Deck 4: Adjustments,financial Statements,and Financial Results

Question 1

An adjusted trial balance is completed to check that debits still equal credits after the income statement is prepared.

Answer 1

False

Question 2

The purpose of adjusting entries is to transfer net income and dividends to Retained Earnings.

Answer 2

False

Question 3

Adjusting entries often involve cash.

Answer 3

False

Question 4

As a company uses supplies,an adjustment should be made to decrease an asset account and increase an expense account.

Question 5

The amount charged for a good or service provided to a customer on account is recorded only after the payment is received.

Question 6

If a company forgot to record depreciation on equipment for a period,Total Assets would be overstated and Total Stockholders' Equity would be understated on the balance sheet.

Question 7

The temporary accounts will have zero balances in a post-closing trial balance.

Question 8

The closing process includes a transfer of the Dividends account balance to the Retained Earnings account.

Question 9

If the Retained Earnings account is debited for $4,000 in the closing process,the company had a net income of $4,000.

Question 10

Corporate income taxes cannot be calculated until all other adjustments are made.

Question 11

If a contra account of $20,000 is mistakenly included in the same column of the trial balance as the account it offsets,the error will cause the debit and credit column totals to differ by $40,000.

Question 12

The asset,liability,and stockholders' equity accounts are referred to as permanent accounts.

Question 13

Depreciation is a measure of the decline in market value of an asset.

Question 14

The carrying value of an asset is an approximation of the asset's market value.

Question 15

When a company pays its rent in advance,an asset is reported on the balance sheet.

Question 16

A deferral adjustment may involve one asset and one expense account.

Question 17

If a company forgot to prepare an adjusting entry to record salaries and wages incurred but unpaid at the end of the period,Total Liabilities would be understated and Retained Earnings would be overstated on the Balance Sheet.

Question 18

The amounts of all the accounts reported on the balance sheet can be taken from the adjusted trial balance.

Question 19

One of the purposes of the closing entries is to bring the balances in all asset,liability,revenue,and expense accounts down to zero to start the next accounting period.

Question 20

A contra account is added to the account it offsets.

Question 21

The company uses up $5,000 of an existing asset and the company adjusts its accounts accordingly.This is an example of a(n):

A) accrual adjustment.
B) closing adjustment.
C) deferral adjustment.
D) unethical adjustment.

Question 22

A company owes rent at a rate of $6,000 per month.The company pays the rent owed on the tenth of each month for the previous month.At the end of each month,what kind of adjustment is required?

A) An accrual adjustment
B) A closing adjustment
C) A deferral adjustment
D) No adjustment

Question 23

Which of the following statements about the need for adjustments is not correct?

A) Without adjustments, the financial statements present an incomplete and misleading picture of the company.
B) Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance.
C) Adjustments help the financial statements present the best picture of whether the company's activities were profitable for the period.
D) Adjustments help the financial statements present the economic resources that the company owns and owes at the end of the period.

Question 24

What is the main difference between accrual and deferral adjustments?

A) Deferral adjustments are required to update previously recorded items whereas accrual adjustments are required to include items not previously recorded.
B) Deferral adjustments are required under the cash basis of accounting whereas accrual adjustments are required under the accrual basis of accounting.
C) Deferral adjustments are required to include items not previously recorded whereas accrual adjustments are required to update previously recorded items.
D) Deferral adjustments are used for expenses whereas accrual adjustments are used for revenues.

Question 25

An example of an account that could be included in an accrual adjustment for expense is:

A) Accounts Receivable.
B) Interest Payable.
C) Prepaid Insurance.
D) Accumulated Depreciation.

Question 26

Which of the following best describes when an accrual adjustment is required?

A) An expense has been incurred and paid in cash.
B) An expense has been incurred but not yet paid in cash.
C) An expense has not been incurred, but cash has been paid.
D) An expense has not been incurred nor has it been paid in cash.

Question 27

Which of the following statements about adjustments is correct?

A) An accrual adjustment that increases an asset will include an increase in an expense.
B) A deferral adjustment that decreases an asset will include an increase in an expense.
C) An accrual adjustment that increases an expense will include an increase in assets.
D) A deferral adjustment that increases a contra account will include an increase in an asset.

Question 28

Adjusting entries are typically prepared:

A) at the beginning of the accounting period.
B) at the end of the accounting period.
C) on a daily basis.
D) on a weekly basis.

Question 29

Accrued revenues recorded at the end of the current year:

A) often result in cash receipts from customers in the next period.
B) often result in cash payments in the next period.
C) are also called Unearned Revenues.
D) are recorded in the current year when cash is received.

Question 30

When a deferral adjustment is made to an asset account,that asset becomes a(n):

A) liability.
B) other asset.
C) revenue.
D) expense.

Question 31

When existing assets are used up in the ordinary course of business:

A) an expense is recorded.
B) unearned revenue is recorded.
C) an accrual is recorded.
D) a prepaid expense is recorded.

Question 32

If an expense has been incurred but will be paid later,then:

A) nothing is recorded on the financial statements.
B) a liability account is created or increased and an expense is recorded.
C) an asset account is decreased or eliminated and an expense is recorded.
D) a revenue and an expense are accrued.

Question 33

If certain assets are partially used up during the accounting period,then:

A) nothing is recorded on the financial statements until they are completely used up.
B) a liability account is decreased and an expense is recorded.
C) an asset account is decreased and an expense is recorded.
D) nothing is recorded on the financial statements until they are replaced or replenished.

Question 34

The term,deferral,best describes a situation in which:

A) cash is paid in advance of recognizing an expense.
B) an expense is recognized before it is paid for with cash.
C) an expense is recognized after cash has been received.
D) a liability is established at the time an expense is recognized.

Question 35

An example of an account that could be included in an accrual adjustment for revenue is:

A) Interest Receivable.
B) Interest Payable.
C) Unearned Revenue.
D) Cash.

Question 36

Accrual adjustments involve increasing:

A) assets and revenues or increasing liabilities and expenses.
B) assets and expenses or increasing liabilities and revenues
C) assets and decreasing revenues or increasing liabilities and decreasing expenses
D) assets and decreasing expenses or increasing liabilities and decreasing revenues

Question 37

At the end of the year,accrual adjustments could include a:

A) debit to an expense and a credit to an asset.
B) credit to a revenue and a debit to an expense.
C) debit to cash and a credit to Common Stock.
D) debit to an expense and a credit to a liability.

Question 38

A company makes a deferral adjustment that decreased a liability.This must mean that a(n):

A) expense account was decreased by the same amount.
B) expense account was increased by the same amount.
C) revenue account was increased by the same amount.
D) revenue account was decreased by the same amount.

Question 39

One of the major advantages of making adjustments in order to improve the quality of financial statements is that they:

A) ensure that revenues and expenses are recognized during the period they are earned and incurred.
B) ensure that all estimates of future activities are eliminated from consideration.
C) ensure that revenues and expenses are recognized conservatively during the period in which they are paid.
D) provide an opportunity to manipulate the numbers to the best advantage of the reporting company.

Question 40

One major difference between deferral and accrual adjustments is that deferral adjustments:

A) involve previously recorded assets and liabilities and accrual adjustments involve previously unrecorded assets and liabilities.
B) are made after financial statements are prepared and accrual adjustments are made before financial statements are prepared.
C) are made annually and accrual adjustments are made monthly.
D) are influenced by estimates of future events and accrual adjustments are not.

Question 41

In recording an accrual adjustment to account for revenues earned but not yet collected:

A) an asset is decreased since cash is being paid at the time of the adjustment
B) the asset recorded when cash was paid is decreased as the revenue is earned
C) the asset recorded when cash was paid is increased as the revenue is earned
D) an asset is increased since cash will be collected at a later date

Question 42

Adjustments to revenue accounts at the end of the accounting period are made to adhere to accrual accounting principles,specifically the ______ principle.

A) revenue recognition
B) expense recognition ("matching")
C) cost
D) contra-account

Question 43

One type of deferral adjustment reduces the balance in a(n)______ account on the balance sheet and transfers that reduction into a(n)______ account on the income statement.

A) asset; expense
B) asset; revenue
C) liability; expense
D) liability; asset

Question 44

Deferring a revenue or expense account in accounting means that the amount:

A) will not be reported in the accounting records
B) will be reported as a revenue or an expense in a later period
C) will be reported as a revenue or an expense in the current period
D) was reported as a revenue or an expense in a prior period.

Question 45

One major difference between deferral and accrual adjustments is that:

A) accrual adjustments affect income statement accounts and deferral adjustments affect balance sheet accounts.
B) deferral adjustments increase net income and accrual adjustments decrease net income.
C) deferral adjustments are made under the cash basis of accounting and accrual adjustments are made under the accrual basis of accounting..
D) accounts affected by an accrual adjustment always go in the same direction (i.e., both accounts are increased or both accounts are decreased) and accounts affected by a deferral adjustment always go in opposite directions (one account is increased and one account is decreased).

Question 46

The accrual adjustment recorded to adjust for revenues earned but not yet collected will cause:

A) assets to increase
B) assets to decrease
C) liabilities to increase
D) liabilities to decrease

Question 47

Which of the following statements about the need to make accrual adjustments at the end of the accounting period is not correct?

A) Certain events occur over time that would be too tedious and time-consuming to record on a daily basis.
B) Since financial statements are prepared at the end of the period, the asset and liability account balances should be brought up to date.
C) The Cash account should be adjusted for the effects of accrued revenues and expenses during the accounting period.
D) Revenues and expenses should be recorded in the period in which they occur, even though the cash will be paid or received in a future period.

Question 48

Adjustments ensure that ____ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods.

A) asset
B) revenue
C) expense
D) account

Question 49

Adjusting entries affect:

A) only balance sheet accounts.
B) only income statement accounts.
C) only statement of cash flow accounts.
D) both income statement and balance sheet accounts.

Question 50

How do accrual adjustments affect liabilities and expenses?

A) Accrual adjustments can increase liabilities and increase expenses.
B) Accrual adjustments can increase liabilities and decrease expenses.
C) Accrual adjustments can decrease liabilities and decrease expenses.
D) Accrual adjustments can decrease liabilities and increase expenses.

Question 51

Which of the following types of transactions could be an accrual adjustment?

A) An increase to an asset account and an increase to a liability account
B) An increase to a revenue account and an increase to an expense account
C) An increase to a liability account and an increase to a revenue account
D) An increase to an asset account and an increase to a revenue account

Question 52

How can accrual adjustments for interest earned but not yet collected affect the balance sheet and the income statement?

A) Accrual adjustments can increase assets and increase revenues.
B) Accrual adjustments can increase liabilities and decrease expenses.
C) Accrual adjustments can decrease assets and decrease expenses.
D) Accrual adjustments can increase assets and increase expenses.

Question 53

In a deferral adjustment for revenues collected in advance that are now earned:

A) a liability is decreasing because cash is being paid for an expense incurred at the time of the adjustment
B) the liability recorded when cash was received is increased by the adjustment for the revenue being earned
C) the liability recorded when cash was received is decreased by the adjustment for revenue being earned
D) a liability is increasing because cash will be paid for an expense in the future

Question 54

The deferral adjustment to record the amount of unearned service revenue that is now earned includes a:

A) debit to Unearned Revenue
B) credit to Unearned Revenue
C) debit to Service Revenue
D) credit to Accounts Receivable

Question 55

Adjustments help to ensure that all ______ are recorded in the period in which they are incurred.

A) expenses
B) cash transactions
C) closing entries
D) journal entries

Question 56

The adjusting entry to record the amount earned that previously had been collected in advance will:

A) increase liabilities and increase revenues
B) increase liabilities and decrease revenues
C) decrease liabilities and increase revenue
D) decrease liabilities and decrease revenues

Question 57

In an accrual adjustment for expenses incurred but not yet paid:

A) a liability is decreasing since cash is being paid for an expense incurred at the time of the adjustment
B) the liability recorded when cash was received is increasing as the expense is incurred
C) the liability recorded when cash was received is decreasing as the expense is incurred
D) a liability is increasing since cash will be paid in the future due to the expense incurred

Question 58

The accrual adjustment recorded to adjust for expenses incurred but not yet paid will cause:

A) assets to increase
B) assets to decrease
C) liabilities to increase
D) liabilities to decrease

Question 59

How do deferral adjustments for prepaid expenses-such as rent -that were initially recorded as assets affect assets on the balance sheet and expenses on the income statement?

A) Deferral adjustments increase assets and increase expenses.
B) Deferral adjustments increase assets and decrease expenses.
C) Deferral adjustments decrease assets and decrease expenses.
D) Deferral adjustments decrease assets and increase expenses.

Question 60

A deferral adjusting entry that adjusts assets (such as prepaids and supplies):

A) decreases total assets because cash is paid at the time of the adjustment
B) expenses the amount used during the period
C) increases total assets because costs are incurred
D) increases total assets because cash will be received in the future

Question 61

A contra-account:

A) increases the original value of the account to which it relates.
B) always appears in the same column of the trial balance as the account to which it relates.
C) offsets, or reduces, another account.
D) reduce the asset to its fair value.

Question 62

The process of allocating the cost of buildings,vehicles,and equipment to the accounting periods in which they are used.is called:

A) accumulated allocation.
B) unearned revenue.
C) depreciation.
D) prepaid expense.

Question 63

Accumulated Depreciation appears on the:

A) balance sheet in the stockholders' equity section.
B) income statement as an expense.
C) balance sheet as a liability account.
D) balance sheet as a contra- asset account.

Question 64

The Prepaid Insurance account has a normal balance of $3,750 at the beginning of the month.The company used $980 of insurance coverage during the month.Which of the following statements is correct?

A) The company should credit Insurance Expense for $980 and debit Prepaid Insurance for $980.
B) Retained earnings will decrease and stockholders' equity will increase.
C) The company should debit Insurance Expense for $980 and credit Prepaid Insurance for $980.
D) Retained earnings and stockholders' equity will both increase.

Question 65

The book value of equipment is equal to which of the following?

A) Cost of equipment plus the related accumulated depreciation
B) Accumulated depreciation less the related depreciation expense
C) Cost of equipment less the related accumulated depreciation
D) Its accumulated depreciation plus the related depreciation expense

Question 66

At the end of the month,the adjusting journal entry to record the use of supplies would include a debit to:

A) Supplies and a credit to Supplies Expense.
B) Supplies Expense and a credit to Supplies.
C) Supplies and a credit to Service Revenue.
D) Supplies and a credit to Cash.

Question 67

If the Prepaid Rent account is not adjusted at the end of the period,what effect will this have on the financial statements?

A) Liabilities will be overstated and net income will be understated.
B) Assets will be understated and net income will be understated.
C) Assets will be overstated and net income will be overstated.
D) Cash will be overstated and net income will be overstated.

Question 68

At the beginning of its first year of operations,Henry Corp.purchased $5,000 of supplies,which were debited to the Supplies account.It did not purchase any other supplies during the year.At the end of the year,it has $1,000 of supplies left.The appropriate adjusting journal entry is:

A) Debit Supplies Expense $4,000 and credit Supplies $4,000
B) Debit Supplies $4,000 and credit Supplies Expense $4,000
C) Debit Supplies $1,000 and credit Supplies Expense $1,000
D) Debit Supplies Expense $1,000 and credit Supplies $1,000

Question 69

What is the effect of the adjusting entry for depreciation on the accounting equation?

A) No effect on assets; Decrease liabilities; Increase stockholders' equity
B) Decrease assets; No effect on liabilities; Decrease stockholders' equity
C) Increase assets; No effect on liabilities; Increase stockholders' equity
D) Decrease assets; Decrease liabilities; No effect on stockholders' equity

Question 70

During the month,a company uses up $4,000 of supplies.At the end of the month,the related adjusting journal entry would result in a(n):

A) decrease in an asset and an equal decrease in expenses.
B) increase in an asset and an equal increase in expenses.
C) decrease in an asset and an equal increase in expenses.
D) increase in an asset and a decrease in expenses.

Question 71

The asset account Office Supplies has a balance of $800 at the beginning of the year.The amount on hand at the end of the year is $500.The company has calculated the Supplies Expense for the year to be $3,500.Based on this information,what amount of office supplies was purchased during the year?

A) $0
B) $4,000
C) $3,200
D) $3,000

Question 72

Which of the following is a correct statement about the nature of equipment?

A) While equipment is an asset, its use is recorded as an expense.
B) While equipment is an asset, its use is recorded as a liability.
C) While equipment is an asset; its use is recorded as affects Common Stock.
D) Equipment and its use both affect liabilities.

Question 73

The Accumulated Depreciation account is a(n):

A) expense account.
B) liability account.
C) asset account.
D) contra-asset account.

Question 74

Antel is a tenet of Baber.On July 1,Antel paid Baber $1,200 for 3 months of rent.On July 31,Antel's adjusting entries will include one with a debit to:

A) Rent Expense for $1200 and a credit to Prepaid Rent for $1,200.
B) Prepaid Rent for $1200 and a credit to Cash for $1,200.
C) Rent Expense for $400 and a credit to Prepaid Rent for $400.
D) Prepaid Rent for $400 and a credit to Rent Expense for $400.

Question 75

On December 31,the Human Bean Coffee Shop paid $12,000 for a full year of rent beginning on January 1.The rent payment was appropriately recorded in the Cash and Prepaid Rent accounts.If financial statements are prepared on January 31,the journal entry to record the adjustment would be:

A) Debit Rent Expense and credit Prepaid Rent for $1,000.
B) Debit Rent Expense and credit Prepaid Rent for $12,000.
C) Debit Prepaid Rent and credit Rent Expense for $12,000.
D) Debit Prepaid Rent and credit Rent Expense for $1,000.

Question 76

Which of the following is not a term for the value at which an asset is reported on a financial statement?

A) Carrying value
B) Book value
C) Equipment, net
D) Accrual value

Question 77

During the company's first year of operations,supplies costing $5,800 were purchased and recorded in the Supplies account.At the end of the period,supplies costing $3,000 were left.What adjusting entry must be made to recorded?

A) Debit Cash and credit Supplies for $3,000
B) Debit Supplies Expense and credit Supplies for $5,800
C) Debit Supplies and credit Supplies Expense for $2,800
D) Debit Supplies Expense and credit Supplies for $2,800

Question 78

On June,30,2015,a company purchased a two-year insurance policy for $18,000,paying cash and debiting Prepaid Insurance for the entire two-year premium amount.The adjusting entry on December 31,2015 includes a:

A) credit to Prepaid Insurance $4,500.
B) credit to Insurance Expense $4,500.
C) credit to Prepaid Insurance $9,000.
D) debit to Insurance expense $9,000.

Question 79

Three months of rent were prepaid on May 1 for $7,200,but two months have now expired,leaving only one month prepaid at June 30.What is the amount of rent expense that will be recorded in the related adjusting entry dated June 30?

A) $0
B) $2,400
C) $4,800
D) $7,200

Question 80

A company started the year with $1,500 of supplies on hand.During the year the company purchased additional supplies of $800 and recorded them as increase to the supplies asset.At the end of the year the company determined that only $300 of supplies are still on hand.What is the adjusting journal entry to be made at the end of the period?

A) Debit Supplies Expense and credit Supplies for $2,000
B) Debit Supplies and credit Supplies Expense for $300
C) Debit Supplies Expense and credit Supplies for $1,200
D) Debit Supplies and credit Supplies Expense for $1,000