Deck 5: Accrual Accounting Adjustments

Question 1

If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account,which of the following describes the effect of the debit portion of the entry?

A) It increases the balance of a contra asset account.
B) It increases the balance of an asset account.
C) It decreases the balance of an asset account.
D) It increases the balance of an expense account.

Answer 1

D

Question 2

Which of the following does NOT appear in the balance sheet?

A) commission payable
B) prepaid commission
C) commission revenue received in advance
D) commission revenue.

Answer 2

D

Question 3

The Supplies account has a balance of $750 at the beginning of the year and was debited during the year for $2800,representing the total of supplies purchased during the year.If $950 of supplies is on hand at the end of the year,the supplies expense to be reported on the profit and loss statement for the year is:

A) $750
B) $950
C) $2600
D) $4500.

Answer 3

C

Question 4

What is the journal entry made by Video Manufactures Ltd on 30 June 2012?

A) DR Warranty liability
CR Cash
B) DR Warranty liability
CR Warranty expense
C) DR Warranty expense
CR Warranty liability
D) DR Warranty liability
CR Cash

Question 5

What is the journal entry made by the consultant on 29 August 2012?

A) DR Cash
CR Accounts receivable
B) DR Cash
CR Service revenue
C) DR Accounts receivable
CR Cash
D) DR Service revenue
CR Accounts receivable

Question 6

Which of the following would be recorded as an asset?

A) prepayments
B) accrued expenses
C) revenue received in advance
D) net profit.

Question 7

Which of the following cash flows involve revenues or expenses?

A) payment of dividend
B) cash purchase of building
C) issue of shares for cash
D) net profit.

Question 8

What is the journal entry made by Albion Ltd on 15 December 2012?

A) DR Income tax expense
CR Income tax payable
B) DR Income tax payable
CR Cash
C) DR Income tax expense
CR Cash
D) DR Income tax payable
CR Income tax expense

Question 9

In 2011,Zealous Ltd paid $1900 for 2010 expenses,$32 000 for 2011 expenses and $4000 advance payment for 2012 expenses.In 2012,it paid $8000 for 2011 expenses.Furniture depreciation for 2011 was $5000.What was the accrual accounting expense for 2011?

A) $37 000
B) $40 000
C) $50 900
D) $45 000.

Question 10

At the end of the financial year,the usual adjusting entry for depreciation on equipment was omitted.Which of the following statements is true?

A) Total assets will be understated at the end of the current year.
B) The balance sheet and profit and loss statement will be incorrectly stated but equity will be correct for the current year.
C) Net profit will be overstated for the current year.
D) Total liabilities and total assets will be understated.

Question 11

What is the journal entry made by the client on 30 June 2012?

A) DR Accounts payable
CR Accounting expenses
B) DR Accounting expenses
CR Accounts payable
C) DR Accounting expenses
CR Cash
D) DR Accounts payable
CR Cash

Question 12

What is the journal entry made by the client on 29 August 2012?

A) DR Accounting expenses
CR Cash
B) DR Cash
CR Accounting expenses
C) DR Accounting expenses
CR Accounts payable
D) DR Accounts payable
CR Cash

Question 13

What is the journal entry made by Video Manufactures Ltd on 7 October 2012?

A) DR Warranty expense
CR Warranty liability
B) DR Warranty liability
CR Warranty expense
C) DR Warranty liability
CR Cash
D) DR Cash
CR Warranty liability

Question 14

What is the correct adjusting entry at June 30,the end of the financial year,based on a supplies account balance,before adjustment,of $5200,and supplies inventory,on June 30,of $1200?

A) DR Supplies
$1200
CR Supplies expense
$1200
B) DR Supplies expense
$1200
CR Supplies
$1200
C) DR Supplies expense
$4000
CR Supplies
$4000
D) DR Supplies
$4000
CR Supplies expense
$4000

Question 15

Which of the following would be recorded as an asset?

A) prepayments
B) accrued expenses
C) revenue received in advance
D) net profit.

Question 16

The balance in the prepaid rent account before adjustment at the end of the year is $15 000,which represents three months' rent paid on May 1.The adjusting entry required on June 30 is:

A) DR Rent expense
$10 000
CR Prepaid rent
$10 000
B) DR Rent expense
$5000
CR Prepaid rent
$5000
C) DR Prepaid rent
$10 000
CR Rent expense
$10 000
D) DR Prepaid rent
$5000
CR Rent expense
$5000

Question 17

Which of the following entries is an example of asset consumption recognised over future time periods?

A) DR Warranty expense
CR Warranty liability
B) DR Supplies expense
CR Supplies inventory
C) DR Customer deposits
CR Service revenue
D) DR Supplies inventory
CR Supplies expense

Question 18

What is the journal entry made by the consultant on 30 June 2012?

A) DR Service revenue
CR Accounts payable
B) DR Accounts receivable
CR Cash
C) DR Accounts receivable
CR Service revenue
D) DR Cash
CR Service revenue

Question 19

Which of the following entries is NOT an example of asset consumption,recognised over future time periods?

A) DR Salaries expense
CR Cash
B) DR Depreciation expense
CR Accumulated depreciation
C) DR Insurance expense
CR Prepaid insurance
D) DR Cost of goods sold
CR Inventory

Question 20

What is the journal entry made by Albion Ltd on 30 June 2012?

A) DR Income tax payable
CR Income tax expense
B) DR Income tax expense
CR Cash
C) DR Income tax payable
CR Cash
D) DR Income tax expense
CR Income tax payable

Question 21

Which of the following entries records the receipt of cash for 3 months' rent? The cash was received in advance of providing the service.

A) DR Cash
CR Rent revenue
B) DR Cash
CR Unearned revenue
C) DR Cash
CR Prepaid rent
D) DR Cash
CR Rent expense

Question 22

On 1 May 2011 A Ltd pays $9600 for a one-year fire insurance policy that expires on 30 April 2012.What is the journal entry made by A Ltd on 30 June 2011?

A) DR Insurance expense $1600
CR Prepaid insurance $1600
B) DR Prepaid insurance $9600
CR Cash $9600
C) DR Prepaid insurance $1600
CR Insurance expense $1600
D) DR Insurance expense $9600
CR Prepaid insurance $9600

Question 23

If the Prepaid Rent account before adjustment at the end of the month has a debit balance of $1500,representing a payment made on the first day of the month,and if the monthly rent was $1000,the amount of prepaid rent that would appear on the balance sheet at the end of the month,after adjustment,is:

A) $500
B) $1000
C) $1500
D) $2500.

Question 24

A company had office supplies costing $50 at 1 July 2011.Purchases during the year amounted to $420 and a stocktake at 30 June 2009 disclosed supplies valued at $90.What is the amount to be debited to supplies expense account at 30 June 2012?

A) $50
B) $380
C) $420
D) $460.

Question 25

What is the journal entry made by Data Ltd on 30 June 2011?

A) DR Prepaid insurance $480
CR Cash $480
B) DR Prepaid insurance $80
CR Insurance expense $80
C) DR Insurance expense $480
CR Prepaid insurance $480
D) DR Insurance expense $80
CR Prepaid insurance $80

Question 26

A payment for insurance on 1 June for $60 000,covering the period 1 June 2008 to 31 May 2009,was recorded as a prepayment.No adjusting entry was made at 30 June 2009.As a result:

A) profit and total assets were understated by $5000
B) profit and total assets were understated by $55 000
C) profit was overstated by $5000 and assets understated by $5000
D) profit was understated by $5000 and assets overstated by $5000
E) assets overstated by $5 000 and net profit overstated by $5000.

Question 27

Which of the following will appear on Data Ltd's balance sheet at 30 June 2011?

A) prepaid insurance $480
B) prepaid insurance $400
C) prepaid insurance $80
D) insurance expense $80.

Question 28

Which of the following statements about prepaid expenses is NOT true?

A) Prepaid expenses arise because an expenditure has been made,but there is still value extending into the future.
B) Prepaid expenses are expenses that have been incurred during the current period,but will not be paid until the following period.
C) Prepaid expenses are usually classified as current assets.
D) Prepaid expenses arise when the payment schedule for an expense doesn't match the company's fiscal period.

Question 29

H Ltd pays salaries each Friday afternoon to cover the previous five working days (up to and including Friday).The weekly wages bill is $500 000.The end of the accounting period falls on a Monday.The adjusting journal entry will be:

A) DR Wages expense $50 000
CR Accrued wages $50 000
B) DR Wages expense $100 000
CR Accrued wages $100 000
C) DR Accrued wages $50 000
CR Wages expense $50 000
D) DR Wages expense $400 000
CR Accrued wages $400 000

Question 30

What is the journal entry made by the surveyor on 15 September 2012?

A) DR Cash
CR Unearned revenue
B) DR Unearned revenue
CR Cash
C) DR Cash
CR Surveying revenue
D) DR Customer deposits
CR Unearned revenue

Question 31

Brown Ltd has a $22 000 balance in its unearned service revenue account.Where would this account appear in the financial statements?

A) It would appear as revenue in the income statement.
B) It would appear as a current asset in the balance sheet.
C) It would appear as a current liability in the balance sheet.
D) It would not appear in the balance sheet.

Question 32

Able Ltd operates on a five-day working week.Employees are paid on Thursday for work completed to Wednesday.The weekly wages bill is $40 000.If 30 June 2012 fell on a Tuesday,what was the accrued wages payable on 30 June 2012?

A) $8000
B) $16 000
C) $32 000
D) $24 000.

Question 33

What is the journal entry made by Data Ltd on 1 May 2011?

A) DR Insurance expense $80
CR Prepaid insurance $80
B) DR Insurance expense $480
CR Prepaid insurance $480
C) DR Prepaid insurance $480
CR Cash $480
D) DR Insurance expense $480
CR Cash $480

Question 34

On 1 July 2011,Green Ltd had office supplies costing $20 000.During the year ended 30 June 2012,the company purchased supplies costing $32 000.Of these,$4000 worth was returned to the supplier as unsatisfactory.At 30 June 2012,it was ascertained that $7000 worth of the supplies remained unused.What was the value of Green Ltd's office supplies expense for year ended 30 June 2012?

A) $7000
B) $41 000
C) $45 000
D) $25 000.
)

Question 35

T Ltd paid $240 000 in wages during the year.The opening balance of accrued wages was $8000 and the closing balance was $10 000.What was the wages expense for the year?

A) $238 000
B) $240 000
C) $242 000
D) $248 000.

Question 36

On 27 September 2012,a builder received an advance of $50 000 from a client for future work.The work was completed to the client's satisfaction on 3 December 2012.What is the journal entry made by the builder on 3 December 2012?

A) DR Cash
CR Unearned revenue
B) DR Accrued revenue
CR Sales revenue
C) DR Unearned revenue
CR Sales revenue
D) DR Sales revenue
CR Unearned revenue

Question 37

The supplies account has a balance of $975 at the beginning of the year and was debited during the year for $2800,representing the total of supplies purchased during the year.If $750 of supplies is on hand at the end of the year,the supplies expense to be reported on the profit and loss statement for the year is:

A) $750
B) $975
C) $2800
D) $3025.

Question 38

On 1 May 2012,A Ltd pays $9600 for a one-year fire insurance policy that expires on 30 April 2013.Which of the following will appear on A Ltd's balance sheet at 30 June 2012?

A) prepaid insurance $1600
B) prepaid insurance $8000
C) prepaid insurance $9600
D) prepaid insurance $8800.

Question 39

What is the journal entry made by the surveyor on 10 October 2012?

A) DR Cash
CR Unearned revenue
B) DR Accrued revenue
CR Surveying revenue
C) DR Unearned revenue
CR Surveying revenue
D) DR Surveying revenue
CR Unearned revenue

Question 40

On 30 August 2012,a accountant received an advance of $50 000 from a client for future work.The work was completed to the client's satisfaction on 10 November 2012.What is the journal entry made by the builder on 20 October 2012?

A) DR Cash
CR Unearned revenue
B) DR Unearned revenue
CR Cash
C) DR Cash
CR Sales revenue
D) DR Customer deposits
CR Unearned revenue

Question 41

Which of the following statements about the allowance for doubtful debts account is NOT true?

A) The allowance for doubtful debts account is a contra asset account.
B) Writing off an account as irrecoverable results in an expense.
C) The expense from bad debts is effectively matched with the revenue to which it relates.
D) When an account is written off as a bad debt,the net realisable value of accounts receivable is unchanged.

Question 42

A business pays weekly salaries of $25 000 on Friday for a five-day week ending on that day.The adjusting entry necessary at the end of the financial period ending on Wednesday is:

A) DR Salaries payable
$15 000
CR Cash
$15 000
B) DR Salary expense
$15 000
CR Salaries payable
$15 000
C) DR Salary expense
$10 000
CR Salaries payable
$10 000
D) DR Salaries payable
$10 000
CR Cash
$10 000

Question 43

The allowance for doubtful debts account would appear in the balance sheet under:

A) current assets
B) current liabilities
C) shareholders' equity
D) property,plant and equipment.

Question 44

The net profit reported on the profit and loss statement is $50 000.However,adjusting entries have not been made at the end of the period for an electricity expense of $500 and accrued salaries of $1300.Net profit should be:

A) $48 200
B) $48 700
C) $50 000
D) $50 500.

Question 45

If a company neglects to make an adjustment for accrued expenses:

A) profit will be overstated and liabilities understated
B) profit will be overstated and liabilities overstated
C) profit will be overstated and assets understated
D) profit will be understated and liabilities overstated.

Question 46

The weekly salaries bill for Credo Ltd is $70 000 for a five-day working week.Employees are paid on Friday for work completed to Thursday.If 30 June 2012 fell on a Wednesday,what would be the accrued salaries payable on 30 June 2012?

A) $42 000
B) $28 000
C) $14 000
D) $56 000.

Question 47

Which of the following is NOT an example of accrued revenue?

A) unbilled revenue
B) customer deposits
C) interest receivable on loans
D) dividends receivable

Question 48

MNO increased its allowance for doubtful debts at year-end.As a result:

A) net profit decreased and cash flow from operations decreased
B) net profit increased and cash flow from operations increased
C) net profit decreased and cash flow from operations was not affected
D) neither net profit nor cash flow from operations was affected.

Question 49

At the end of the financial year,the usual adjusting entry for accrued salaries owed to employees was omitted.Which of the following statements is true?

A) Salary expense for the year was overstated.
B) The total of the liabilities at the end of the year was overstated.
C) Net profit for the year was understated.
D) Shareholders' equity at the end of the year was overstated.

Question 50

Which of the following statements about the allowance for doubtful debts account is true?

A) The allowance for doubtful debts account represents cash available to meet losses incurred when customers are unable to pay their accounts.
B) The allowance for doubtful debts account functions to adjust the net value of accounts receivable down to the lower of cost and current estimated collectable amount.
C) The allowance for doubtful debts account represents the total of accounts considered uncollectable for the current period.
D) None of the above.

Question 51

On 30 June 2012,Video Manufacturers Ltd,which uses accrual accounting,estimates that it will incur warranty costs of $24 000 in the next financial year on products sold during the year just ended.On 7 October 2012,the manufacturer pays $3500 under the warranty.What is the journal entry made by Video Manufacturers Ltd on 30 June 2012?

A) DR Warranty liability
CR Cash
B) DR Warranty liability
CR Warranty expense
C) DR Warranty expense
CR Warranty liability
D) DR Warranty expense
CR Cash

Question 52

The trial balance of Allen Ltd at balance date showed a credit balance of $5000 in the allowance for doubtful debts account.Although the account of a customer standing at $1400 had been determined to be uncollectable,this had not been written off.What was the effect of this neglect on the year-end balance sheet?

A) There was an understatement of total liabilities.
B) There was an overstatement of total assets and shareholders' equity.
C) There was an understatement of total assets and shareholders' equity.
D) There was no effect on total liabilities,assets or shareholders' equity.

Question 53

RST paid $120 000 in wages during the year.The opening balance of accrued wages was $7860 and the closing balance was $8870.What was the wages expense for the year?

A) $118 990
B) $120 000
C) $121 010
D) $128 870.

Question 54

Choo Ltd invested $200 000 with a bank for one year at 12% on 1 September 2011 (interest payable at end of loan).What is the adjusting journal entry at balance date,30 June 2012?

A) DR Accrued revenue
$18 000
CR Interest revenue
$18 000
B) DR Accrued revenue
$20 000
CR Interest revenue
$20 000
C) DR Accrued revenue
$24 000
CR Interest revenue
$24 000
D) DR Unearned revenue
$18 000
CR Interest revenue
$18 000

Question 55

The balance in the allowance for doubtful debts account represents:

A) bad debts written off in the current accounting period
B) liquid funds available to meet losses arising from customers becoming insolvent
C) an amount that is deducted from the Accounts receivable account to reduce it to the estimated realisable value
D) bad debts written off as accounts receivable considered uncollectable.

Question 56

O'Brien Pty Ltd pays salaries on Friday to cover the 5 working days prior to the Friday.The weekly wages bill is $100 000.30 June 2012 falls on a Monday.The adjusting journal entry on 30 June 2012 will be:

A) DR Wages expense
$20 000
CR Accrued wages
$20 000
B) DR Wages expense
$40 000
CR Accrued wages
$40 000
C) DR Accrued wages
$20 000
CR Wages expense
$20 000
D) DR Accrued wages
$40 000
CR Wages expense
$40 000

Question 57

XYZ invested $1 million with a bank for 1 year on 1 May 2012 at 6% (interest payable at end of loan).What is the debit side of the adjusting entry at 30 June 2012?

A) DR Accrued revenue receivable $10 000
B) DR Prepayments $10 000
C) DR Interest revenue $10 000
D) DR Unearned revenue $10 000

Question 58

K Ltd reported beginning and ending balances in the allowance for doubtful debts account of $723 000 and $904 000 respectively.It also reported that write-offs of bad debts amounted to $648 000.Assuming that no previously written-off accounts had been collected,what amount did K Ltd record as bad debt expense for the period?

A) $467 000
B) $648 000
C) $829 000
D) $904 000.

Question 59

What was the net balance sheet value of accounts receivable at year-end following the period-end adjustments?

A) $87 500
B) $85 500
C) $83 125
D) $90 000.

Question 60

Management uses the ageing approach method to calculate the allowance for doubtful debts.An analysis of the ageing of accounts receivable shows a substantial increase in the accounts receivable in the over-90-days category.Management does not adjust the allowance for doubtful debts at year-end.As a result:

A) assets are overstated and net income is overstated
B) assets are overstated and net income is understated
C) assets are understated and net income is overstated
D) assets are understated and net income is understated.

Question 61

Management uses the percentage-of-sales approach method to calculate the allowance for doubtful debts.Management calculated the allowance for doubtful debts on the basis of 2% of sales.However,by year-end it was aware that the rate should have really been 3% of sales.Management does not adjust the allowance for doubtful debts at year-end.As a result:

A) assets are overstated and net profit is overstated
B) assets are overstated and net profit is understated
C) assets are understated and net profit is overstated
D) assets are understated and net profit is understated.

Question 62

Blue Shoes Ltd has gone bankrupt and will not pay $10 000 to XYZ.XYZ has accounts receivable of $12 million and an allowance for doubtful debts of $500 000.XYZ does not adjust its accounts for the $10 000 that will not be paid by Blue Shoes Ltd.Which of the following remarks is true about the financial statements?

A) There is an understatement of net profit.
B) There is an overstatement of total assets and net profit.
C) There is an understatement of total assets and net profit.
D) There is no effect on total liabilities,assets or net profit.

Question 63

At 30 June 2012,MPQ had a balance in accounts receivable of $500 000 and an allowance for doubtful debts of $40 000.It was decided to write off as irrecoverable a debt of X Ltd for $20 000.It was further decided that the allowance for doubtful debts should stand at 10% of accounts receivable.What was the DR side of the journal entry to bring the allowance for doubtful debts to the required level after writing off the debt of X Ltd?

A) DR doubtful debts expense $26 000
B) DR doubtful debts expense $30 000
C) DR doubtful debts expense $28 000
D) DR allowance for doubtful debts $26 000

Question 64

Red Shoes Ltd has gone bankrupt and will not pay $10 000 to XYZ.XYZ has accounts receivable of $12 million and an allowance for doubtful debts of $500 000.XYZ does not adjust the accounts for the $10 000 that will not be paid by Red Shoes Ltd.Which of the following statements is true about the balance sheet of XYZ?

A) Total assets are overstated.
B) Total assets are understated.
C) Net accounts receivable is correctly stated.
D) Net accounts receivable is understated.