, it is treated as an expense.
C) A separate record is kept for each item of inventory.
D) None of the above; all statements are true.

Question 42

On 14 April 2016, Dragoon Ltd sells on credit $8000 of merchandise that had cost $5000. Which of the following journal entries would Dragoon Ltd make on 14 April 2016?

A) Dr Cost of Goods Sold $5000 Cr Inventory $5000
B) Dr Accounts Receivable $8000 Cr Sales $8000
C) Dr Cash $8000 Cr Accounts Receivable $8000
D) Dr Cost of goods sold $5000 Cr Inventory $5000 and
Dr Accounts receivable $8000 Cr Sales $8000

Question 43

The net profit reported on the profit and loss statement is $50 000. However, adjusting entries have not been made at the end of the period for electricity expense of $500 and accrued salaries of $1300. Net profit should be:

A) $48 200.
B) $48 700.
C) $50 000.
D) $50 500.

Question 44

Delta Ltd purchased a motor vehicle for $45 000 on 1 January 2016. The vehicle was expected to have a life of three years and an estimated disposal value of $15 000. The straight-line method of depreciation is employed and the financial year ends on 30 June. What was the depreciation expense for year ended 30 June 2016?

A) $15 000
B) $10 000
C) $7500
D) $5000

Question 45

If equipment that cost $120 000 and has accumulated depreciation of $70 000 is sold for $20 000, the journal entry to record the sale would include:

A) Cr Loss on sale $30 000.
B) Dr Gain on sale $30 000.
C) Dr Accumulated depreciation $70 000.
D) Cr Equipment $20 000.

Question 46

The adjusting entry to record the earned but unpaid salaries of employees at the end of the accounting period is:

A) Dr Unpaid salaries Cr Salaries payable.
B) Dr Salaries payable Cr Salaries expense.
C) Dr Salaries expense Cr Cash
D) Dr Salaries expense Cr Salaries payable

Question 47

Equipment with a cost of $15 000 and accumulated depreciation of $12 500 was sold for $1700. The journal entry to record the disposal would include:

A) Cr Cash $1700.
B) Cr Loss on sale $800.
C) Dr Accumulated depreciation $12 500.
D) none of the answers provided.

Question 48

The following details relate to a perpetual inventory system:

What was the value of opening inventory?

A) $459 000
B) $306 000
C) $204 000
D) None of the answers provided

Question 49

When the accumulated depreciation is deducted from the long-term asset account, the figure is known as the:

A) market value.
B) replacement value.
C) net book value.
D) realisable value.

Question 50

Which of the following is NOT an example of accrued revenue?

A) Unbilled revenue
B) Customer deposits
C) Interest receivable on loans
D) All answers are examples of accrued revenue.

Question 51

O'Brien Pty Ltd pays salaries on Friday to cover the five working days prior to the Friday. The weekly wages bill is $100 000. 30 June 2016 falls on a Monday. The adjusting journal entry on 30 June 2016 will be:

A) Dr Wages expense $20 000 Cr Accrued wages $20 000
B) Dr Wages expense $40 000 Cr Accrued wages $40 000
C) Dr Accrued wages $20 000 Cr Wages expense $20 000
D) Dr Accrued wages $40 000 Cr Wages expense $40 000

Question 52

Jog Ltd employs a perpetual inventory system. When a customer returns merchandise to Jog Ltd that he purchased on credit, which of these entries would Jog Ltd make?

A) Dr Accounts receivable Cr Sales returns
B) Dr Sales returns Cr Cash
C) Dr Sales returns Cr Accounts receivable
D) Dr Cash Cr Accounts receivable

Question 53

Choo Ltd invested $200 000 with a bank for one year at 12 per cent on 1 September 2015 (interest payable at end of loan). What is the adjusting journal entry at balance date, 30 June 2016?

A) Dr Accrued revenue $18 000 Cr Interest revenue $18 000
B) Dr Accrued revenue $20 000 Cr Interest revenue $20 000
C) Dr Accrued revenue $24 000 Cr Interest revenue $24 000
D) Dr Unearned revenue $18 000 Cr Interest revenue $18 000

Question 54

On 30 June, the last day of its financial year, Fast Deliveries Ltd paid $1200 cash for a one-year insurance policy. What is the appropriate journal entry to record the payment, assuming the insurance policy becomes effective on 1 July?

A) Dr Insurance expense $1200 Cr Prepaid insurance $1200
B) Dr Prepaid insurance $1200 Cr Cash $1200
C) Dr Cash $1200 Cr Prepaid insurance $1200
D) Dr Prepaid insurance $ 120 Cr Insurance expense $ 120

Question 55

XYZ invested $1 million with a bank for 1 year on 1 May 2016 at 9 per cent (interest payable at end of loan). What is the debit side of the adjusting entry at 30 June 2016?

A) Dr Accrued revenue receivable $15 000
B) Dr Interest revenue $15 000
C) Dr Unearned revenue $15 000
D) None of the answers provided

Question 56

Delta Ltd purchased a motor vehicle for $45 000 on 1 January 2016. The vehicle was expected to have a life of three years and an estimated disposal value of $15 000. The straight-line method of depreciation is employed and the financial year ends on 30 June. What was the balance of the Accumulated depreciation account at 30 June 2017?

A) $10 000
B) $15 000
C) $20 000
D) $25 000

Question 57

On 30 June 2016, Video Manufacturers Ltd, which uses accrual accounting, estimates that it will incur warranty costs of $24 000 in the next financial year on products sold during the year just ended. On 7 October 2016, the manufacturer pays $3500 under the warranty. What is the journal entry made by Video Manufacturers Ltd on 30 June 2016?

A) Dr Warranty liability Cr Cash
B) Dr Warranty liability Cr Warranty expense
C) Dr Warranty expense Cr Warranty liability
D) None of the answers provided

Question 58

RST paid $120 000 in wages during the year. The opening balance of Accrued Wages was $7860 and the closing balance was $8870. What was the wages expense for the year?

A) $118 990
B) $120 000
C) $121 010
D) None of the answers provided

Question 59

If a company has earned revenue for which no entry has been recorded by the end of the accounting period, an adjustment should be made which would:

A) debit an asset account and credit a revenue account.
B) debit an expense account and credit cash.
C) debit a revenue account and credit an asset account.
D) debit an asset account and credit an expense account.

Question 60

From the following information, determine the cash payments made during the year for insurance premiums:

Assume all insurance premiums are paid in cash.

A) $195
B) $450
C) $475
D) $695

Question 61

Alby Ltd purchased a machine for $32 000 on 1 January 2015. The machine was expected to have a useful life of four years. The financial year ends on 31 December. The straight-line method of depreciation is employed. Alby Ltd sold the machine on 1 January 2018 for $14 000. What was the gain or loss on sale?

A) Gain $14 000
B) Gain $6000
C) Loss $6000
D) None of the answers provided

Question 62

Alby Ltd purchased a machine for $32 000 on 1 January 2015. The machine was expected to have a useful life of four years. The financial year ends on 31 December. The straight-line method of depreciation is employed. What was the depreciation expense for year ended 31 December 2016?

A) $10 500
B) $9250
C) $8500
D) $8000

Question 63

Alby Ltd purchased a machine for $32 000 on 1 January 2015. The machine was expected to have a useful life of four years. The financial year ends on 31 December. The straight-line method of depreciation is employed. What was the balance of the Accumulated depreciation account at 31 December 2017?

A) $24 000
B) $27 750
C) $31 500
D) None of the answers provided

Question 64

A machine purchased on 1 July 2016 cost $100 000 and has a zero estimated salvage value. The useful life of the machine is five years. What is the balance of Accumulated Depreciation at 30 June 2018?

A) $20 000
B) $40 000
C) $60 000
D) None of the answers provided

Question 65

A machine purchased on 1 July 2016 cost $100 000 and has a zero estimated salvage value. The useful life of the machine is five years. If the machine was sold on 30 September 2018, what would its net book value be?

A) $45 000
B) $50 000
C) $55 000
D) None of the answers provided

Question 66

Alby Ltd purchased a machine for $32 000 on 1 January 2015. The machine was expected to have a useful life of four years. The financial year ends on 31 December. The straight-line method of depreciation is employed. What was the net book value of the machine at 31 December 2016?

A) $13 000
B) $16 000
C) $21 000
D) None of the answers provided