Deck 3: The Adjusting Process

Question 1

Under cash basis accounting, revenue is recorded when it is earned, regardless of when cash is received.

Answer 1

False

Question 2

Under accrual basis accounting, an expense is recorded only when cash is paid.

Answer 2

False

Question 3

A company receives payment from one of its customers on August 5 for services performed on July 21. Which of the following entries would be recorded if the company uses accrual basis accounting?

A)

B)

C)

D)

Answer 3

A

Question 4

Under cash basis accounting, an expense is recorded only when cash is paid.

Question 5

At the time the transaction occurred, which of the following would result in an increase in net income under the accrual basis of accounting, but would not result in an increase in net income under cash basis accounting?

A) purchase of supplies for cash
B) performance of services on account
C) use of supplies purchased earlier
D) receipt of cash for services that were performed earlier on account

Question 6

Which of the following statements is true of accrual basis accounting?

A) Accrual basis accounting is required by Generally Accepted Accounting Principles (GAAP).
B) Accrual basis accounting records expenses only when cash has been paid for them.
C) Accrual basis accounting records revenue only when cash is received.
D) Accrual basis accounting always results in greater net income than cash basis accounting.

Question 7

The major difference between a cash basis accounting system and an accrual basis accounting system is the timing of recording revenues and assets.

Question 8

The cash basis of accounting ignores ________.

A) payables
B) revenue
C) cash
D) expenses

Question 9

Generally Accepted Accounting Principles (GAAP) require the use of accrual basis of accounting.

Question 10

Recipes, Inc. purchased $2,000 of supplies on account. Under the accrual basis of accounting, no entry is made until the amount is paid.

Question 11

If a company is using accrual basis accounting, when should it record revenue?

A) when cash is received, even though services may be performed at a later date
B) when services are performed, even though cash may be received at a later date
C) when services are performed and cash is received
D) when cash is received, 30 days after the completion of the services

Question 12

Which of the following accounts would be used under the accrual basis of accounting, but not under cash basis accounting?

A) Cash
B) Unearned Revenue
C) Service Revenue
D) Salaries Expense

Question 13

What is the difference between cash basis accounting and accrual basis accounting?

Question 14

Which of the following entries would be recorded by a company that uses the cash basis method of accounting?

A)

B)

C)

D)

Question 15

When does a company account for revenue if it uses cash basis accounting?

A) when services are performed, even though cash may be received at a later date
B) when cash is received after the service is performed
C) when the services are being performed
D) when cash is received, either prior to, at the time of, or after the services are performed

Question 16

The Brighton Dental Company prepays the rent on its dental office. On July 1, the business paid $18,000 for 6 months of rent. How much Rent Expense should Brighton Dental Company record the three months ended September 30 under the accrual basis? Why?

Question 17

In cash basis accounting, revenue is recorded when cash is received, and expenses are recorded when they are paid.

Question 18

The Family Dental Company prepays the rent on its dental office. On July 1, the corporation paid $18,000 for 6 months of rent. How much Rent Expense should Family Dental Company record the three months ended September 30 under the cash basis? Why?

Question 19

List and briefly discuss three accounting concepts and principles that apply to accrual basis accounting.

Question 20

Under accrual basis accounting, revenue is recorded only when cash is received.

Question 21

The time period concept states that ________.

A) financial statements can be prepared for specific periods
B) all expenses should be recorded when they are incurred during the period
C) companies should record revenue when it has been earned
D) expenses incurred during a period should be matched against the revenues of the period

Question 22

Revenue is earned when the business has ________.

A) entered into an agreement with the customer about the goods or services to be delivered
B) prepared a journal entry to record revenue
C) received cash from the customer before goods or services are delivered
D) delivered a good or service to the customer

Question 23

The revenue recognition principle guides accountants in ________.

A) ensuring only revenues received in cash are recorded
B) determining when to record expenses
C) determining when to record revenues
D) ensuring expenses are deducted from revenues

Question 24

An expense that has been incurred but not yet paid is called a(n) ________.

A) accrued revenue
B) deferred expense
C) deferred revenue
D) accrued expense

Question 25

Adjusting entries are needed to correctly measure the ________.

A) ending balance in the Cash account
B) net income (loss) on the balance sheet
C) net income (loss) on the income statement
D) beginning balance in the Cash account

Question 26

The accounting period used for the annual financial statements is called the fiscal year.

Question 27

An adjusting entry is completed ________.

A) at the beginning of the accounting period
B) at the end of the accounting period
C) when the balance sheet is prepared
D) when accounts need to be balanced in the ledger

Question 28

An adjusting entry that credits Salaries Payable is an example of a(n) ________.

A) accrued expense
B) deferred revenue
C) accrued revenue
D) deferred expense

Question 29

Which of the following is considered a fiscal year?

A) six months
B) three months
C) twelve months
D) four months

Question 30

The matching principle states that ________.

A) financial statements can be prepared for specific periods
B) a business's activities can be sliced into small time segments
C) all expenses should be recorded when they are incurred during the period
D) companies should record revenue when it has been earned

Question 31

Which of the following accounting terms assumes that a business's activities can be divided into small segments and that financial statements can be prepared for specific periods, such as a month, quarter, or year?

A) adjusting entry concept
B) economic entity concept
C) matching principle
D) time period concept

Question 32

The accounting principle that ensures all expenses are recorded during the period when they are incurred and offsets those expenses against the revenues of the period is called the ________ principle.

A) comparison
B) accrual
C) matching
D) revenue recognition

Question 33

The matching principle is also called the ________.

A) adjusting entry concept
B) revenue recognition principle
C) expense recognition principle
D) time period concept

Question 34

The revenue recognition principle is the basis for recording revenues-both when to record revenue and the amount of revenue to record.

Question 35

Which of the following assumes that financial statements of a business can be prepared for specific periods?

A) matching principle
B) revenue recognition principle
C) time period concept
D) adjusting entry principle

Question 36

To match expenses against revenues means to ________.

A) add expenses incurred during one period from revenues earned during that same period
B) subtract expenses incurred during one period from revenues earned during the previous period
C) add expenses incurred during one period from revenues earned during the previous period
D) subtract expenses incurred during one period from revenues earned during that same period

Question 37

Which of the following entries would be made as the result of the revenue recognition principle?

A)

B)

C)

D)

Question 38

Which of the following entries would be made because of the matching principle?

A)

B)

C)

D)

Question 39

The goal of the time period concept is to compute an accurate net income or net loss.

Question 40

Which of the following accounting elements does the matching principle help to match?

A) revenues and liabilities
B) expenses and assets
C) expenses and revenues
D) expenses and liabilities

Question 41

Adjusting entries either credit a revenue account or debit an expense account.

Question 42

Jupiter Company signed a one-year $47,000 note payable at 8% interest on May 1, 2016. If Jupiter Company only adjusts its accounts once a year at year-end, how much interest expense was accrued on December 31, 2016? (Round any intermediate calculations to two decimal places, and your final answer to the nearest whole number.)

A) $940
B) $3,760
C) $2,820
D) $3,133

Question 43

Melville Services has a weekly payroll of $50,000. December 31, 2016 falls on Thursday and Melville will pay its employees the following Monday (January 4, 2017) for the previous full week. Assume that Melville has a five-day workweek and has an unadjusted balance in Salaries Expense of $845,000. Prepare the January 4, 2017 journal entry. Reversing entries are not made.

Question 44

Anthony Delivery Service has a weekly payroll of $34,000. December 31 falls on Tuesday and Anthony will pay its employees the following Monday (January 6) for the previous full week. Assume that Anthony has a five-day workweek and has an unadjusted balance in Salaries Expense of $945,000. What is the December 31 balance of Salaries Expense after adjusting entries are recorded and posted?

A) $945,000
B) $979,000
C) $965,400
D) $958,600

Question 45

Bryson Accounting Services performed accounting services for a client in December. A bill was mailed to the client on December 30. The company received a check by mail on January 5. Which of the following accounts should appear on the balance sheet as of December 31 as related to the services performed?

A) Prepaid Expense
B) Accounts Receivable
C) Unearned Revenue
D) None, there is no entry in December.

Question 46

On June 1, Edison Company borrowed $24,000 on a one-year Note Payable with an interest rate of 10% per year. It will repay the principal and interest at the end of the one-year period. The company makes accrual adjustments at the end of each month. The company should record interest expense of $2,400 on June 30.

Question 47

Laramie Company signed a contract with a service provider for security services at a rate of $270 per month for the period of January through June. Laramie Company will pay the service provider the entire amount at the end of June. The company makes adjusting entries each month. During the month of June, it should record total security expense of $540.

Question 48

Mason Painting Services has a weekly payroll of $30,000. December 31 falls on Wednesday and Mason will pay its employees the following Monday (January 5) for the previous full week. Assume that Mason has a five-day workweek and has an unadjusted balance in Salaries Expense of $800,000. What amount should be debited to Salaries Expense on December 31?

A) $800,000
B) $12,000
C) $30,000
D) $18,000

Question 49

Magnolia Tree Service has a weekly payroll of $50,000. December 31, 2016 falls on Thursday and Magnolia will pay its employees the following Monday (January 4, 2017) for the previous full week. Assume that Magnolia has a five-day workweek and has an unadjusted balance in Salaries Expense of $845,000. Prepare the December 31, 2016 adjusting entry.

Question 50

Saturn Services Company signed a one-year $24,000 note payable at 8% interest on May 1, 2017. How much interest expense must be accrued on May 31, 2017? (Round any intermediate calculations to two decimal places, and your final answer to the nearest whole number.)

A) $1,920
B) $12,800
C) $160
D) $80

Question 51

Accrued revenue is revenue that ________.

A) has been collected and earned
B) the business has collected in cash, but not yet earned
C) the business has earned, but not yet collected in cash
D) will be collected and earned in the future

Question 52

Classic Artists' Services signed a contract with a maintenance service company to maintain a building that Classic will use for office purposes. The contract states that the work will begin work on February 1 and end on May 31. Classic Artists' will pay the maintenance service company $16,000 at the end of May. It accrues Maintenance Expense at the end of every month. What is the balance in the Accounts Payable account for amounts owed to the maintenance service company at the end of March?

A) Debit balance of $16,000
B) Credit balance of $8,000
C) Debit balance of $8,000
D) Credit balance of $16,000

Question 53

The employees of Sinclair Services Company worked the last two weeks of December. They received their paychecks on January 2. Which of the following accounts should appear on the balance sheet as of December 31?

A) Accounts Payable
B) Salaries Payable
C) Salaries Expense
D) Prepaid Expense

Question 54

Kostner Financial Services performed accounting services for a client in December. A bill was mailed to the client on December 30. The company received the client's check by mail on January 5. Which of the following accounts should appear on the income statement for the year ended December 31 as related to the services performed?

A) Service Revenue
B) Unearned Revenue
C) Accounts Payable
D) Prepaid Expense

Question 55

A business hired a repair service to overhaul its plumbing system. The repair service began work on September 15 and intends to complete it on October 15. The business will pay the repair service $4,000 when the work is completed. As of September 30, the work was 50% complete. Provide the adjusting entry to accrue repair expense by the end of September. (Ignore explanation.)

Question 56

A business hired a repair service to overhaul its plumbing system. The repair service began work on September 15 and completed it on October 15. The business agreed to pay the service $4,000 when the work was completed. As of September 30, the work was 50% complete, and the business made an adjusting entry to accrue repair expense as of the end of September. On October 15, the work was completed, and the repair service was paid in full. Provide the journal entry for the cash payment on October 15. (Ignore explanation.)

Question 57

Adjusting entries may involve any account, including Cash.

Question 58

Accrued revenue represents the receipt of cash before the revenue has been earned.

Question 59

The employees of Leicester Services Company worked the last two weeks of December, 2016. They received their paychecks on January 2, 2017. Which of the following accounts should appear on the income statement for the year ended December 31, 2016?

A) Salaries Expense
B) Prepaid Expense
C) Salaries Payable
D) Unearned Revenue

Question 60

Argyle Designs has entered into a contract to design 10 new dresses for a customer. It will collect a total of $49,000 after the design services are complete. Argyle started design work on June 1. As of June 30, it finished 2 of the 10 designs. The company will make an adjusting entry at the end of June to accrue $12,250 of service revenue.

Question 61

The advance cash receipts of future revenues are called ________.

A) accrued revenues
B) deferred expenses
C) deferred revenues
D) accrued expenses

Question 62

Luminous Electrical performed services of $8,000 on January 24 and invoiced the customer. Luminous received the $8,000 on January 31. Provide the journal entry on January 24 when services were performed. (Ignore explanation.)

Question 63

The liability created when a business collects cash from its customers before completing a service or delivering a product is called ________.

A) accrued revenue
B) accrued expense
C) deferred revenue
D) deferred expense

Question 64

In the case of deferred revenue, the adjusting entry at the end of the period includes a credit to Service Revenue. Assume the deferred revenue is initially recorded as a liability.

Question 65

Unearned revenue is recorded when ________.

A) revenue will be both collected and earned in the future
B) the business has collected cash, but not yet earned the revenue
C) revenue has been collected and earned during the same accounting period
D) the business has earned, but not collected, cash for the revenue

Question 66

In the case of deferred revenue, the adjusting entry at the end of the period includes a debit to Service Revenue. Assume the deferred revenue is initially recorded as a liability.

Question 67

On January 1, Unearned Revenue of Grossman Company had a beginning balance of $1,400. During January, the company earned $700 of the deferred revenue. The company also collected $4,000 from a new customer for services to be performed the following month. At the end of January, the Unearned Revenue account should have a balance of $4,000.

Question 68

Dalton Delivery Service is hired on October 31, 2016 to perform services, beginning on November 1, 2016. The delivery services will be performed for six months at a rate of $3,200 per month. Dalton's fiscal year ends on December 31. What amount of service revenue should be recorded as an adjusting entry on December 31, 2016?

A) $3,200
B) 0
C) $6,400
D) $9,600

Question 69

Pluto Promotions sells tickets in advance for its weekly productions and records the proceeds as Unearned Revenue. At the end of each month, the company makes an adjusting entry to account for the tickets used during the month (ticket revenue.) On March 1, the Unearned Revenue account had a credit balance of $2,000. During March, it sold 300 tickets at $30 each, and 250 tickets were used during the month. What is the balance in Unearned Revenue at the end of March?

A) credit balance of $3,500
B) debit balance of $2,000
C) credit balance of $2,000
D) debit balance of $3,500

Question 70

Unearned Revenue is classified as a(n) ________ account.

A) liability
B) asset
C) revenue
D) equity

Question 71

The accounting records of Marcus Service Company include the following selected, unadjusted balances at June 30: Accounts Receivable, $2,700; Office Supplies, $1,800; Prepaid Rent, $3,600; Equipment, $15,000; Accumulated Depreciation - Equipment, $1,800; Salaries Payable, $0; Unearned Revenue, $2,400; Office Supplies Expense, $2,800; Rent Expense, $0; Salaries Expense, $15,000; Service Revenue, $40,500.
The following data developed for adjusting entries are as follows:
a. Service revenue accrued, $1,400
b. Unearned Revenue that has been earned, $800
c. Office Supplies on hand, $700
d. Salaries owed to employees, $1,800
e. One month of prepaid rent has expired, $1,200
f. Depreciation on equipment, $1,500
Journalize the adjusting entries. Omit explanations.

Question 72

Get in Shape, a healthy living magazine, collected $528,000 in subscription revenue on May 31. Each subscriber will receive an issue of the magazine in each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. What is the balance in the Unearned Revenue account as of December 31?

A) $220,000
B) $308,000
C) $528,000
D) $396,000

Question 73

In the case of deferred revenue, the cash is received first, and the revenue is earned later.

Question 74

An adjusting entry that debits Accounts Receivable is an example of a(n) ________.

A) deferred expense
B) accrued revenue
C) accrued expense
D) deferred revenue

Question 75

Healthy Living, a diet magazine, collected $240,000 in subscription revenue on May 31. Each subscriber will receive an issue of the magazine in each of the next 12 months, beginning with the June issue. The company uses the accrual method of accounting. What is the amount of Subscription Revenue that has been earned by the end of December? (Round any intermediate calculations to two decimal places, and your final answer to the nearest whole number.)

A) $100,000
B) $180,000
C) $240,000
D) $140,000

Question 76

On January 1, 2015, the Accounts Receivable of Linda Company had a debit balance of $150,000. During January, the company provided services for $600,000 on account. The company collected $230,000 from its customers on account in January. What was the ending balance in the Accounts Receivable account at the end of January?

A) $370,000
B) $750,000
C) $520,000
D) $600,000

Question 77

Techno Technical Services is working on a six-month job for a client, starting on February 1. It will collect $30,000 from its customer when the job is finished but the revenue is earned evenly over the six months. On March 31, before adjusting entries are made, Techno's Accounts Receivable account had a debit balance of $6,000. After the March 31 monthly adjusting entry has been made, what will be the balance in Accounts Receivable?

A) Debit balance of $5,000
B) Credit balance of $25,000
C) Debit balance of $11,000
D) Debit balance of $30,000

Question 78

Bright Lights Electrical performed services of $8,000 on January 24 and invoiced the customer. Bright Lights received the $8,000 on January 31. Provide the journal entry on January 31 when the cash was received. (Ignore explanation.)

Question 79

Allen Company is hired on December 15, 2016 to perform services, beginning on December 16, 2016. Under this agreement, Allen will earn $3,700 monthly and receive payment on January 15, 2017. What amount of service revenue should be recorded for the year ending December 31, 2016?

A) 0
B) $1,850
C) $3,700
D) There is not enough information to answer this.

Question 80

Revenue that has been earned but not yet collected in cash is called a(n) ________.

A) accrued revenue
B) deferred expense
C) deferred revenue
D) accrued expense