Question 1

The recognition of an expense does not depend on the payment of cash.

Accepted Answer

A) True 
 B)False

Question 2

All increases to owner's equity are from revenues.

Accepted Answer

A) True 
 B)False

Question 3

Revenue is equal to the cash received by a company during an accounting period.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is an example of an accrual?

Accepted Answer

A) Debit Office Supplies Expense,credit Office Supplies 
B) Debit Wages Expense,credit Wages Payable 
C) Debit Rent Expense,credit Prepaid Rent 
D) Debit Unearned Revenue,credit Service Revenue

Question 5

Retailers often end their fiscal years .

Accepted Answer

A) during the slack season. 
B) during the peak of the busy season. 
C) at different times each year,depending on the tax consequences. 
D) on June 30.

Question 6

Accrual accounting is an application of the matching rule.

Accepted Answer

A) True 
 B)False

Question 7

The intentional preparation of misleading financial statements is referred to as fraudulent financial reporting.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is an example of an accrual?

Accepted Answer

A) Purchase of equipment. 
B) Prepaid insurance. 
C) Salaries earned but not yet paid. 
D) All of these choices.

Question 9

Which of the following is a condition required by the SEC for the recognition of revenue?

Accepted Answer

A) Completion of goods manufactured. 
B) Execution of a promissory note. 
C) Price in excess of $100. 
D) Reasonable assurance of collection.

Question 10

The continuity assumption states that the business will continue to operate indefinitely.

Accepted Answer

A) True 
 B)False

Question 11

The going concern assumption helps solve the

Accepted Answer

A) matching issue. 
B) accounting period issue. 
C) revenue recognition issue. 
D) continuity issue.

Question 12

Almost every revenue or expense account on the income statement has one or more related accounts on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 13

The primary purpose of an expense is to generate revenue.

Accepted Answer

A) True 
 B)False

Question 14

Unearned Revenue was $1,200 at the end of May and $1,500 at the end of June.Service Revenue was $8,550 for the month of June.How much cash was received for services provided during June?

Accepted Answer

A) $8,250 
B) $5,850 
C) $8,850 
D) $11,250

Question 15

Failure to record depreciation at year end will result in all of the following except

Accepted Answer

A) understatement of total liabilities. 
B) overstatement of total assets. 
C) overstatement of net income. 
D) overstatement of owner's equity.

Question 16

Which of the following is an example of an accrual?

Accepted Answer

A) The purchase of office supplies. 
B) Wages expense incurred but not yet paid. 
C) Rent revenue collected in advance. 
D) Payment of two years' insurance in advance.

Question 17

The Supplies account had a $720 debit balance at the end of the accounting period before adjustment for supplies used,and an inventory of $160 of unused supplies was on hand.Which of the following is the required adjusting entry?

Accepted Answer

A) Debit Supplies Expense $160 and credit Supplies $160. 
B) Debit Supplies Expense $560 and credit Supplies $560. 
C) Debit Supplies $160 and credit Supplies Expense $160. 
D) Debit Supplies $560 and credit Supplies Expense $560.

Question 18

Susan Kane won the mayoral election in the City of Ashley partly on the basis of her charge that Allen Ross,the former mayor,was responsible for the budget deficit.After taking office,she hired a major international accounting firm to straighten things out.This excerpt appeared in an article from a leading business publication,West End Business Review:
[A riddle] Q: When is a budget deficit not a deficit?
A: When it is a surplus,of course.
Ashley Mayor Susan Kane was once again caught with egg on her face last week as she and her financial advisers tried to defend that riddle.On one hand,Comptroller Jim Guan,a Kane appointee,testified in hearings that the city had actually ended 20x5 with a $6 million surplus,not the much-reported deficit.He said further that the modest surplus grew to $54 million as a result of tax-enrichment supplements to the 20x5 balance sheet.
On the other hand,the mayor stuck by the same guns she used last year on her predecessor.The city had ended 20x5,under the Allen Ross administration,not merely without a surplus,but with a deficit.The apparent discrepancy can be explained.
Like most U.S.cities,Ashley operates under a modified accrual accounting basis.This is a combination of the cash basis and the accrual basis.The modified accrual basis differs from the accrual basis in that revenue is recorded when it is collected.The collection of Ashley's parking tax,which is assessed on all city parking lots and garages,is an example.
The tax is assessed and collected on a quarterly basis,but the city doesn't collect the amount due for the last quarter of 20x6 until the first quarter of 20x7.Under ideal accrual methods,the parking revenues should be recorded in the 20x6 financial statements.Under a cash approach,the revenues would be recorded in the 20x7 budget.What the city did before was to record the money whenever it was advantageous politically.That,combined with the infamous revolving funds,allowed the city to hide the fact it was running large deficits under former Mayor Ross.That also means that no one really knew where the city stood.
The auditors are now reallocating the parking revenues to the 20x7 budget but are accruing other revenues by shifting the period of collection from a year in the past.Overall,more revenues were moved into earlier fiscal years than into later years,inflating those budgets.Thus,the 20x7 deficit is a surplus.
The article concluded:
The upshot is that both Mayor Kane and Mr.Guan (the comptroller)were correct.There was a deficit in the 20x5 corporate or checkbook fund,but because of corrections taking place now,a surplus exists.
a.Do you agree with the way the auditors handled parking revenues? Support your answer by explaining which method of accounting you think a city should use.
b.Comment on the statement,"Systematically applied accounting principles will allow all to know exactly where the city stands."

Accepted Answer

The answer of Susan Kane won the mayoral election in...

Question 19

A company's fiscal year need not correspond to the calendar year.

Accepted Answer

A) True 
 B)False

Question 20

Match between columns
                        Premises: Depreciation on machinery is $7,200 for the accounting period.
Commissions amounting to $975 were earned but not yet collected by year end.
Office supplies of $965 were on hand at the beginning of the period.Purchases of office supplies during the period totaled $640.At the end of the period,$120 in office supplies remained.
Interest that has been incurred on a loan but that has not yet been paid or recorded is $675.
Prepaid Rent had a $2,500 balance prior to adjustment.By year end,50 percent had expired.

Accepted Answer

The Answer of Accural and Deferral is...

Exam 3: Adjusting the Accounts

The recognition of an expense does not depend on the payment of cash.

All increases to owner's equity are from revenues.

Revenue is equal to the cash received by a company during an accounting period.

Which of the following is an example of an accrual?

Retailers often end their fiscal years .

Accrual accounting is an application of the matching rule.

The intentional preparation of misleading financial statements is referred to as fraudulent financial reporting.

Which of the following is an example of an accrual?

Which of the following is a condition required by the SEC for the recognition of revenue?

The continuity assumption states that the business will continue to operate indefinitely.

The going concern assumption helps solve the

Almost every revenue or expense account on the income statement has one or more related accounts on the balance sheet.

The primary purpose of an expense is to generate revenue.

Unearned Revenue was $1,200 at the end of May and $1,500 at the end of June.Service Revenue was $8,550 for the month of June.How much cash was received for services provided during June?

Failure to record depreciation at year end will result in all of the following except

Which of the following is an example of an accrual?

The Supplies account had a $720 debit balance at the end of the accounting period before adjustment for supplies used,and an inventory of $160 of unused supplies was on hand.Which of the following is the required adjusting entry?

A company's fiscal year need not correspond to the calendar year.

State whether each situation is a deferral or an accrual.