Question 1

An asset-expense relationship exists with

Accepted Answer

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

Question 2

Depreciation expense for a period is the

Accepted Answer

A)  original cost of an asset - accumulated depreciation. 
B)  book value of the asset ÷ useful life. 
C)  portion of an asset's cost that expired during the period. 
D)  market value of the asset ÷ useful life. 
A)  original cost of an asset - accumulated depreciation. 
B)  book value of the asset ÷ useful life. 
C)  portion of an asset's cost that expired during the period. 
D)  market value of the asset ÷ useful life.

Question 3

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

Accepted Answer

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. 
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 4

Prepare adjusting entries for the following transactions. Omit explanations.
1. Depreciation on equipment is $600 for the accounting period.
2. There was no beginning balance of supplies and purchased $600 of supplies during the period. At the end of the period $150 of supplies were on hand.
3. Prepaid rent had a $1200 normal balance prior to adjustment. By year end $400 was unexpired.

Accepted Answer

None

Question 5

Revenue recognition fraud is

Accepted Answer

A)  a major issue in the U.S. but not worldwide. 
B)  a major issue internationally but not in the U.S. 
C)  a major issue in the U.S. and worldwide. 
D)  not a major issue anywhere. 
A)  a major issue in the U.S. but not worldwide. 
B)  a major issue internationally but not in the U.S. 
C)  a major issue in the U.S. and worldwide. 
D)  not a major issue anywhere.

Question 6

Valuing assets at their fair value rather than at their cost is inconsistent with the:

Accepted Answer

A)  economic entity assumption. 
B)  historical cost principle. 
C)  periodicity assumption. 
D)  full disclosure principles. 
A)  economic entity assumption. 
B)  historical cost principle. 
C)  periodicity assumption. 
D)  full disclosure principles.

Question 7

If business pays rent in advance and debits a Prepaid Rent account the company receiving the rent payment will credit

Accepted Answer

A)  cash. 
B)  prepaid rent. 
C)  unearned rent revenue. 
D)  rent revenue. 
A)  cash. 
B)  prepaid rent. 
C)  unearned rent revenue. 
D)  rent revenue.

Question 8

For prepaid expense adjusting entries

Accepted Answer

A)  an expense-liability account relationship exists. 
B)  prior to adjustment expenses are overstated and assets are understated. 
C)  the adjusting entry results in a debit to an expense account and a credit to an asset account. 
D)  none of these answer choices are correct. 
A)  an expense-liability account relationship exists. 
B)  prior to adjustment expenses are overstated and assets are understated. 
C)  the adjusting entry results in a debit to an expense account and a credit to an asset account. 
D)  none of these answer choices are correct.

Question 9

Which one of the following is not a justification for adjusting entries?

Accepted Answer

A)  Adjusting entries are necessary to ensure that the revenue recognition principle is followed. 
B)  Adjusting entries are necessary to ensure that the expense recognition principle is followed. 
C)  Adjusting entries are necessary to enable financial statements to be in conformity with GAAP. 
D)  Adjusting entries are necessary to bring the general ledger accounts in line with the budget. 
A)  Adjusting entries are necessary to ensure that the revenue recognition principle is followed. 
B)  Adjusting entries are necessary to ensure that the expense recognition principle is followed. 
C)  Adjusting entries are necessary to enable financial statements to be in conformity with GAAP. 
D)  Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

Question 10

Gwynn Company has an accounting fiscal year which ends on June 30. The company also has a policy of paying the weekly payroll on Friday. Payroll records indicate the following salary costs were incurred. $$\begin{array} { l l r } 
& \text { Date } & \text { Amount } \
\text { Monday } & \text { June 28 } & \$ 3,000 \
\text { Tuesday } & \text { June 29 } & 3,800 \
\text { Wednesday } & \text { June 30 } & 3,300 \
\text { Thursday } & \text { July 1 } & 3,500 \
\text { Friday } & \text { July 2 } & 2,400
\end{array}$$ Instructions
(a) Prepare any necessary adjusting journal entries that should be made at year end on June 30.
(b) Prepare the journal entry to record the payment of the weekly payroll on July 2.

Accepted Answer

None

Question 11

Characteristics associated with relevant accounting information are

Accepted Answer

A)  comparability and timeliness. 
B)  predictive value and confirmatory value. 
C)  neutral and verifiable. 
D)  consistency and understandability. 
A)  comparability and timeliness. 
B)  predictive value and confirmatory value. 
C)  neutral and verifiable. 
D)  consistency and understandability.

Question 12

A new accountant working for Brady Company records $700 Depreciation Expense on store equipment as follows: $\begin{array}{lrr}
  \text {Dr. \quad Depreciation Expense   } &700\
 \text {  Cr. \quad Cash} &&700\
\end{array}$
 The effect of this entry is to

Accepted Answer

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. 
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 13

Accrued revenues are amounts recorded and received but not yet recognized.

Accepted Answer

A) True 
 B)False

Question 14

A law firm received $5000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made this would cause

Accepted Answer

A)  expenses to be overstated. 
B)  net income to be overstated. 
C)  liabilities to be understated. 
D)  revenues to be understated. 
A)  expenses to be overstated. 
B)  net income to be overstated. 
C)  liabilities to be understated. 
D)  revenues to be understated.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

Many business transactions affect more than one time period.

Accepted Answer

A) True 
 B)False

Question 17

Which one of the following is not an enhancing quality of useful information?

Accepted Answer

A)  Timeliness 
B)  Understandability 
C)  Materiality 
D)  Comparability 
A)  Timeliness 
B)  Understandability 
C)  Materiality 
D)  Comparability

Question 18

The quality of consistency pertains to the use of the same accounting principles by firms in the same industry.

Accepted Answer

A) True 
 B)False

Question 19

On June 1 during its first month of operations Crooked Rain purchased supplies for $4500 and debited the supplies account for that amount. At June 30 an inventory of supplies showed $1000 of supplies on hand. What adjusting journal entry should be made for June?

Accepted Answer

None

Question 20

A company shows a balance in Salaries and Wages Payable of $34000 at the end of the month. The next payroll amounting to $50000 is to be paid in the following month. What will be the journal entry to record the payment of salaries? a.$\begin{array}{lrr}
 \text { Salaries and Wages Expense. } & 50,000 & \
 \text { Salaries and Wages Payable... } & & 50,000 \\end{array}$

b.$\begin{array}{lrr} \text { Salaries and Wages Expense. } & 50,000 & \
 \text { Cash} & & 50,000 \\end{array}$

c.$\begin{array}{lrr} \text { Salaries and Wages Expense } & 16,000 & \
 \text { Cash. } & & 16,000 \\end{array}$

d. $\begin{array}{lrr}\text { Salaries and Wages Expense... } & 16,000 & \
 \text { Salaries and Wages Payable } & 34,000 & \
\text { Cash. } & & 50,000 \
\end{array}$

Accepted Answer

The answer of A company shows a balance in Salaries...

Exam 3: Adjusting the Accounts

An asset-expense relationship exists with

Depreciation expense for a period is the

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

Revenue recognition fraud is

Valuing assets at their fair value rather than at their cost is inconsistent with the:

If business pays rent in advance and debits a Prepaid Rent account the company receiving the rent payment will credit

For prepaid expense adjusting entries

Which one of the following is not a justification for adjusting entries?

Characteristics associated with relevant accounting information are

A new accountant working for Brady Company records $700 Depreciation Expense on store equipment as follows: Dr. Depreciation Expense 700 Cr. Cash 700 The effect of this entry is to

Accrued revenues are amounts recorded and received but not yet recognized.

A law firm received $5000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made this would cause

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

Many business transactions affect more than one time period.

Which one of the following is not an enhancing quality of useful information?

The quality of consistency pertains to the use of the same accounting principles by firms in the same industry.

On June 1 during its first month of operations Crooked Rain purchased supplies for $4500 and debited the supplies account for that amount. At June 30 an inventory of supplies showed $1000 of supplies on hand. What adjusting journal entry should be made for June?

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Statement of Cash Flows

Financial Statement Analysis

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