Question 1

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

Accepted Answer

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. 
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. C

Question 2

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  True

Question 3

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. C

Question 4

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

Accepted Answer

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

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

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. 
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 7

Adjusting entries help achieve the goals of accrual accounting by applying the following two accounting principles:

Accepted Answer

A) Business entity concept and realization principle. 
B) Cost principle and the accounting equation. 
C) Realization principle and matching principle. 
D) Matching principle and safety principle. 
A) Business entity concept and realization principle. 
B) Cost principle and the accounting equation. 
C) Realization principle and matching principle. 
D) Matching principle and safety principle.

Question 8

End-of-period adjustments - selected computations
Allied Architects adjusts its books each month and closes its books at the end of the year.The trial balance at January 31,2015,before adjustments is as follows:   The following information relates to month-end adjustments:
(a)According to contracts,consulting fees received in advance that were earned in January total $13,500.
(b)On November 1,2015,the company paid in advance for 5 months' advertising in professional journals.
(c)At January 31,supplies on hand amount to $2,250.
(d)The equipment has an original estimated useful life of 4 years.
(e)The corporation is subject to income taxes of 25% of taxable income.(Assume taxable income is the same as "income before taxes.")

Accepted Answer

1)Unearned consulting fees: $4

Question 9

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

Accepted Answer

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. 
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 10

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

Accepted Answer

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. 
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.

Question 11

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 12

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

Accepted Answer

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. 
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 13

Accounting terminology
Listed below are nine technical accounting terms emphasized in this chapter:   Each of the following statements may (or may not)describe one of these technical terms.In the space provided below each statement,indicate the accounting term described,or answer "None" if the statement does not correctly describe any of the terms.
______ (a.)An account with a credit balance that is an offset against an asset account.
______ (b.)A contra-account.
______ (c.)A liability to customers who have paid in advance.
______ (d.)The estimated current value of an asset.
______ (e.)Entries made to achieve the goals of accrual accounting when revenue or expense transactions span more than one accounting period.
______ (f.)An asset that will expire shortly.
______ (g.)Revenue that has been earned,but not yet received.

Accepted Answer

(a)Contra-asset (b)Accumulated

Question 14

Unearned revenue appears:

Accepted Answer

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. 
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 15

Before making month-end adjustments,net income of Cardinal Company was $116,000 for March.Adjusting entries are necessary for the following items: -Depreciation for the month of March: $2,300.
-Rental income accrued during March,tenant to pay in April: $800.
-Supplies used in March: $100.
-Fees earned in March that had been collected in advance: $2,600.
After recording these adjustments,net income for March is:

Accepted Answer

A) $112,400. 
B) $113,620. 
C) $117,000. 
D) $110,800. 
A) $112,400. 
B) $113,620. 
C) $117,000. 
D) $110,800.

Question 16

Paddle,Inc.purchased equipment for $14,760 on February 1,2015.The equipment has a useful life of 3 years.How much depreciation expense should Paddle recognize on its income statement for 2015?

Accepted Answer

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

Question 17

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?

Accepted Answer

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

Question 18

The accountant for Perfect Painting forgot the following two adjustments at the end of 2015: (a)The entry to record depreciation: $3,000.
(b)The entry to record the portion of fees received in advance which have now been earned: $3,000.
As a result of these two omissions:

Accepted Answer

A) Net income for Perfect Painting for 2015 is overstated. 
B) Net income for Perfect Painting for 2015 is understated. 
C) Assets of Perfect Painting are overstated at December 31,2015. 
D) Liabilities of Perfect Painting are understated at December 31,2015. 
A) Net income for Perfect Painting for 2015 is overstated. 
B) Net income for Perfect Painting for 2015 is understated. 
C) Assets of Perfect Painting are overstated at December 31,2015. 
D) Liabilities of Perfect Painting are understated at December 31,2015.

Question 19

Adjusting entries are only required when errors are made.

Accepted Answer

A) True 
 B)False

Question 20

Accumulated depreciation is:

Accepted Answer

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. 
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.

Exam 4: The Accounting Cycle: Accruals and Deferrals

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

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.

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

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

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

Adjusting entries help achieve the goals of accrual accounting by applying the following two accounting principles:

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

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

The concept of materiality:

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

Unearned revenue appears:

Paddle,Inc.purchased equipment for $14,760 on February 1,2015.The equipment has a useful life of 3 years.How much depreciation expense should Paddle recognize on its income statement for 2015?

The accountant for Perfect Painting forgot the following two adjustments at the end of 2015: (a)The entry to record depreciation: $3,000. (b)The entry to record the portion of fees received in advance which have now been earned: $3,000. As a result of these two omissions:

Adjusting entries are only required when errors are made.

Accumulated depreciation is:

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

Filters