Question 1

A deferral adjustment may involve one asset and one expense account.

Accepted Answer

A deferral adjustment typically involves an asset account (such as prepaid rent or supplies) and an expense account (such as rent expense or supplies expense) to recognize the portion of the asset that has been used or consumed during the period.

Question 2

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

Accepted Answer

Corporate income taxes are usually calculated based on the net income of the company, which is calculated after making all necessary adjustments such as expenses, depreciation, and other tax deductions. Therefore, all other adjustments need to be made before the corporate income taxes can be accurately calculated.

Question 3

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

Accepted Answer

False

Question 4

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.

Accepted Answer

The Retained Earnings account being debited indicates a net loss, not net income. A net income would result in a credit to Retained Earnings.

Question 5

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.

Accepted Answer

When a contra account is mistakenly included in the same column as the account it offsets, it results in a double entry for that amount, leading to an imbalance in the trial balance. Therefore, the debit and credit column totals will differ by twice the amount of the contra account, which in this case is $40,000 ($20,000 x 2).

Question 6

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

Accepted Answer

This is because supplies are considered as an asset until they are used up. Once used, they become an expense that needs to be recognized on the company's financial statements. Therefore, an adjustment needs to be made to decrease the asset account (supplies) and increase the expense account.

Question 7

Adjusting entries often involve cash.

Accepted Answer

Adjusting entries do not necessarily involve cash. They are made to ensure that financial statements reflect accurate and up-to-date information, and may involve various accounts such as accrued expenses, prepaid expenses, depreciation, and unearned revenues.

Question 8

The adjusted trial balance is completed to check that debits still equal credits after the income statement is prepared.

Accepted Answer

The adjusted trial balance is prepared before the income statement to ensure that debits equal credits after adjustments are made.

Question 9

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

Accepted Answer

If the adjusting entry for wages incurred but unpaid is not made, the liability for those wages will not be recorded, which will understate Total Liabilities on the Balance Sheet. Additionally, the wages expense will not be recognized on the Income Statement, which will overstate Retained Earnings.

Question 10

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.

Accepted Answer

If depreciation expense is not recorded, total assets would be overstated, but total stockholders' equity would also be overstated, not understated, because expenses reduce net income and retained earnings.

Question 11

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

Accepted Answer

A post-closing trial balance includes only permanent accounts, which are the accounts that carry over from one accounting period to another, such as assets, liabilities, and equity accounts. Temporary accounts, such as revenue and expense accounts, are closed out at the end of each accounting period and their balances are transferred to the retained earnings account. Therefore, temporary accounts should not be included in a post-closing trial balance.

Question 12

The purpose of adjusting entries is to transfer net income and dividends to retained earnings.

Accepted Answer

Adjusting entries are made to update the accounts before financial statements are prepared, ensuring that revenues and expenses are recorded in the period they occur. Transferring net income and dividends to retained earnings is done through closing entries, not adjusting entries.

Question 13

A contra account is added to the account it offsets.

Accepted Answer

The answer of A contra account is added to the...

Question 14

All asset accounts,all liability accounts,contributed capital,and retained earnings accounts are called permanent accounts.

Accepted Answer

Permanent accounts are those accounts that are not closed at the end of an accounting period and their balances are carried forward to the next period. Examples include all asset accounts, all liability accounts, contributed capital, and retained earnings accounts.

Question 15

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

Accepted Answer

The amount charged for a good or service provided to a customer on account is recorded at the time of the transaction. The payment may be received later and will be recorded as a separate entry.

Question 16

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

Accepted Answer

The answer of The amounts of all the accounts reported...

Question 17

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

Accepted Answer

The answer of One of the purposes of the closing...

Question 18

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

Accepted Answer

The carrying value of an asset is the value at which it is recorded on a company's balance sheet, which may differ from its market value.

Question 19

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

Accepted Answer

This statement is true. At the end of the accounting period, any dividends that have been declared but not yet paid are transferred from the Dividends Declared account to the Retained Earnings account as part of the closing process. This reflects the fact that these earnings are no longer available to be distributed to shareholders and are now retained within the company.

Question 20

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

Accepted Answer

Prepaid expenses are considered assets because they represent future economic benefits that the company has already paid for. As they are used up, they are gradually recognized as expenses on the income statement.

Quiz 4: Adjustments, Financial Statements, and Financial Results