Deck 4: Adjustments, financial Statements, and Financial Results

Question 1

A deferral adjustment that decreases an asset will include an increase in an expense.

Answer 1

True

Question 2

An accrual adjustment that increases an asset will include an increase in an expense.

Answer 2

False

Question 3

Corporate income taxes have to be calculated before all other adjustments are made.

Answer 3

False

Question 4

Depreciation expense represents the use of part of the value of an asset until it has no remaining market value.

Question 5

Adjustments ensure that the related accounts on the balance sheet are up to date and complete.

Question 6

Adjustments are needed to ensure that the accounting system records all of the revenues and expenses that relate to that period.

Question 7

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

Question 8

The primary purpose of the adjusted trial balance is to see whether revenues are greater than expenses.

Question 9

Adjustments are only made if cash has been received or paid during the period.

Question 10

Trial balances are prepared after the financial statements to verify that the numbers are accurate.

Question 11

The adjusted trial balance shows the end-of-year balance for Retained Earnings.

Question 12

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

Question 13

All real accounts will have zero balances when the closing process is complete.

Question 14

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.

Question 15

Prior to calculating income tax expense,adjustments to all revenue and expense accounts have to be made.

Question 16

Adjusting journal entries never affect the cash account.

Question 17

If a company has a net loss during the current accounting period,then the post-closing retained earnings will be smaller than the pre-closing retained earnings.

Question 18

A contra account is added to the account it offsets.

Question 19

As a company uses supplies,an adjustment should be made to decrease an asset account and increase an expense account as it represents the use of a resource (asset).

Question 20

In general,adjusting journal entries improve the usefulness of the financial reports.

Question 21

Deferral adjustments are needed when a company has earned revenue or incurred an expense in the current period but has not yet recorded it because the related cash will not be received or paid until a later period.

Question 22

When closing journal entries are prepared,retained earnings is credited if a company has a net loss.

Question 23

Deferral adjustments impact an asset and revenue account,or a liability and expense account.

Question 24

An adjusted trial balance presents account balances in the same level of detail as the financial statements.

Question 25

Closing journal entries are only recorded at the end of each accounting year.

Question 26

Accrual adjustments impact an asset and revenue account,or a liability and expense account.

Question 27

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

Question 28

After closing entries are posted,the balances of the income statement accounts will be zero.

Question 29

Under IFRS and ASPE,companies are required to wait until the end of the accounting period to adjust their accounts.

Question 30

Revenue and expense accounts are permanent accounts because they always appear on the income statement.

Question 31

Financial statements are prepared only after the trial balance has shown that debits equal credits.

Question 32

A post-closing trial balance should be prepared before temporary accounts are closed.

Question 33

Adjustments are entries made at the end of every accounting period to report revenues and expenses at the appropriate amounts and assets and liabilities in the appropriate period.

Question 34

If an expense has been incurred but will be paid later,then:

A)nothing is recorded on the financial statements.
B)a liability account is created or increased and an expense is recorded.
C)an asset account is decreased or eliminated and an expense is recorded.
D)a revenue and an expense are recorded.

Question 35

The carrying value of an asset is known as net book value.

Question 36

If certain assets are partially used up during the accounting period,then:

A)nothing is recorded on the financial statements until they are completely used up.
B)a liability account is decreased or eliminated and an expense is recorded.
C)an asset account is decreased or eliminated and an expense is recorded.
D)nothing is recorded on the financial statements until they are replaced or replenished.

Question 37

Adjusting journal entries always include one balance sheet and one income statement account.

Question 38

Determining the necessary adjustments to make to the accounting records is referred to as journalizing.

Question 39

When closing out accounts,the amount debited to retained earnings should equal net loss on the income statement.

Question 40

Accrual adjustments impact both an income and balance sheet account,whereas deferral adjustments impact multiple accounts on one financial statement.

Question 41

An adjusting journal entry that includes an increase to a contra-asset account would include an increase in a(n):

A)related asset account.
B)liability account.
C)revenue account.
D)expense account.

Question 42

When the future benefits of existing assets are used up in the ordinary course of business:

A)an expense is recorded.
B)a loss is recorded.
C)a credit to a liability is recorded.
D)a debit to assets is recorded.

Question 43

A company has an asset account,Prepaid Utilities,with a balance of $3,750 at the beginning of the month.The company used $980 of utilities during the month.Which of the following statements is true?

A)The company should credit Utility Expenses for $980 and debit Prepaid Utilities for $980.
B)Retained earnings and shareholders' equity should decrease because of this transaction.
C)The company should credit Accrued Liabilities for $980 and debit Utility Expenses for $980.
D)Retained earnings and shareholders' equity should be unchanged by this transaction.

Question 44

Purrfect Pets had $6,000 of supplies at the end of October.During November,the company bought $2,000 of supplies.At the end of November,the company had $1,000 of supplies remaining.Which of the following statements is not true?

A)During November,the company used $7,000 of supplies.
B)The carrying value of supplies on November 30 should be $1,000.
C)An expense should be debited for $7,000 in November.
D)An expense should be debited for $1,000 in November. 6000 + 2000 - 1,000 = 7000 supplies used.

Question 45

During the month,a company uses up $4,000 of supplies.At the end of the month,the related adjusting journal entry would result in:

A)a decrease in an asset and an equal increase in liabilities.
B)an increase in liabilities and an equal decrease in shareholders' equity.
C)a decrease in an asset and an equal increase in expenses.
D)an increase in liabilities and a loss of equal value.

Question 46

The company uses up $5,000 of the book value of an existing asset.The company adjusts its accounts accordingly.Which of the following is a true statement?

A)This is an accrual adjustment.
B)This is a closing adjustment.
C)This is a deferral adjustment.
D)The adjustment should not have been made.

Question 47

On December 31,a decision is made to accrue an expense and report a current liability.How many accounts will be included in this journal entry?

A)None.
B)One.
C)Two.
D)Three.

Question 48

One major difference between deferral and accrual adjustments is:

A)accrual adjustments are influenced by estimates of future events and deferral adjustments are not.
B)deferral adjustments are made before taxes and accrual adjustments are made after taxes.
C)deferral adjustments are made monthly and accrual adjustments are made annually.
D)accounts affected by an accrual adjustment always go in the same direction (i.e.,both accounts are increased or both accounts are decreased)and accounts affected by a deferral adjustment always go in opposite directions.

Question 49

Declared dividends:

A)are an expense of doing business.
B)are not a legal obligation that a company must pay.
C)are a way to distribute the company's profits to its shareholders.
D)are not recorded as a liability because they are not an expense of doing business.

Question 50

A company has a loan that accrues interest at a rate of $20 a day.The company pays the interest once a quarter.Which of these would be an accurate adjustment for a month in which no payments are made?

A)Debit Interest Payable and credit Interest Expense.
B)Debit Loans Payable and credit Cash.
C)Debit Interest Expense and credit Interest Payable.
D)Debit Cash and credit Loans Payable.

Question 51

A company makes a deferral adjustment that reduces a liability.This must mean:

A)an asset account is decreasing by the same amount.
B)an expense account is increasing by the same amount.
C)a revenue account is increasing by the same amount.
D)a different liability account is decreasing by the same amount.

Question 52

At the end of the month,the adjusting journal entry to record the use of supplies would include:

A)A debit to supplies and a credit to expenses.
B)A credit to supplies and a debit to expenses.
C)A debit to supplies and a credit to revenue.
D)A credit to supplies and a debit to cash.

Question 53

Accumulated Depreciation:

A)is an expense account.
B)is a liability account.
C)is a regular asset account
D)is a contra-asset account.

Question 54

Purrfect Pets had income before income tax of $164,000 last quarter and a 34% tax rate.Its net income should be reported as:

A)$55,760.
B)$108,240.
C)$(55,760).
D)$248,485.

Question 55

Which of the following is not the value at which an asset is reported on a financial statement?

A)the carrying value.
B)the book value.
C)the net book value.
D)the depreciated Value.

Question 56

Which of these accounts would normally not be affected by an adjustment?

A)Supplies.
B)Revenues.
C)Expenses.
D)Cash.

Question 57

One major difference between deferral and accrual adjustments is:

A)deferral adjustments involve previously recorded transactions and accruals involve new transactions.
B)deferral adjustments are made after taxes and accrual adjustments are made before taxes.
C)deferral adjustments are made annually and accrual adjustments are made monthly.
D)deferral adjustments are influenced by estimates of future events and accrual adjustments are not.

Question 58

A company owes rent at a rate of $6,000 per month.The company pays the rent owed on the tenth of each month for the previous month.At the end of each month,what kind of adjustment is required?

A)An accrual adjustment.
B)A comparative adjustment.
C)A deferral adjustment.
D)A matching adjustment.

Question 59

Accrual adjustments link:

A)assets and revenues moving in the same direction or liabilities and expenses moving in the same direction.
B)assets and expenses moving in the same direction or liabilities and revenues moving in the same direction.
C)assets and revenues moving in the opposite direction or liabilities and expenses moving in the opposite direction.
D)assets and expenses moving in the opposite direction or liabilities and revenues moving in the opposite direction.

Question 60

To calculate the company's income tax expense for the current period,it is necessary to know:

A)the company's operating revenue and tax bill from prior periods.
B)the company's income before income taxes and the company's tax rate.
C)the company's operating expenses and revenue.
D)the company's net income from the previous period and the current tax rate.

Question 61

If total debits are not equal to total credits in a trial balance,which of the following errors may have occurred?

A)Posting Wage Expense to Administrative Expenses.
B)Debiting Accrued Interest instead of debiting Interest Expense.
C)Debiting Notes Payable instead of debiting Interest Expense.
D)Posting a credit to Accounts Payable as a debit.

Question 62

Your business purchased a certificate of deposit on April 1 that will pay $90 interest three months from that date.On April 30,which of the following adjusting journal entries would be made?

A)Debit Interest Receivable for $90; credit Interest Revenue for $90.
B)Debit Interest Revenue for $60; credit Interest Receivable for $60.
C)Debit Interest Receivable for $30; credit Interest Revenue for $30.
D)Debit Interest Revenue for $30; credit Interest Receivable for $30.

Question 63

A company pays wages every two weeks.Wages amount to $100 a day.On March 31,the company pays wages for the two weeks ending March 24.At the end of the month,the related adjusting journal entry will include a

A)debit to Retained Earnings for $700 and a credit to Cash for $700.
B)debit to Wage Expense for $700 and a credit to Wages Payable for $700.
C)debit to Wages Payable for $700 and a credit to Cash for $700.
D)debit to Retained Earnings for $700 and a credit to Wages Payable for $700.

Question 64

Companies that make honest,but optimistic,adjusting entries that lead to a higher net income are said to:

A)report "higher quality" earnings.
B)report "lower quality" earnings.
C)have "defensive" management.
D)have "regressive" management.

Question 65

In a trial balance a contra-account appears:

A)just before the account it offsets but in the opposite column.
B)just after the account it offsets and in the same column.
C)just after the account it offsets but in the opposite column.
D)just before the account it offsets and in the same column.

Question 66

At the end of the month,the adjusting journal entry relating to the use of supplies would include a:

A)debit to Supplies and a credit to Supplies Expense.
B)credit to Supplies and a debit to Supplies Expense.
C)debit to Supplies and a credit to a revenue account.
D)credit to Supplies and a debit to Cash.

Question 67

One of the major advantages of making adjustments in order to improve the quality of financial statements is that they:

A)ensure that revenues and expenses are recognized during the period they are earned and incurred.
B)ensure that all estimates of future activities are eliminated from consideration.
C)ensure that revenues and expenses are recognized conservatively during the period they are paid.
D)all of the answers are acceptable.

Question 68

When a dividend has been declared but not yet paid

A)assets will increase and shareholders' equity will decrease.
B)assets will decrease and shareholders' equity will increase.
C)the balance sheet will not change until the dividend is paid.
D)liabilities will increase and shareholders' equity will decrease.

Question 69

If a company reports sales in the current period when management knows it has little chance of collecting payment from customers,it would fraudulently increase:

A)Deferred Revenue.
B)revenue in the current period.
C)net expenses in the current period.
D)all of the answers are acceptable.

Question 70

Which of the following would appear in the debit column of an adjusted trial balance?

A)Service revenue.
B)Prepaid rent.
C)Accumulated depreciation.
D)Contributed capital.

Question 71

Which of the following would appear in the credit column of an adjusted trial balance?

A)Income tax payable.
B)Cost of goods sold.
C)Prepaid insurance.
D)Interest receivable.

Question 72

Which of the following is done last at the end of the year?

A)Prepare adjusting journal entries.
B)Prepare an Adjusted Trial Balance
C)Prepare closing journal entries.
D)Prepare a post-closing trial balance.

Question 73

Recording an adjusting journal entry to recognize depreciation would cause which of the following?

A)An increase in liabilities and expenses,and a decrease in shareholders' equity.
B)A decrease in assets,and an increase in expenses.
C)A decrease in assets,an increase in liabilities,and an increase in expenses.
D)None of the answers are acceptable.

Question 74

Which of the following is done first at the end of each accounting period?

A)Prepare adjusting journal entries.
B)Prepare a post closing trial balance.
C)Prepare closing journal entries.
D)Prepare the statement of retained earnings.

Question 75

Your business declared a $200 dividend on August 31,payable in September.On August 31,which of the following adjusting journal entries would be made?

A)Debit Dividends Receivable for $200; credit Dividends Declared for $200.
B)Debit Dividends Declared for $200; credit Dividends Payable for $200.
C)Debit Dividends Payable for $200; credit Dividends Declared for $200.
D)Debit Dividends Declared for $200; credit Dividends Receivable for $200.

Question 76

The equality of recorded debits and credits is checked by preparing a(n):

A)journal entry analysis.
B)trial balance.
C)adjusted income statement.
D)statement of cash flows.

Question 77

Which of the following statements about an adjusted trial balance is true?

A)Debits should equal credits both before and after adjustments are made.
B)Debits will equal credits after adjustments are made but not necessarily before.
C)Debits will equal credits before adjustments are made but not necessarily after.
D)Debits do not have to equal credits in the trial balance but they will in the income statement.

Question 78

An adjusted trial balance should be prepared immediately:

A)after posting normal journal entries.
B)before analyzing transactions.
C)after posting adjusting journal entries.
D)after posting closing journal entries.

Question 79

The new CEO of the company takes over on December 10,2017.He is promised a significant bonus for every percent he can raise net income in 2018 over 2017 results.Which of the following adjustments would aid him in making 2018 results look the most impressive?

A)Allocating more of the cost of machinery to depreciation expense in 2018 than in 2017.
B)Prepaying 2019 expenses in 2017 and deferring 2018 revenues to 2019.
C)Deferring 2018 expenses to 2019 and accruing revenues in 2018 that have not yet been earned.
D)All of the answers are acceptable.

Question 80

Contra-accounts:

A)are used to increase the original value of the account they offset.
B)always appear in the same column of the trial balance as the account they offset.
C)always reduce the account they offset.
D)Always increase the account they offset.