Question 1

Adjusting entries are designed primarily to correct accounting errors.

Accepted Answer

A) True 
 B)False

Question 2

McDever Corporation bills a customer $5,100 at the end of the year for services provided. The adjusting entry McDever should make to accrue the amount collectible is:

Accepted Answer

A)   
B)   
C)   
D)   
E)

Question 3

On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

Accepted Answer

A) Debit Prepaid Insurance, $1,800; credit Cash, $1,800. 
B) Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440. 
C) Debit Prepaid Insurance, $360; credit Insurance Expense, $360. 
D) Debit Insurance Expense, $360; credit Prepaid Insurance, $360. 
E) Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440.

Question 4

A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31. Which of the following statements is true?

Accepted Answer

A) It will have no effect on income. 
B) It will overstate assets and liabilities by $9,000. 
C) It will understate net income by $9,000. 
D) It will understate assets by $9,000. 
E) It will understate expenses and overstate net income by $9,000.

Question 5

List and explain the steps in preparing a 10-column worksheet.

Accepted Answer

The answer of List and explain the steps in preparing...

Question 6

A company's fiscal year must correspond with the calendar year.

Accepted Answer

A) True 
 B)False

Question 7

Adjusting entries are often entered in the work sheet before they are entered in the general journal.

Accepted Answer

A) True 
 B)False

Question 8

Abdulla Co., collected 6-months' rent in advance from a tenant on October 1 of the current year. When it collected the cash, it recorded the following entry:  Prepare the required adjusting entry at December 31 of the current year.

Accepted Answer

The answer of Abdulla Co., collected 6-months' rent in advance...

Question 9

Adjusting entries are necessary so that asset, liability, revenue, and expense account balances are correctly recorded.

Accepted Answer

A) True 
 B)False

Question 10

______________________ are required at the end of the accounting period because certain internal transactions and events remain unrecorded.

Accepted Answer

The answer of ______________________ are required at the end of...

Question 11

Profit margin reflects the percent of profit in each dollar of revenue.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following statements related to U.S. GAAP and IFRS is incorrect?

Accepted Answer

A) Both U.S.GAAP and IFRS include guidance for adjusting entries. 
B) Both U.S.GAAP and IFRS prepare the same four financial statements. 
C) U.S.GAAP does not require items to be separated by current and noncurrent classifications on the balance sheet. 
D) U.S.GAAP balance sheets report current items first. 
E) IFRS balance sheets normally present noncurrent items first.

Question 13

The length of time covered by a set of periodic financial statements, normally a year for most companies, is referred to as the:

Accepted Answer

A) Fiscal cycle. 
B) Natural business year. 
C) Accounting period. 
D) Business cycle. 
E) Operating cycle.

Question 14

On April 1, Griffith Publishing Company received $1,548 from Santa Fe, Inc. for 36-month subscriptions to several different magazines. The company credited Unearned Fees for the amount received and the subscriptions started immediately. What is the adjusting entry that should be recorded by Griffith Publishing Company on December 31 of the first year?

Accepted Answer

A) debit Unearned Fees, $1,548; credit Fees Earned, $1,548. 
B) debit Unearned Fees, $516; credit Fees Earned, $516. 
C) debit Unearned Fees, $1,161; credit Fees Earned, $1,161. 
D) debit Unearned Fees, $129; credit Fees Earned, $129. 
E) debit Unearned Fees, $387; credit Fees Earned, $387.

Question 15

Depreciation expense for a period is the portion of a plant asset's cost that is allocated to that period.

Accepted Answer

A) True 
 B)False

Question 16

Assets are often classified into current assets, long-term investments, plant assets, and intangible assets.

Accepted Answer

A) True 
 B)False

Question 17

The Unadjusted Trial Balance columns of a company's work sheet shows the Store Supplies account with a balance of $750. The Adjustments columns shows a credit of $425 for supplies used during the period. The amount shown as Store Supplies in the Balance Sheet columns of the work sheet is:

Accepted Answer

A) $325 debit. 
B) $325 credit. 
C) $425 debit. 
D) $750 debit. 
E) $425 credit.

Question 18

After posting the entries to close all revenue and expense accounts, the Income Summary account of Cleaver Auto Services has a $4,000 debit balance. This result implies that Cleaver earned a net income of $4,000.

Accepted Answer

A) True 
 B)False

Question 19

The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the:

Accepted Answer

A) Income Summary account. 
B) Closing account. 
C) Balance column account. 
D) Contra account. 
E) Nominal account.

Question 20

It is obvious that an error occurred in the preparation and/or posting of closing entries if:

Accepted Answer

A) all revenue and expense accounts have zero balances. 
B) the retained earnings account is debited for the amount of the net loss for the period. 
C) the income summary account is debited for the amount of net income for the period. 
D) all balance sheet accounts have zero balances. 
E) only permanent accounts appear on the post-closing trial balance.

Exam 3: Adjusting Accounts for Financial Statements

Adjusting entries are designed primarily to correct accounting errors.

McDever Corporation bills a customer $5,100 at the end of the year for services provided. The adjusting entry McDever should make to accrue the amount collectible is:

On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31. Which of the following statements is true?

List and explain the steps in preparing a 10-column worksheet.

A company's fiscal year must correspond with the calendar year.

Adjusting entries are often entered in the work sheet before they are entered in the general journal.

Abdulla Co., collected 6-months' rent in advance from a tenant on October 1 of the current year. When it collected the cash, it recorded the following entry: Prepare the required adjusting entry at December 31 of the current year.

Adjusting entries are necessary so that asset, liability, revenue, and expense account balances are correctly recorded.

______________________ are required at the end of the accounting period because certain internal transactions and events remain unrecorded.

Profit margin reflects the percent of profit in each dollar of revenue.

Which of the following statements related to U.S. GAAP and IFRS is incorrect?

The length of time covered by a set of periodic financial statements, normally a year for most companies, is referred to as the:

Depreciation expense for a period is the portion of a plant asset's cost that is allocated to that period.

Assets are often classified into current assets, long-term investments, plant assets, and intangible assets.

The Unadjusted Trial Balance columns of a company's work sheet shows the Store Supplies account with a balance of $750. The Adjustments columns shows a credit of $425 for supplies used during the period. The amount shown as Store Supplies in the Balance Sheet columns of the work sheet is:

After posting the entries to close all revenue and expense accounts, the Income Summary account of Cleaver Auto Services has a $4,000 debit balance. This result implies that Cleaver earned a net income of $4,000.

The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the:

It is obvious that an error occurred in the preparation and/or posting of closing entries if: