Deck 4: Adjustments,Financial Statements,and Financial Results

Question 1

The adjustment for corporate income taxes is generally the first adjustment prepared.

Answer 1

False
Explanation:Income tax is calculated by multiplying the company's adjusted income (before income tax expense)by the company's tax rate.Therefore,the adjustment for income taxes cannot be calculated until all other adjustments are made.

Question 2

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

Answer 2

False
Explanation:The amount charged for a good or service provided to a customer on account is debited to Accounts Receivable and credited to the related revenue account at the time the good or service is provided.

Question 3

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

Answer 3

False
Explanation:Carrying value is simply the amount at which an asset or liability is reported ("carried")in the financial statements.

Question 4

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

Question 5

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

Question 6

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 7

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

Question 8

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

Question 9

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

Question 10

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 11

If the Retained Earnings account is credited for $3,600 in the closing process,the company had a net income of $3,600.

Question 12

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

Question 13

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

Question 14

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

Question 15

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

Question 16

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 understated on the Balance Sheet.

Question 17

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

Question 18

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

Question 19

A contra-account is added to the account it offsets.

Question 20

Adjusting entries often involve cash.

Question 21

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 22

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 23

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

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

Question 24

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 25

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

A)Rent Receivable.
B)Interest Payable.
C)Deferred Revenue.
D)Cash.

Question 26

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 27

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 28

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 29

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

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

Question 30

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

Question 31

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

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

Question 32

A company makes a deferral adjustment that increased a revenue account.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)liability account was decreased by the same amount.
D)asset account was decreased by the same amount.

Question 33

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 Deferred Revenues.
D)are recorded in the current year when cash is received.

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

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 36

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 37

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 38

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 39

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 40

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 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

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

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

Question 43

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

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

Question 44

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

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

Question 45

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

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

Question 46

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 47

How do deferral adjustments for prepaid expenses (e.g. ,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 48

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 49

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 50

Accruing a revenue or expense 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 the current period.
C)will be reported as a revenue or an expense in a later period.
D)was reported as a revenue or an expense in a prior period.

Question 51

Adjustments ensure that ________ balances are reported at amounts representing the economic benefits used during the period.

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

Question 52

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 53

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

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

Question 54

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 55

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 56

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 57

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 58

Adjustments help to ensure that all ________ are recorded in the period in which they are earned.

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

Question 59

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 a liability account and an increase to an expense account.

Question 60

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 assets and increase expenses.
D)Accrual adjustments can decrease liabilities and increase expenses.

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

A company started the year with $3,750 of supplies on hand.During the year the company purchased additional supplies of $2,000 and recorded them as an increase to the supplies asset.At the end of the year the company determined that only $750 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 $5,000
B)Debit Supplies and credit Supplies Expense for $750
C)Debit Supplies Expense and credit Supplies for $3,000
D)Debit Supplies and credit Supplies Expense for $2,500

Question 63

On January 1,the Sleepy Monk Coffee Shop paid $24,000 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 $2,000.
B)Debit Rent Expense and credit Prepaid Rent for $24,000.
C)Debit Prepaid Rent and credit Rent Expense for $24,000.
D)Debit Prepaid Rent and credit Rent Expense for $2,000.

Question 64

The Prepaid Insurance account has a normal balance of $5,625 at the beginning of the month.The company used $1,470 of insurance coverage during the month.Which of the following statements is correct?

A)The company should credit Insurance Expense for $1,470 and debit Prepaid Insurance for $1,470.
B)Retained earnings will decrease and stockholders' equity will increase.
C)The company should debit Insurance Expense for $1,470 and credit Prepaid Insurance for $1,470.
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)Accumulated depreciation plus the related depreciation expense.

Question 66

During the company's first year of operations,supplies costing $8,700 were purchased and recorded in the Supplies account.At the end of the period,supplies costing $4,500 were left.What adjusting entry must be made?

A)Debit Cash and credit Supplies for $4,500.
B)Debit Supplies Expense and credit Supplies for $8,700.
C)Debit Supplies and credit Supplies Expense for $4,200.
D)Debit Supplies Expense and credit Supplies for $4,200.

Question 67

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 68

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 69

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 70

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 71

Which of the following is a term for the value at which an asset is reported on a financial statement?

A)Accrual value
B)Adjusted value
C)Equipment,as adjusted
D)Carrying value

Question 72

On July 31,2018,a company purchased a two-year insurance policy for $27,000,paying cash and debiting Prepaid Insurance for the entire two-year premium amount.The adjusting entry on December 31,2018 includes a:

A)credit to Prepaid Insurance $5,625.
B)credit to Insurance Expense $5,625.
C)debit to Prepaid Insurance $6,750.
D)debit to Insurance expense $6,750.

Question 73

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)deferred revenue.
C)depreciation.
D)prepaid expense.

Question 74

Three months of rent were prepaid on September 1 for $10,800,but two months have now expired,leaving only one month prepaid at October 31.What is the amount of rent expense that will be recorded in the related adjusting entry dated October 31?

A)$0
B)$3,600
C)$7,200
D)$10,800

Question 75

At the beginning of its first year of operations,Bumper Corp.purchased $4,000 of supplies,which were debited to the Supplies account.They did not purchase any other supplies during the year.At the end of the year,it has $800 of supplies left.The appropriate adjusting journal entry is:

A)Debit Supplies Expense $3,200 and credit Supplies $3,200.
B)Debit Supplies $3,200 and credit Supplies Expense $3,200.
C)Debit Supplies $800 and credit Supplies Expense $800.
D)Debit Supplies Expense $800 and credit Supplies $800.

Question 76

Angela is a tenant of Bruce.On March 1,Angela paid Bruce $2,400 for 3 months of rent.On March 31,Angela's adjusting entries will include one with a debit to:

A)Rent Expense for $2,400 and a credit to Prepaid Rent for $2,400.
B)Prepaid Rent for $2,400 and a credit to Cash for $2,400.
C)Rent Expense for $800 and a credit to Prepaid Rent for $800.
D)Prepaid Rent for $800 and a credit to Rent Expense for $800.

Question 77

The asset account Office Supplies has a balance of $2,000 at the beginning of the year.The amount on hand at the end of the year is $1,250.The company has calculated the Supplies Expense for the year to be $8,750.Based on this information,what amount of office supplies was purchased during the year?

A)$0
B)$10,000
C)$8,000
D)$7,500

Question 78

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 79

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 80

The Accumulated Depreciation account is a(n):

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