Deck 5: Adjusting the Accounts and Preparing an Adjusted Trial Balance

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

Many business transactions affect more than one time period.

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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

Question 15

The time period assumption states that the business will remain in operation for the foreseeable future.

Question 16

An adjusting entry always involves two balance sheet accounts.

Question 17

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

Question 18

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

Question 19

Expenses paid before being used or consumed are initially recorded as liabilities.

Question 20

Expense recognition is tied to revenue recognition.

Question 21

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

Question 22

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

Question 23

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

Question 24

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.

Question 25

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

Question 26

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

Question 27

The time assumption that the economic life of a business can be divided into artificial time periods is known as the

A) time period assumption.
B) accounting period assumption.
C) timeliness assumption.
D) expense recognition principle.

Question 28

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

Question 29

Bassham Wine Import Company's accounting period begins on July 1. This type of accounting period is referred to as a(an)

A) fiscal year.
B) interim period.
C) time period assumption.
D) reporting period.

Question 30

The purpose of the adjusted trial balance is to prove the equality of debits and credits in the ledger account after adjusting entries are posted.

Question 31

Prepaid insurance becomes an expense when it expires with the passage of time.

Question 32

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

Question 33

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.

Question 34

The Owner's Capital account balance listed on the adjusted trial balance is reported on the balance sheet.

Question 35

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

A) Monthly
B) Quarterly
C) Semi-annually
D) Annually

Question 36

Owner's Capital and Owner's Drawings are reported on the income statement.

Question 37

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.

Question 38

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 company'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.

Question 39

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

Question 40

Monthly and quarterly time periods are called

A) calendar periods.
B) fiscal periods.
C) interim periods.
D) quarterly periods.

Question 41

On March 1, a customer places an order for a wedding cake with Stick Boy Bakery. The customer is sent a statement on March 30 and a check is received on April 10. The cake is delivered to the wedding reception on May 2. The bakery shop follows GAAP and applies the revenue recognition principle. When is the revenue from the sale of the wedding cake considered to be recognized?

A) March 1.
B) March 30.
C) April 10.
D) May 2.

Question 42

Prepaid insurance is

A) paid and recorded in an asset account before it is used.
B) paid and recorded in an asset account after it is used.
C) incurred but not yet paid or recorded.
D) incurred and already paid or recorded.

Question 43

In a service-type business, revenue is considered recognized

A) at the end of the month.
B) at the end of the year.
C) when the performance obligation is satisfied.
D) when cash is received.

Question 44

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.

Question 45

The fiscal year of a business is usually determined by

A) the IRS.
B) a lottery.
C) the business.
D) the SEC.

Question 46

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.

Question 47

Chen Alterations Company follows the revenue recognition principle. Lynn Chen altered a tuxedo on April 30. The customer picks up the tuxedo on May 1 and mails the payment to Chen on May 5. Chen receives the check in the mail on May 6. When was Chen's performance obligation satisfied?

A) April 30
B) May 1
C) May 5
D) May 6

Question 48

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.

Question 49

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) owner withdrawals should be matched with owner contributions.
D) cash payments should be matched with cash receipts.

Question 50

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.

Question 51

In its first period of operations, Weatherford Company purchased a 12-month insurance policy costing $12,000 on July 1. The company debited an asset account for the full amount. Assuming that the company only makes adjusting entries annually, at the end of its fiscal year on October 31, the adjusting journal entry to be made is

A) Debit Insurance Expense, $8,000; Credit Prepaid Insurance, $8,000.
B) Debit Prepaid Insurance, $3,000; Credit Insurance Expense, $3,000.
C) Debit Insurance Expense, $4,000; Credit Prepaid Insurance, $4,000.
D) Debit Prepaid Insurance, $12,000; Credit Cash, $12,000.

Question 52

The expense recognition principle matches

A) customers with businesses.
B) expenses with revenues.
C) assets with liabilities.
D) creditors with businesses.

Question 53

A metal shop's employees work overtime to finish an order that is sold on March 28. The office sends a statement to the customer in early April and payment is received by mid-April. The overtime wages should be expensed in

A) March.
B) April.
C) the period when the workers receive their checks.
D) either in March or April depending on when the pay period ends.

Question 54

The revenue recognition principle dictates that revenue should be recognized in the accounting records

A) when cash is received.
B) when the performance obligation is satisfied.
C) at the end of the month.
D) in the period that income taxes are paid.

Question 55

Orange County Shop follows the revenue recognition principle. Orange County services a bicycle on July 31. The customer picks up the bike on August 1 and mails the payment to Orange County on August 5. Orange County receives the check in the mail on August 6. When should Orange County show that the revenue was recognized?

A) July 31
B) August 1
C) August 5
D) August 6

Question 56

A bakery shop makes a large sale for $1,400 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The bakery shop follows GAAP and applies the revenue recognition principle. When is the $1,400 considered to be recognized?

A) December 5.
B) December 10.
C) November 30.
D) December 1.

Question 57

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.

Question 58

Prepaid insurance is

A) recorded as an asset when paid because it has future benefits.
B) recorded as an expense in the period when paid.
C) incurred but not yet paid or recorded.
D) incurred and already paid or recorded.

Question 59

In a service-type business, the performance obligation is considered to be satisfied

A) at the end of the month.
B) at the end of the year.
C) when the services have been performed.
D) when cash is received.

Question 60

Adjusting entries are generally required

A) yearly.
B) quarterly.
C) monthly.
D) every time financial statements are prepared.

Question 61

A new accountant working for Brady Company records $700 Depreciation Expense on store equipment as follows: 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.

Question 62

Bichon Company purchased equipment for $6,720 on December 1, 2022. It is estimated that annual depreciation on the equipment will be $1,680. The equipment will be reported on Bichon Company's balance sheet at December 31, 2022 at a book value of

A) $6,720.
B) $6,580.
C) $5,040.
D) $1,680.

Question 63

Book value is also referred to as

A) accumulated depreciation.
B) carrying value.
C) fair value.
D) original cost.

Question 64

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.

Question 65

Bichon Company purchased equipment for $6,720 on December 1, 2022. It is estimated that annual depreciation on the equipment will be $1,680. If financial statements are to be prepared on December 31,2022, the company should make the following adjusting entry:

A) Debit Depreciation Expense, $1,680; Credit Accumulated Depreciation, $1,680.
B) Debit Depreciation Expense, $140; Credit Accumulated Depreciation, $140.
C) Debit Depreciation Expense, $5,040; Credit Accumulated Depreciation, $5,040.
D) Debit Equipment, $6,720; Credit Accumulated Depreciation, $7,200.

Question 66

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.

Question 67

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

A) owner's equity will be understated.
B) expense will be understated.
C) assets will be understated.
D) net income will be understated.

Question 68

In its first period of operations, Wallowa Company purchased supplies costing $6,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of supplies revealed $1,800 still on hand. The adjusting journal entry to be made at the end of the period would be

A) Debit Supplies Expense, $1,800; Credit Supplies, $1,800.
B) Debit Supplies, $4,200; Credit Supplies Expense, $4,200.
C) Debit Supplies Expense, $4,200; Credit Supplies, $4,200.
D) Debit Supplies, $1,800; Credit Supplies Expense, $1,800.

Question 69

As prepaid insurance expires 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.

Question 70

Book value is computed as follows:

A) Historical Cost - Depreciation Expense.
B) Historical Cost - Accumulated Depreciation.
C) Fair Value - Accumulated Depreciation.
D) Accumulated Depreciation - Depreciation Expense.

Question 71

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

A) $4,000.
B) $4,500.
C) $6,500.
D) $11,500.

Question 72

If a company fails to make an adjusting entry to record the expiration of prepaid insurance, then

A) owner's equity will be understated.
B) expense will be understated.
C) assets will be understated.
D) net income will be understated.

Question 73

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.

Question 74

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.

Question 75

On July 1, Outdoor Sports Store paid $15,000 to Midtown 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 Outdoor Sports Store is

A) Debit Rent Expense, $15,000; Credit Prepaid Rent, $3,750.
B) Debit Prepaid Rent, $3,750; Credit Rent Expense, $3,750.
C) Debit Rent Expense, $3,750; Credit Prepaid Rent, $3,750.
D) Debit Rent Expense, $15,000; Credit Prepaid Rent, $15,000.

Question 76

Accumulated Depreciation is

A) an expense account.
B) an owner's equity account.
C) a liability account.
D) a contra asset account.

Question 77

What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $15,400, and unexpired amounts per analysis of policies of $5,000?

A) Debit Insurance Expense, $5,000; Credit Prepaid Insurance, $5,000.
B) Debit Insurance Expense, $15,400; Credit Prepaid Insurance, $15,400.
C) Debit Prepaid Insurance, $10,400; Credit Insurance Expense, $10,400.
D) Debit Insurance Expense, $10,400; Credit Prepaid Insurance, $10,400.

Question 78

At December 31, 2022, before any year-end adjustments, Orion Company's Insurance Expense account had a balance of $2,600 and its Prepaid Insurance account had a balance of $7,600. It was determined that an additional $3,200 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be

A) $2,600.
B) $4,400.
C) $3,200.
D) $5,800.

Question 79

During its first period of operations, Durawash Laundry purchased $8,000 worth of supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the supplies indicated only $3,000 on hand. The adjusting entry that should be made by the company on June 30 is

A) Debit Supplies Expense, $3,000; Credit Supplies, $3,000.
B) Debit Supplies, $3,000; Credit Supplies Expense, $3,000.
C) Debit Supplies, $5,000; Credit Supplies Expense, $5,000.
D) Debit Supplies Expense, $5,000; Credit Supplies, $5,000.

Question 80

The balance in the Prepaid Rent account before adjustment at the end of the year is $24,000, which represents three months' rent paid on December 1. The adjusting entry required on December 31 is to

A) debit Rent Expense, $8,000; credit Prepaid Rent, $8,000.
B) debit Rent Expense, $16,000; credit Prepaid Rent $16,000.
C) debit Prepaid Rent, $8,000; credit Rent Expense, $8,000.
D) debit Prepaid Rent, $16,000; credit Rent Expense, $16,000.