Strayer Homework Help: ACC 557 Week 3 Quiz Chapters 2 and 3

ACC 557 Week 3 Quiz Chapters 2 and 3

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ACC 557 Week 3 Quiz Chapter 2 and 3 Perfect Score

TRUE-FALSE STATEMENTS

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. Revenues are a subdivision of retained earnings.

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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. An account consists of

a. one part.

b. two parts.

c. three parts.

d. four parts.

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

39. The left side of an account is

a. blank.

b. a description of the account.

c. the debit side.

d. the balance of the account.

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

40. Which one of the following is not a part of an account?

a. Credit side

b. Trial balance

c. Debit side

d. Title

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

41. An account is a part of the financial information system and is described by all except which one of the following?

a. An account has a debit and credit side.

b. An account is a source document.

c. An account may be part of a manual or a computerized accounting system.

d. An account has a title.

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

42. The right side of an account

a. is the correct side.

b. reflects all transactions for the accounting period.

c. shows all the balances of the accounts in the system.

d. is the credit side.

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

43. An account consists of

a. a title, a debit balance, and a credit balance.

b. a title, a left side, and a debit balance.

c. a title, a debit side, and a credit side.

d. 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

44. A T-account is

a. a way of depicting the basic form of an account.

b. what the computer uses to organize bytes of information.

c. a special account used instead of a trial balance.

d. 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

45. Credits

a. decrease both assets and liabilities.

b. decrease assets and increase liabilities.

c. increase both assets and liabilities.

d. increase assets and decrease liabilities.

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

46. A debit to an asset account indicates

a. an error.

b. a credit was made to a liability account.

c. a decrease in the asset.

d. an increase in the asset.

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

47. The normal balance of any account is the

a. left side.

b. right side.

c. side which increases that account.

d. side which decreases that account.

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

48. The double-entry system requires that each transaction must be recorded

a. in at least two different accounts.

b. in two sets of books.

c. in a journal and in a ledger.

d. 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

49. A credit is not the normal balance for which account listed below?

a. Common stock account

b. Revenue account

c. Liability account

d. Dividends account

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

50. Which one of the following represents the expanded basic accounting equation?

a. Assets = Liabilities + Common stock + Retained Earnings + Dividends – Revenues – Expenses.

b. Assets + Dividends + Expenses = Liabilities + Common stock + Retained Earnings + Revenues.

c. Assets – Liabilities – Dividends = Common stock + Retained Earnings + Revenues – Expenses.

d. Assets = Revenues + Expenses – Liabilities.

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

51. Which of the following correctly identifies normal balances of accounts?

a. Assets Debit

Liabilities Credit

Stockholders' Equity Credit

Revenues Debit

Expenses Credit

b. Assets Debit

Liabilities Credit

Stockholders' Equity Credit

Revenues Credit

Expenses Credit

c. Assets Credit

Liabilities Debit

Stockholders' Equity Debit

Revenues Credit

Expenses Debit

d. 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

52. The best interpretation of the word credit is the

a. offset side of an account.

b. increase side of an account.

c. right side of an account.

d. decrease side of an account.

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

53. In recording an accounting transaction in a double-entry system

a. the number of debit accounts must equal the number of credit accounts.

b. there must always be entries made on both sides of the accounting equation.

c. the amount of the debits must equal the amount of the credits.

d. 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

54. An accounting convention is best described as

a. an absolute truth.

b. an accounting custom.

c. an optional rule.

d. something that cannot be changed.

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

55. A debit is not the normal balance for which account listed below?

a. Dividends

b. Cash

c. Accounts Receivable

d. Service Revenue

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

56. 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?

a. Nothing further must be done.

b. Debit a Stockholders' equity account for $700.

c. Debit another asset account for $700.

d. Credit a different asset account for $700.

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

57. 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?

a. Credit an asset account for $800.

b. Credit another liability account for $800.

c. Credit a Stockholders' account for $800.

d. Debit a Stockholders' account for $800.

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

58. Which of the following is not true of the terms debit and credit?

a. They can be abbreviated as Dr. and Cr.

b. They can be interpreted to mean increase and decrease.

c. They can be used to describe the balance of an account.

d. 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

59. An account will have a credit balance if the

a. credits exceed the debits.

b. first transaction entered was a credit.

c. debits exceed the credits.

d. last transaction entered was a credit.

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

60. For the basic accounting equation to stay in balance, each transaction recorded must

a. affect two or less accounts.

b. affect two or more accounts.

c. always affect exactly two accounts.

d. 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

61. Which of the following statements is true?

a. Debits increase assets and increase liabilities.

b. Credits decrease assets and decrease liabilities.

c. Credits decrease assets and increase liabilities.

d. Debits decrease liabilities and decrease assets.

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

62. Assets normally show

a. credit balances.

b. debit balances.

c. debit and credit balances.

d. debit or credit balances.

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

63. An awareness of the normal balances of accounts would help you spot which of the following as an error in recording?

a. A debit balance in the dividends account

b. A credit balance in an expense account

c. A credit balance in a liabilities account

d. A credit balance in a revenue account

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

64. If a company has overdrawn its bank balance, then

a. its cash account will show a debit balance.

b. its cash account will show a credit balance.

c. the cash account debits will exceed the cash account credits.

d. 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

65. Which account below is not a subdivision of retained earnings?

a. Dividends

b. Revenues

c. Expenses

d. Common stock

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

66. When a company pays dividends

a. it doesn't have to be cash, it could be another asset.

b. the dividends account will be increased with a credit.

c. the retained earnings account will be directly increased with a debit.

d. 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

67. The Dividends account

a. appears on the income statement along with the expenses of the business.

b. must show transactions every accounting period.

c. is increased with debits and decreased with credits.

d. 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

68. Which of the following statements is incorrect?

a. Expenses increase stockholders’ equity.

b. Expenses have normal debit balances.

c. Expenses decrease stockholders’ equity.

d. 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

69. A credit to a liability account

a. indicates an increase in the amount owed to creditors.

b. indicates a decrease in the amount owed to creditors.

c. is an error.

d. 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

70. 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)

a. $600 credit balance.

b. $900 debit balance.

c. $300 debit balance.

d. $300 credit balance.

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

71. 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

a. nothing further must be done.

b. debited the retained earnings account for $2,100.

c. credited another asset account for $400.

d. credited a liability account for $2,100.

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

72. 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?

a. Credit an asset account for $400.

b. Credit another liability account for $400.

c. Credit the retained earnings account for $400.

d. Debit the retained earnings account for $400.

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

73. On January 14, Edamame Industries purchased supplies of $700 on account. The entry to record the purchase will include

a. a debit to Supplies and a credit to Accounts Payable.

b. a debit to Supplies Expense and a credit to Accounts Receivable.

c. a debit to Supplies and a credit to Cash.

d. 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

74. 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?

a. $1,000 debit balance

b. $15,000 debit balance

c. $1,000 credit balance

d. $4,000 credit balance

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

75. 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

a. $85,000.

b. $100,000.

c. $115,000.

d. $145,000.

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

76. Mt. Zion Inc. pays its employees twice a month, on the 7^th and the 21^st. On June 21, Mt. Zion Inc. paid employee salaries of $5,000. This transaction would

a. increase stockholders’ equity by $5,000.

b. decrease the balance in Salaries and Wages Expense by $5,000.

c. decrease net income for the month by $5,000.

d. 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

77. 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)

a. $1,500 credit balance.

b. $1,500 debit balance.

c. $3,500 debit balance.

d. $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?

a. $25,700

b. $30,400

c. $31,100

d. $35,100

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

79. 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?

a. $4,500

b. $22,000

c. $22,500

d. $24,500

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

80. 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?

a. $2,000 credit

b. $2,000 debit

c. $23,000 debit

d. $27,000 debit

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

81. 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

a. $175 debit.

b. $325 debit.

c. $175 credit.

d. $325 debit.

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

82. 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

a. $400 debit.

b. $2,000 debit.

c. $400 credit.

d. $2,000 credit.

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

83. 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

a. $19,000.

b. $21,000.

c. $41,000.

d. $91,000.

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

84. 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?

a. $0

b. $7,000 credit

c. $27,000 credit

d. $18,000 debit

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

85. On July 7, 2014, Hidden Camera Enterprises performed cash services of $1,700. The entry to record this transaction would include

a. a debit to Service Revenue of $1,700.

b. a credit to Accounts Receivable of $1,700.

c. a debit to Cash of $1,700.

d. 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

86. 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?

a. $146,000

b. $151,000

c. $153,000

d. $156,000

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

87. The final step in the recording process is to

a. analyze each transaction.

b. enter the transaction in a journal.

c. prepare a trial balance.

d. transfer journal information to ledger accounts.

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

88. The usual sequence of steps in the transaction recording process is:

a. journal à analyze à ledger.

b. analyze à journal à ledger.

c. journal à ledger à analyze.

d. ledger à journal à analyze.

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

89. In recording business transactions, evidence that an accounting transaction has taken place is obtained from

a. business documents.

b. the Internal Revenue Service.

c. the public relations department.

d. the SEC.

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

90. 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

a. the company's bank.

b. stockholders’ equity.

c. ledger accounts.

d. financial statements.

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

91. The first step in the recording process is to

a. prepare financial statements.

b. analyze each transaction for its effect on the accounts.

c. post to a journal.

d. prepare a trial balance.

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

92. Evidence that would not help with determining the effects of a transaction on the accounts would be a(n)

a. cash register sales tape.

b. bill.

c. advertising brochure.

d. check.

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

93. After transaction information has been recorded in the journal, it is transferred to the

a. trial balance.

b. income statement.

c. book of original entry.

d. ledger.

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

94. The usual sequence of steps in the recording process is to analyze each transaction, enter the transaction in the

a. journal, and transfer the information to the ledger accounts.

b. ledger, and transfer the information to the journal.

c. book of accounts, and transfer the information to the journal.

d. 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

95. The final step in the recording process is to transfer the journal information to the

a. trial balance.

b. financial statements.

c. ledger.

d. file cabinets.

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

96. The recording process occurs

a. once a year.

b. once a month.

c. repeatedly during the accounting period.

d. infrequently in a manual accounting system.

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

97. A compound journal entry involves

a. two accounts.

b. three accounts.

c. three or more accounts.

d. four or more accounts.

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

98. A journal provides

a. the balances for each account.

b. information about a transaction in several different places.

c. a list of all accounts used in the business.

d. a chronological record of transactions.

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

99. When three or more accounts are required in one journal entry, the entry is referred to as a

a. compound entry.

b. triple entry.

c. multiple entry.

d. simple entry.

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

100. When two accounts are required in one journal entry, the entry is referred to as a

a. balanced entry.

b. simple entry.

c. posting.

d. nominal entry.

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

101. Another name for journal is

a. listing.

b. book of original entry.

c. book of accounts.

d. book of source documents.

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

102. The standard format of a journal would not include

a. a reference column.

b. an account title column.

c. a T-account.

d. 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

a. account number order.

b. dollar amount order.

c. alphabetical order.

d. 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

a. disclosing in one place the complete effect of a transaction.

b. preparing financial statements.

c. providing a record of transactions.

d. 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

a. the date of the transaction.

b. the new balance in the accounts affected by the transaction.

c. a brief explanation of the transaction.

d. 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

106. The name given to entering transaction data in the journal is

a. chronicling.

b. listing.

c. posting.

d. journalizing.

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

107. The standard form of a journal entry has the

a. debit account entered first and indented.

b. credit account entered first and indented.

c. debit account entered first at the extreme left margin.

d. 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

108. When journalizing, the reference column is

a. left blank.

b. used to reference the source document.

c. used to reference the journal page.

d. used to reference the financial statements.

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

109. 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

a. use two journal entries.

b. make a compound entry.

c. make a simple entry.

d. 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

110. Which of the following journal entries is recorded correctly and in the standard format?

a. Salaries and Wages Expense ............................................... 500

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

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

b. Salaries and Wages Expense ............................................... 500

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

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

c. Cash ...................................................................................... 1,500

Salaries and Wages Expense ......................................... 500

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

d. 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

111. The ledger should be arranged in

a. alphabetical order.

b. chronological order.

c. dollar amount order.

d. financial statement order.

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

112. The entire group of accounts maintained by a company is called the

a. chart of accounts.

b. general journal.

c. general ledger.

d. trial balance.

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

113. An accounting record of the balances of all assets, liabilities, and stockholders’ equity accounts is called a

a. compound entry.

b. general journal.

c. general ledger.

d. chart of accounts.

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

114. The usual order of accounts in the general ledger is

a. assets, liabilities, common stock, retained earnings, dividends, revenues, and expenses.

b. assets, liabilities, dividends, common stock, retained earnings, expenses, and revenues.

c. liabilities, assets, common stock, retained earnings, revenues, expenses, and dividends.

d. 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

115. Management could determine the amounts due from customers by examining which ledger account?

a. Service Revenue

b. Accounts Payable

c. Accounts Receivable

d. Supplies

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

116. The ledger accounts should be arranged in

a. chronological order.

b. alphabetical order.

c. financial statement order.

d. order of appearance in the journal.

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

117. A three column form of account is so named because it has columns for

a. debit, credit, and account name.

b. debit, credit, and reference.

c. debit, credit, and balance.

d. debit, credit, and date.

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

118. 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?

a. Equipment .......................................................................... 1,300

Account Payable............................................................. 1,500

Supplies .......................................................................... 200

b. Equipment. .......................................................................... 1,300

Supplies .......................................................................... 200

Accounts Payable............................................................ 1,500

c. Accounts Payable.................................................................. 1,500

Equipment........................................................................ 1,300

Supplies .......................................................................... 200

d. 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

119. Delta72 Company received a cash advance of $700 from a customer. As a result of this event,

a. assets increased by $700.

b. stockholders’ equity increased by $700.

c. liabilities decreased by $700.

d. both a and b.

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

120. Camper Van Company purchased equipment for $2,600 cash. As a result of this event,

a. stockholders’ equity decreased by $2,600.

b. total assets increased by $2,600.

c. total assets remained unchanged.

d. Both a and b.

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

121. Beethoven Company provided consulting services and billed the client $3,100. As a result of this event,

a. assets remained unchanged.

b. assets increased by $3,100.

c. stockholders’ equity increased by $3,100.

d. Both b and c.

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

122. The first step in posting involves

a. entering in the appropriate ledger account the date, journal page, and debit amount shown in the journal.

b. writing in the journal the account number to which the debit amount was posted.

c. writing in the journal the account number to which the credit amount was posted.

d. 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

123. A chart of accounts usually starts with

a. asset accounts.

b. expense accounts.

c. liability accounts.

d. revenue accounts.

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

124. The procedure of transferring journal entries to the ledger accounts is called

a. journalizing.

b. analyzing.

c. reporting.

d. posting.

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

125. A number in the reference column in a general journal indicates

a. that the entry has been posted to a particular account.

b. the page number of the journal.

c. the dollar amount of the transaction.

d. the date of the transaction.

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

126. A chart of accounts for a business firm

a. is a graph.

b. indicates the amount of profit or loss for the period.

c. lists the accounts and account numbers that identify their location in the ledger.

d. 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

127. Posting

a. should be performed in account number order.

b. accumulates the effects of journalized transactions in the individual accounts.

c. involves transferring all debits and credits on a journal page to the trial balance.

d. 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

128. After journal entries are posted, the reference column

a. of the general journal will be blank.

b. of the general ledger will show journal page numbers.

c. of the general journal will show "Dr" or "Cr".

d. 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

129. The explanation column of the general ledger

a. is completed without exception.

b. is nonexistent.

c. is used infrequently.

d. shows account titles.

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

130. A numbering system for a chart of accounts

a. is prescribed by GAAP.

b. is uniform for all businesses.

c. usually starts with income statement accounts.

d. usually starts with balance sheet accounts.

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

131. The first step in designing a computerized accounting system is the creation of the

a. general ledger.

b. general journal.

c. trial balance.

d. chart of accounts.

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

132. The steps in preparing a trial balance include all of the following except

a. listing the account titles and their balances.

b. totaling the debit and credit columns.

c. proving the equality of the two columns.

d. transferring journal amounts to ledger accounts.

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

133. A trial balance may balance even when each of the following occurs except when

a. a transaction is not journalized.

b. a journal entry is posted twice.

c. incorrect accounts are used in journalizing.

d. a transposition error is made.

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

134. A list of accounts and their balances at a given time is called a(n)

a. journal.

b. posting.

c. trial balance.

d. income statement.

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

135. If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates

a. no errors have been made.

b. no errors can be discovered.

c. that all accounts reflect correct balances.

d. the mathematical equality of the accounting equation.

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

136. A trial balance is a listing of

a. transactions in a journal.

b. the chart of accounts.

c. general ledger accounts and balances.

d. the totals from the journal pages.

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

137. Customarily, a trial balance is prepared

a. at the end of each day.

b. after each journal entry is posted.

c. at the end of an accounting period.

d. only at the inception of the business.

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

138. A trial balance would only help in detecting which one of the following errors?

a. A transaction that is not journalized

b. A journal entry that is posted twice

c. Offsetting errors are made in recording the transaction

d. 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

a. liabilities.

b. assets.

c. expenses.

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

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

140. A debit is not the normal balance for which of the following?

a. Asset account

b. Dividends account

c. Expense account

d. Common stock account

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

141. Which of the following rules is incorrect?

a. Credits decrease the dividends account.

b. Debits increase the common stock account.

c. Credits increase revenue accounts.

d. Debits decrease liability accounts.

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

142. Which of the following statements is false?

a. Revenues increase stockholders’ equity.

b. Revenues have normal credit balances.

c. Revenues are a positive factor in the computation of net income.

d. Revenues are increased by debits.

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

143. Which of the following is the correct sequence of steps in the recording process?

a. Posting, journalizing, analyzing

b. Journalizing, analyzing, posting

c. Analyzing, posting, journalizing

d. Analyzing, journalizing, posting

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

144. Which of the following is false about a journal?

a. It discloses in one place the complete effects of a transaction.

b. It provides a chronological record of transactions.

c. It helps to prevent or locate errors because debit and credit amounts for each entry can be readily compared.

d. 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

145. 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

a. debit to Equipment $1,700 and a debit to Supplies Expense $400 for Milkman.

b. credit to Cash for Milkman.

c. credit to Accounts Payable for Deerhoof.

d. 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

146. Devendra Company pays cash dividends of $600. The entry for this transaction will include a debit of $600 to

a. Dividends

b. Retained Earnings.

c. Owner's Salaries Expense.

d. Salaries and Wages Expense.

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

147. 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

a. credit to Retained Earnings.

b. credit to Notes Payable.

c. debit to Accounts Receivable.

d. credit to Accounts Payable.

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

148. Posting of journal entries should be done in

a. account number order.

b. alphabetical order.

c. chronological order.

d. dollar amount order.

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

149. The chart of accounts is a

a. list of accounts and their balances at a given time.

b. device used to prove the mathematical accuracy of the ledger.

c. listing of the accounts and the account numbers which identify their location in the ledger.

d. required step in the recording process.

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

150. Which of the following is incorrect regarding a trial balance?

a. It proves that the debits equal the credits after posting.

b. It proves that the company has recorded all transactions.

c. A trial balance uncovers errors in journalizing and posting.

d. 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

151. A trial balance will not balance if

a. a journal entry is posted twice.

b. a wrong amount is used in journalizing.

c. incorrect account titles are used in journalizing.

d. 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

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

34. 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

35. 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

36. 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

37. 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

38. 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

39. 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

41. Monthly and quarterly time periods are called

a. calendar periods.

b. fiscal periods.

c. interim periods.

d. quarterly periods.

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

42. The time period assumption states that

a. a transaction can only affect one period of time.

b. estimates should not be made if a transaction affects more than one time period.

c. adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations.

d. 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

43. An accounting time period that is one year in length, but does not begin on January 1, is referred to as

a. a fiscal year.

b. an interim period.

c. the time period assumption.

d. 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

44. Adjustments would not be necessary if financial statements were prepared to reflect net income from

a. monthly operations.

b. fiscal year operations.

c. interim operations.

d. lifetime operations.

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

45. Management usually desires ________ financial statements and the IRS requires all businesses to file _________ tax returns.

a. annual, annual

b. monthly, annual

c. quarterly, monthly

d. monthly, monthly

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

46. The time period assumption is also referred to as the

a. calendar assumption.

b. cyclicity assumption.

c. periodicity assumption.

d. fiscal assumption.

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

47. In general, the shorter the time period, the difficulty of making the proper adjustments to accounts

a. is increased.

b. is decreased.

c. is unaffected.

d. 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

48. Which of the following is not a common time period chosen by businesses as their accounting period?

a. Daily

b. Monthly

c. Quarterly

d. Annually

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

49. Which of the following time periods would not be referred to as an interim period?

a. Monthly

b. Quarterly

c. Semi-annually

d. Annually

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

50. The fiscal year of a business is usually determined by

a. the IRS.

b. a lottery.

c. the business.

d. the SEC.

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

51. Which of the following are in accordance with generally accepted accounting principles?

a. Accrual basis accounting

b. Cash basis accounting

c. Both accrual basis and cash basis accounting

d. 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

52. The revenue recognition principle dictates that revenue should be recognized in the accounting period

a. in which cash is received.

b. in which the performance obligation is satisfied.

c. at the end of the month.

d. 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

53. In a service-type business, revenue is recognized

a. at the end of the month.

b. at the end of the year.

c. when the service is performed.

d. 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

54. The expense recognition principle matches

a. customers with businesses.

b. expenses with revenues.

c. assets with liabilities.

d. 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

55. 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?

a. July 31

b. August 1

c. August 5

d. August 6

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

56. A company spends $15 million dollars for an office building. Over what period should the cost be written off?

a. When the $15 million is expended in cash.

b. All in the first year.

c. Over the useful life of the building.

d. 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

57. The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that

a. assets should be matched with liabilities.

b. efforts should be matched with accomplishments.

c. dividends to stockholders should be matched with stockholders' investment.

d. 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

58. 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?

a. December 5.

b. December 10.

c. November 30.

d. December 1.

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

59. 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

a. February.

b. March.

c. the period when the workers receive their checks.

d. 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

60. 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?

a. Due from Employees.

b. Due to Employer.

c. Salaries Payable.

d. Salaries Expense.

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

61. Under accrual-basis accounting

a. cash must be received before revenue is recognized.

b. net income is calculated by matching cash outflows against cash inflows.

c. 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.

d. 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

62. Adjusting entries are required

a. yearly.

b. quarterly.

c. monthly.

d. 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

63. Which is not an application of revenue recognition?

a. Recording revenue as an adjusting entry on the last day of the accounting period.

b. Accepting cash from an established customer for services to be performed over the next three months.

c. Billing customers on June 30 for services completed during June.

d. 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

64. Which statement is correct?

a. As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use.

b. The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.

c. The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.

d. 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

65. 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?

a. $62,000.

b. $104,000.

c. $114,000.

d. $130,000.

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

66. 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?

a. $2,625.

b. $2,875.

c. $4,625.

d. $4,875.

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

67. 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?

a. $125.

b. $375.

c. $4,625.

d. $4,875.

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

68. Adjusting entries are required

a. because some costs expire with the passage of time and have not yet been journalized.

b. when the company's profits are below the budget.

c. when expenses are recorded in the period in which they are incurred.

d. 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

69. A small company may be able to justify using a cash basis of accounting if they have

a. sales under $1,000,000.

b. no accountants on staff.

c. few receivables and payables.

d. 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

70. Which one of the following is not a justification for adjusting entries?

a. Adjusting entries are necessary to ensure that the revenue recognition principle is followed.

b. Adjusting entries are necessary to ensure that the expense recognition principle is followed.

c. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP.

d. 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

71. An adjusting entry

a. affects two balance sheet accounts.

b. affects two income statement accounts.

c. affects a balance sheet account and an income statement account.

d. 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

72. The preparation of adjusting entries is

a. straight forward because the accounts that need adjustment will be out of balance.

b. often an involved process requiring the skills of a professional.

c. only required for accounts that do not have a normal balance.

d. 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

73. If a resource has been consumed but a bill has not been received at the end of the accounting period, then

a. an expense should be recorded when the bill is received.

b. an expense should be recorded when the cash is paid out.

c. an adjusting entry should be made recognizing the expense.

d. 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

74. Accounts often need to be adjusted because

a. there are never enough accounts to record all the transactions.

b. many transactions affect more than one time period.

c. there are always errors made in recording transactions.

d. 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

75. Adjusting entries are

a. not necessary if the accounting system is operating properly.

b. usually required before financial statements are prepared.

c. made whenever management desires to change an account balance.

d. 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

76. All of the following statements are correct except

a. adjusting entries ensure that the revenue recognition and expense recognition principles are followed.

b. a company must make adjusting entries every time it prepares financial statement.

c. adjusting entries are made to balance sheet accounts only.

d. 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

77. Which of the following situations does not require Carlton Heights Corporation to record an adjusting entry at the end of January?

a. On January 1, Carlton Heights Corporation purchased office equipment with an estimated useful life of the five years.

b. On January 1, Carlton Heights Corporation began shipping services for a large client who will pay at the end of a three-month period.

c. At the end of January Carlton Heights Corporation pays the janitor for January office cleaning services.

d. 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

78. An adjusting entry could consist of all of the following except a debit to

a. an expense and a credit to an assets.

b. an expense and a credit to a revenue.

c. an expense and a credit to a liability.

d. 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

79. Expenses incurred but not yet paid or recorded are called

a. prepaid expenses.

b. accrued expenses.

c. interim expenses.

d. unearned expenses.

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

80. 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

a. expenses to be overstated.

b. net income to be overstated.

c. liabilities to be understated.

d. 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

81. Adjusting entries can be classified as

a. postponements and advances.

b. accruals and deferrals.

c. deferrals and postponements.

d. 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

82. Accrued revenues are

a. received and recorded as liabilities before they are earned.

b. earned and recorded as liabilities before they are received.

c. earned but not yet received or recorded.

d. 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

83. Prepaid expenses are

a. paid and recorded in an asset account before they are used or consumed.

b. paid and recorded in an asset account after they are used or consumed.

c. incurred but not yet paid or recorded.

d. 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

84. Accrued expenses are

a. paid and recorded in an asset account before they are used or consumed.

b. paid and recorded in an asset account after they are used or consumed.

c. incurred but not yet paid or recorded.

d. 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

85. Unearned revenues are

a. received and recorded as liabilities before they are earned.

b. earned and recorded as liabilities before they are received.

c. earned but not yet received or recorded.

d. 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

86. A liability—revenue relationship exists with

a. prepaid expense adjusting entries.

b. accrued expense adjusting entries.

c. unearned revenue adjusting entries.

d. 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

87. Which of the following reflect the balances of prepayment accounts prior to adjustment?

a. Balance sheet accounts are understated and income statement accounts are understated.

b. Balance sheet accounts are overstated and income statement accounts are overstated.

c. Balance sheet accounts are overstated and income statement accounts are understated.

d. 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

88. An asset—expense relationship exists with

a. liability accounts.

b. revenue accounts.

c. prepaid expense adjusting entries.

d. 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

89. 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

a. Debit Supplies Expense, $2,400; Credit Supplies, $2,400.

b. Debit Supplies, $4,600; Credit Supplies Expense, $4,600.

c. Debit Supplies Expense, $4,600; Credit Supplies, $4,600.

d. 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

90. If an adjustment is needed for unearned revenues, the

a. liability and related revenue are overstated before adjustment.

b. liability and related revenue are understated before adjustment.

c. liability is overstated and the related revenue is understated before adjustment.

d. 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

91. 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

a. $2,500.

b. $4,700.

c. $5,500.

d. $10,700.

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

92. Depreciation expense for a period is computed by taking the

a. original cost of an asset – accumulated depreciation.

b. depreciable cost of the asset ÷ depreciation rate.

c. cost of the asset ÷ useful life.

d. 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

93. Accumulated Depreciation is

a. an expense account.

b. a stockholders' equity account.

c. a liability account.

d. 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

94. 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:

a. Debit Depreciation Expense, $1,200; Credit Accumulated Depreciation, $1,200.

b. Debit Depreciation Expense, $100; Credit Accumulated Depreciation, $100.

c. Debit Depreciation Expense, $3,600; Credit Accumulated Depreciation, $3,600.

d. 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

95. 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:

a. Debit Unearned Rent, $4,000; Credit Rent Revenue, $4,000.

b. Debit Rent Revenue, $4,000; Credit Unearned Rent, $4,000.

c. Debit Unearned Rent, $24,000; Credit Rent Revenue, $24,000.

d. 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

96. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a

a. debit to an asset account and a credit to an expense account.

b. debit to an expense account and a credit to an asset account.

c. debit to an asset account and a credit to an asset account.

d. 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

97. A company usually determines the amount of supplies used during a period by

a. adding the supplies on hand to the balance of the Supplies account.

b. summing the amount of supplies purchased during the period.

c. taking the difference between the supplies purchased and the supplies paid for during the period.

d. 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

98. If a company fails to make an adjusting entry to record supplies expense, then

a. stockholders' equity will be understated.

b. expense will be understated.

c. assets will be understated.

d. 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

99. 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?

a. Debit Insurance Expense, $6,000; Credit Prepaid Insurance, $6,000.

b. Debit Insurance Expense, $15,500; Credit Prepaid Insurance, $15,500.

c. Debit Prepaid Insurance, $9,500; Credit Insurance Expense, $9,500.

d. 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

100. 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

a. $1,450.

b. $2,450.

c. $2,800.

d. $4,250.

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

101. Depreciation is the process of

a. valuing an asset at its fair value.

b. increasing the value of an asset over its useful life in a rational and systematic manner.

c. allocating the cost of an asset to expense over its useful life in a rational and systematic manner.

d. 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

102. 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

a. adjust the accounts to their proper amounts on December 31.

b. understate total assets on the balance sheet as of December 31.

c. overstate the book value of the depreciable assets at December 31.

d. 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

103. From an accounting standpoint, the acquisition of productive facilities can be thought of as a long-term

a. accrual of expense.

b. accrual of revenue.

c. accrual of unearned revenue.

d. 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

104. 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

a. debit Rent Expense, $6,000; credit Prepaid Rent, $6,000.

b. debit Rent Expense, $12,000; credit Prepaid Rent $12,000.

c. debit Prepaid Rent, $6,000; credit Rent Expense, $6,000.

d. 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

105. An accumulated depreciation account

a. is a contra-liability account.

b. increases on the debit side.

c. is offset against total assets on the balance sheet.

d. 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

106. The difference between the cost of a depreciable asset and its related accumulated depreciation is referred to as the

a. market value of the asset.

b. blue book value of the asset.

c. book value of the asset.

d. 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

107. If a business has several types of long-term assets such as equipment, buildings, and trucks,

a. there should be only one accumulated depreciation account.

b. there should be separate accumulated depreciation accounts for each type of asset.

c. all the long-term asset accounts will be recorded in one general ledger account.

d. 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

108. Which of the following would not result in unearned revenue?

a. Rent collected in advance from tenants

b. Services performed on account

c. Sale of season tickets to football games

d. 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

109. If business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit

a. cash.

b. prepaid rent.

c. unearned rent revenue.

d. 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

110. Unearned revenue is classified as

a. an asset account.

b. a revenue account.

c. a contra-revenue account.

d. 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

111. 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

a. debit Unearned Service Revenue and credit Cash.

b. debit Unearned Service Revenue and credit Service Revenue.

c. debit Unearned Service Revenue and credit Prepaid Expense.

d. 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

112. 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

a. Debit Supplies Expense, $2,000; Credit Supplies, $2,000.

b. Debit Supplies, $2,000; Credit Supplies Expense, $2,000.

c. Debit Supplies, $5,000; Credit Supplies Expense, $5,000.

d. 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

113. 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

a. Debit Rent Expense, $10,000; Credit Prepaid Rent, $2,500.

b. Debit Prepaid Rent, $2,500; Credit Rent Expense, $2,500.

c. Debit Rent Expense, $2,500; Credit Prepaid Rent, $2,500.

d. 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

114. 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

a. is not required. No adjusting entries will be made until the end of the season in November.

b. will include a debit to Cash and a credit to Ticket Revenue for $50,000.

c. will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for $75,000.

d. 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

115. 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

a. $0.

b. $50,000.

c. $75,000.

d. $125,000.

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

116. 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

a. $0.

b. $75,000.

c. $125,000.

d. $200,000.

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

117. 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

a. debit to the supplies account for $1,400.

b. credit to the supplies account for $500.

c. debit to the supplies account for $1,200.

d. 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

118. 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

a. $0.

b. $125.

c. $1,500.

d. $4,500.

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

119. 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

a. debit to Prepaid Insurance and a credit to Cash for $1,200.

b. debit to Prepaid Insurance and a credit to Insurance Expense for $133.

c. debit to Insurance Expense and a credit to Prepaid Insurance for $100.

d. 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

120. 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

a. $0 because Prepaid Insurance is reported on the Income Statement.

b. $1,260.

c. $1,980.

d. $3,240.

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

121. 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

a. stockholders' equity will be overstated by $700.

b. expenses will be understated by $750.

c. assets will be understated by $250.

d. 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

122. 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?

a. Failure to make the adjustment does not affect the February financial statements.

b. Expenses will be overstated by $7,500 and net income and stockholders' equity will be understated by $7,500.

c. Assets will be overstated by $15,000 and net income and stockholders' equity will be understated by $15,000.

d. 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

123. 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

a. $0.

b. $1,890.

c. $3,780.

d. $5,670.

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

124. 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

a. $500.

b. $6,000.

c. $6,500.

d. $23,500.

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

125. 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

a. $0.

b. $7,200.

c. $22,800.

d. $30,000.

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

126. 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

a. 0.

b. $2,840.

c. $8,820.

d. $11,760.

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

127. 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

a. $0.

b. $3,640.

c. $5,460.

d. $9,100.

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

128. 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

a. Net income and assets will be understated by $68,750.

b. Net income and assets will be overstated by $68,750.

c. Net income and assets will be understated by $13,750.

d. 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

129. 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

a. Net income and assets will be understated by $40,000.

b. Net income and assets will be overstated by $40,000.

c. Net income and assets will be understated by $20,000.

d. 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

130. All of the following are true regarding depreciation except

a. depreciation is a true measure of expired cost.

b. depreciation is a estimate.

c. Accumulated Depreciation is a contra asset account.

d. 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

131. Gemini Security Corp. prepares monthly financial statements. Gemini would record a prepaid expense in each of the following situations except when

a. Gemini purchased a two-year fire insurance policy.

b. Gemini paid for six months' gardening services in advance.

c. a tenant paid Gemini three months' rent in advance.

d. 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

132. 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

a. increase a liability account.

b. record revenues earned during the period.

c. record unrecorded expenses.

d. record unearned revenue.

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

133. 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?

a. Cash will be overstated at March 31.

b. Net income for March will be overstated.

c. Stockholders' equity will be understated.

d. 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

134. 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

a. overstate assets and net income.

b. overstate net income and understate assets.

c. understate assets, net income, and stockholders' equity.

d. 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

135. 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?

a. Net income will be overstated and total assets will be understated.

b. Net income will be overstated and total assets will be overstated.

c. Net income will be understated and total assets will be understated.

d. 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

136. If an adjusting entry is not made for an accrued revenue,

a. assets will be overstated.

b. expenses will be understated.

c. stockholders' equity will be understated.

d. 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

137. If an adjusting entry is not made for an accrued expense,

a. expenses will be overstated.

b. liabilities will be understated.

c. net income will be understated.

d. 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

138. Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause

a. net income to be understated.

b. an overstatement of assets and an overstatement of liabilities.

c. an understatement of expenses and an understatement of liabilities.

d. 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

139. Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause

a. net income to be overstated.

b. an understatement of assets and an understatement of revenues.

c. an understatement of revenues and an understatement of liabilities.

d. 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

140. 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?

a. Debit Cash and credit Unearned Service Revenue

b. Debit Accounts Receivable and credit Unearned Service Revenue

c. Debit Accounts Receivable and credit Service Revenue

d. 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

141. 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?

a. Debit Unearned Service Revenue and credit Service Revenue

b. Debit Cash and credit Accounts Receivable

c. Debit Accounts Receivable and credit Service Revenue

d. 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

142. 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

a. $75.

b. $100.

c. $300.

d. $900.

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

143. 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?

a. Interest Expense.................................................................... 1,200

Interest Payable............................................................ 1,200

b. Interest Expense.................................................................... 1,800

Interest Payable............................................................ 1,800

c. Interest Expense.................................................................... 1,200

Cash.............................................................................. 1,200

d. 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

144. 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?

a. Salaries and Wages Expense................................................ 1,000

Salaries and Wages Payable........................................ 1,000

b. Salaries and Wages Expense................................................ 5,000

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

c. Salaries and Wages Expense................................................ 3,000

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

d. 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

145. 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?

a. Salaries and Wages Expense................................................ 45,000

Salaries and Wages Payable........................................ 45,000

b. Salaries and Wages Expense................................................ 45,000

Cash.............................................................................. 45,000

c. Salaries and Wages Expense................................................ 7,000

Cash.............................................................................. 7,000

d. 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

146. 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

a. debit Salaries and Wages Payable, $20,000; credit Cash, $20,000.

b. debit Salaries and Wages Expense, $20,000; credit Cash, $20,000.

c. debit Salaries and Wages Expense, $20,000; credit Salaries and Wages Payable, $20,000.

d. 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

147. 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

a. Debit Interest Expense, $1,350; Credit Interest Payable, $1,350.

b. Debit Interest Expense, $112.50; Credit Interest Payable, $112.50.

c. Debit Notes Payable, $1,350; Credit Cash, $1,350.

d. 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

148. Nirvana Corporation issued a one-year, 9%, $300,000 note on April 30, 2013. Interest expense for the year ended December 31, 2013 was

a. $15,750.

b. $18,000.

c. $20,250.

d. $27,000.

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

149. 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

a. $12,000.

b. $5,000.

c. $4,000.

d. $3,000.

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

150. 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?

a. $10,000

b. $6,000

c. $4,000

d. 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

151. Can financial statements be prepared directly from the adjusted trial balance?

a. They cannot. The general ledger must be used.

b. Yes, adjusting entries have been recorded in the general journal and posted to the ledger accounts.

c. 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.

d. 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

152. The adjusted trial balance is prepared

a. after financial statements are prepared.

b. before the trial balance.

c. to prove the equality of total assets and total liabilities.

d. 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

153. An adjusted trial balance

a. is prepared after the financial statements are completed.

b. proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.

c. is a required financial statement under generally accepted accounting principles.

d. 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

154. Which of the statements below is not true?

a. An adjusted trial balance should show ledger account balances.

b. An adjusted trial balance can be used to prepare financial statements.

c. An adjusted trial balance proves the mathematical equality of debits and credits in the ledger.

d. 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?

a. Supplies Expense.................................................................. 600

Supplies........................................................................ 600

b. Supplies Expense.................................................................. 1,500

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

c. Supplies................................................................................. 600

Supplies Expense......................................................... 600

d. 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

a. accrued revenues and accrued expenses.

b. prepaid expenses.

c. unearned revenues.

d. 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?

a. Unearned Service Revenue ................................................. 8,400

Service Revenue ......................................................... 8,400

b. Unearned Service Revenue ................................................. 3,600

Service Revenue ......................................................... 3,600

c. Cash ...................................................................................... 12,000

Service Revenue ......................................................... 12,000

d. 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

a. assets to be understated.

b. assets to be overstated.

c. expenses to be understated.

d. 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

a. liabilities to be overstated.

b. revenues to be understated.

c. revenues to be overstated.

d. 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:

a. Insurance Expense................................................................ 1,925

Prepaid Insurance......................................................... 1,925

b. Prepaid Insurance.................................................................. 1,925

Insurance Expense....................................................... 1,925

c. Insurance Expense................................................................ 175

Prepaid Insurance......................................................... 175

d. 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

161. Which of the following statements concerning accrual-basis accounting is incorrect?

a. Accrual-basis accounting follows the revenue recognition principle.

b. Accrual-basis accounting is the method required by generally accepted accounting principles.

c. Accrual-basis accounting recognizes expenses when they are paid.

d. 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

162. The revenue recognition principle dictates that revenue be recognized in the accounting period

a. before it is earned.

b. after it is earned.

c. in which the services are performed.

d. 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

163. An expense is recorded under the cash basis only when

a. services are performed.

b. it is earned.

c. cash is paid.

d. 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

164. For prepaid expense adjusting entries

a. an expense—liability account relationship exists.

b. prior to adjustment, expenses are overstated and assets are understated.

c. the adjusting entry results in a debit to an expense account and a credit to an asset account.

d. 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

165. Expenses paid and recorded as assets before they are used are called

a. accrued expenses.

b. interim expenses.

c. prepaid expenses.

d. unearned expenses.

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

166. 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

a. Prepaid Insurance.................................................................. 7,500

Insurance Expense........................................................ 7,500

b. Insurance Expense................................................................ 7,500

Prepaid Insurance.......................................................... 7,500

c. Insurance Expense................................................................ 10,000

Prepaid Insurance.......................................................... 10,000

d. 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

167. 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

a. No entry is required.

b. Interest Expense.................................................................... 6,400

Interest Payable............................................................. 6,400

c. Interest Expense.................................................................... 12,800

Interest Payable............................................................. 12,800

d. 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

168. If the adjusting entry for depreciation is not made,

a. assets will be understated.

b. owner's equity will be understated.

c. net income will be understated.

d. 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

169. 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

a. Salaries Expense.................................................................... 1,000

Salaries Payable.............................................................. 1,000

b. No entry is required.

c. Salaries Expense.................................................................... 1,000

Cash................................................................................. 1,000

d. 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

170. Which of the following statements related to the adjusted trial balance is incorrect?

a. It shows the balances of all accounts at the end of the accounting period.

b. It is prepared before adjusting entries have been made.

c. It proves the equality of the total debit balances and the total credit balances in the ledger.

d. 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

171. Financial statements are prepared directly from the

a. general journal.

b. ledger.

c. trial balance.

d. 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

Strayer Homework Help

Saturday, July 20, 2013

ACC 557 Week 3 Quiz Chapters 2 and 3

TRUE-FALSE STATEMENTS

MULTIPLE CHOICE QUESTIONS

TRUE-FALSE STATEMENTS

MULTIPLE CHOICE QUESTIONS

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