Deck 3: Adjusting the Accounts

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

The economic entity assumption states that economic events can be identified with a particular unit of accountability.

Answer 3

True

Question 4

The time period assumption is also referred to as the

A)calendar assumption.
B)cyclicity assumption.
C)periodicity assumption.
D)fiscal assumption.

Question 5

Adjusting entries are required

A)yearly.
B)quarterly.
C)monthly.
D)every time financial statements are prepared.

Question 6

Adjusting entries can be classified as

A)postponements and advances.
B)accruals and deferrals.
C)deferrals and postponements.
D)accruals and advances.

Question 7

A company usually determines the amount of supplies used during a period by

A)adding the supplies on hand to the balance of the Supplies account.
B)summing the amount of supplies purchased during the period.
C)taking the difference between the supplies purchased and the supplies paid for during the period.
D)taking the difference between the balance of the Supplies account and the cost of supplies on hand.

Question 8

On July 1, Runner's Sports Store paid $14,000 to Corona Realty for four months rent beginning July 1.Prepaid Rent was debited for the full amount.If financial statements are prepared on July 31, the adjusting entry to be made by Runner's Sports Store is

A)Debit Rent Expense, $14,000; Credit Prepaid Rent, $3,500.
B)Debit Prepaid Rent, $3,500; Credit Rent Expense, $3,500.
C)Debit Rent Expense, $3,500; Credit Prepaid Rent, $3,500.
D)Debit Rent Expense, $14,000; Credit Prepaid Rent, $14,000.

Question 9

Dinosaur Junior Corporation purchased a one-year insurance policy in January 2022 for $75,000.The insurance policy is in effect from May 2022 through April 2023.If the company neglects to make the proper year-end adjustment for the expired insurance in 2022

A)net income and assets will be understated by $50,000.
B)net income and assets will be overstated by $50,000.
C)net income and assets will be understated by $25,000.
D)net income and assets will be overstated by $25,000.

Question 10

Can financial statements be prepared directly from the adjusted trial balance?

A)They cannot.The general ledger must be used.
B)Yes, adjusting entries have been recorded in the general journal and posted to the ledger accounts.
C)No, the adjusted trial balance merely proves the equality of the total debit and total credit balances in the ledger after adjustments are posted.It has no other purpose.
D)They can because that is the only reason that an adjusted trial balance is prepared.

Question 11

Characteristics associated with faithfully representative accounting information are

A)verifiable and timely.
B)neutral and verifiable.
C)complete and neutral.
D)relevance and verifiable.

Question 12

Expenses paid and recorded as assets before they are used are called

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

Question 13

Revaluation of land and buildings is permitted under

A)GAAP but not IFRS.
B)IFRS but not GAAP.
C)both IFRS and GAAP.
D)neither IFRS nor GAAP.
IFRS,

Question 14

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

Question 15

Asset prepayments become expenses when they expire.

Question 16

The monetary unit assumption states that transactions that can be measured in terms of money should be recorded in the accounting records.

Question 17

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 if there is a profit or loss.

Question 18

Which one of the following is not an application of revenue recognition?

A)Recording revenue as an adjusting entry on the last day of the accounting period
B)Accepting cash from an established customer for services to be performed over the next three months
C)Billing customers on June 30 for services completed during June
D)Receiving cash when services are performed

Question 19

Accrued revenues are

A)recorded when cash is received before services are performed.
B)revenue for services performed and recorded as liabilities before they are received.
C)revenue for services performed but not yet received in cash or recorded.
D)revenue for services performed and already received in cash and recorded.

Question 20

If a company fails to make an adjusting entry to record supplies expense, then

A)stockholders' equity will be understated.
B)expense will be understated.
C)assets will be understated.
D)net income will be understated.

Question 21

Fugazi City College sold season tickets for the 2022 football season for $240,000.A total of eight games will be played during September, October, and November.In September, three games were played.The adjusting journal entry at September 30

A)is not required.No adjusting entries will be made until the end of the season in November.
B)will include a debit to Cash and a credit to Ticket Revenue for $60,000.
C)will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for $90,000.
D)will include a debit to Ticket Revenue and a credit to Unearned Ticket Revenue for $80,000.

Question 22

If an adjusting entry is not made for an accrued revenue,

A)assets will be overstated.
B)expenses will be understated.
C)stockholders' equity will be understated.
D)revenues will be overstated.

Question 23

The adjusted trial balance is prepared

A)after financial statements are prepared.
B)before the trial balance.
C)to prove the equality of total assets and total liabilities.
D)after adjusting entries have been journalized and posted.

Question 24

Which of the following statements is not true?

A)Comparability means using the same accounting principles from year to year within a company.
B)Faithful representation is the quality of information that gives assurance that it is free from error.
C)Relevant accounting information must be capable of making a difference in the decision.
D)The primary objective of financial reporting is to provide financial information that is useful to investors and creditors for making decisions.

Question 25

Buffalo Tom Cruises purchased a five-year insurance policy for its ships on April 1, 2022 for $60,000.Assuming that April 1 is the effective date of the policy, the adjusting entry on December 31, 2022 is

Question 26

On June 1, during its first month of operations, Crooked Rain purchased supplies for $4,500 and debited the Supplies account for that amount.At June 30, an inventory of supplies showed $1,000 of supplies on hand.What adjusting journal entry should be made for June?

Question 27

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

Question 28

A contra asset account is subtracted from a related account in the balance sheet.

Question 29

The going concern assumption is that the business will continue in operation long enough to carry out its existing objectives and commitments.

Question 30

Which of the following is not a common time period chosen by businesses as their accounting period?

A)Daily
B)Monthly
C)Quarterly
D)Annually

Question 31

Which statement is correct?

A)As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use.
B)The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.
C)The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
D)As long as management is ethical, there are no problems with using the cash basis of accounting.

Question 32

Prepaid expenses are

A)paid and recorded in an asset account before they are used or consumed.
B)paid and recorded in an asset account after they are used or consumed.
C)incurred but not yet paid or recorded.
D)incurred and already paid or recorded.

Question 33

What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $18,500, and unexpired amounts per analysis of policies of $6,000?

A)Debit Insurance Expense, $6,000; Credit Prepaid Insurance, $6,000.
B)Debit Insurance Expense, $18,500; Credit Prepaid Insurance, $18,500.
C)Debit Prepaid Insurance, $12,500; Credit Insurance Expense, $12,500.
D)Debit Insurance Expense, $12,500; Credit Prepaid Insurance, $12,500.

Question 34

Fugazi City College sold season tickets for the 2022 football season for $240,000.A total of eight games will be played during September, October, and November.In September, two games were played.In October, three games were played.The balance in Unearned Ticket Revenue at October 31 is

A)$0.
B)$60,000.
C)$90,000.
D)$150,000.

Question 35

If an adjusting entry is not made for an accrued expense,

A)expenses will be overstated.
B)liabilities will be understated.
C)net income will be understated.
D)stockholders' equity will be understated.

Question 36

An adjusted trial balance

A)is prepared after the financial statements are completed.
B)proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
C)is a required financial statement under generally accepted accounting principles.
D)cannot be used to prepare financial statements.

Question 37

An item is considered material if

A)it doesn't cost a lot of money.
B)it is of a tangible good.
C)it is likely to influence the decision of an investor or creditor.
D)the cost of reporting the item is greater than its benefits.

Question 38

Pavement Company purchased a truck from Bee Thousand Corp.by issuing a six-month, 8% note payable for $90,000 on November 1.On December 31, the accrued expense adjusting entry is

Question 39

On January 1, Chan & Chan, CPAs received a $15,000 cash retainer for accounting services to be rendered ratably over the next three months.The full amount was credited to the liability account Unearned Service Revenue.Assuming that the revenue is recognized equally over the three-month period, what adjusting journal entry should be made at January 31?

Question 40

The expense recognition principle requires that efforts be matched with accomplishments.

Question 41

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

Question 42

A common application of the cost constraint is weighing the factual nature of cost figures versus the relevance of fair value.

Question 43

Which of the following time periods would not be referred to as an interim period?

A)Monthly
B)Quarterly
C)Semi-annually
D)Annually

Question 44

The following is selected information from Motley Corporation for the fiscal year ending October 31, 2022. Based on the accrual basis of accounting, what is Motley Corporation's net income for the year ending October 31, 2022?

A)$72,000
B)$104,000
C)$139,000
D)$155,000

Question 45

Accrued expenses are

A)paid and recorded in an asset account before they are used or consumed.
B)paid and recorded in an asset account after they are used or consumed.
C)incurred but not yet paid or recorded.
D)incurred and already paid or recorded.

Question 46

At December 31, 2022, before any year-end adjustments, Murmur Company's Insurance Expense account had a balance of $2,450 and its Prepaid Insurance account had a balance of $3,800.It was determined that $2,800 of the Prepaid Insurance had expired.The adjusted balance for Insurance Expense for the year would be

A)$2,450.
B)$3,450.
C)$2,800.
D)$5,250.

Question 47

Fugazi City College sold season tickets for the 2022 football season for $240,000.A total of eight games will be played during September, October, and November.Assuming all the games are played, the Unearned Ticket Revenue balance that will be reported on the December 31 balance sheet will be

A)$0.
B)$90,000.
C)$150,000.
D)$240,000.

Question 48

Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause

A)net income to be understated.
B)an overstatement of assets and an overstatement of liabilities.
C)an understatement of expenses and an understatement of liabilities.
D)an overstatement of expenses and an overstatement of liabilities.

Question 49

Which of the statements below is not true?

A)An adjusted trial balance should show ledger account balances.
B)An adjusted trial balance can be used to prepare financial statements.
C)An adjusted trial balance proves the mathematical equality of debits and credits in the ledger.
D)An adjusted trial balance is prepared before all transactions have been journalized.

Question 50

A company using the same accounting principles from year to year is an application of

A)timeliness.
B)consistency.
C)full disclosure.
D)materiality.

Question 51

If the adjusting entry for depreciation expense is not made,

A)assets will be understated.
B)stockholders' equity will be understated.
C)net income will be understated.
D)expenses will be understated.

Question 52

On February 1, Results Income Tax Service received a $3,000 cash retainer for tax preparation services to be rendered equally over the next four months.The full amount was credited to the liability account Unearned Service Revenue.Assuming that the revenue is recognized equally over the four-month period, what balance would be reported on the February 28 balance sheet for Unearned Service Revenue?

Question 53

Expense recognition is tied to revenue recognition.

Question 54

The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset.

Question 55

The expense recognition principle requires that expenses be matched with revenues.

Question 56

The fiscal year of a business is usually determined by

A)the IRS.
B)a lottery.
C)the business.
D)the SEC.

Question 57

Crue Company had the following transactions during 2022:
Sales of $4,800 on account to 1.
Collected $2,000 for services to 1.
Paid $1,625 cash in salaries

Purchased airline tickets for $250 in December for a trip to take place in 2023
What is Crue's 2022 net income using accrual accounting-basis?

A)$2,925
B)$3,175
C)$4,925
D)$5,175

Question 58

Unearned revenue is

A)recorded when cash received before services are performed.
B)revenue for services performed and recorded as liabilities before it has been received.
C)revenue for services performed but not yet received in cash or recorded.
D)revenue for services performed and already received in cash and recorded.

Question 59

Depreciation is the process of

A)valuing an asset at its fair value.
B)increasing the value of an asset over its useful life in a rational and systematic manner.
C)allocating the cost of an asset to expense over its useful life in a rational and systematic manner.
D)writing down an asset to its real value each accounting period.

Question 60

At March 1, 2022, Minutemen Corp.had supplies on hand of $500.During the month, Minutemen purchased supplies of $1,200 and used supplies of $1,500.The March 31 adjusting journal entry should include a

A)debit to the Supplies account for $1,500.
B)credit to the Supplies account for $500.
C)debit to the Supplies account for $1,200.
D)credit to the Supplies account for $1,500.

Question 61

Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause

A)net income to be overstated.
B)an understatement of assets and an understatement of revenues.
C)an understatement of revenues and an understatement of liabilities.
D)an understatement of revenues and an overstatement of liabilities.

Question 62

Sebadoah is a barber who does his own accounting for his shop.When he buys supplies he routinely debits Supplies Expense.At the beginning of January, the shop had no supplies on hand.Sebadoah purchased $1,500 of supplies in January and his inventory at the end of January shows $300 of supplies remaining.What adjusting entry should Sebadoah make on January 31?

Question 63

Which of the following is a constraint in accounting?

A)Comparability.
B)Cost.
C)Consistency.
D)Relevance.

Question 64

Ryan Adams, an employee of Heartbreaker Corp., will not receive his paycheck until April 2.Based on services performed from March 15 to March 31, his salary was $1,000.The adjusting entry for Heartbreaker Corp.on March 31 is

Question 65

For each of the following oversights, state whether total assets will 1.

Question 66

The revenue recognition principle dictates that revenue be recognized in the accounting period in which cash is received.

Question 67

Accrued revenues are revenues that have been recognized and received before financial statements have been prepared.

Question 68

In general, adjusting entries are required each time financial statements are prepared.

Question 69

Which of the following is in accordance with generally accepted accounting principles?

A)Accrual-basis accounting
B)Cash-basis accounting
C)Both accrual-basis and cash-basis accounting
D)Neither accrual-basis nor cash-basis accounting

Question 70

Crue Company had the following transactions during 2022:
Sales of $4,500 on account to 1.
Collected $2,500 for services to 1.
Paid $1,625 cash in salaries

Purchased airline tickets for $250 in December for a trip to take place in 2023
What is Crue's net income using cash-basis accounting?

A)$625
B)$875
C)$5,125
D)$5,375

Question 71

A liability-revenue relationship exists with

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

Question 72

A new accountant working for Spirit Walker Company records $900 Depreciation Expense on store equipment as follows: The effect of this entry is to

A)adjust the accounts to their proper amounts on December 31.
B)understate total assets on the balance sheet as of December 31.
C)overstate the book value of the depreciable assets at December 31.
D)understate the book value of the depreciable assets as of December 31.

Question 73

Double Nickels Company purchased equipment for $9,000 on January 1, 2022.The company expects to use the equipment for three years.It has no salvage value.Monthly depreciation expense on the asset is

A)$0.
B)$250.
C)$3,000.
D)$9,000.

Question 74

Sebastian Belle has performed $2,000 of CPA services for a client but has not billed the client as of the end of the accounting period.What adjusting entry should Sebastian make?

A)Debit Cash and credit Unearned Service Revenue
B)Debit Accounts Receivable and credit Unearned Service Revenue
C)Debit Accounts Receivable and credit Service Revenue
D)Debit Unearned Service Revenue and credit Service Revenue

Question 75

Alternative adjusting entries do not apply to

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

Question 76

The time period assumption states that the economic life of a business can be divided into

A)equal time periods.
B)cyclical time periods.
C)artificial time periods.
D)perpetual time periods.

Question 77

Which of the following statements related to the adjusted trial balance is incorrect?

A)It shows the balances of all accounts at the end of the accounting period.
B)It is prepared before adjusting entries have been made.
C)It proves the equality of the total debit balances and the total credit balances in the ledger.
D)Financial statements can be prepared directly from the adjusted trial balance.

Question 78

Blue Guitar Music School borrowed $30,000 from the bank signing an 8%, six-month note on November 1.Principal and interest are payable to the bank on May 1.If the company prepares monthly financial statements, what adjusting entry should the company make at November 30 with regard to the note (round answer to the nearest dollar)?

Question 79

Adjusting entries are not necessary if the trial balance debit and credit column balances are equal.

Question 80

Financial statements can be prepared from the information provided by an adjusted trial balance.