Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Depreciation is:

Accepted Answer

A)  An exact calculation of the decline in value of an asset. 
B)  Only an estimate of the decline in value of an asset. 
C)  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. 
A)  An exact calculation of the decline in value of an asset. 
B)  Only an estimate of the decline in value of an asset. 
C)  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 4

Adjusting entries are needed:

Accepted Answer

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. 
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 5

The concept of materiality:

Accepted Answer

A)  Involves only tangible assets and not intangible assets. 
B)  Relates only to the income statement and not the balance sheet. 
C)  Is always an exact percentage of a financial account balance. 
D)  Is measured as an item significant enough to influence the decisions of users of financial statements. 
A)  Involves only tangible assets and not intangible assets. 
B)  Relates only to the income statement and not the balance sheet. 
C)  Is always an exact percentage of a financial account balance. 
D)  Is measured as an item significant enough to influence the decisions of users of financial statements.

Question 6

Before any month-end adjustments are made, the net income of Bennett Company is $76,000. The following adjustments are necessary: office supplies used, $3,160; services performed for clients but not yet recorded or collected, $3,640; interest accrued on note payable to bank, $3,040. After adjusting entries are made for the items listed above, Bennett Company's net income will be:

Accepted Answer

A)  $66,160. 
B)  $78,560. 
C)  $73,440. 
D)  $76,000 
A)  $66,160. 
B)  $78,560. 
C)  $73,440. 
D)  $76,000

Question 7

The purpose of adjusting entries is to:

Accepted Answer

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. 
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 8

According to attendance records, $4,800 of the Unearned Admission Revenue has been earned in January. Compute the balance in the following accounts after the proper adjustment is made.
Unearned Admission Revenue account balance $__________
Admission Revenue account balance $__________

Accepted Answer

Unearned Admission Revenue: $6

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

No adjusting entry should consist of:

Accepted Answer

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. 
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 12

The adjusted trial balance combines the trial balance items with the adjusting entries to determine the adjusted balances.

Accepted Answer

A) True 
 B)False

Question 13

On June 1, 2008, the park purchased a 12-month insurance policy. Give the adjusting entry to record insurance coverage expiring in January. (Hint: The company adjusts its books on a monthly basis.)

Accepted Answer

$6,300 ¸5

Question 14

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

Accepted Answer

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. 
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 15

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

Accepted Answer

A) True 
 B)False

Question 16

The concept of materiality (indicate all correct answers):

Accepted Answer

A)  Requires that financial statements are to be accurate to the nearest dollar, but need not show cents. 
B)  Is based upon what users of financial statements are thought to consider important. 
C)  Permits accountants to ignore other generally accepted accounting principles in certain situations. 
D)  Permits accountants to use the easiest and most convenient means of accounting for events that are immaterial. 
A)  Requires that financial statements are to be accurate to the nearest dollar, but need not show cents. 
B)  Is based upon what users of financial statements are thought to consider important. 
C)  Permits accountants to ignore other generally accepted accounting principles in certain situations. 
D)  Permits accountants to use the easiest and most convenient means of accounting for events that are immaterial.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

As of January 31, Princess Company owes $500 to Butler Co. for equipment rented during January. If no adjustment is made for this item at January 31, how will Princess's financial statements be affected?

Accepted Answer

A)  Cash will be overstated at January 31. 
B)  Net income for January will be overstated. 
C)  Owners' equity will be understated. 
D)  The financial statements will be accurate since the $500 does not have to be paid yet. 
A)  Cash will be overstated at January 31. 
B)  Net income for January will be overstated. 
C)  Owners' equity will be understated. 
D)  The financial statements will be accurate since the $500 does not have to be paid yet.

Question 19

The accountant for Rose's Emporium, Inc. prepared the following trial balance at January 31, 2010, after one month of operations:
 
Additional information items:
a. Consulting services rendered to a client in January, not yet billed or recorded, $2,400.
b. Portion of insurance expiring in January, $300.
c. Income taxes expense for January of $2,500.
d. The office equipment has a life of 5 years.
Instructions: Prepare adjusting entries for a through d.

Accepted Answer

The answer of The accountant for Rose's Emporium, Inc. prepared...

Question 20

The equipment has an original estimated useful life of six years. Compute the book value of the equipment at January31 after the proper January adjustment is recorded:

Accepted Answer

A)  $1,000. 
B)  $71,000. 
C)  $53,000. 
D)  $60,000. 
A)  $1,000. 
B)  $71,000. 
C)  $53,000. 
D)  $60,000.

Exam 4: The Accounting Cycle: Accruals and Deferrals

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

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

Depreciation is:

Adjusting entries are needed:

The concept of materiality:

The purpose of adjusting entries is to:

According to attendance records, $4,800 of the Unearned Admission Revenue has been earned in January. Compute the balance in the following accounts after the proper adjustment is made. Unearned Admission Revenue account balance $__________ Admission Revenue account balance $__________

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

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.

No adjusting entry should consist of:

The adjusted trial balance combines the trial balance items with the adjusting entries to determine the adjusted balances.

On June 1, 2008, the park purchased a 12-month insurance policy. Give the adjusting entry to record insurance coverage expiring in January. (Hint: The company adjusts its books on a monthly basis.)

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

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

The concept of materiality (indicate all correct answers):

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

As of January 31, Princess Company owes $500 to Butler Co. for equipment rented during January. If no adjustment is made for this item at January 31, how will Princess's financial statements be affected?

The equipment has an original estimated useful life of six years. Compute the book value of the equipment at January31 after the proper January adjustment is recorded:

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

The Time Value of Money: Future Amounts and Present Values Answer Key

Filters

According to attendance records, $4,800 of the Unearned Admission Revenue has been earned in January. Compute the balance in the following accounts after the proper adjustment is made. Unearned Admission Revenue account balance $ Admission Revenue account balance $