Question 1

Wages are an expense to the employer when earned rather than when paid.

Accepted Answer

Wages are considered an expense to the employer when they are earned by the employee, regardless of whether they have been paid yet. This is known as the accrual accounting method, which recognizes expenses as they are incurred rather than when they are actually paid.

Question 2

Accumulated Depreciation is

Accepted Answer

Accumulated Depreciation is a contra-asset account. It is used to record the total amount of depreciation expense that has been charged against an asset since the asset was acquired. As a contra-asset account, it has a credit balance and reduces the value of the asset to its net book value on the balance sheet.

Question 3

An expenditure that benefits year one but is paid for in year two should not be capitalized until year two.

Accepted Answer

This statement is incorrect. An expenditure that benefits year one but is paid for in year two should be capitalized in year one, as it relates to the period or year in which the benefit was received.

Question 4

Depreciation is:

Accepted Answer

Depreciation is an estimate of the decline in value of an asset. It is based on factors such as the asset's useful life, salvage value, and the method of depreciation used. Depreciation can be recorded over shorter time periods, such as monthly or quarterly. However, it is still an estimate and not an exact calculation. The exact life of an asset is not always known, and management may need to estimate it based on past experience or industry standards.

Question 5

If Hot Bagel Co. estimates depreciation on an automobile to be $578 for the year they should make the following adjusting entry:

Accepted Answer

The correct entry for recording depreciation is to debit Depreciation Expense and credit Accumulated Depreciation.

Question 6

Companies that engage in fraud will often capitalize an asset rather than an expense account.

Accepted Answer

This is true. Capitalizing an asset means that the cost is recorded as an asset on the balance sheet rather than an expense on the income statement, which can make the company's financial position appear stronger than it actually is. Frauds such as overstating the value of an asset or hiding expenses can be committed by capitalizing an asset instead of recording it as an expense.

Question 7

The adjusting entry to record income taxes at the end of an unprofitable accounting period consists of a

Accepted Answer

The answer of The adjusting entry to record income taxes...

Question 8

Materiality is a matter of professional judgment.

Accepted Answer

Materiality is a subjective concept that requires professional judgment to determine the significance or importance of financial information.

Question 9

An expenditure that benefits the year in which it is made should be deducted from revenue in the same year.

Accepted Answer

This is the matching principle of accounting, which requires expenses to be matched with the corresponding revenues they helped generate in the same accounting period. It ensures that financial statements accurately reflect the financial performance of the period.

Question 10

Which of the following is not considered a basic type of adjusting entry?

Accepted Answer

Adjusting entries are made in the accounting records at the end of an accounting period to allocate income and expenditures to the period in which they actually occurred. The basic types of adjusting entries include deferrals (prepaid expenses, unearned revenues) and accruals (accrued revenues, accrued expenses). An entry to convert an asset to a liability does not fit into these categories, making it not a basic type of adjusting entry.

Question 11

Unearned revenue may also be called

Accepted Answer

Unearned revenue is revenue that has been received by a company in advance but has not been earned yet, such as money received for services that will be provided in the future. Deferred revenue is another term for unearned revenue. Choices A, C, and D are incorrect as they refer to different accounting concepts.

Question 12

We can compare income of the current period with income of a previous period to determine whether the operating results are improving or declining:

Accepted Answer

Comparing the income of the current period with income of a previous period to determine whether the operating results are improving or declining can only be done if the accounting periods are equal in length. This is because if they are not equal, it would not provide an accurate comparison. The other options presented (A, B, D) are not relevant to determining whether operating results are improving or declining.

Question 13

Adjusting entries are prepared

Accepted Answer

Adjusting entries are prepared before financial statements are prepared and after a trial balance has been prepared to ensure that the financial statements reflect the correct balances and are in accordance with the accounting principles.

Question 14

Which of the following activities is least likely to be limited to "year-end"?

Accepted Answer

Recording transactions is an ongoing activity that should be performed regularly throughout the year. It is not limited to year-end like closing the accounts, drafting notes, or undergoing an audit.

Question 15

Immaterial items may be accounted for in the most convenient manner, without regard to other theoretical concepts.

Accepted Answer

Immaterial items, such as patents and copyrights, can be accounted for based on their practical use and value, without the need for complex theoretical concepts. However, it is important to ensure that the accounting method used is in accordance with generally accepted accounting principles.

Question 16

The normal balance of the Accumulated Depreciation account is

Accepted Answer

The Accumulated Depreciation account is a contra-asset account, meaning it has an opposite balance to the asset account it relates to. Since asset accounts have a normal debit balance, their contra-accounts (such as Accumulated Depreciation) have a normal credit balance.

Question 17

Rose Corp. has a note receivable from Jewel Co for $80,000. The note matures in 5 years and bears interest of 6%. Rose is preparing financial statements for the month of June. Rose should make an adjusting entry

Accepted Answer

An adjusting entry is required to recognize the interest revenue earned on the note receivable for the month of June. The calculation for monthly interest is $80,000 x 6% / 12 months = $400. 
Therefore, to recognize this amount in the financial statements, Rose should debit Interest Receivable for $400 (an asset account representing the interest earned but not received) and credit Interest Revenue for $400 (an income account representing the revenue earned from interest). This will ensure that the financial statements reflect the interest earned on the note receivable during the month of June. The other options involve either interest payable or expense, which are not applicable in this situation.

Question 18

All assets should be depreciated.

Accepted Answer

Not all assets should be depreciated. Only tangible assets that have a useful life longer than one year and can be reasonably expected to lose value over time should be depreciated. Intangible assets, such as patents or trademarks, are not depreciated but may be amortized. Additionally, assets that do not lose value over time, such as land, should not be depreciated.

Question 19

Hahn Corp. has three employees. Each earns $600 per week for a five day work week ending on Friday. This month the last day of the month falls on a Wednesday. The company should make an adjusting entry

Accepted Answer

Since the last day of the month falls on a Wednesday, two days of work (Thursday and Friday) will be in the next pay period. Therefore, the company needs to recognize the wages earned by the employees in the current period but not paid until the next period. The adjusting entry should debit Wage Expense for the amount earned by the employees for three days ($600/day x 3 days x 3 employees = $5,400) and credit Wages Payable for the same amount ($5,400). Therefore, the correct choice is A.

Question 20

The United Shipping Co. made an adjusting entry accruing interest on a note payable for the month of January for $800. The note required 12% per annum on the principal. The principal amount of the note payable must have been

Accepted Answer

The interest for one month is $800. Since the annual interest rate is 12%, the monthly interest rate is 1% (12% / 12 months). Therefore, the principal amount is $800 / 0.01 = $80,000.

Quiz 4: The Accounting Cycle: Accruals and Deferrals