Deck 4: Adjustments,financial Statements,and Financial Results

Question 1

Which of these accounts would normally not be affected by an adjustment?

A)Supplies.
B)Revenues.
C)Expenses.
D)Cash.

Answer 1

Cash.

Question 2

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)a decrease in an asset and an equal increase in liabilities.
B)an increase in liabilities and an equal decrease in shareholders' equity.
C)a decrease in an asset and an equal increase in expenses.
D)an increase in liabilities and a loss of equal value.

Answer 2

a decrease in an asset and an equal increase in expenses.

Question 3

The company uses up $5,000 of the book value of an existing asset.The company adjusts its accounts accordingly.Which of the following is a true statement?

A)This is an accrual adjustment.
B)This is a closing adjustment.
C)This is a deferral adjustment.
D)The adjustment should not have been made.

Answer 3

This is a deferral adjustment.

Question 4

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 comparative adjustment.
C)A deferral adjustment.
D)A matching adjustment.

Question 5

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 or eliminated and an expense is recorded.
C)an asset account is decreased or eliminated and an expense is recorded.
D)nothing is recorded on the financial statements until they are replaced or replenished.

Question 6

On December 31,a decision is made to accrue an expense and report a current liability.How many accounts will be included in this journal entry?

A)None.
B)One.
C)Two.
D)Three.

Question 7

Purrfect Pets had $6,000 of supplies at the end of October.During November,the company bought $2,000 of supplies.At the end of November,the company had $1,000 of supplies remaining.Which of the following statements is not true?

A)During November,the company used $7,000 of supplies.
B)The carrying value of supplies on November 30 should be $1,000.
C)An expense should be debited for $7,000 in November.
D)An expense should be debited for $1,000 in November.

Question 8

Declared dividends:

A)are an expense of doing business.
B)are not a legal obligation that a company must pay.
C)are a way to distribute the company's profits to its shareholders.
D)are not recorded as a liability because they are not an expense of doing business.

Question 9

A company makes a deferral adjustment that reduces a liability.This must mean:

A)an asset account is decreasing by the same amount.
B)an expense account is increasing by the same amount.
C)a revenue account is increasing by the same amount.
D)a different liability account is decreasing by the same amount.

Question 10

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

A)the carrying value.
B)the book value.
C)the net book value.
D)the depreciated Value.

Question 11

Accrual adjustments link:

A)assets and revenues moving in the same direction or liabilities and expenses moving in the same direction.
B)assets and expenses moving in the same direction or liabilities and revenues moving in the same direction.
C)assets and revenues moving in the opposite direction or liabilities and expenses moving in the opposite direction.
D)assets and expenses moving in the opposite direction or liabilities and revenues moving in the opposite direction.

Question 12

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

A)an expense is recorded.
B)a loss is recorded.
C)a credit to a liability is recorded.
D)a debit to assets is recorded.

Question 13

An adjusting journal entry that includes an increase to a contra-asset account would include an increase in a(n):

A)related asset account.
B)liability account.
C)revenue account.
D)expense account.

Question 14

Purrfect Pets had income before income tax of $164,000 last quarter and a 34% tax rate.Its net income should be reported as:

A)$55,760.
B)$108,240.
C)$(55,760).
D)$248,485.

Question 15

A company has an asset account,Prepaid Utilities,with a balance of $3,750 at the beginning of the month.The company used $980 of utilities during the month.Which of the following statements is true?

A)The company should credit Utility Expenses for $980 and debit Prepaid Utilities for $980.
B)Retained earnings and shareholders' equity should decrease because of this transaction.
C)The company should credit Accrued Liabilities for $980 and debit Utility Expenses for $980.
D)Retained earnings and shareholders' equity should be unchanged by this transaction.

Question 16

One major difference between deferral and accrual adjustments is:

A)deferral adjustments involve previously recorded transactions and accruals involve new transactions.
B)deferral adjustments are made after taxes and accrual adjustments are made before taxes.
C)deferral adjustments are made annually and accrual adjustments are made monthly.
D)deferral adjustments are influenced by estimates of future events and accrual adjustments are not.

Question 17

To calculate the company's income tax expense for the current period,it is necessary to know:

A)the company's operating revenue and tax bill from prior periods.
B)the company's income before income taxes and the company's tax rate.
C)the company's operating expenses and revenue.
D)the company's net income from the previous period and the current tax rate.

Question 18

One major difference between deferral and accrual adjustments is:

A)accrual adjustments are influenced by estimates of future events and deferral adjustments are not.
B)deferral adjustments are made before taxes and accrual adjustments are made after taxes.
C)deferral adjustments are made monthly and accrual adjustments are made annually.
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.

Question 19

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 recorded.

Question 20

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

A)A debit to supplies and a credit to expenses.
B)A credit to supplies and a debit to expenses.
C)A debit to supplies and a credit to revenue.
D)A credit to supplies and a debit to cash.

Question 21

The new CEO of the company takes over on December 10,2011.He is promised a significant bonus for every percent he can raise net income in 2012 over 2011 results.Which of the following adjustments would aid him in making 2012 results look the most impressive?

A)Allocating more of the cost of machinery to amortization expense in 2012 than in 2007.
B)Prepaying 2013 expenses in 2011 and defering 2012 revenues to 2013.
C)Deferring 2012 expenses to 2013 and accruing revenues in 2012 that have not yet been earned.
D)All of the above.

Question 22

Accumulated Amortization:

A)is an expense account.
B)is a liability account.
C)is a regular asset account
D)is a contra-asset account.

Question 23

If total debits are not equal to total credits in a trial balance,which of the following errors may have occurred?

A)Posting Wage Expense to Administrative Expenses.
B)Debiting Accrued Interest instead of debiting Interest Expense.
C)Debiting Notes Payable instead of debiting Interest Expense.
D)Posting a credit to Accounts Payable as a debit.

Question 24

Your business purchased a certificate of deposit on April 1 that will pay $90 interest three months from that date.On April 30,which of the following adjusting journal entries would be made?

A)Debit Interest Receivable for $90; credit Interest Revenue for $90.
B)Debit Interest Revenue for $60; credit Interest Receivable for $60.
C)Debit Interest Receivable for $30; credit Interest Revenue for $30.
D)Debit Interest Revenue for $30; credit Interest Receivable for $30.

Question 25

Which of the following is done last at the end of the year?

A)Prepare adjusting journal entries.
B)Prepare an adjusted trial balance.
C)Prepare closing journal entries.
D)Prepare a post-closing trial balance.

Question 26

A company has a loan that accrues interest at a rate of $20 a day.The company pays the interest once a quarter.Which of these would be an accurate adjustment for a month in which no payments are made?

A)Debit Interest Payable and credit Interest Expense.
B)Debit Loans Payable and credit Cash.
C)Debit Interest Expense and credit Interest Payable.
D)Debit Cash and credit Loans Payable.

Question 27

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 they are paid.
D)all of the above.

Question 28

Which of the following statements about an adjusted trial balance is true?

A)Debits should equal credits both before and after adjustments are made.
B)Debits will equal credits after adjustments are made but not necessarily before.
C)Debits will equal credits before adjustments are made but not necessarily after.
D)Debits do not have to equal credits in the trial balance but they will in the income statement.

Question 29

Contra-accounts:

A)are used to increase the original value of the account they offset.
B)always appear in the same column of the trial balance as the account they offset.
C)always reduce the account they offset.
D)Always increase the account they offset.

Question 30

Companies that make honest,but optimistic,adjusting entries that lead to a higher net income are said to:

A)report "higher quality" earnings.
B)report "lower quality" earnings.
C)have "defensive" management.
D)have "regressive" management.

Question 31

If a company reports sales in the current period when management knows it has little chance of collecting payment from customers,it would fraudulently increase:

A)Unearned Revenue.
B)revenue in the current period.
C)net expenses in the current period.
D)all of the above.

Question 32

Which of the following is done first at the end of each accounting period?

A)Prepare adjusting journal entries.
B)Prepare a post closing trial balance.
C)Prepare closing journal entries.
D)Prepare the statement of retained earnings.

Question 33

A company pays wages every two weeks.Wages amount to $100 a day.On March 31,the company pays wages for the two weeks ending March 24.At the end of the month,the related adjusting journal entry will include a

A)debit to Retained Earnings for $700 and a credit to Cash for $700.
B)debit to Wage Expense for $700 and a credit to Wages Payable for $700.
C)debit to Wages Payable for $700 and a credit to Cash for $700.
D)debit to Retained Earnings for $700 and a credit to Wages Payable for $700.

Question 34

Your business declared a $200 dividend on August 31,payable in September.On August 31,which of the following adjusting journal entries would be made?

A)Debit Dividends Receivable for $200; credit Dividends Declared for $200.
B)Debit Dividends Declared for $200; credit Dividends Payable for $200.
C)Debit Dividends Payable for $200; credit Dividends Declared for $200.
D)Debit Dividends Declared for $200; credit Dividends Receivable for $200.

Question 35

An adjusted trial balance should be prepared immediately:

A)after posting normal journal entries.
B)before analyzing transactions.
C)after posting adjusting journal entries.
D)after posting closing journal entries.

Question 36

When a dividend has been declared but not yet paid,

A)assets will increase and shareholders' equity will decrease.
B)assets will decrease and shareholders' equity will increase.
C)the balance sheet will not change until the dividend is paid.
D)liabilities will increase and shareholders' equity will decrease.

Question 37

In a trial balance a contra-account appears:

A)just before the account it offsets but in the opposite column.
B)just after the account it offsets and in the same column.
C)just after the account it offsets but in the opposite column.
D)just before the account it offsets and in the same column.

Question 38

The equality of recorded debits and credits is checked by preparing a(n):

A)journal entry analysis.
B)trial balance.
C)adjusted income statement.
D)statement of cash flows.

Question 39

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

A)debit to Supplies and a credit to Supplies Expense.
B)credit to Supplies and a debit to Supplies Expense.
C)debit to Supplies and a credit to a revenue account.
D)credit to Supplies and a debit to Cash.

Question 40

Recording an adjusting journal entry to recognize amortization would cause which of the following?

A)An increase in liabilities and expenses,and a decrease in shareholders' equity.
B)A decrease in assets,and an increase in expenses.
C)A decrease in assets,an increase in liabilities,and an increase in expenses.
D)None of the above.

Question 41

Which of the following accounts would be classified as a current liability?

A)Service revenue.
B)Wages expense.
C)Accumulated amortization.
D)None of the above.

Question 42

The Don't Tread on Me Tire Company had retained earnings at December 31,2007 of $200,000.During 2008,the company had revenues of $400,000 and expenses of $350,000,and the company declared and paid dividends of $11,000.Retained earnings on the balance sheet as of December 31,2008 will be:

A)$39,000.
B)$239,000.
C)$250,000.
D)$289,000.

Question 43

After net income has been determined,it is then transferred to:

A)the balance sheet.
B)the income statement.
C)the statement of cash flows.
D)the statement of retained earnings.

Question 44

Which of the following trial balances are used as a source for preparing the income statement?

A)Unadjusted trial balance.
B)Pre-adjusted trial balance.
C)Adjusted trial balance.
D)Post-closing trial balance.

Question 45

Income statement accounts are closed at what stage of the accounting process?

A)At the time that adjustments are made.
B)After adjustments are made and before the income statement is prepared.
C)After the income statement and the statement of retained earnings are prepared,but before the balance sheet is prepared.
D)As the last journal entries at the end of each accounting year.

Question 46

Before closing entries are prepared to close revenues,expenses,and dividends declared,the retained earnings balance in the adjusted trial balance is equal to:

A)the balance of retained earnings at the beginning of the year.
B)the balance of retained earnings after adding revenues and subtracting expenses but before subtracting dividends.
C)the balance of retained earnings at the end of the year.
D)the balance of retained earnings at the beginning of the next year.

Question 47

The Treasury Bank Corporation had retained earnings at the end of December 31,2007 of $450,000.During 2008,the company had net income of $170,000 and declared dividends of $20,000.Retained earnings on the balance sheet as of December 31,2008 will be:

A)$430,000.
B)$600,000.
C)$620,000.
D)$640,000.

Question 48

Which of the following would appear in the credit column of an adjusted trial balance?

A)Income tax payable.
B)Cost of goods sold.
C)Prepaid insurance.
D)Interest receivable.

Question 49

Purrfect Pets had a beginning balance in its retained earnings account of $385,600.During the year,the company declared and paid a $4,700 dividend,and at the end of the year,it reported retained earnings of $399,860.The company's net income for the year was:

A)$14,260.
B)$18,960.
C)$9,560.
D)none of the above.

Question 50

Assuming no errors have been made,when a company prepares its adjusted trial balance:

A)assets will equal liabilities plus retained earnings.
B)shareholders' equity will be adjusted to include the current period's net income.
C)the debit column and the credit column will be equal.
D)income statement accounts will have been closed.

Question 51

Which of the following is a true statement about the nature of Equipment,account?

A)While equipment is an asset,its use (amortization)is an expense.
B)While equipment is an asset,its use (amortization)is a liability.
C)While equipment is an asset,its use (amortization)affects contributed capital.
D)Equipment and its use (amortization)are both liabilities.

Question 52

On the statement of retained earnings:

A)dividends declared increase net income and are added to calculate the end-of-year balance of retained earnings.
B)dividends declared are subtracted to calculate the end-of-year balance of retained earnings.
C)dividends declared are not used to calculate the end-of-year balance of retained earnings.
D)dividends declared are never reported.

Question 53

Which of the following accounts does not normally have a credit balance on an adjusted trial balance?

A)Accumulated amortization.
B)Dividends declared.
C)Accounts payable.
D)Contributed capital.

Question 54

Which of the following accounts would normally be classified as a current liability?

A)Dividends declared.
B)Unearned revenue.
C)Wages expense.
D)None of the above.

Question 55

After adjusting journal entries are prepared and posted,but before closing journal entries are prepared and posted,the balance in retained earnings is equal to

A)zero.
B)the difference between total assets and total liabilities.
C)the amount that is to be reported in the current year's balance sheet.
D)the amount that was reported on the previous year's balance sheet.

Question 56

On the balance sheet,accumulated amortization is:

A)added to property and equipment.
B)subtracted from property and equipment.
C)added to total liabilities.
D)subtracted from total liabilities.

Question 57

At the end of the accounting period:

A)all accounts are closed.
B)temporary accounts are closed; permanent accounts are not.
C)permanent accounts are closed; temporary accounts are not.
D)only accounts with a credit balance are closed.

Question 58

Which of the following would appear in the debit column of an adjusted trial balance?

A)Service revenue.
B)Prepaid rent.
C)Accumulated amortization.
D)Contributed capital.

Question 59

The first financial statement prepared after the adjusted trial balance is:

A)the balance sheet.
B)the income statement.
C)the statement of cash flows.
D)the statement of retained earnings.

Question 60

Which of the following statements is true?

A)If revenues are less than expenses,the company has a net loss and retained earnings falls.
B)If revenues are greater than expenses,the company has net income and contributed capital rises.
C)If revenues are less than expenses,the company has a net loss and contributed capital rises to balance off the loss.
D)If revenues are greater than expenses,the company has net income and retained earnings falls.

Question 61

A business has a corporate income tax rate of 40%.It has made no tax payments for the year 2011.The taxes have to be paid at the end of the first quarter of 2012.Based on the following accounting data for the year-end December 31,2011,which of the following would be the adjusting entry required to be made on December 31,2011 for the taxes?

A)Option A
B)Option B
C)Option C
D)Option D

Question 62

Adjustments ensure that the related accounts on the balance sheet are up to date and complete.
BT: Knowledge

Question 63

Permanent accounts:

A)never have zero balances.
B)have their balances zeroed-out at the end of each accounting year.
C)do not have their year-end balance carried into the next year.
D)Have their ending balance from one year become its begining balance for the following year.

Question 64

Adjustments are only made if cash has been received or paid during the period.
BT: Comprehension

Question 65

Amortization expense represents the use of part of the value of an asset until it has no remaining market value.
BT: Comprehension

Question 66

Two types of closing journal entries are posted to retained earnings at year-end.These are entries to:

A)transfer revenues and expenses to retained earnings.
B)transfer assets and liabilities to retained earnings.
C)transfer net income (or loss)and dividends declared to retained earnings.
D)close permanent and temporary accounts.

Question 67

At the beginning of the year,net income should be equal to:

A)the ending net income from the previous year.
B)the ending net income from the previous year before income tax expense.
C)the ending retained earnings from the previous year.
D)zero.

Question 68

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

Question 69

Adjusting journal entries never affect the cash account.
BT: Knowledge

Question 70

Closing entries:

A)are prepared before financial statements are prepared.
B)reduce the number of permanent accounts.
C)cause the revenue and expense accounts to have zero balances.
D)summarize the activity in every account.

Question 71

Prior to calculating income tax expense,adjustments to all revenue and expense accounts have to be made.
BT: Knowledge

Question 72

A contra account is added to the account it offsets.
BT: Knowledge

Question 73

The sales revenue account has a credit balance of $367,200 at year end.After closing entries are made,the account will:

A)have a debit balance of $367,200.
B)have a zero balance.
C)still have a credit balance of $367,200.
D)be removed entirely from the general ledger.

Question 74

Purrfect Pets has made all the year-end adjustments.Its expense accounts total $130,000,and its revenue accounts total $190,000.The closing journal entry to close the income statement accounts for the year will:

A)debit its various expense accounts for a total of $130,000,debit retained earnings for $60,000,and credit its various revenue accounts for a total of $190,000.
B)debit its various revenue accounts for a total of $190,000,credit retained earnings for $60,000,and credit its various expense accounts for a total of $130,000.
C)debit its various expense accounts for a total of $130,000,credit its various revenue accounts for a total of $190,000,and credit retained earnings for $60,000.
D)debit its various revenue accounts for a total of $190,000,debit retained earnings for $60,000,and credit its various expense accounts for a total of $130,000.

Question 75

Adjustments are needed to ensure that the accounting system records all of the revenues and expenses that relate to that period.
BT: Knowledge

Question 76

A deferral adjustment that decreases an asset will include an increase in an expense.
BT: Comprehension

Question 77

An accrual adjustment that increases an asset will include an increase in an expense.
BT: Comprehension

Question 78

Which of the following statements is true?

A)Retained earnings is a permanent account,while income statement accounts are temporary.
B)Retained earnings and income statement accounts are all temporary accounts.
C)Retained earnings and income statement accounts are all permanent accounts.
D)Retained earnings is a temporary account,while income statement accounts are permanent accounts.

Question 79

The amount charged for a good or service provided to a customer on account is posted to a revenue account only after the payment is received.
BT: Comprehension

Question 80

As a company uses supplies,an adjustment should be made to decrease an asset account and increase an expense account as it represents the use of a resourse (asset).
BT: Knowledge