Deck 4: Adjustments, Financial Statements, and Financial Results

Question 1

Depreciation is a measure of the decline in market value of an asset.

Answer 1

False

Question 2

Revenue and expense accounts are permanent accounts because they always appear on the income statement.

Answer 2

False

Question 3

If a company failed to record depreciation expense on equipment for a period, the financial statements would show total assets overstated and total stockholders' equity understated on the balance sheet.

Answer 3

False

Question 4

Corporate income taxes cannot be calculated until all other adjustments are made.

Question 5

Prepaid expense accounts are reported as assets on the balance sheet.

Question 6

The amounts of all the accounts reported on the balance sheet can be taken from the adjusted trial balance.

Question 7

After posting the closing entries, all the revenue accounts and all the expense accounts are zero and the
Retained Earnings account has been debited for $4,000. This implies that the company had a net income of
$4,000.

Question 8

The amount charged for a good or service provided to a customer on account is posted to a revenue account only after the payment is received.

Question 9

A post-closing trial balance should include only permanent accounts.

Question 10

A company forgot to make an adjusting entry to record incurred wages that were unpaid at the end of the period. This would understate Total Liabilities and overstate Retained Earnings on the Balance Sheet.

Question 11

Adjusting entries are not needed when assets are used up gradually over several accounting periods after being purchased.

Question 12

Adjusting journal entries often involve cash.

Question 13

One of the purposes of closing entries is to bring the balances in all asset, liability, revenue, and expense accounts down to zero to start the next accounting period.

Question 14

Accumulated depreciation is reported on the balance sheet as a deduction from the cost of an asset.

Question 15

A contra account is added to the account it offsets.

Question 16

You mistakenly include a contra account of $20,000 in the same column of your trial balance as the account it offsets. All other things equal, your debit and credit column totals will differ by $40,000.

Question 17

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

Question 18

The closing process includes a transfer of the Dividends Declared account balance to the Retained Earnings account.

Question 19

As a company uses supplies, an adjustment should be made to decrease an asset account and increase an expense account.

Question 20

Asset, Liability, contributed capital and retained earnings accounts are called permanent accounts.

Question 21

Which of the following statements regarding the presentation of a trial balance is correct?

A) The adjusted trial balance shows the end-of-year balance for Retained Earnings.
B) An adjusted trial balance presents account balances in the same level of detail as in the presentation of the financial statements.
C) The order of accounts is assets, liabilities, stockholders' equity, dividends, revenues and expenses.
D) The adjusted trial balance provides a check on the accuracy of the postings for the period.

Question 22

A company owes rent at a rate of $6,000 per month. The company pays the rent owed on the tenth of each month for the previous month. At the end of each month, what kind of adjustment is required?

A) An accrual adjustment.
B) A comparative adjustment.
C) A deferral adjustment.
D) A matching adjustment.

Question 23

One major difference between deferral and accrual adjustments is:

A) deferral adjustments involve previously recorded transactions and accruals involve previously unrecorded events.
B) deferral adjustments are made after taxes and accrual adjustments are made before taxes.
C) deferral adjustments are made annually and accrual adjustments are made monthly.
D) deferral adjustments are influenced by estimates of future events and accrual adjustments are not.

Question 24

The company uses up $5,000 of the book value of an existing asset. The company adjusts its accounts accordingly. Which of the following is a true statement?

A) This is an accrual adjustment.
B) This is a closing adjustment.
C) This is a deferral adjustment.
D) The adjustment should not have been made.

Question 25

One major difference between deferral and accrual adjustments is:

A) accrual adjustments are influenced by estimates of future events and deferral adjustments are not.
B) deferral adjustments are made before taxes and accrual adjustments are made after taxes.
C) deferral adjustments are made monthly and accrual adjustments are made annually.
D) accounts affected by an accrual adjustment always go in the same direction (i.e., both accounts are increased or both accounts are decreased) and accounts affected by a deferral adjustment always go in opposite directions.

Question 26

A company makes a deferral adjustment that reduces a liability. This must mean:

A) an asset account is decreasing by the same amount.
B) an expense account is increasing by the same amount.
C) a revenue account is increasing by the same amount.
D) a different liability account is decreasing by the same amount.

Question 27

When the future benefits of existing assets are used up in the ordinary course of business:

A) an expense is recorded.
B) a loss is recorded.
C) a credit to a liability is recorded.
D) a debit to assets is recorded.

Question 28

Accrual adjustments link:

A) assets and revenues moving in the same direction or liabilities and expenses moving in the same direction.
B) assets and expenses moving in the same direction or liabilities and revenues moving in the same direction.
C) assets and revenues moving in the opposite direction or liabilities and expenses moving in the opposite direction.
D) assets and expenses moving in the opposite direction or liabilities and revenues moving in the opposite

Question 29

Which of the following statements regarding timing issues associated with closing entries is true?

A) Closing journal entries are recorded at the end of each reporting period which could be monthly, quarterly or annually.
B) After closing entries are posted, the balances of the income statement accounts will be zero.
C) Closing entries are made to zero out the balances of the permanent accounts on the balance sheet.
D) After closing entries are posted, the only temporary account with a balance is the Dividends Declared

Question 30

Which of the following statements regarding the effect of a net loss on the closing process is true?

A) If a company has a net loss during the current accounting period, then the post -closing retained earnings will be smaller than the pre-closing retained earnings.
B) When closing journal entries are prepared, contributed capital is debited if a company has a net loss.
C) If a company has a net loss, the closing entry will include debits to the revenue accounts, credits to the expense accounts, and a credit to Retained earnings.
D) If a company has a net loss, the amount of revenues being closed will be greater than the amount of expenses to be closed in the closing process.

Question 31

Which of the following statements regarding the adjusted financial results is not true?

A) Without adjustments, the financial statements present an incomplete and misleading picture of the company.
B) Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance.
C) Adjustments help the financial statements to present the best picture of whether the company's activities were profitable for the period.
D) Adjustments help the financial statements to present the economic resources the company owns and owes at the end of the period.

Question 32

If certain assets are partially used up during the accounting period, then:

A) nothing is recorded on the financial statements until they are completely used up.
B) a liability account is decreased or eliminated and an expense is recorded.
C) an asset account is decreased or eliminated and an expense is recorded.
D) nothing is recorded on the financial statements until they are replaced or replenished.

Question 33

If an expense has been incurred but will be paid later, then:

A) nothing is recorded on the financial statements.
B) a liability account is created or increased and an expense is recorded.
C) an asset account is decreased or eliminated and an expense is recorded.
D) a revenue and an expense are recorded.

Question 34

Which of the following statements regarding the role of cash in adjusting entries is true?

A) Adjustments are only made if cash has been received or paid during the period.
B) Adjusting journal entries do not affect the cash account.
C) Adjusting entries for expenses include a debit to cash.
D) Adjusting entries for revenues include a credit to cash.

Question 35

At the end of the month, the adjusting journal entry to record the use of supplies would include:

A) A debit to supplies and a credit to expenses.
B) A credit to supplies and a debit to expenses.
C) A debit to supplies and a credit to revenue.
D) A credit to supplies and a debit to cash.

Question 36

Which of the following statements regarding the trial balance is correct?

A) Trial balances are prepared after the financial statements to verify that the numbers are accurate.
B) The primary purpose of the adjusted trial balance is to see whether revenues are greater than expenses.
C) A trial balance is a check that the accounting records are still in balance after posting all entries to the accounts.
D) The trial balance debit column total is the amount to be shown as Total Assets on the Balance Sheet.

Question 37

Which of the following statements regarding financial statements and the trial balance is correct?

A) Financial statements are prepared only after the trial balance has shown that debits equal credits.
B) A post-closing trial balance should be prepared before temporary accounts are closed.
C) An adjusted trial balance reflects the amount of retained earnings to be shown on the Balance Sheet.
D) A post-closing trial balance lists all the accounts that are shown on the Income Statement.

Question 38

Which of the following statements regarding adjusting entries is not true?

A) Adjustments are needed to ensure that the accounting system includes all of the revenues and expenses of the period.
B) Adjustments help to ensure the related accounts on the balance sheet and income statement are up to date and complete.
C) Adjusting entries often affect the cash account
D) Adjusting entries always include one balance sheet and one income statement account

Question 39

Which of the following statements regarding types of adjusting entries is true?

A) An accrual adjustment that increases an asset will include an increase in an expense.
B) A deferral adjustment that decreases an asset will include an increase in an expense.
C) An accrual adjustment that increases an expense will include an increase in assets.
D) A deferral adjustment that increases a contra account will include an increase in an asset

Question 40

Which of the following is not a term for the value at which an asset is reported on a financial statement?

A) Carrying value.
B) Book value.
C) Net book value.
D) Accrual value

Question 41

To calculate the company's income tax expense for the current period, it is necessary to know:

A) the company's operating revenue and tax bill from prior periods.
B) the company's income before income taxes and the company's tax rate.
C) the company's operating expenses and revenue.
D) the company's net income from the previous period and the current tax rate.

Question 42

Declared dividends:

A) are an expense of doing business.
B) are not a legal obligation that a company must pay.
C) are a way to distribute the company's profits to its stockholders.
D) are not recorded as a liability because they are not an expense of doing business.

Question 43

Purrfect Pets had income before income tax of $164,000 last quarter and a 34% tax rate. Its net income should be reported as:

A) $55,760.
B) $108,240.
C) $(55,760).
D) $248,485.

Question 44

Purrfect Pets had $6,000 of supplies at the end of October. During November, the company bought $2,000 of supplies. At the end of November, the company had $1,000 of supplies remaining. Which of the following statements is not true?

A) During November, the company used $7,000 of supplies.
B) The carrying value of supplies on November 30 should be $1,000.
C) An expense should be debited for $7,000 in November.
D) An asset should be debited for $1,000 in November.

Question 45

Your business purchased a certificate of deposit on April 1 that will pay $90 interest three months from that date. On April 30, which of the following adjusting journal entries would be made?

A) Debit Interest Receivable for $90; credit Interest Revenue for $90.
B) Debit Interest Revenue for $60; credit Interest Receivable for $60.
C) Debit Interest Receivable for $30; credit Interest Revenue for $30.
D) Debit Interest Revenue for $30; credit Interest Receivable for $60.

Question 46

During the month, a company uses up $4,000 of supplies. At the end of the month, the related adjusting journal entry would result in:

A) a decrease in an asset and an equal increase in liabilities.
B) an increase in liabilities and an equal decrease in stockholders' equity.
C) a decrease in an asset and an equal increase in expenses.
D) an increase in liabilities and a loss of equal value.

Question 47

A count of supplies revealed $400 worth on hand at 12/31/10. The adjusting entry would include

A) a debit to supplies expense for $400.
B) a debit to supplies expense for $600.
C) a debit to supplies for $400.
D) a debit to supplies for $600.

Question 48

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

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

Question 49

At the end of the year, accrual adjusting journal entries could include a:

A) debit to an expense and a credit to an asset.
B) credit to a revenue and a debit to an expense.
C) debit to cash and a credit to contributed capital.
D) debit to an expense and a credit to a liability.

Question 50

A company has a loan that accrues interest at a rate of $20 a day. The company pays the interest once a quarter. Which of these would be an accurate adjustment for a month in which no payments are made?

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

Question 51

An adjusting journal entry that includes an increase to an asset contra-account would include an increase in a(n):

A) related asset account.
B) liability account.
C) revenue account.
D) expense account.

Question 52

Accumulated depreciation:

A) is an expense account.
B) is a liability account.
C) is a regular asset account.
D) is an asset contra-account.

Question 53

Which of these accounts would normally not be affected by an adjustment?

A) Supplies.
B) Revenues.
C) Expenses.
D) Cash.

Question 54

Your business declared a $200 dividend on August 31, payable in September. On August 31, which of the following journal entries would be made?

A) Debit Dividends Receivable for $200; credit Dividends Declared for $200.
B) Debit Dividends Declared for $200; credit Dividends Payable for $200.
C) Debit Dividends Payable for $200; credit Dividends Declared for $200.
D) Debit Dividends Declared for $200; credit Dividends Receivable for $200.

Question 55

The insurance policy covers four years and was purchased by Sneetch on 1/1/10. The adjusting entry on December 31 would include

A) a debit to prepaid insurance for $1,200.
B) a credit to prepaid insurance for $1,200.
C) a debit to insurance expense for $3,600.
D) a credit to prepaid insurance for $3,600.

Question 56

On December 31, a decision is made to accrue an expense and report a current liability. How many accounts will be included in this journal entry?

A) None.
B) One.
C) Two.
D) Three.

Question 57

When a dividend has been declared but not yet paid,

A) assets will increase and stockholders' equity will decrease.
B) assets will decrease and stockholders' equity will increase.
C) the balance sheet will not change until the dividend is paid.
D) liabilities will increase and stockholders' equity will decrease.

Question 58

A company has an asset account, Prepaid Insurance, with a balance of $3,750 at the beginning of the month. The company used $980 of insurance during the month. Which of the following statements is true?

A) The company should credit Insurance Expenses for $980 and debit Prepaid Insurance for $980.
B) Retained earnings and stockholders' equity should decrease because of this transaction.
C) The company should credit Accrued Liabilities for $980 and debit Insurance Expenses for $980.
D) Retained earnings and stockholders' equity should be unchanged by this transaction.

Question 59

A company pays wages every two weeks. Wages amount to $100 a day. On March 31, the company pays wages for the two weeks ending March 24. At the end of the month, the related adjusting journal entry will include a

A) debit to Wages Payable for $700 and a credit to Cash for $700.
B) debit to Wage Expense for $700 and a credit to Wages Payable for $700.
C) debit to Wages Payable for $700 and a credit to Wages Expense for $700.
D) debit to Retained Earnings for $700 and a credit to Wages Payable for $700.

Question 60

Contra-accounts:

A) are used to increase the original value of the account they offset.
B) always appear in the same column of the trial balance as the account they offset.
C) always reduce the account they offset.
D) are not allowed according to GAAP.

Question 61

If total debits are not equal to total credits in an adjusted trial balance, which of the following errors may have occurred?

A) Posting Wage Expense to Administrative Expenses.
B) Debiting Interest Payable instead of debiting Interest Expense.
C) Debiting Notes Payable instead of debiting Interest Expense.
D) Posting a credit to Wages Payable as a debit.

Question 62

The first financial statement prepared after the adjusted trial balance is:

A) the balance sheet.
B) the income statement.
C) the statement of cash flows.
D) the statement of retained earnings.

Question 63

The new CEO of the company takes over on December 10, 2010. He is promised a significant bonus for every percent he can raise net income in 2011 over 2010 results. Which of the following adjustments would aid him in making 2011 results look the most impressive?

A) Allocating more of the cost of machinery to depreciation expense in 2011 than in 2010.
B) Prepaying 2012 expenses in 2011.
C) Deferring 2011 expenses to 2012 and accruing revenues in 2011 that don't exist.
D) Recording 2011 revenue as unearned revenue.

Question 64

Which of the following is done first at the end of each accounting period?

A) Prepare adjusting journal entries.
B) Prepare a post closing trial balance.
C) Prepare closing journal entries.
D) Prepare the statement of retained earnings.

Question 65

Which of the following statements about an adjusted trial balance is true?

A) Debits should equal credits both before and after adjustments are made.
B) Debits will equal credits after adjustments are made but not necessarily before.
C) Debits will equal credits before adjustments are made but not necessarily after.
D) Debits do not have to equal credits in the trial balance but they will in the income statement.

Question 66

In a trial balance a contra-account appears:

A) just before the account it offsets but in the opposite column.
B) just after the account it offsets and in the same column.
C) just after the account it offsets but in the opposite column.
D) just before the account it offsets and in the same column.

Question 67

After net income has been determined, it is then transferred to:

A) the balance sheet.
B) the income statement.
C) the statement of cash flows.
D) the statement of retained earnings.

Question 68

The office equipment depreciates at a rate of $1,000 per year. The adjusting entry would include

A) a debit to accumulated depreciation for $1,000.
B) a credit to office equipment for $1,000.
C) a credit to depreciation expense for $1,000.
D) a credit to accumulated depreciation for $1,000.

Question 69

Which of the following would appear in the credit column of an adjusted trial balanc e?

A) Income tax payable.
B) Cost of goods sold.
C) Prepaid insurance.
D) Interest receivable.

Question 70

One of the major advantages of making adjustments in order to improve the quality of financial statements is that they:

A) ensure that revenues and expenses are recognized during the period they are earned and incurred.
B) ensure that all estimates of future activities are eliminated from consideration.
C) ensure that revenues and expenses are recognized conservatively during the period they are paid.
D) provide an opportunity to manipulate the numbers to the best effect.

Question 71

After preparing adjusting entries, the equality of recorded debits and credits is checked by preparing a(n):

A) adjusting journal entry analysis.
B) adjusted trial balance.
C) adjusted income statement.
D) statement of cash flows.

Question 72

Which of the following is done last at the end of the year?

A) Prepare adjusting journal entries.
B) Prepare an adjusted trial balance.
C) Prepare closing journal entries.
D) Prepare a post-closing trial balance.

Question 73

Accrued salaries at 12/31/10 are $2,000. The adjusting entry would include

A) a debit to salaries payable for $2,000.
B) a debit to salaries expense for $28,000.
C) a credit to salaries payable for $2,000.
D) a credit to salaries expense for $28,000.

Question 74

After adjusting journal entries are prepared and posted, but before closing journal entries are prepared and posted, the balance in retained earnings is equal to

A) zero.
B) the difference between total assets and total liabilities.
C) the amount that is to be reported in the current year's balance sheet.
D) the amount that was reported on the previous year's balance sheet.

Question 75

Which of the following trial balances are used as a source for preparing the income statement?

A) Unadjusted trial balance.
B) Pre-adjusted trial balance.
C) Adjusted trial balance.
D) Post-closing trial balance.

Question 76

Which of the following would appear in the debit column of an adjusted trial balance?

A) Service revenue.
B) Prepaid rent.
C) Accumulated depreciation.
D) Contributed capital.

Question 77

Studies have found that companies that make adjusting entries:

A) generally report "higher quality" earnings.
B) make themselves immune to fraud by doing so.
C) never violate generally accepted accounting principles.
D) generally do so with the intent of misleading investors.

Question 78

Two-fifths (40%) of the amount recorded as unearned revenue was earned as of 12/31/10. The adjusting entry would include

A) a credit to service revenue for $3,000.
B) a credit to unearned revenue for $3,000.
C) a credit to service revenue for $2,000.
D) a credit to unearned revenue for $2,000.

Question 79

An adjusted trial balance should be prepared immediately:

A) after posting normal journal entries.
B) before analyzing transactions.
C) after posting adjusting journal entries.
D) after posting closing journal entries.

Question 80

Which of the following accounts does not normally have a credit balance on an adjusted trial balance?

A) Accumulated depreciation.
B) Dividends declared.
C) Accounts payable.
D) Contributed capital.