Question 1

The chart of accounts is a tabular record in which business activities are analyzed in terms of debits and credits and recorded in chronological order.

Accepted Answer

The chart of accounts lists the titles and numbers of all accounts found in the general ledger.

Question 2

The chart of accounts is also known as the book of original entry.

Accepted Answer

The general journal is also known as the book of original entry.

Question 3

An adjusted trial balance is a listing of all the year-end balance sheet accounts, since all the income statement accounts have been closed to zero.

Accepted Answer

The adjusted trial balance lists all general ledger accounts after adjustments have been posted. It contains much of the data needed to construct the financial statements, including the income statement.

Question 4

Prepaid rent is an example of a contra account, and is used to record a reduction to its related account, rent expense.

Accepted Answer

Prepaid rent is an asset account reflecting the benefit owed the company from paying cash in advance for rent. Rent expense is used to accumulate costs associated with using property rented from others.

Question 5

Adjusting entries always impact the income statement and the cash account.

Accepted Answer

Adjusting entries affect a balance sheet account and an income statement account, but never the cash account.

Question 6

The income statement, statement of stockholders' equity, and statement of cash flows report on time periods that depict flows.

Accepted Answer

Specific periods of time are reported on all financial statements, except the balance sheet. They depict changes or flows in levels over a period of time.

Question 7

All accounts in the general ledger are closed at a company's fiscal year end in order to facilitate preparation of the financial statements and to ready the accounts for the activities of the next year.

Accepted Answer

Only temporary accounts (revenue, expense and dividends) are closed at the end of the period. Balance sheet accounts, also known as permanent accounts, are not closed as the balances are carried over to the next accounting period.

Question 8

The book value of a building is equivalent to its historical cost.

Accepted Answer

A building's book value is its historical cost minus the accumulated depreciation associated with the building.

Question 9

Adjusting unearned revenues causes a liability to decline.

Accepted Answer

The adjustment of unearned revenues reduces Unearned Revenue, a liability, and increases Service Revenue or Sales.

Question 10

A company's fiscal year may:
A) Be any portion of a year including a month or quarter
B) Be for a period either greater or less than 12 months
C) Be the same as the calendar year
D) All of the above are true of a company's fiscal year

Accepted Answer

A company's fiscal year must be a complete year, may not be for a period greater or less than 12 months, and may be the same as the calendar year.

Question 11

Which of the following journal entries will record the payment of a $1,350 accounts payable originally incurred for Office Supplies?
A) Debit Office Supplies; credit Cash
B) Debit Office Supplies; credit Accounts Payable
C) Debit Cash; credit Accounts Payable
D) Debit Accounts Payable; credit Cash

Accepted Answer

Rationale:
The original entry was:
Office supplies 1,350
Accounts payable 1,350
The entry to record the payment of cash reduces the liability and reduces cash.
Accounts payable 1,350
Cash 1,350

Question 12

A company bills customers for services rendered on account. Which of the following is one part of recording this transaction?
A) Debit Service Revenue
B) Credit Cash
C) Debit Accounts Receivable
D) Credit Unearned Revenue

Accepted Answer

The journal entry includes a debit to Accounts Receivable and a credit to Service Revenue.

Question 13

Use the following information to answer questions below 
On the last day of December 2016, Camrey's Trucks entered into a transaction that resulted in a receipt of $216,000 cash in advance related to services that will be provided during January 2017. During December of 2016, the company also performed $128,000 of services which were neither billed nor paid. Prior to December adjustments and before these two transactions were recorded, the company's trial balance showed service revenue of $1,165,470 at December 31, 2016. There are no other prepaid services yet to be delivered, and during the month all outstanding accounts receivable from prior months were collected.
-If Camrey's Trucks makes the appropriate adjusting entry, how much will service revenue will be reflected on the December 31, 2016 income statement?
A) $1,165,470
B) $1,715,000
C) $1,623,000
D) $1,293,470

Accepted Answer

The correct service revenue to be reflected on the December 31, 2016 income statement is $1,293,470. This is calculated by adding the $128,000 of services performed in December 2016 (but not yet billed or paid) to the initial service revenue of $1,165,470. The $216,000 received in advance for services to be provided in January 2017 should not be included in the 2016 income statement as it pertains to services to be rendered in the future (2017).

Question 14

Use the following information to answer questions below 
On the last day of December 2016, Camrey's Trucks entered into a transaction that resulted in a receipt of $216,000 cash in advance related to services that will be provided during January 2017. During December of 2016, the company also performed $128,000 of services which were neither billed nor paid. Prior to December adjustments and before these two transactions were recorded, the company's trial balance showed service revenue of $1,165,470 at December 31, 2016. There are no other prepaid services yet to be delivered, and during the month all outstanding accounts receivable from prior months were collected.
-If Camrey's Trucks makes the appropriate adjusting entry, how much will be reported on the December 31, 2016 balance sheet as unearned revenue?
A) $ 90,000
B) $216,000
C) $ 64,000
D) $ 98,000

Accepted Answer

Unearned revenue represents the amount collected in advance that the company has not yet earned.

Question 15

Use the following information to answer questions below 
On the last day of December 2016, Camrey's Trucks entered into a transaction that resulted in a receipt of $216,000 cash in advance related to services that will be provided during January 2017. During December of 2016, the company also performed $128,000 of services which were neither billed nor paid. Prior to December adjustments and before these two transactions were recorded, the company's trial balance showed service revenue of $1,165,470 at December 31, 2016. There are no other prepaid services yet to be delivered, and during the month all outstanding accounts receivable from prior months were collected.
-If Camrey's Trucks makes the appropriate adjusting entry, how much will be reported on the December 31, 2016 balance sheet as accounts receivable?
A) $108,000
B) $256,000
C) $ 64,000
D) $128,000

Accepted Answer

Outstanding receivables are the amount earned but not yet received from customers.

Question 16

Use the following information to answer questions below
On April 1, 2016, SBD Corp. paid $120,000 for rent on warehouse space one year in advance. On October 1, 2016, SBD Corp. entered into a lease agreement to rent out its old warehouse space it was no longer using. This agreement calls for SBD to receive $8,000 per month from the lessee, due and payable at the end of the 4-month lease term. At December 31, 2016, none of the rental payments from the lessee had yet been received.
-If SBD makes the appropriate adjusting entry, how much will be reported on the December 31, 2016 income statement for rent expense?
A) $85,000
B) $49,000
C) $15,000
D) $90,000

Accepted Answer

Rent expense = $120,000 × 9/12 = $90,000

Question 17

Use the following information to answer questions below
On April 1, 2016, SBD Corp. paid $120,000 for rent on warehouse space one year in advance. On October 1, 2016, SBD Corp. entered into a lease agreement to rent out its old warehouse space it was no longer using. This agreement calls for SBD to receive $8,000 per month from the lessee, due and payable at the end of the 4-month lease term. At December 31, 2016, none of the rental payments from the lessee had yet been received.
-If SBD makes the appropriate adjusting entry, how much will be reported on the December 31, 2016 balance sheet as prepaid rent and rent receivable, respectively?
A) $30,000 and $24,000
B) $15,000 and $16,000
C) $30,000 and $15,000
D) $30,000 and $12,000

Accepted Answer

Prepaid rent remaining = $120,000 × 3/12 = $30,000
Rent receivable = $8,000 × 3 = $24,000

Question 18

Which of the following is a distinguishing characteristic of a deferral?
A) It affects at least one liability account.
B) It always impacts the cash account.
C) It includes the adjustment of an amount previously recorded in a balance sheet account.
D) It increases a balance sheet account and decreases an income statement account.

Accepted Answer

A deferral adjusts an amount previously recorded in a balance sheet account.

Question 19

A company provides services to clients during the period that are neither paid for, nor billed to the clients. What must the company do?
A) Bill the client prior to year-end in order to recognize the revenue.
B) Record the revenues as a liability at the end of the year.
C) Accrue revenue by making an adjusting entry at the end of the period.
D) All of the above are true.

Accepted Answer

Services earned but not yet billed or collected require an accrual to recognize the revenue and the account receivable at the end of the period. The bill does not have to be sent prior to year-end and there is no liability at year end since money is owed to the company.

Question 20

Which statement is true of the statement of stockholders' equity?
A) It reports a company's assets, liabilities, and equities.
B) It reports a company's revenue and expenses for a period.
C) It is prepared using the unadjusted trial balance in order to facilitate the closing process.
D) It shows a company's stock issuances and dividends paid to shareholders.

Accepted Answer

The balance sheet is described in "A," the income statement in "B," and "C" applies primarily to the income statement. Answer "D" is the best choice as it shows changes in all equity accounts.

Quiz 3: Adjusting Accounts for Financial Statements

The chart of accounts is a tabular record in which business activities are analyzed in terms of debits and credits and recorded in chronological order.

The chart of accounts is also known as the book of original entry.

An adjusted trial balance is a listing of all the year-end balance sheet accounts, since all the income statement accounts have been closed to zero.

Prepaid rent is an example of a contra account, and is used to record a reduction to its related account, rent expense.

Adjusting entries always impact the income statement and the cash account.

The income statement, statement of stockholders' equity, and statement of cash flows report on time periods that depict flows.

All accounts in the general ledger are closed at a company's fiscal year end in order to facilitate preparation of the financial statements and to ready the accounts for the activities of the next year.

The book value of a building is equivalent to its historical cost.

Adjusting unearned revenues causes a liability to decline.

A company's fiscal year may:

Which of the following journal entries will record the payment of a $1,350 accounts payable originally incurred for Office Supplies?

A company bills customers for services rendered on account. Which of the following is one part of recording this transaction?

Which of the following is a distinguishing characteristic of a deferral?

A company provides services to clients during the period that are neither paid for, nor billed to the clients. What must the company do?

Which statement is true of the statement of stockholders' equity?