Deck 5: Accrual Accounting Adjustments

Question 1

T Ltd paid $240 000 in wages during the year. The opening balance of Accrued wages was $8 000 and the closing balance was $10 000. What was the wages expense for the year?

A) $238 000
B) $242 000
C) $250 000
D) None of the above

Answer 1

B

Question 2

Which of the following would be recorded as an asset?

A) Prepaid expenses
B) Accrued expenses
C) Revenue received in advance
D) None of the above

Answer 2

A

Question 3

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 revenue
B) Increases the balance of an asset account
C) Decreases the balance of an asset account
D) Increases the balance of an expense account

Answer 3

D

Question 4

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) Retained profit at the end of the year was overstated.

Question 5

On 1 May 2018, A Ltd pays $9 600 for a one-year fire insurance policy that expires on 30 April 2019. After the adjusting entry, what would be the balance of prepaid insurance in the balance sheet at 30 June 2018?

A) $1 600
B) $8 000
C) $8 800
D) None of the above

Question 6

Which of the following is recorded as an asset?

A) Accrued revenue
B) Accrued expenses
C) Unearned revenue
D) Provision for employee entitlements

Question 7

Which of the following cash flows involve revenues or expenses?

A) Payment of dividend
B) Cash purchase of inventory
C) Issue of shares for cash
D) None of the above

Question 8

Able Ltd operates on a five-day working week. Employees are paid on Thursday for work completed to Wednesday. The weekly wages bill is $80 000. If 30 June 2019 fell on a Tuesday, what was the accrued wages payable on 30 June 2019?

A) $16 000
B) $32 000
C) $64 000
D) None of the above

Question 9

On 15 September 2019, a surveyor received an advance of $7 000 from a client for future services. The work was completed to the client's satisfaction on 10 October 2019. The surveyor uses accrual accounting. What is the journal entry made by the surveyor on 15 September 2019?

A) DR Unearned revenue CR Cash
B) DR Cash CR Unearned revenue
C) DR Cash CR Surveying revenue
D) DR Customer deposits CR Unearned revenue

Question 10

BM Ltd has a $30 000 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 above

Question 11

A payment for insurance on 1 June for $120 000, covering the period 1 June 2018 to 31 May 2019, was recorded as a prepayment. No adjusting entry was made at 30 June 2019. As a result:

A) profit and total assets were overstated 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 above

Question 12

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

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

Question 13

The Supplies account has a balance of $750 at the beginning of the year and was debited during the year for $2 800, representing the total of supplies purchased during the year. If $950 of supplies are on hand at the end of the year, what is the supplies expense to be reported on the profit and loss statement for the year?

A) $2 600
B) $2 800
C) $3 000
D) None of the above

Question 14

On 30 June 2019, a company estimates that it will incur warranty costs of $150 000 in the next financial year on products sold during the year just ended. What is the journal entry made on 30 June 2019 related to warranties?

A) DR Warranty liability CR Cash
B) DR Warranty liability CR Warranty expense
C) DR Warranty expense CR Warranty liability
D) None of the above

Question 15

On 27 September 2019, 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 2019. What is the journal entry made by the builder on 3 December 2019?

A) DR Cash CR Unearned revenue
B) DR Customer deposits CR Sales revenue
C) DR Unearned revenue CR Sales revenue
D) DR Sales revenue CR Unearned revenue

Question 16

What is the correct adjusting entry at 30 June, the end of the financial year, based on a Supplies account balance, before adjustment, of $5 200 and supplies inventory, on 30 June, of $2 200?

A) DR Supplies $2 200 CR Supplies expense $2 200
B) DR Supplies expense $2 200 CR Supplies $2 200
C) DR Supplies expense $3 000 CR Supplies $3 000
D) DR Supplies $3 000 CR Supplies expense $3 000

Question 17

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

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

Question 18

On 1 July 2018, Green Ltd had office supplies costing $20 000. During the year ended 30 June 2019, the company purchased supplies costing $32 000. Of these, $4 000 worth was returned to the supplier as unsatisfactory. At 30 June 2019, it was ascertained that $7 000 worth of the supplies remained unused. What was the value of Green Ltd's office supplies expense for year ended 30 June 2019?

A) $7 000
B) $41 000
C) $45 000
D) None of the above

Question 19

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 20

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 Cost of goods sold CR Inventory
C) DR Customer deposits CR Service revenue
D) DR Salaries expense CR Cash

Question 21

O'Brien Pty Ltd pays salaries on Friday to cover the five working days including the Friday. The weekly wages bill is $100 000. If 30 June 2019 falls on a Monday, what will be the adjusting journal entry on 30 June 2019?

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 22

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) liquidation value.

Question 23

Alby Ltd purchased a machine for $32 000 on 1 January 2018. 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 2019?

A) $8 000
B) $8 500
C) $9 250
D) $10 500

Question 24

Equipment with a cost of $15 000 and accumulated depreciation of $12 500 was sold for $1 700. The journal entry to record the disposal would include:

A) CR Cash $1 700.
B) DR Equipment $800.
C) DR Accumulated depreciation $12 500.
D) None of the above

Question 25

XYZ invested $1 million with a bank for 1 year on 1 April 2019 at 10 per cent (interest payable at end of loan). What is the debit side of the adjusting entry at 30 June 2019?

A) DR Accrued revenue receivable $25 000
B) DR Interest revenue $25 000
C) DR Unearned revenue $25 000
D) None of the above

Question 26

A machine purchased on 1 July 2018 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 2020?

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