Deck 4: The Accounting Cycle: Accruals and Deferrals

Question 1

Wages are an expense to the employer when earned,rather than when paid.

Answer 1

True

Question 2

The failure to record an adjusting entry for depreciation would cause assets to be overstated and net income to be understated.

Answer 2

False

Question 3

Depreciation expense on equipment is considered a cash expense since the company must pay cash for the equipment.

Answer 3

False

Question 4

Every adjusting entry involves the recognition of either revenue or an expense.

Question 5

Omission of the adjusting entry needed to accrue an expense at the end of the period would cause liabilities to be understated.

Question 6

When a company receives cash in advance and is obligated to provide a service or a product in the future,the entry would be a debit to a revenue account and a credit to a liability account.

Question 7

If a depreciable asset's market value increases during the year,no depreciation expense should be recorded.

Question 8

Adjusting entries are needed whenever transactions affect the revenue or expenses of more than one accounting period.

Question 9

The Cash account is usually affected by adjusting entries.

Question 10

Since the Accumulated Depreciation account has a credit balance,it is reported on the liability side of the balance sheet along with other accounts that have a credit balance.

Question 11

The period of time over which the cost of an asset is allocated to depreciation expense is called its useful life.

Question 12

Unpaid expenses may be included as an expense on the income statement.

Question 13

The adjusting entry to record estimated income taxes in a profitable period consists of a debit to Income Tax Payable and a credit to Income Tax Expense.

Question 14

Avalon Company paid $4,400 cash for an insurance policy providing three years' protection against fire loss.This transaction could properly be recorded by a $4,400 debit to Unexpired Insurance and a $4,400 credit to Cash.

Question 15

One of the purposes of adjusting entries is to convert assets to expenses.

Question 16

Adjusting entries are usually made on a daily basis.

Question 17

Recording depreciation expense is an example of an adjusting entry to accrue unpaid expenses resulting from expenses being incurred before cash is paid.

Question 18

Unearned revenue is a liability and should be reported on the income statement.

Question 19

Prepaid expenses are assets that should appear on the balance sheet.

Question 20

Adjusting entries are only required when errors are made.

Question 21

Immaterial items may be accounted for in the most convenient manner,without regard to other theoretical concepts.

Question 22

An expenditure that benefits year one but is paid for in year two should not be recorded until year two.

Question 23

We can compare income of the current period with income of a previous period to determine whether the operating results are improving or declining:

A)Only if each accounting period covered is a full year.
B)Only if the same accountant prepares the income statement each period.
C)Only if the accounting periods are equal in length.
D)Only if a manual accounting system is used in both periods.

Question 24

The normal balance of the Accumulated Depreciation account is:

A)A debit balance.
B)A credit balance.
C)Either a debit balance or a credit balance.
D)There is no normal balance for this account.

Question 25

No adjusting entry should consist of:

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

Question 26

Which of the following is considered an adjusting entry?

A)The entry to record depreciation.
B)The entry to pay salaries.
C)The entry to pay outstanding bills.
D)The entry to declare a dividend distribution.

Question 27

Materiality is determined by the Financial Accounting Standards Board.

Question 28

Which of the following situations does not require Empire Company to record an adjusting entry at the end of January?

A)On January 1,Empire Company purchased delivery equipment with an estimated useful life of five years.
B)On January 1,Empire Company began delivery service for a large client who will pay at the end of a three-month period.
C)At the end of January,Empire Company pays the custodian for January office cleaning services.
D)On January 1,Empire Company paid rent for six months on its office building.

Question 29

The adjusted trial balance may be used in place of the income statement.

Question 30

Adjusting entries are needed:

A)Whenever revenue is not received in cash.
B)Whenever expenses are not paid in cash.
C)Only to correct errors in the initial recording of business transactions.
D)Whenever transactions affect the revenue or expenses of more than one accounting period.

Question 31

Which of the following is not a purpose of adjusting entries?

A)To prepare the revenue and expense accounts for recording transactions of the following period.
B)To apportion the proper amounts of revenue and expense to the current accounting period.
C)To establish the proper amounts of assets and liabilities in the balance sheet.
D)To accomplish the objective of offsetting the revenue of the period with all the expenses incurred in generating that revenue.

Question 32

Which of the following is not considered a basic type of adjusting entry?

A)An entry to convert a liability to a revenue.
B)An entry to accrue unpaid expenses.
C)An entry to convert an asset to an expense.
D)An entry to convert an asset to a liability.

Question 33

The purpose of adjusting entries is to:

A)Prepare the revenue and expense accounts for recording the revenue and expenses of the next accounting period.
B)Record certain revenue and expenses that are not properly measured in the course of recording daily routine transactions.
C)Correct errors made during the accounting period.
D)Update the owners' equity account for the changes in owners' equity that had been recorded in revenue and expense accounts throughout the period.

Question 34

If Hot Bagel Co.estimates depreciation on an automobile to be $578 for the year,the company should make the following adjusting entry:

A)Debit Accumulated Depreciation $578 and credit Depreciation Expense $578.
B)Debit Depreciation Expense $578 and credit Automobile $578.
C)Debit Depreciation Expense $578 and credit Accumulated Depreciation $578.
D)Debit Automobile $578 and credit Depreciation Expense $578.

Question 35

The realization principle underlies the accounting practices of depreciating plant assets and amortizing the cost of unexpired insurance policies.

Question 36

The balance in the Retained Earnings account that appears on the adjusted trial balance is the same as the balance of the Retained Earnings account that is reported on the balance sheet.

Question 37

Adjusting entries are prepared:

A)Before financial statements and after a trial balance has been prepared.
B)After a trial balance has been prepared and after financial statements are prepared.
C)After posting but before a trial balance is prepared.
D)Anytime an accountant sees fit to prepare the entries.

Question 38

Adjusting entries:

A)Are generally made daily.
B)Assign revenues to the period in which they are received.
C)Generally fall into one of two categories.
D)Are needed whenever revenue transactions affect more than one period.

Question 39

An adjusting entry to recognize revenue that has been earned but not yet billed or collected will cause an increase in total liabilities.

Question 40

Which of the following is not an example of an adjusting entry?

A)The entry to record unpaid expenses.
B)The entry to record uncollected revenues.
C)The entry to convert liabilities to revenue.
D)The entry to pay outstanding bills.

Question 41

An asset purchased on January 1,2015 for $60,000 that has an estimated life of 10 years will have a book value on December 31,2018 of:

A)$60,000.
B)$24,000.
C)$36,000.
D)$42,000.

Question 42

Which of the following statements is not true regarding prepaid expenses?

A)Prepaid expenses represent assets.
B)Prepaid expenses are shown in a special section of the income statement.
C)Prepaid expenses become expenses only as goods or services are used up.
D)Prepaid expenses appear in the balance sheet.

Question 43

The cost of insurance is considered an expense:

A)Only when the entire policy period has passed.
B)Only when the policy is purchased.
C)Only when the premium is paid.
D)Evenly over the term of the policy.

Question 44

Colonial Systems prepares monthly financial statements.Colonial would record a prepaid expense in each of the following situations except:

A)Colonial Systems purchased a two-year fire insurance policy.
B)Colonial Systems paid for six months' gardening services in advance.
C)A tenant paid Colonial Systems three months' rent in advance.
D)Colonial Systems purchased enough office supplies to last several months.

Question 45

An example of a contra-asset account is:

A)Depreciation Expense.
B)Accumulated Depreciation.
C)Prepaid expenses.
D)Unearned revenue.

Question 46

In which of the following situations would the largest amount be recorded as an expense of the current year? (Assume accrual basis accounting. )

A)$4,000 is paid in January for equipment with a useful life of four years.
B)$1,800 is paid in January for a two-year fire insurance policy.
C)$1,200 cash dividends are declared and paid.
D)$900 is paid to an attorney for legal services rendered during the current year.

Question 47

Prepaid expenses are:

A)Assets.
B)Income.
C)Liabilities.
D)Expenses.

Question 48

Which statement is true about land?

A)Land should be depreciated over the same period as the building located on it.
B)Land cannot be depreciated for greater than a 40-year period.
C)Land should not be depreciated.
D)The straight-line method should be used to depreciate land.

Question 49

Which of the following entries causes an immediate decrease in assets and in net income?

A)The entry to record depreciation expense.
B)The entry to record revenue earned but not yet received.
C)The entry to record the earned portion of rent received in advance.
D)The entry to record accrued wages payable.

Question 50

Accumulated Depreciation is:

A)An asset account.
B)A revenue account.
C)A contra-asset account.
D)An expense account.

Question 51

Which of the following statements regarding depreciation is correct?

A)Depreciation is an exact calculation of the decline in value of an asset.
B)Depreciation is only an estimate of the decline in value of an asset.
C)Depreciation is only recorded at the end of a year and never over a shorter time period.
D)Management must know the exact life of an asset in order to calculate an acceptable depreciation expense.

Question 52

The entry to record depreciation is an example of an adjusting entry:

A)To apportion a recorded cost.
B)To apportion unearned revenue.
C)To convert a liability to revenue.
D)To record unrecorded revenue.

Question 53

Recently,Bon Appetite Café contracted and paid for a relatively expensive advertisement in Haute Cuisine magazine.Despite the fact that the ad will appear in Haute Cuisine three months after the end of Bon Appetite Café's current fiscal year,the Café's accountant recorded the disbursement to advertising expense.If no adjusting entry is made,how will this year's financial statements of Bon Appetite Café be affected?

A)Net income will be overstated and total assets will be understated.
B)Net income will be overstated and total assets will be overstated.
C)Net income will be understated and total assets will be understated
D)Net income will be understated and total assets will be overstated.

Question 54

Gourmet Shop purchased cash registers on April 1 for $12,000.If this asset has an estimated useful life of four years,what is the book value of the cash registers on May 31?

A)$ 250.
B)$ 3,000.
C)$ 9,000.
D)$11,500.

Question 55

Accumulated depreciation is:

A)The depreciation expense recorded on an asset to date.
B)The remaining book value of an asset.
C)The depreciation expense taken on an asset during the current period.
D)An expense on the income statement.

Question 56

If an asset was purchased on January 1,2015 for $140,000 with an estimated life of 5 years,what is the accumulated depreciation at December 31,2018?

A)$28,000.
B)$112,000.
C)$56,000.
D)$84,000.

Question 57

Prepaid expenses appear:

A)As an expense on the income statement.
B)As an asset on the balance sheet.
C)As a liability on the balance sheet.
D)As a reduction to retained earnings.

Question 58

Depreciation expense is:

A)Only an estimate.
B)An exact calculation prepared by an appraiser.
C)Not to be calculated unless the exact life of an asset can be determined.
D)To be determined for all assets owned by a company.

Question 59

An adjusting entry to convert an asset to expense consists of:

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

Question 60

Shop supplies are expensed when:

A)Consumed.
B)Purchased.
C)Paid for.
D)Ordered.

Question 61

On March 1,Hoffman paid in advance for four months' insurance.The necessary adjusting entry at March 31 includes which of the following?

A)A credit to Prepaid Insurance for $2,340.
B)A credit to Prepaid Insurance for $780.
C)A debit to Prepaid Insurance for $2,340.
D)A debit to Prepaid Insurance for $780.

Question 62

At March 31,the amount of supplies on hand is $520.What amount is reported in the March income statement for supplies expense?

A)$1,300
B)$0
C)$520
D)$780

Question 63

Which of the following would not be considered an adjusting entry?

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

Question 64

In which of the following situations would Daystar Company record unearned revenue in May?

A)In April,Daystar Company received payment from a customer for services that are performed in May.
B)Daystar Company completes a job for a customer in May;payment will be received in June.
C)Daystar Company is paid on May 25 for work done in the first two weeks of May.
D)Daystar Company receives payment in May for work to be performed in June and July.

Question 65

The balance of an unearned revenue account:

A)Appears in the balance sheet as a component of owners' equity.
B)Appears in the income statement along with other revenue accounts.
C)Appears in a separate section of the income statement for revenue not yet earned.
D)Appears in the liability section of the balance sheet.

Question 66

Interest that has accrued during the accounting period on a note payable requires an adjusting entry consisting of:

A)A debit to Interest Expense and a credit to Cash.
B)A debit to Notes Payable and a credit to Interest Payable.
C)A debit to an asset and a credit to a liability.
D)A debit to Interest Expense and a credit to Interest Payable.

Question 67

Hahn Corp.has three employees.Each earns $600 per week for a five-day workweek ending on Friday.This month the last day of the month falls on a Wednesday.The company should make an adjusting entry:

A)Debiting Wage Expense for $1,080 and crediting Wages Payable for $1,080.
B)Debiting Wage Expense for $360 and crediting Wages Payable for $360.
C)Crediting Wage Expense for $1,080 and debiting Wages Payable for $1,080.
D)Crediting Wage Expense for $360 and debiting Wages Payable for $360.

Question 68

The adjusting entry to record interest that has accrued on a note payable to the bank will cause an immediate:

A)Increase in liabilities and reduction in net income.
B)Decrease in liabilities and reduction in net income.
C)Decrease in assets and reduction in net income.
D)Increase in assets and increase in net income.

Question 69

Videobusters,Inc.offered books of video rental coupons to its patrons at $40 per book.Each book contained a certain number of coupons for video rentals.During the current period 500 books were sold for $20,000,and this amount was credited to Unearned Rental Revenue.At the end of the period,it was determined that $15,000 worth of coupons had been used by customers to rent videos.The appropriate adjusting entry at the end of the period would be:

A)Debit Rental Revenue $5,000 and credit Unearned Rental Revenue $5,000.
B)Debit Rental Revenue $15,000 and credit Unearned Rental Revenue $15,000.
C)Debit Unearned Rental Revenue $5,000 and credit Rental Revenue $5,000.
D)Debit Unearned Rental Revenue $15,000 and credit Rental Revenue $15,000.

Question 70

Unearned revenue may also be called:

A)Net income.
B)Deferred revenue.
C)Unexpired revenue.
D)Services rendered.

Question 71

Unearned revenue is:

A)An asset.
B)Income.
C)A liability.
D)An expense.

Question 72

The United Shipping Co.borrowed $25,000 at 12% interest on March 1,2018.The note is to be repaid,with interest,in six months.If United Shipping makes monthly adjusting entries,which of the following is included as part of the March 31 adjusting entry?

A)Debit Interest Receivable $250.
B)Credit Interest Payable $2,500
C)Debit Interest Expense $250.
D)Debit Interest Payable $250.

Question 73

Employees are owed $750 for services since the last payday in March,to be paid the first week in April.The amount to be reported in the March income statement for salaries expense is:

A)$ 7,800
B)$ 750
C)$ 7,050
D)$ 8,550

Question 74

Unearned revenue appears:

A)As income on the income statement.
B)As an asset on the balance sheet.
C)As a liability on the balance sheet.
D)As a part of the retained earnings.

Question 75

Paddle,Inc.purchased equipment for $14,760 on February 1,2018.The equipment has a useful life of 3 years.How much depreciation expense should Paddle recognize on its income statement for 2018?

A)$4,510
B)$410
C)$4,920
D)$14,760

Question 76

Tuna Co.purchased a building in 2018 for $650,000 and debited an asset called "Buildings" for the entire amount.The company never depreciated the building although it had a useful life of 15 years.At the end of 2018,this action will cause:

A)Net income to be understated.
B)Net income to be overstated.
C)Net income will not be affected.
D)Total assets will be understated.

Question 77

[The following information applies to the questions displayed below.]
Hoffman,Inc.adjusts its books each month but closes its books at the end of the year.The trial balance at March 31 before adjustments is as follows:

According to service contracts,$4,810 of the Unearned Service Revenue has been earned in March.The amount of Service Revenue Earned to be reported in the March income statement is:

A)$16,510.
B)$21,320.
C)$11,700.
D)$20,410.

Question 78

The equipment had an estimated useful life of five years.Compute the book value of the equipment at March 31,after the proper March adjustment is recorded.

A)$10,833
B)$15,167
C)$25,567
D)$10,400

Question 79

On June 1,Norma Company signed a 12-month lease for warehouse space.The lease requires monthly rent of $550,with 4 months paid in advance.Norma Company records the payment by debiting Prepaid Rent $2,200 and crediting Cash $2,200.At the end of June,what should be the balance of Norma's Prepaid Rent account?

A)$0
B)$2,200
C)$1,650
D)$550

Question 80

Under accrual accounting,fees received in advance from customers should be shown as being earned:

A)When cash is collected.
B)When services are performed or goods delivered.
C)When tax rates are low.
D)When tax rates are high.