Question 1

On January 1,the Sleepy Monk Coffee Shop paid $24,000 for a full year of rent beginning on January 1.The rent payment was appropriately recorded in the Cash and Prepaid Rent accounts.If financial statements are prepared on January 31,the journal entry to record the adjustment would be:

Accepted Answer

A) Debit Rent Expense and credit Prepaid Rent for $2,000. 
B) Debit Rent Expense and credit Prepaid Rent for $24,000. 
C) Debit Prepaid Rent and credit Rent Expense for $24,000. 
D) Debit Prepaid Rent and credit Rent Expense for $2,000.

Question 2

Match the term and its definition.There are more definitions than terms.
-Deferral Adjustment

Accepted Answer

A) Also known as balance sheet accounts. 
B) Lists the balances of all temporary and permanent accounts to provide a check on the equality of the debits and credits. 
C) Lists the balances of all accounts to check that revenues equal expenses. 
D) The level of profit prior to considering income tax. 
E) An account that is paired with another account and acts to reduce its book value.
F)Converts some of an asset's or a liability's book value into an expense or a revenue.
G)An account that must have a zero balance after closing entries have been made.
H)Adds new values into the balance sheet and income statement accounts.
I)The amount at which an asset or liability is reported in the financial statements.
J)Lists the balances of all permanent accounts to check that debits equal credits.
K)A journal entry that transfers net income or loss to the Retained Earnings account.
L)When revenue minus expenses is a negative number.
M)Entries made to update existing accounts and record new events.

Question 3

The accrual adjustment recorded to adjust for expenses incurred but not yet paid will cause:

Accepted Answer

A) liabilities to increase. 
B) assets to decrease. 
C) assets to increase. 
D) liabilities to decrease.

Question 4

An example of an account that could be included in an accrual adjustment for expense is:

Accepted Answer

A) Accounts Receivable. 
B) Income Tax Payable. 
C) Prepaid Insurance. 
D) Accumulated Depreciation.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is incorrect regarding the Income Tax Payable account?

Accepted Answer

A) The account represents income tax incurred,but not yet paid by the company. 
B) This is a liability account. 
C) The adjusting entry involving this account also requires an entry to Income Tax Expense. 
D) The account represents tax refunds due to the company.

Question 7

Which of the following is not a correct statement?

Accepted Answer

A) Expense accounts are closed with credits. 
B) Revenue accounts are closed with debits. 
C) The Dividends account is closed with a credit. 
D) The Retained Earnings account is closed with a debit.

Question 8

After the adjustments have been completed,the adjusted balance in the Supplies account represents the cost of supplies:

Accepted Answer

A) on hand at the end of the accounting period. 
B) purchased during the accounting period. 
C) used during the accounting period. 
D) purchased,but not yet paid for,at the end of the accounting period.

Question 9

Match each transaction with the type of entry that will be required at April 30,the company's year-end.
-The company has $8,300 in Prepaid Rent at the beginning of April and uses $3,600 of that for its April rent.

Accepted Answer

A) Closing entry 
B) Deferral adjusting entry 
C) Accrual adjusting entry

Question 10

After adjusting entries are prepared and posted,but before closing entries are prepared and posted,the balance in Retained Earnings is equal to:

Accepted Answer

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 11

How can accrual adjustments for interest incurred but not yet paid affect the balance sheet and the income statement?

Accepted Answer

A) Accrual adjustments can increase liabilities and increase expenses. 
B) Accrual adjustments can increase assets and decrease revenues. 
C) Accrual adjustments can decrease liabilities and increase revenues. 
D) Accrual adjustments can increase assets and increase expenses.

Question 12

The purpose of adjusting entries is to transfer net income and dividends to Retained Earnings.

Accepted Answer

A) True 
 B)False

Question 13

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

Accepted Answer

A) An increase in assets,an increase in liabilities,and a decrease in expenses. 
B) A decrease in assets,an increase in liabilities,and an increase in expenses. 
C) An increase in liabilities,an increase in expenses,and a decrease in stockholders' equity. 
D) A decrease in assets,a decrease in stockholders' equity,and an increase in expenses.

Question 14

Chandler Co.has a loan that accrues interest at a rate of $28 a day.The company pays the interest once a quarter.Which of the following adjustments would be made at the end of a month in which no payment for interest was made?

Accepted Answer

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

Question 15

Which of the following statements about the need to make accrual adjustments at the end of the accounting period is not correct?

Accepted Answer

A) Certain events occur over time that would be too tedious and time-consuming to record on a daily basis. 
B) Since financial statements are prepared at the end of the period,the asset and liability account balances should be brought up to date. 
C) The Cash account should be adjusted for the effects of accrued revenues and expenses during the accounting period. 
D) Revenues and expenses should be recorded in the period in which they occur,even though the cash will be paid or received in a future period.

Question 16

Bird Company incurred $10,000 in salaries and wages for employees for the year;$9,000 of these salaries and wages had been paid by the end of the year.Which of the following statements about this situation is correct?

Accepted Answer

A) Salaries and Wages Payable on the income statement will be $9,000. 
B) Salaries and Wages Expense on the income statement will be $1,000. 
C) Salaries and Wages Expense on the balance sheet will be $10,000. 
D) Salaries and Wages Payable on the balance sheet will be $1,000.

Question 17

Permanent accounts are found on:

Accepted Answer

A) the balance sheet. 
B) the income statement. 
C) both the balance sheet and the income statement. 
D) none of the financial statements.

Question 18

Match each transaction with the type of entry that will be required at April 30,the company's year-end.
-The company transfers the balance in the Dividends account of $1,200 to Retained Earnings.

Accepted Answer

A) Closing entry 
B) Deferral adjusting entry 
C) Accrual adjusting entry

Question 19

What are the effects on the accounting equation from the adjustment for salaries and wages incurred,but not yet paid,during the accounting period?

Accepted Answer

A) Total liabilities will increase and total stockholders' equity will increase. 
B) Total liabilities will decrease and total stockholders' equity will increase. 
C) Total liabilities will decrease and total stockholders' equity will decrease. 
D) Total liabilities will increase and total stockholders' equity will decrease.

Question 20

The adjusting entry to record the amount earned that previously had been collected in advance will:

Accepted Answer

A) increase liabilities and increase revenues. 
B) increase liabilities and decrease revenues. 
C) decrease liabilities and increase revenue. 
D) decrease liabilities and decrease revenues.

Exam 4: Adjustments,Financial Statements,and Financial Results