ACC 557 Week 3 Quiz – Strayer University NEW

ACC/557 Week 3 Quiz – Strayer NEW

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All possible questions with answers

ACC 557 Week 3 Quiz Chapter 2 and 3 Perfect Score

TRUE-FALSE STATEMENTS

A new account is opened for each transaction entered into by a business firm.

Ans: LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The recording process becomes more efficient and informative if all transactions are recorded in one account.

Ans: LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

When the volume of transactions is large, recording them in tabular form is more efficient than using journals and ledgers.

Ans: LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

An account is often referred to as a T-account because of the way it is constructed.

Ans: LO1 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A debit to an account indicates an increase in that account.

Ans: LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

If a revenue account is credited, the revenue account is increased.

Ans: LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The normal balance of all accounts is a debit.

Ans: LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Debit and credit can be interpreted to mean increase and decrease, respectively.

Ans: LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The double-entry system of accounting refers to the placement of a double line at the end of a column of figures.

Ans: LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A credit balance in a liability account indicates that an error in recording has occurred.

Ans: LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The dividends account is a subdivision of the retained earnings account and appears as an expense on the income statement.

Ans: LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Revenues are a subdivision of retained earnings.

Ans: LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Under the double-entry system, revenues must always equal expenses.

Ans: LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Transactions are entered in the ledger first and then they are analyzed in terms of their effect on the accounts.

Ans: LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Business documents can provide evidence that a transaction has occurred.

Ans: LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Each transaction must be analyzed in terms of its effect on the accounts before it can be recorded in a journal.

Ans: LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Transactions are entered in the ledger accounts and then transferred to journals.

Ans: LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

All business transactions must be entered first in the general ledger.

Ans: LO3 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A simple journal entry requires only one debit to an account and one credit to an account.

Ans: LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A compound journal entry requires several debits to one account and several credits to one account.

Ans: LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Transactions are recorded in alphabetic order in a journal.

Ans: LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A journal is also known as a book of original entry.

Ans: LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The complete effect of a transaction on the accounts is disclosed in the journal.

Ans: LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The account titles used in journalizing transactions need not be identical to the account titles in the ledger.

Ans: LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The chart of accounts is a special ledger used in accounting systems.

Ans: LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A general ledger should be arranged in the order in which accounts are presented in the financial statements, beginning with the balance sheet accounts.

Ans: LO5 BT:C K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The number and types of accounts used by different business enterprises are the same if generally accepted accounting principles are being followed by the enterprises.

Ans: LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Posting is the process of proving the equality of debits and credits in the trial balance.

Ans: LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

After a transaction has been posted, the reference column in the journal should not be blank.

Ans: LO6 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A trial balance does not prove that all transactions have been recorded or that the ledger is correct.

Ans: LO7 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The double-entry system is a logical method for recording transactions and results in equal debits and credits for each transaction.

Ans: LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The normal balance of an expense is a credit.

Ans: LO2 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The journal provides a chronological record of transactions.

Ans: LO4 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The ledger is merely a bookkeeping device and therefore does not provide much useful data for management.

Ans: LO5 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The chart of accounts is a listing of the accounts and the account numbers which identify their location in the ledger.

Ans: LO6 BT: C Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The primary purpose of a trial balance is to prove the mathematical equality of the debits and credits after posting.

Ans: LO7 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The trial balance will not balance when incorrect account titles are used in journalizing or posting.

Ans: LO7 BT: K Difficulty: Easy TOT: .5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

MULTIPLE CHOICE QUESTIONS

An account consists of
one part.
two parts.
three parts.
four parts.

Ans: LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The left side of an account is
blank.
a description of the account.
the debit side.
the balance of the account.

Ans: LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which one of the following is not a part of an account?
Credit side
Trial balance
Debit side
Title

Ans: LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

An account is a part of the financial information system and is described by all except which one of the following?
An account has a debit and credit side.
An account is a source document.
An account may be part of a manual or a computerized accounting system.
An account has a title.

Ans: LO1 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The right side of an account
is the correct side.
reflects all transactions for the accounting period.
shows all the balances of the accounts in the system.
is the credit side.

Ans: LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

An account consists of
a title, a debit balance, and a credit balance.
a title, a left side, and a debit balance.
a title, a debit side, and a credit side.
a title, a right side, and a debit balance.

Ans: LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A T-account is
a way of depicting the basic form of an account.
what the computer uses to organize bytes of information.
a special account used instead of a trial balance.
used for accounts that have both a debit and credit balance.

Ans: LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Credits
decrease both assets and liabilities.
decrease assets and increase liabilities.
increase both assets and liabilities.
increase assets and decrease liabilities.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A debit to an asset account indicates
an error.
a credit was made to a liability account.
a decrease in the asset.
an increase in the asset.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The normal balance of any account is the
left side.
right side.
side which increases that account.
side which decreases that account.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The double-entry system requires that each transaction must be recorded
in at least two different accounts.
in two sets of books.
in a journal and in a ledger.
first as a revenue and then as an expense.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A credit is not the normal balance for which account listed below?
Common stock account
Revenue account
Liability account
Dividends account

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which one of the following represents the expanded basic accounting equation?
Assets = Liabilities + Common stock + Retained Earnings + Dividends – Revenues – Expenses.
Assets + Dividends + Expenses = Liabilities + Common stock + Retained Earnings + Revenues.
Assets – Liabilities – Dividends = Common stock + Retained Earnings + Revenues – Expenses.
Assets = Revenues + Expenses – Liabilities.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following correctly identifies normal balances of accounts?
Assets Debit
Liabilities Credit

Stockholders’ Equity Credit

Revenues Debit

Expenses Credit

Assets Debit
Liabilities Credit

Stockholders’ Equity Credit

Revenues Credit

Expenses Credit

Assets Credit
Liabilities Debit

Stockholders’ Equity Debit

Revenues Credit

Expenses Debit

Assets Debit
Liabilities Credit

Stockholders’ Equity Credit

Revenues Credit

Expenses Debit

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The best interpretation of the word credit is the
offset side of an account.
increase side of an account.
right side of an account.
decrease side of an account.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

In recording an accounting transaction in a double-entry system
the number of debit accounts must equal the number of credit accounts.
there must always be entries made on both sides of the accounting equation.
the amount of the debits must equal the amount of the credits.
there must only be two accounts affected by any transaction.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

An accounting convention is best described as
an absolute truth.
an accounting custom.
an optional rule.
something that cannot be changed.

Ans: LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A debit is not the normal balance for which account listed below?
Dividends
Cash
Accounts Receivable
Service Revenue

Ans: LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

An accountant has debited an asset account for $1,200 and credited a liability account for $500. What can be done to complete the recording of the transaction?
Nothing further must be done.
Debit a Stockholders’ equity account for $700.
Debit another asset account for $700.
Credit a different asset account for $700.

Ans: LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

An accountant has debited an asset account for $1,300 and credited a liability account for $500. Which of the following would be an incorrect way to complete the recording of the transaction?
Credit an asset account for $800.
Credit another liability account for $800.
Credit a Stockholders’ account for $800.
Debit a Stockholders’ account for $800.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following is not true of the terms debit and credit?
They can be abbreviated as Dr. and Cr.
They can be interpreted to mean increase and decrease.
They can be used to describe the balance of an account.
They can be interpreted to mean left and right.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

An account will have a credit balance if the
credits exceed the debits.
first transaction entered was a credit.
debits exceed the credits.
last transaction entered was a credit.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

For the basic accounting equation to stay in balance, each transaction recorded must
affect two or less accounts.
affect two or more accounts.
always affect exactly two accounts.
affect the same number of asset and liability accounts.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following statements is true?
Debits increase assets and increase liabilities.
Credits decrease assets and decrease liabilities.
Credits decrease assets and increase liabilities.
Debits decrease liabilities and decrease assets.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Assets normally show
credit balances.
debit balances.
debit and credit balances.
debit or credit balances.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

An awareness of the normal balances of accounts would help you spot which of the following as an error in recording?
A debit balance in the dividends account
A credit balance in an expense account
A credit balance in a liabilities account
A credit balance in a revenue account

Ans: LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

If a company has overdrawn its bank balance, then
its cash account will show a debit balance.
its cash account will show a credit balance.
the cash account debits will exceed the cash account credits.
it cannot be detected by observing the balance of the cash account.

Ans: LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which account below is not a subdivision of retained earnings?
Dividends
Revenues
Expenses
Common stock

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

When a company pays dividends
it doesn’t have to be cash, it could be another asset.
the dividends account will be increased with a credit.
the retained earnings account will be directly increased with a debit.
the dividends account will be decreased with a debit.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The Dividends account
appears on the income statement along with the expenses of the business.
must show transactions every accounting period.
is increased with debits and decreased with credits.
is not a proper subdivision of retained earnings.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following statements is incorrect?
Expenses increase stockholders’ equity.
Expenses have normal debit balances.
Expenses decrease stockholders’ equity.
Expenses are a negative factor in the computation of net income.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A credit to a liability account
indicates an increase in the amount owed to creditors.
indicates a decrease in the amount owed to creditors.
is an error.
must be accompanied by a debit to an asset account.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

In the first month of operations, the total of the debit entries to the cash account amounted to $900 and the total of the credit entries to the cash account amounted to $600. The cash account has a(n)
$600 credit balance.
$900 debit balance.
$300 debit balance.
$300 credit balance.

Ans: LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

TransAm Mail Service purchased equipment for $2,500. TransAm paid $400 in cash and signed a note for the balance. TransAm debited the Equipment account, credited Cash and
nothing further must be done.
debited the retained earnings account for $2,100.
credited another asset account for $400.
credited a liability account for $2,100.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Radio Moscow Industries purchased supplies for $1,000. They paid $400 in cash and agreed to pay the balance in 30 days. The journal entry to record this transaction would include a debit to an asset account for $1,000, a credit to a liability account for $600. Which of the following would be the correct way to complete the recording of the transaction?
Credit an asset account for $400.
Credit another liability account for $400.
Credit the retained earnings account for $400.
Debit the retained earnings account for $400.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

On January 14, Edamame Industries purchased supplies of $700 on account. The entry to record the purchase will include
a debit to Supplies and a credit to Accounts Payable.
a debit to Supplies Expense and a credit to Accounts Receivable.
a debit to Supplies and a credit to Cash.
a debit to Accounts Receivable and a credit to Supplies.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

On June 1, 2014, Portugal Inc. reported a cash balance of $12,000. During June, Portugal made deposits of $3,000 and made disbursements totalling $14,000. What is the cash balance at the end of June?
$1,000 debit balance
$15,000 debit balance
$1,000 credit balance
$4,000 credit balance

Ans: LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

At January 1, 2014, Alligator Industries reported retained earnings of $130,000. During 2014, Alligator had a net loss of $30,000 and paid dividends of $15,000. At December 31, 2014, the amount of retained earnings is
$85,000.
$100,000.
$115,000.
$145,000.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Mt. Zion Inc. pays its employees twice a month, on the 7th and the 21st. On June 21, Mt. Zion Inc. paid employee salaries of $5,000. This transaction would
increase stockholders’ equity by $5,000.
decrease the balance in Salaries and Wages Expense by $5,000.
decrease net income for the month by $5,000.
be recorded by a $5,000 debit to Salaries and Wages Payable and a $4,000 credit to Salaries and Wages Expense.

Ans: LO2 BT: K Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

In the first month of operations for Gallowsbird Industries, the total of the debit entries to the cash account amounted to $9,000 ($4,000 investment by stockholders and revenues of $5,000). The total of the credit entries to the cash account amounted to $5,500 (purchase of equipment $2,000 and payment of expenses $3,500). At the end of the month, the cash account has a(n)
$1,500 credit balance.
$1,500 debit balance.
$3,500 debit balance.
$3,500 credit balance.

Ans: LO2 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

78 Chik Chik Company showed the following balances at the end of its first year:

Cash $ 3,000

Prepaid insurance 4,700

Accounts receivable 3,500

Accounts payable 2,800

Notes payable 4,200

Common stock 1,400

Dividends 700

Revenues 22,000

Expenses 17,500

What did Chik Chik Company show as total credits on its trial balance?

$25,700
$30,400
$31,100
$35,100

Ans: LO2 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: RT AICPA BB: CT AICPA PC: PS

Electrelane Company showed the following balances at the end of its first year:
Cash $ 2,000

Prepaid insurance 3,500

Accounts receivable 2,500

Accounts payable 2,000

Notes payable 3,000

Common stock 1,000

Dividends 500

Revenues 16,000

Expenses 12,500

What did Electrelene Company show as total credits on its trial balance?

$4,500
$22,000
$22,500
$24,500

Ans: LO2 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: RT AICPA BB: CT AICPA PC: PS

During February 2014 its first month of operations, the owner of Ariel Pink Enterprises invested cash of $25,000. Ariel had cash revenues of $5,000 and paid expenses of $7,000. Assuming no other transactions impacted the cash account, what is the balance in Cash at February 28?
$2,000 credit
$2,000 debit
$23,000 debit
$27,000 debit

Ans: LO2 BT: AP Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

At January 31, 2014, the balance in Aislers Inc.’s supplies account was $250. During February, Aislers purchased supplies of $300 and used supplies of $375. At the end of February, the balance in the supplies account should be
$175 debit.
$325 debit.
$175 credit.
$325 debit.

Ans: LO3 BT: AP Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

At December 1, 2014, Cursive Company’s accounts receivable balance was $1,200. During December, Cursive had credit revenues of $4,800 and collected accounts receivable of $4,000. At December 31, 2014, the accounts receivable balance is
$400 debit.
$2,000 debit.
$400 credit.
$2,000 credit.

Ans: LO3 BT: AP Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

At October 1, 2014, Padilla Industries had an accounts payable balance of $30,000. During the month, the company made purchases on account of $25,000 and made payments on account of $36,000. At October 31, 2014, the accounts payable balance is
$19,000.
$21,000.
$41,000.
$91,000.

Ans: LO3 BT: AP Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

During 2013, its first year of operations, Neko’s Bakery had revenues of $60,000 and expenses of $33,000. The business paid dividends of $20,000. What is the amount of stockholders’ equity at December 31, 2014?
$0
$7,000 credit
$27,000 credit
$18,000 debit

Ans: LO3 BT: C Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

On July 7, 2014, Hidden Camera Enterprises performed cash services of $1,700. The entry to record this transaction would include
a debit to Service Revenue of $1,700.
a credit to Accounts Receivable of $1,700.
a debit to Cash of $1,700.
a credit to Accounts Payable of $1,700.

Ans: LO3 BT: AP Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

At September 1, 2014, Promise Ring Co. reported stockholders’ equity of $136,000. During the month, Promise Ring generated revenues of $38,000, incurred expenses of $21,000, purchased equipment for $5,000 and paid dividends of $2,000. What is the amount of stockholders’ equity at September 30, 2014?
$146,000
$151,000
$153,000
$156,000

Ans: LO3 BT: AP Difficulty: Medium TOT: 1.5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The final step in the recording process is to
analyze each transaction.
enter the transaction in a journal.
prepare a trial balance.
transfer journal information to ledger accounts.

Ans: LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The usual sequence of steps in the transaction recording process is:
journal à analyze à ledger.
analyze à journal à ledger.
journal à ledger à analyze.
ledger à journal à analyze.

Ans: LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

In recording business transactions, evidence that an accounting transaction has taken place is obtained from
business documents.
the Internal Revenue Service.
the public relations department.
the SEC.

Ans: LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

After a business transaction has been analyzed and entered in the book of original entry, the next step in the recording process is to transfer the information to
the company’s bank.
stockholders’ equity.
ledger accounts.
financial statements.

Ans: LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The first step in the recording process is to
prepare financial statements.
analyze each transaction for its effect on the accounts.
post to a journal.
prepare a trial balance.

Ans: LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Evidence that would not help with determining the effects of a transaction on the accounts would be a(n)
cash register sales tape.
bill.
advertising brochure.
check.

Ans: LO3 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

After transaction information has been recorded in the journal, it is transferred to the
trial balance.
income statement.
book of original entry.
ledger.

Ans: LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The usual sequence of steps in the recording process is to analyze each transaction, enter the transaction in the
journal, and transfer the information to the ledger accounts.
ledger, and transfer the information to the journal.
book of accounts, and transfer the information to the journal.
book of original entry, and transfer the information to the journal.

Ans: LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The final step in the recording process is to transfer the journal information to the
trial balance.
financial statements.
ledger.
file cabinets.

Ans: LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The recording process occurs
once a year.
once a month.
repeatedly during the accounting period.
infrequently in a manual accounting system.

Ans: LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A compound journal entry involves
two accounts.
three accounts.
three or more accounts.
four or more accounts.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A journal provides
the balances for each account.
information about a transaction in several different places.
a list of all accounts used in the business.
a chronological record of transactions.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

When three or more accounts are required in one journal entry, the entry is referred to as a
compound entry.
triple entry.
multiple entry.
simple entry.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

When two accounts are required in one journal entry, the entry is referred to as a
balanced entry.
simple entry.
posting.
nominal entry.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Another name for journal is
listing.
book of original entry.
book of accounts.
book of source documents.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The standard format of a journal would not include
a reference column.
an account title column.
a T-account.
a date column.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

103 Transactions in a journal are recorded in

account number order.
dollar amount order.
alphabetical order.
chronological order.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

104 A journal is not useful for

disclosing in one place the complete effect of a transaction.
preparing financial statements.
providing a record of transactions.
locating and preventing errors.

Ans: LO4 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

105 A complete journal entry does not show

the date of the transaction.
the new balance in the accounts affected by the transaction.
a brief explanation of the transaction.
the accounts and amounts to be debited and credited.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The name given to entering transaction data in the journal is
chronicling.
listing.
posting.
journalizing.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The standard form of a journal entry has the
debit account entered first and indented.
credit account entered first and indented.
debit account entered first at the extreme left margin.
credit account entered first at the extreme left margin.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

When journalizing, the reference column is
left blank.
used to reference the source document.
used to reference the journal page.
used to reference the financial statements.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

On June 1, 2014 Ted Leo buys a copier machine for his business and finances this purchase with cash and a note. When journalizing this transaction, he will
use two journal entries.
make a compound entry.
make a simple entry.
list the credit entries first, which is proper form for this type of transaction.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following journal entries is recorded correctly and in the standard format?
Salaries and Wages Expense ……………………………………….. 500
Cash …………………………………………………………………….. 1,500

Advertising Expense ……………………………………………………. 1,000

Salaries and Wages Expense ……………………………………….. 500
Advertising Expense ……………………………………………………. 1,000

Cash …………………………………………………………………….. 1,500

Cash ………………………………………………………………………….. 1,500
Salaries and Wages Expense ………………………………….. 500

Advertising Expense ………………………………………………. 1,000

Salaries and Wages Expense ……………………………………….. 500
Advertising Expense ……………………………………………………. 1,000

Cash …………………………………………………………………….. 1,500

Ans: LO4 BT: AN Difficulty: Easy TOT: 1 min. AACSB: Analysis AICPA BB: CT AICPA PC: PS

The ledger should be arranged in
alphabetical order.
chronological order.
dollar amount order.
financial statement order.

Ans: LO5 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The entire group of accounts maintained by a company is called the
chart of accounts.
general journal.
general ledger.
trial balance.

Ans: LO5 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

An accounting record of the balances of all assets, liabilities, and stockholders’ equity accounts is called a
compound entry.
general journal.
general ledger.
chart of accounts.

Ans: LO5 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The usual order of accounts in the general ledger is
assets, liabilities, common stock, retained earnings, dividends, revenues, and expenses.
assets, liabilities, dividends, common stock, retained earnings, expenses, and revenues.
liabilities, assets, common stock, retained earnings, revenues, expenses, and dividends.
common stock, retained earnings, assets, liabilities, dividends, expenses, and revenues.

Ans: LO5 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Management could determine the amounts due from customers by examining which ledger account?
Service Revenue
Accounts Payable
Accounts Receivable
Supplies

Ans: LO5 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The ledger accounts should be arranged in
chronological order.
alphabetical order.
financial statement order.
order of appearance in the journal.

Ans: LO5 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A three column form of account is so named because it has columns for
debit, credit, and account name.
debit, credit, and reference.
debit, credit, and balance.
debit, credit, and date.

Ans: LO5 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

On August 13, 2014, Swell Maps Enterprises purchased equipment for $1,300 and supplies of $200 on account. Which of the following journal entries is recorded correctly and in the standard format?
Equipment ……………………………………………………………….. 1,300
Account Payable…………………………………………………….. 1,500

Supplies ……………………………………………………………….. 200

Equipment. ……………………………………………………………….. 1,300
Supplies ……………………………………………………………….. 200

Accounts Payable…………………………………………………… 1,500

Accounts Payable………………………………………………………… 1,500
Equipment………………………………………………………………. 1,300

Supplies ……………………………………………………………….. 200

Equipment ……………………………………………………………….. 1,300
Supplies ……………………………………………………………….. 200

Accounts Payable…………………………………………………… 1,500

Ans: LO5 BT: AP Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Delta72 Company received a cash advance of $700 from a customer. As a result of this event,
assets increased by $700.
stockholders’ equity increased by $700.
liabilities decreased by $700.
both a and b.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Camper Van Company purchased equipment for $2,600 cash. As a result of this event,
stockholders’ equity decreased by $2,600.
total assets increased by $2,600.
total assets remained unchanged.
Both a and b.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Beethoven Company provided consulting services and billed the client $3,100. As a result of this event,
assets remained unchanged.
assets increased by $3,100.
stockholders’ equity increased by $3,100.
Both b and c.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The first step in posting involves
entering in the appropriate ledger account the date, journal page, and debit amount shown in the journal.
writing in the journal the account number to which the debit amount was posted.
writing in the journal the account number to which the credit amount was posted.
entering in the appropriate ledger account the date, journal page, and credit amount shown in the journal.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A chart of accounts usually starts with
asset accounts.
expense accounts.
liability accounts.
revenue accounts.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The procedure of transferring journal entries to the ledger accounts is called
journalizing.
analyzing.
reporting.
posting.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A number in the reference column in a general journal indicates
that the entry has been posted to a particular account.
the page number of the journal.
the dollar amount of the transaction.
the date of the transaction.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A chart of accounts for a business firm
is a graph.
indicates the amount of profit or loss for the period.
lists the accounts and account numbers that identify their location in the ledger.
shows the balance of each account in the general ledger.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Posting
should be performed in account number order.
accumulates the effects of journalized transactions in the individual accounts.
involves transferring all debits and credits on a journal page to the trial balance.
is accomplished by examining ledger accounts and seeing which ones need updating.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

After journal entries are posted, the reference column
of the general journal will be blank.
of the general ledger will show journal page numbers.
of the general journal will show “Dr” or “Cr”.
of the general ledger will show account numbers.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The explanation column of the general ledger
is completed without exception.
is nonexistent.
is used infrequently.
shows account titles.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A numbering system for a chart of accounts
is prescribed by GAAP.
is uniform for all businesses.
usually starts with income statement accounts.
usually starts with balance sheet accounts.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The first step in designing a computerized accounting system is the creation of the
general ledger.
general journal.
trial balance.
chart of accounts.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The steps in preparing a trial balance include all of the following except
listing the account titles and their balances.
totaling the debit and credit columns.
proving the equality of the two columns.
transferring journal amounts to ledger accounts.

Ans: LO7 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A trial balance may balance even when each of the following occurs except when
a transaction is not journalized.
a journal entry is posted twice.
incorrect accounts are used in journalizing.
a transposition error is made.

Ans: LO7 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A list of accounts and their balances at a given time is called a(n)
journal.
posting.
trial balance.
income statement.

Ans: LO7 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates
no errors have been made.
no errors can be discovered.
that all accounts reflect correct balances.
the mathematical equality of the accounting equation.

Ans: LO7 BT: C Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A trial balance is a listing of
transactions in a journal.
the chart of accounts.
general ledger accounts and balances.
the totals from the journal pages.

Ans: LO7 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Customarily, a trial balance is prepared
at the end of each day.
after each journal entry is posted.
at the end of an accounting period.
only at the inception of the business.

Ans: LO7 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A trial balance would only help in detecting which one of the following errors?
A transaction that is not journalized
A journal entry that is posted twice
Offsetting errors are made in recording the transaction
A transposition error when transferring the debit side of journal entry to the ledger

Ans: LO7 BT: C Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

139…. An account is an individual accounting record of increases and decreases in specific

liabilities.
assets.
expenses.
assets, liabilities, and stockholders’ equity items.

Ans: LO1 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A debit is not the normal balance for which of the following?
Asset account
Dividends account
Expense account
Common stock account

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following rules is incorrect?
Credits decrease the dividends account.
Debits increase the common stock account.
Credits increase revenue accounts.
Debits decrease liability accounts.

Ans: LO2 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following statements is false?
Revenues increase stockholders’ equity.
Revenues have normal credit balances.
Revenues are a positive factor in the computation of net income.
Revenues are increased by debits.

Ans: LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following is the correct sequence of steps in the recording process?
Posting, journalizing, analyzing
Journalizing, analyzing, posting
Analyzing, posting, journalizing
Analyzing, journalizing, posting

Ans: LO3 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following is false about a journal?
It discloses in one place the complete effects of a transaction.
It provides a chronological record of transactions.
It helps to prevent or locate errors because debit and credit amounts for each entry can be readily compared.
It keeps in one place all the information about changes in specific account balances.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Deerhoof Company purchases equipment for $1,700 and supplies for $400 from Milkman Co. for $2,100 cash. The entry for this transaction will include a
debit to Equipment $1,700 and a debit to Supplies Expense $400 for Milkman.
credit to Cash for Milkman.
credit to Accounts Payable for Deerhoof.
debit to Equipment $1,700 and a debit to Supplies $400 for Deerhoof.

Ans: LO4 BT: K Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Devendra Company pays cash dividends of $600. The entry for this transaction will include a debit of $600 to
Dividends
Retained Earnings.
Owner’s Salaries Expense.
Salaries and Wages Expense.

Ans: LO4 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

On October 3, Karl Schickele, a carpenter, received a cash payment for services previously billed to a client. Karl paid his telephone bill, and he also bought equipment on credit. For the three transactions, at least one of the entries will include a
credit to Retained Earnings.
credit to Notes Payable.
debit to Accounts Receivable.
credit to Accounts Payable.

Ans: LO4 BT: C Difficulty: Medium TOT: 1.5 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Posting of journal entries should be done in
account number order.
alphabetical order.
chronological order.
dollar amount order.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

The chart of accounts is a
list of accounts and their balances at a given time.
device used to prove the mathematical accuracy of the ledger.
listing of the accounts and the account numbers which identify their location in the ledger.
required step in the recording process.

Ans: LO6 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Which of the following is incorrect regarding a trial balance?
It proves that the debits equal the credits after posting.
It proves that the company has recorded all transactions.
A trial balance uncovers errors in journalizing and posting.
A trial balance is useful in the preparation of financial statements.

Ans: LO7 BT: K Difficulty: Easy TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

A trial balance will not balance if
a journal entry is posted twice.
a wrong amount is used in journalizing.
incorrect account titles are used in journalizing.
a journal entry is only partially posted.

Ans: LO7 BT: C Difficulty: Medium TOT: 1 min. AACSB: RT AICPA BB: CT AICPA FN: Reporting

Chapter 3

TRUE-FALSE STATEMENTS

Many business transactions affect more than one time period.

Ans: LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving

The time period assumption states that the economic life of a business entity can be divided into artificial time periods.

Ans:T, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving

The time period assumption is often referred to as the expense recognition principle.

Ans: LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving

A company’s calendar year and fiscal year are always the same.

Ans: LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: Communications, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Accounting time periods that are one year in length are referred to as interim periods.

Ans: LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

Ans: LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

The cash basis of accounting is not in accordance with generally accepted accounting principles.

Ans: LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

The expense recognition principle requires that efforts be matched with accomplishments.

Ans: LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Expense recognition is tied to revenue recognition.

Ans: LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

The revenue recognition principle dictates that revenue be recognized in the accounting period in which cash is received.

Ans: LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal.

Ans: LO 3, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

An adjusting entry always involves two balance sheet accounts.

Ans: LO 3, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Adjusting entries are often made because some business events are not recorded as they occur.

Ans: LO 3, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger.

Ans: LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Revenue received before it is earned and expenses paid before being used or consumed are both initially recorded as liabilities.

Ans: LO 4, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Accrued revenues are revenues which have been received but not yet earned.

Ans: LO 4, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique.

Ans: LO 5, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Accumulated Depreciation is a liability account and has a credit normal account balance.

Ans: LO 5, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

A liability—revenue account relationship exists with an unearned rent revenue adjusting entry.

Ans: LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same.

Ans: LO 5, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Unearned revenue is a prepayment that requires an adjusting entry when services are performed.

Ans: LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Asset prepayments become expenses when they expire.

Ans: LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

A contra asset account is subtracted from a related account in the balance sheet.

Ans: LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Communications, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

If prepaid costs are initially recorded as an asset, no adjusting entries will be required in the future.

Ans: LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset.

Ans: LO 5, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Accrued revenues are revenues that have been earned and received before financial statements have been prepared.

Ans: LO 6, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

An adjusting entry for accrued expenses results in an increase to an expense account and an increase to a liability account.

Ans: LO 6, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Accrued expenses are expenses incurred but not yet paid or recorded at the statement date.

Ans: LO 6, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Financial statements can be prepared from the information provided by an adjusted trial balance.

Ans: LO 7, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

The adjusted trial balance is the primary basis for the preparation of financial statement.

Ans: LO 6, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

a31. The adjusting entry at the end of the period to record an expired cost may be different depending on whether the cost was initially recorded as an asset or an expense.

Ans: LO 8, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

a32. Rent received in advance and credited to a rent revenue account which is still unearned at the end of the period, will require an adjusting entry crediting a liability account for the amount still unearned.

Ans: LO 8, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

a33. An adjusting entry requiring a credit to Insurance Expense indicates that the initial transaction was charged to an asset account.

Ans: LO 8, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Additional True-False Questions

The expense recognition principle requires that expenses be matched with revenues.

Ans: LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

In general, adjusting entries are required each time financial statements are prepared.

Ans: LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Every adjusting entry affects one balance sheet account and one income statement account.

Ans: LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

The Accumulated Depreciation account is a contra asset account that is reported on the balance sheet.

Ans: LO 5, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Accrued revenues are amounts recorded and received but not yet earned.

Ans: LO 6, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

An adjusted trial balance should be prepared before the adjusting entries are made.

Ans: LO 7, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

a40. When a prepaid expense is initially debited to an expense account, expenses and assets are both overstated prior to adjustment.

Ans: LO 8, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

MULTIPLE CHOICE QUESTIONS

Monthly and quarterly time periods are called
calendar periods.
fiscal periods.
interim periods.
quarterly periods.

Ans: LO 1, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

The time period assumption states that
a transaction can only affect one period of time.
estimates should not be made if a transaction affects more than one time period.
adjustments to the enterprise’s accounts can only be made in the time period when the business terminates its operations.
the economic life of a business can be divided into artificial time periods.

Ans: LO 1, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

An accounting time period that is one year in length, but does not begin on January 1, is referred to as
a fiscal year.
an interim period.
the time period assumption.
a reporting period.

Ans: LO 1, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Adjustments would not be necessary if financial statements were prepared to reflect net income from
monthly operations.
fiscal year operations.
interim operations.
lifetime operations.

Ans: LO 1, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Management usually desires ________ financial statements and the IRS requires all businesses to file _________ tax returns.
annual, annual
monthly, annual
quarterly, monthly
monthly, monthly

Ans: LO 1, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

The time period assumption is also referred to as the
calendar assumption.
cyclicity assumption.
periodicity assumption.
fiscal assumption.

Ans: LO 1, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

In general, the shorter the time period, the difficulty of making the proper adjustments to accounts
is increased.
is decreased.
is unaffected.
depends on if there is a profit or loss.

Ans: LO 1, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

Which of the following is not a common time period chosen by businesses as their accounting period?
Daily
Monthly
Quarterly
Annually

Ans: LO 1, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

Which of the following time periods would not be referred to as an interim period?
Monthly
Quarterly
Semi-annually
Annually

Ans: LO 1, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

The fiscal year of a business is usually determined by
the IRS.
a lottery.
the business.
the SEC.

Ans: LO 1, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

Which of the following are in accordance with generally accepted accounting principles?
Accrual basis accounting
Cash basis accounting
Both accrual basis and cash basis accounting
Neither accrual basis nor cash basis accounting

Ans: LO 2, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

The revenue recognition principle dictates that revenue should be recognized in the accounting period
in which cash is received.
in which the performance obligation is satisfied.
at the end of the month.
in which income taxes are paid.

Ans: LO 2, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

In a service-type business, revenue is recognized
at the end of the month.
at the end of the year.
when the service is performed.
when cash is received.

Ans: LO 2, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

The expense recognition principle matches
customers with businesses.
expenses with revenues.
assets with liabilities.
creditors with businesses.

Ans: LO 2, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Live Wire Hot Rod Shop follows the revenue recognition principle. Live Wire services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Live Wire on August 5. Live Wire receives the check in the mail on August 6. When should Live Wire recognize that the revenue?
July 31
August 1
August 5
August 6

Ans: LO 2, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

A company spends $15 million dollars for an office building. Over what period should the cost be written off?
When the $15 million is expended in cash.
All in the first year.
Over the useful life of the building.
After $15 million in revenue is earned.

Ans: LO 2, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that
assets should be matched with liabilities.
efforts should be matched with accomplishments.
dividends to stockholders should be matched with stockholders’ investment.
cash payments should be matched with cash receipts.

Ans: LO 2, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

A flower shop makes a large sale for $1,200 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,200 considered recognized?
December 5.
December 10.
November 30.
December 1.

Ans: LO 2, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

A candy factory’s employees work overtime to finish an order that is sold on February 28. The office sends a statement to the customer in early March and payment is received by mid-March. The overtime wages should be expensed in
February.
March.
the period when the workers receive their checks.
either in February or March depending on when the pay period ends.

Ans: LO 2, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

Expenses sometimes make their contribution to revenue in a different period than when the expense is paid. When salaries are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the time period?
Due from Employees.
Due to Employer.
Salaries Payable.
Salaries Expense.

Ans: LO 2, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

Under accrual-basis accounting
cash must be received before revenue is recognized.
net income is calculated by matching cash outflows against cash inflows.
events that change a company’s financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.

Ans: LO 2, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

Adjusting entries are required
yearly.
quarterly.
monthly.
every time financial statements are prepared.

Ans: LO 2, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

Which is not an application of revenue recognition?
Recording revenue as an adjusting entry on the last day of the accounting period.
Accepting cash from an established customer for services to be performed over the next three months.
Billing customers on June 30 for services completed during June.
Receiving cash for services performed.

Ans: LO 2, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Which statement is correct?
As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use.
The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.
The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
As long as management is ethical, there are no problems with using the cash basis of accounting.

Ans: LO 2, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

The following is selected information from Motley Corporation for the fiscal year ending October 31, 2013.
Cash received from customers $300,000

Revenue earned 350,000

Cash paid for expenses 180,000

Cash paid for computers on November 1, 2012 that will be used

for 3 years (annual depreciation is $16,000) 48,000

Expenses incurred, not including any depreciation 220,000

Proceeds from a bank loan, part of which was used to pay for

the computers 100,000

Based on the accrual basis of accounting, what is Motley Corporation’s net income for the year ending October 31, 2013?

$62,000.
$104,000.
$114,000.
$130,000.

Ans: LO 2, BT: AP, Difficulty: Hard, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

Crue Company had the following transactions during 2013:
Sales of $4,500 on account
Collected $2,000 for services to be performed in 2014
Paid $1,625 cash in salaries
Purchased airline tickets for $250 in December for a trip to take place in 2014

What is Crue’s 2013 net income using accrual accounting?

$2,625.
$2,875.
$4,625.
$4,875.

Ans: LO 2, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

Crue Company had the following transactions during 2013:
Sales of $4,500 on account
Collected $2,000 for services to be performed in 2014
Paid $1,625 cash in salaries
Purchased airline tickets for $250 in December for a trip to take place in 2014

What is Crue’s 2013 net income using cash basis accounting?

$125.
$375.
$4,625.
$4,875.

Ans: LO 2, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

Adjusting entries are required
because some costs expire with the passage of time and have not yet been journalized.
when the company’s profits are below the budget.
when expenses are recorded in the period in which they are incurred.
when revenues are recorded in the period in which they are earned.

Ans: LO 3, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

A small company may be able to justify using a cash basis of accounting if they have
sales under $1,000,000.
no accountants on staff.
few receivables and payables.
all sales and purchases on account.
Ans: LO 3, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

Which one of the following is not a justification for adjusting entries?
Adjusting entries are necessary to ensure that the revenue recognition principle is followed.
Adjusting entries are necessary to ensure that the expense recognition principle is followed.
Adjusting entries are necessary to enable financial statements to be in conformity with GAAP.
Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

Ans: LO 3, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

An adjusting entry
affects two balance sheet accounts.
affects two income statement accounts.
affects a balance sheet account and an income statement account.
is always a compound entry.

Ans: LO 3, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

The preparation of adjusting entries is
straight forward because the accounts that need adjustment will be out of balance.
often an involved process requiring the skills of a professional.
only required for accounts that do not have a normal balance.
optional when financial statements are prepared.

Ans: SO 3, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

If a resource has been consumed but a bill has not been received at the end of the accounting period, then
an expense should be recorded when the bill is received.
an expense should be recorded when the cash is paid out.
an adjusting entry should be made recognizing the expense.
it is optional whether to record the expense before the bill is received.

Ans: LO 3, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Accounts often need to be adjusted because
there are never enough accounts to record all the transactions.
many transactions affect more than one time period.
there are always errors made in recording transactions.
management can’t decide what they want to report.

Ans: LO 3, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Adjusting entries are
not necessary if the accounting system is operating properly.
usually required before financial statements are prepared.
made whenever management desires to change an account balance.
made to balance sheet accounts only.

Ans: LO 3, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

All of the following statements are correct except
adjusting entries ensure that the revenue recognition and expense recognition principles are followed.
a company must make adjusting entries every time it prepares financial statement.
adjusting entries are made to balance sheet accounts only.
companies often prepare adjusting entries after the balance sheet date, but date them as of the balance sheet date.

Ans: LO 3, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving

Which of the following situations does not require Carlton Heights Corporation to record an adjusting entry at the end of January?
On January 1, Carlton Heights Corporation purchased office equipment with an estimated useful life of the five years.
On January 1, Carlton Heights Corporation began shipping services for a large client who will pay at the end of a three-month period.
At the end of January Carlton Heights Corporation pays the janitor for January office cleaning services.
On January 1, Carlton Heights Corporation paid rent for six months on its office building.

Ans: LO 4, BT: K, Difficulty: Easy, TOT: 1.0 min., AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

An adjusting entry could consist of all of the following except a debit to
an expense and a credit to an assets.
an expense and a credit to a revenue.
an expense and a credit to a liability.
a liability and a credit to revenue.

Ans: LO 4, BT: K, Difficulty: Easy, TOT: 1.0 min., AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

Expenses incurred but not yet paid or recorded are called
prepaid expenses.
accrued expenses.
interim expenses.
unearned expenses.

Ans: LO 4, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

A law firm received $3,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Legal Fees. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause
expenses to be overstated.
net income to be overstated.
liabilities to be understated.
revenues to be understated.

Ans: LO 4, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Adjusting entries can be classified as
postponements and advances.
accruals and deferrals.
deferrals and postponements.
accruals and advances.

Ans: LO 4, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Accrued revenues are
received and recorded as liabilities before they are earned.
earned and recorded as liabilities before they are received.
earned but not yet received or recorded.
earned and already received and recorded.

Ans: LO 4, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Prepaid expenses are
paid and recorded in an asset account before they are used or consumed.
paid and recorded in an asset account after they are used or consumed.
incurred but not yet paid or recorded.
incurred and already paid or recorded.

Ans: LO 4, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Accrued expenses are
paid and recorded in an asset account before they are used or consumed.
paid and recorded in an asset account after they are used or consumed.
incurred but not yet paid or recorded.
incurred and already paid or recorded.

Ans: LO 4, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Unearned revenues are
received and recorded as liabilities before they are earned.
earned and recorded as liabilities before they are received.
earned but not yet received or recorded.
earned and already received and recorded.

Ans: LO 4, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

A liability—revenue relationship exists with
prepaid expense adjusting entries.
accrued expense adjusting entries.
unearned revenue adjusting entries.
accrued revenue adjusting entries.

Ans: LO 4, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Which of the following reflect the balances of prepayment accounts prior to adjustment?
Balance sheet accounts are understated and income statement accounts are understated.
Balance sheet accounts are overstated and income statement accounts are overstated.
Balance sheet accounts are overstated and income statement accounts are understated.
Balance sheet accounts are understated and income statement accounts are overstated.

Ans: LO 4, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

An asset—expense relationship exists with
liability accounts.
revenue accounts.
prepaid expense adjusting entries.
accrued expense adjusting entries.

Ans: LO 4, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Lake of Fire Company purchased supplies costing $7,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of supplies revealed $2,400 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be
Debit Supplies Expense, $2,400; Credit Supplies, $2,400.
Debit Supplies, $4,600; Credit Supplies Expense, $4,600.
Debit Supplies Expense, $4,600; Credit Supplies, $4,600.
Debit Supplies, $2,400; Credit Supplies Expense, $2,400.

Ans: LO 4, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

If an adjustment is needed for unearned revenues, the
liability and related revenue are overstated before adjustment.
liability and related revenue are understated before adjustment.
liability is overstated and the related revenue is understated before adjustment.
liability is understated and the related revenue is overstated before adjustment.

Ans: LO 5, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

The balance in the supplies account on June 1 was $5,200, supplies purchased during June were $2,500, and the supplies on hand at June 30 were $3,000. The amount to be used for the appropriate adjusting entry is
$2,500.
$4,700.
$5,500.
$10,700.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Depreciation expense for a period is computed by taking the
original cost of an asset – accumulated depreciation.
depreciable cost of the asset ÷ depreciation rate.
cost of the asset ÷ useful life.
market value of the asset ÷ useful life.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Accumulated Depreciation is
an expense account.
a stockholders’ equity account.
a liability account.
a contra asset account.

Ans: LO 5, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication

Meat Puppets Company purchased a computer for $4,800 on December 1. It is estimated that annual depreciation on the computer will be $1,200. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:
Debit Depreciation Expense, $1,200; Credit Accumulated Depreciation, $1,200.
Debit Depreciation Expense, $100; Credit Accumulated Depreciation, $100.
Debit Depreciation Expense, $3,600; Credit Accumulated Depreciation, $3,600.
Debit Office Equipment, $4,800; Credit Accumulated Depreciation, $4,800.

Ans: LO 5, BT: AP, Difficulty: Hard, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

REM Real Estate received a check for $24,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $24,000. Financial statements will be prepared on July 31. REM Real Estate should make the following adjusting entry on July 31:
Debit Unearned Rent, $4,000; Credit Rent Revenue, $4,000.
Debit Rent Revenue, $4,000; Credit Unearned Rent, $4,000.
Debit Unearned Rent, $24,000; Credit Rent Revenue, $24,000.
Debit Cash, $24,000; Credit Rent Revenue, $24,000.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

As prepaid expenses expire with the passage of time, the correct adjusting entry will be a
debit to an asset account and a credit to an expense account.
debit to an expense account and a credit to an asset account.
debit to an asset account and a credit to an asset account.
debit to an expense account and a credit to an expense account.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

A company usually determines the amount of supplies used during a period by
adding the supplies on hand to the balance of the Supplies account.
summing the amount of supplies purchased during the period.
taking the difference between the supplies purchased and the supplies paid for during the period.
taking the difference between the balance of the Supplies account and the cost of supplies on hand.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

If a company fails to make an adjusting entry to record supplies expense, then
stockholders’ equity will be understated.
expense will be understated.
assets will be understated.
net income will be understated.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $15,500, and unexpired amounts per analysis of policies of $6,000?
Debit Insurance Expense, $6,000; Credit Prepaid Insurance, $6,000.
Debit Insurance Expense, $15,500; Credit Prepaid Insurance, $15,500.
Debit Prepaid Insurance, $9,500; Credit Insurance Expense, $9,500.
Debit Insurance Expense, $9,500; Credit Prepaid Insurance, $9,500.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

At December 31, 2013, before any year-end adjustments, Murmur Company’s Insurance Expense account had a balance of $1,450 and its Prepaid Insurance account had a balance of $3,800. It was determined that $2,800 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be
$1,450.
$2,450.
$2,800.
$4,250.

Ans: LO 5, BT: AP, Difficulty: Hard, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Depreciation is the process of
valuing an asset at its fair value.
increasing the value of an asset over its useful life in a rational and systematic manner.
allocating the cost of an asset to expense over its useful life in a rational and systematic manner.
writing down an asset to its real value each accounting period.

Ans: LO 5, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

A new accountant working for Spirit Walker Company records $900 Depreciation Expense on store equipment as follows:
Dr. Depreciation Expense ……………………………………….. 900

Cr. Cash ……………………………………………………….. 900

The effect of this entry is to

adjust the accounts to their proper amounts on December 31.
understate total assets on the balance sheet as of December 31.
overstate the book value of the depreciable assets at December 31.
understate the book value of the depreciable assets as of December 31.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

From an accounting standpoint, the acquisition of productive facilities can be thought of as a long-term
accrual of expense.
accrual of revenue.
accrual of unearned revenue.
prepayment for services.

Ans: LO 5, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

The balance in the Prepaid Rent account before adjustment at the end of the year is $18,000, which represents three months’ rent paid on December1. The adjusting entry required on December 31 is to
debit Rent Expense, $6,000; credit Prepaid Rent, $6,000.
debit Rent Expense, $12,000; credit Prepaid Rent $12,000.
debit Prepaid Rent, $6,000; credit Rent Expense, $6,000.
debit Prepaid Rent, $12,000; credit Rent Expense, $12,000.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

An accumulated depreciation account
is a contra-liability account.
increases on the debit side.
is offset against total assets on the balance sheet.
has a normal credit balance.

Ans: LO 5, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

The difference between the cost of a depreciable asset and its related accumulated depreciation is referred to as the
market value of the asset.
blue book value of the asset.
book value of the asset.
depreciated difference of the asset.

Ans: LO 5, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

If a business has several types of long-term assets such as equipment, buildings, and trucks,
there should be only one accumulated depreciation account.
there should be separate accumulated depreciation accounts for each type of asset.
all the long-term asset accounts will be recorded in one general ledger account.
there won’t be a need for an accumulated depreciation account.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Which of the following would not result in unearned revenue?
Rent collected in advance from tenants
Services performed on account
Sale of season tickets to football games
Sale of two-year magazine subscriptions

Ans: LO 5, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

If business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit
cash.
prepaid rent.
unearned rent revenue.
accrued rent revenue.

Ans: LO 5, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Unearned revenue is classified as
an asset account.
a revenue account.
a contra-revenue account.
a liability account.

Ans: LO 5, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be
debit Unearned Service Revenue and credit Cash.
debit Unearned Service Revenue and credit Service Revenue.
debit Unearned Service Revenue and credit Prepaid Expense.
debit Unearned Service Revenue and credit Accounts Receivable.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Dreamtime Laundry purchased $7,000 worth of supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the supplies indicated only $2,000 on hand. The adjusting entry that should be made by the company on June 30 is
Debit Supplies Expense, $2,000; Credit Supplies, $2,000.
Debit Supplies, $2,000; Credit Supplies Expense, $2,000.
Debit Supplies, $5,000; Credit Supplies Expense, $5,000.
Debit Supplies Expense, $5,000; Credit Supplies, $5,000.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

On July 1, Runner’s Sports Store paid $10,000 to Corona Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Runner’s Sports Store is
Debit Rent Expense, $10,000; Credit Prepaid Rent, $2,500.
Debit Prepaid Rent, $2,500; Credit Rent Expense, $2,500.
Debit Rent Expense, $2,500; Credit Prepaid Rent, $2,500.
Debit Rent Expense, $10,000; Credit Prepaid Rent, $10,000.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Fugazi City College sold season tickets for the 2013 football season for $200,000. A total of 8 games will be played during September, October and November. In September, three games were played. The adjusting journal entry at September 30
is not required. No adjusting entries will be made until the end of the season in November.
will include a debit to Cash and a credit to Ticket Revenue for $50,000.
will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for $75,000.
will include a debit to Ticket Revenue and a credit to Unearned Ticket Revenue for $66,667.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Fugazi City College sold season tickets for the 2013 football season for $200,000. A total of 8 games will be played during September, October and November. In September, two games were played. In October, three games were played. The balance in Unearned Ticket Revenue at October 31 is
$0.
$50,000.
$75,000.
$125,000.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Fugazi City College sold season tickets for the 2013 football season for $200,000. A total of 8 games will be played during September, October and November. Assuming all the games are played, the Unearned Ticket Revenue balance that will be reported on the December 31 balance sheet will be
$0.
$75,000.
$125,000.
$200,000.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

At March 1, 2013, Minutemen Corp. had supplies on hand of $500. During the month, Minutemen purchased supplies of $1,200 and used supplies of $1,400. The March 31 adjusting journal entry should include a
debit to the supplies account for $1,400.
credit to the supplies account for $500.
debit to the supplies account for $1,200.
credit to the supplies account for $1,400.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Double Nickels Company purchased a computer system for $4,500 on January 1, 2013. The company expects to use the computer system for 3 years. It has no salvage value. Monthly depreciation expense on the asset is
$0.
$125.
$1,500.
$4,500.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Husker Du Supplies Inc. purchased a 12-month insurance policy on March 1, 2013 for $1,200. At March 31, 2013, the adjusting journal entry to record expiration of this asset will include a
debit to Prepaid Insurance and a credit to Cash for $1,200.
debit to Prepaid Insurance and a credit to Insurance Expense for $133.
debit to Insurance Expense and a credit to Prepaid Insurance for $100.
debit to Insurance Expense and a credit to Cash for $100.

Ans: L;O 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Mary Chain Investments purchased an 18-month insurance policy on May 31, 2013 for $3,240. The December 31, 2013 balance sheet would report Prepaid Insurance of
$0 because Prepaid Insurance is reported on the Income Statement.
$1,260.
$1,980.
$3,240.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

At March 1, Psychocandy Inc. reported a balance in Supplies of $200. During March, the company purchased supplies for $750 and consumed supplies of $700. If no adjusting entry is made for supplies
stockholders’ equity will be overstated by $700.
expenses will be understated by $750.
assets will be understated by $250.
net income will be understated by $700.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Pixies Inc. pays its rent of $90,000 annually on January 1. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following will be true?
Failure to make the adjustment does not affect the February financial statements.
Expenses will be overstated by $7,500 and net income and stockholders’ equity will be understated by $7,500.
Assets will be overstated by $15,000 and net income and stockholders’ equity will be understated by $15,000.
Assets will be overstated by $7,500 and net income and stockholders’ equity will be overstated by $7,500.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

On January 1, 2012, Doolittle Company purchased a computer system for $5,670. The company expects to use the system for 3 years. The asset has no salvage value. The book value of the system at December 31, 2013 is
$0.
$1,890.
$3,780.
$5,670.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

On January 1, 2012, Mudhoney Inc. purchased equipment for $30,000. The company is depreciating the equipment at the rate of $500 per month. At January 31, 2013, the balance in Accumulated Depreciation is
$500.
$6,000.
$6,500.
$23,500.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

On January 1, 2013, Superfuzz Company purchased equipment for $30,000. The company is depreciating the equipment at the rate of $600 per month. The book value of the equipment at December 31, 2013 is
$0.
$7,200.
$22,800.
$30,000.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Ultramega Company collected $11,760 in May of 2013 for 4 months of service which would take place from October of 2013 through January of 2014. The revenue reported from this transaction during 2013 would be
0.
$2,840.
$8,820.
$11,760.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Soundgarden Company collected $9,100 in May of 2013 for 5 months of service which would take place from October of 2013 through February of 2014. The revenue reported from this transaction during 2013 would be
$0.
$3,640.
$5,460.
$9,100.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Sonic Youth Corporation purchased a one-year insurance policy in January 2013 for $82,500. The insurance policy is in effect from March 2013 through February 2014. If the company neglects to make the proper year-end adjustment for the expired insurance
Net income and assets will be understated by $68,750.
Net income and assets will be overstated by $68,750.
Net income and assets will be understated by $13,750.
Net income and assets will be overstated by $13,750.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Dinosaur Junior Corporation purchased a one-year insurance policy in January 2013 for $60,000. The insurance policy is in effect from May 2013 through April 2014. If the company neglects to make the proper year-end adjustment for the expired insurance
Net income and assets will be understated by $40,000.
Net income and assets will be overstated by $40,000.
Net income and assets will be understated by $20,000.
Net income and assets will be overstated by $20,000.

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

All of the following are true regarding depreciation except
depreciation is a true measure of expired cost.
depreciation is a estimate.
Accumulated Depreciation is a contra asset account.
depreciation is the process of allocating the cost of an asst to expense over its useful life.

Ans: LO 5, BT: K, Difficulty: Easy, TOT: 1.0 min., AACSB: Reflective Thinking, AICPA BB: Critical Thinking, AICPA FN: Reporting

Gemini Security Corp. prepares monthly financial statements. Gemini would record a prepaid expense in each of the following situations except when
Gemini purchased a two-year fire insurance policy.
Gemini paid for six months’ gardening services in advance.
a tenant paid Gemini three months’ rent in advance.
Gemini purchased enough office supplies to last several months.

Ans: LO 5, BT: K, Difficulty: Easy, TOT: 1.0 min., AACSB: Reflective Thinking, AICPA BB: Critical Thinking, AICPA FN: Reporting

During December, the last month of its fiscal year, Vero Beach Resort accepted numerous deposits from customers. By the end of the month, most, but not all, of these guests had completed their stays. The entry recorded at the end of December is an example of an adjusting entry to
increase a liability account.
record revenues earned during the period.
record unrecorded expenses.
record unearned revenue.

Ans: LO 5, BT: K, Difficulty: Easy, TOT: 1.0 min., AACSB: Reflective Thinking, AICPA BB: Critical Thinking, AICPA FN: Reporting

As of March 31, Macon Company owes $500 to Boswell Co. for equipment rented during March. An entry was not previously recorded for this transaction and the equipment will be returned on April 2. If no adjustment is made for this item at March 31, how will Macon’s financial statement be affected?
Cash will be overstated at March 31.
Net income for March will be overstated.
Stockholders’ equity will be understated.
The financial statement will be accurate since the $500 does not have to be paid yet.

Ans: LO 6, BT: K, Difficulty: Easy, TOT: 1.0 min., AACSB: Reflective Thinking, AICPA BB: Critical Thinking, AICPA FN: Reporting

The new bookkeeper for Atlas Manufacturing failed to make an adjusting entry to record revenue earned but not yet billed to customers. The effect of this error is to
overstate assets and net income.
overstate net income and understate assets.
understate assets, net income, and stockholders’ equity.
overstate liabilities and understate stockholders’ equity.

Ans: LO 6, BT: K, Difficulty: Easy, TOT: 1.0 min., AACSB: Reflective Thinking, AICPA BB: Critical Thinking, AICPA FN: Reporting

Quincey’s Boutique contracted and paid for an expensive advertisement campaign in a national magazine. Despite the fact that the ad will not appear until four months after Quincey’s current fiscal year end and the promotional sales campaign will not begin until that date, the company’s new accountant recorded the disbursement to advertising expense. If no adjusting entry is made, how will this year’s financial statements be affected?
Net income will be overstated and total assets will be understated.
Net income will be overstated and total assets will be overstated.
Net income will be understated and total assets will be understated.
Net income will be understated and total assets will be overstated.

Ans: LO 6, BT: K, Difficulty: Easy, TOT: 1.0 min., AACSB: Reflective Thinking, AICPA BB: Critical Thinking, AICPA FN: Reporting

If an adjusting entry is not made for an accrued revenue,
assets will be overstated.
expenses will be understated.
stockholders’ equity will be understated.
revenues will be overstated.

Ans: LO 6, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

If an adjusting entry is not made for an accrued expense,
expenses will be overstated.
liabilities will be understated.
net income will be understated.
stockholders’ equity will be understated.

Ans: LO 6, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause
net income to be understated.
an overstatement of assets and an overstatement of liabilities.
an understatement of expenses and an understatement of liabilities.
an overstatement of expenses and an overstatement of liabilities.

Ans: LO 6, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause
net income to be overstated.
an understatement of assets and an understatement of revenues.
an understatement of revenues and an understatement of liabilities.
an understatement of revenues and an overstatement of liabilities.

Ans: LO 6, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Sebastian Belle has performed $2,000 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Sebastian make?
Debit Cash and credit Unearned Service Revenue
Debit Accounts Receivable and credit Unearned Service Revenue
Debit Accounts Receivable and credit Service Revenue
Debit Unearned Service Revenue and credit Service Revenue

Ans: LO 6, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Sebastian Belle, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will Sebastian make upon receipt of the payments?
Debit Unearned Service Revenue and credit Service Revenue
Debit Cash and credit Accounts Receivable
Debit Accounts Receivable and credit Service Revenue
Debit Cash and credit Service Revenue

Ans: LO 6, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

NWA Air Charter signed a four-month note payable in the amount of $10,000 on September 1. The note requires interest at an annual rate of 9%. The amount of interest to be accrued at the end of September is
$75.
$100.
$300.
$900.

Ans: LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Uncle Tupelo’s Gifts signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $60,000 with annual interest of 12%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?
Interest Expense………………………………………………………….. 1,200
Interest Payable…………………………………………………… 1,200

Interest Expense………………………………………………………….. 1,800
Interest Payable…………………………………………………… 1,800

Interest Expense………………………………………………………….. 1,200
Cash…………………………………………………………………… 1,200

Interest Expense………………………………………………………….. 1,200
Notes Payable……………………………………………………… 1,200

Ans: LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Stone Roses Candies paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (29–31). Employees work 5 days a week and the company pays $1,000 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January?
Salaries and Wages Expense………………………………………… 1,000
Salaries and Wages Payable…………………………………. 1,000

Salaries and Wages Expense………………………………………… 5,000
Salaries and Wages Payable…………………………………. 5,000

Salaries and Wages Expense………………………………………… 3,000
Salaries and Wages Payable…………………………………. 3,000

No adjusting entry is required.

Ans: LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

A company shows a balance in Salaries and Wages Payable of $38,000 at the end of the month. The next payroll amounting to $45,000 is to be paid in the following month. What will be the journal entry to record the payment of salaries?
Salaries and Wages Expense………………………………………… 45,000
Salaries and Wages Payable…………………………………. 45,000

Salaries and Wages Expense………………………………………… 45,000
Cash…………………………………………………………………… 45,000

Salaries and Wages Expense………………………………………… 7,000
Cash…………………………………………………………………… 7,000

Salaries and Wages Expense………………………………………… 7,000
Salaries and Wages Payable…………………………………………. 38,000

Cash…………………………………………………………………… 45,000

Ans: LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

A business pays weekly salaries of $25,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on a Thursday is
debit Salaries and Wages Payable, $20,000; credit Cash, $20,000.
debit Salaries and Wages Expense, $20,000; credit Cash, $20,000.
debit Salaries and Wages Expense, $20,000; credit Salaries and Wages Payable, $20,000.
debit Salaries and Wages Expense, $5,000; credit Salaries and Wages Payable, $5,000.

Ans: LO 6, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

SurferRosa Music Store borrowed $15,000 from the bank signing a 9%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be
Debit Interest Expense, $1,350; Credit Interest Payable, $1,350.
Debit Interest Expense, $112.50; Credit Interest Payable, $112.50.
Debit Notes Payable, $1,350; Credit Cash, $1,350.
Debit Cash, $337.50; Credit Interest Payable, $337.50.

Ans: LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Nirvana Corporation issued a one-year, 9%, $300,000 note on April 30, 2013. Interest expense for the year ended December 31, 2013 was
$15,750.
$18,000.
$20,250.
$27,000.

Ans: LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Yo La Corporation issued a one-year, 12%, $100,000 note on August 31, 2013. Interest expense for the year ended December 31, 2013 was
$12,000.
$5,000.
$4,000.
$3,000.

Ans: LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Employees at Tengo Corporation are paid $10,000 cash every Friday for working Monday through Friday. The calendar year accounting period ends on Wednesday, December 31. How much salary expense should be recorded two days later on January 2?
$10,000
$6,000
$4,000
None, matching requires the weekly salary to be accrued on December 31.

Ans: LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Can financial statements be prepared directly from the adjusted trial balance?
They cannot. The general ledger must be used.
Yes, adjusting entries have been recorded in the general journal and posted to the ledger accounts.
No, the adjusted trial balance merely proves the equality of the total debit and total credit balances in the ledger after adjustments are posted. It has no other purpose.
They can because that is the only reason that an adjusted trial balance is prepared.

Ans: LO 7, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

The adjusted trial balance is prepared
after financial statements are prepared.
before the trial balance.
to prove the equality of total assets and total liabilities.
after adjusting entries have been journalized and posted.

Ans: LO 7, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

An adjusted trial balance
is prepared after the financial statements are completed.
proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
is a required financial statement under generally accepted accounting principles.
cannot be used to prepare financial statements.

Ans: LO 7, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Which of the statements below is not true?
An adjusted trial balance should show ledger account balances.
An adjusted trial balance can be used to prepare financial statements.
An adjusted trial balance proves the mathematical equality of debits and credits in the ledger.
An adjusted trial balance is prepared before all transactions have been journalized.

Ans: LO 7, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

a 155. Sebadoah is a barber who does his own accounting for his shop. When he buys supplies he routinely debits Supplies Expense. Sebadoah purchased $1,500 of supplies in January and his inventory at the end of January shows $600 of supplies remaining. What adjusting entry should Sebadoah make on January 31?

Supplies Expense………………………………………………………… 600
Supplies……………………………………………………………… 600

Supplies Expense………………………………………………………… 1,500
Cash…………………………………………………………………… 1,500

Supplies……………………………………………………………………… 600
Supplies Expense………………………………………………… 600

Supplies Expense………………………………………………………… 900
Supplies……………………………………………………………… 900

Ans: LO 8, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

a 156. Alternative adjusting entries do not apply to

accrued revenues and accrued expenses.
prepaid expenses.
unearned revenues.
prepaid expenses and unearned revenues.

Ans: LO 8, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

a 157. Elliott Smith is a lawyer who requires that his clients pay him in advance of legal services rendered. Elliott routinely credits Service Revenue when his clients pay him in advance. In June Elliott collected $12,000 in advance fees and completed 70% of the work related to these fees. What adjusting entry is required by Elliott’s firm at the end of June?

Unearned Service Revenue ………………………………………….. 8,400
Service Revenue ………………………………………………… 8,400

Unearned Service Revenue ………………………………………….. 3,600
Service Revenue ………………………………………………… 3,600

Cash ………………………………………………………………………….. 12,000
Service Revenue ………………………………………………… 12,000

Service Revenue ………………………………………………………… 3,600
Unearned Service Revenue ………………………………….. 3,600

Ans: LO 8, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

a 158. If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period, then failure to make an adjusting entry will cause

assets to be understated.
assets to be overstated.
expenses to be understated.
contra-expenses to be overstated.

Ans: LO 8, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

a 159. If unearned revenues are initially recorded in revenue accounts and have not all been earned at the end of the accounting period, then failure to make an adjusting entry will cause

liabilities to be overstated.
revenues to be understated.
revenues to be overstated.
accounts receivable to be overstated.

Ans: LO 8, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

a160. On January 2, 2013, Superchunk purchased a general liability insurance policy for $2,100 for coverage for the calendar year. The entire $2,100 was charged to Insurance Expense on January 2, 2013. If the firm prepares monthly financial statements, the proper adjusting entry on January 31, 2013, will be:

Insurance Expense………………………………………………………. 1,925
Prepaid Insurance………………………………………………… 1,925

Prepaid Insurance………………………………………………………… 1,925
Insurance Expense………………………………………………. 1,925

Insurance Expense………………………………………………………. 175
Prepaid Insurance………………………………………………… 175

Prepaid Insurance………………………………………………………… 175
Insurance Expense………………………………………………. 175

Ans: LO 8, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Which of the following statements concerning accrual-basis accounting is incorrect?
Accrual-basis accounting follows the revenue recognition principle.
Accrual-basis accounting is the method required by generally accepted accounting principles.
Accrual-basis accounting recognizes expenses when they are paid.
Accrual-basis accounting follows the expense recognition principle.

Ans: LO 2, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

The revenue recognition principle dictates that revenue be recognized in the accounting period
before it is earned.
after it is earned.
in which the services are performed.
in which it is collected.

Ans: LO 2, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

An expense is recorded under the cash basis only when
services are performed.
it is earned.
cash is paid.
it is incurred.

Ans: LO 2, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

For prepaid expense adjusting entries
an expense—liability account relationship exists.
prior to adjustment, expenses are overstated and assets are understated.
the adjusting entry results in a debit to an expense account and a credit to an asset account.
none of these.

Ans: LO 4, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Expenses paid and recorded as assets before they are used are called
accrued expenses.
interim expenses.
prepaid expenses.
unearned expenses.

Ans: LO 4, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Buffalo Tom Cruises purchased a five-year insurance policy for its ships on April 1, 2013 for $50,000. Assuming that April 1 is the effective date of the policy, the adjusting entry on December 31, 2013 is
Prepaid Insurance………………………………………………………… 7,500
Insurance Expense……………………………………………….. 7,500

Insurance Expense………………………………………………………. 7,500
Prepaid Insurance…………………………………………………. 7,500

Insurance Expense………………………………………………………. 10,000
Prepaid Insurance…………………………………………………. 10,000

Insurance Expense………………………………………………………. 2,500
Prepaid Insurance…………………………………………………. 2,500

Ans: LO 5, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Pavement Company purchased a truck from Bee Thousand Corp. by issuing a 6-month, 8% note payable for $80,000 on November 1. On December 31, the accrued expense adjusting entry is
No entry is required.
Interest Expense………………………………………………………….. 6,400
Interest Payable…………………………………………………….. 6,400

Interest Expense………………………………………………………….. 12,800
Interest Payable…………………………………………………….. 12,800

Interest Expense………………………………………………………….. 1,067
Interest Payable…………………………………………………….. 1,067

Ans: LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

If the adjusting entry for depreciation is not made,
assets will be understated.
owner’s equity will be understated.
net income will be understated.
expenses will be understated.

Ans: LO 6, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Ryan Adams, an employee of Heartbreaker Corp., will not receive his paycheck until April 2. Based on services performed from March 15 to March 31, his salary was $1,000. The adjusting entry for Heartbreaker Corp. on March 31 is
Salaries Expense…………………………………………………………… 1,000
Salaries Payable…………………………………………………….. 1,000

No entry is required.
Salaries Expense…………………………………………………………… 1,000
Cash……………………………………………………………………… 1,000

Salaries Payable……………………………………………………………. 1,000
Cash……………………………………………………………………… 1,000

Ans: LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving

Which of the following statements related to the adjusted trial balance is incorrect?
It shows the balances of all accounts at the end of the accounting period.
It is prepared before adjusting entries have been made.
It proves the equality of the total debit balances and the total credit balances in the ledger.
Financial statements can be prepared directly from the adjusted trial balance.

Ans: LO 7, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving

Financial statements are prepared directly from the
general journal.
ledger.
trial balance.
adjusted trial balance.

Ans: LO 7, BT: AP, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving