Deck 4: Adjusting the Accounts

Question 1

The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same.

Answer 1

False

Question 2

The revenue recognition principle dictates that revenue should be recognized in the accounting records

A)when cash is received.
B)when it is earned.
C)at the end of the month.
D)in the period that income taxes are paid.

Answer 2

C

Question 3

Accrued revenues are revenues which have been received but not yet earned.

Answer 3

False

Question 4

Under the accrual basis of accounting

A)cash must be received before revenue is recognized.
B)net income is computed by
C)events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
D)the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.

Question 5

The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset.

Question 6

Arnold's Asian Restaurant Company purchased office supplies costing $5,000 and debited Office Supplies for the full amount.At the end of the accounting period, a physical count of office supplies revealed $1,500 still on hand.The appropriate adjusting journal entry to be made at the end of the period would be

A)Debit Office Supplies Expense, $1,500; Credit Office Supplies, $1,500.
B)Debit Office Supplies, $3,500; Credit Office Supplies Expense, $3,500.
C)Debit Office Supplies Expense, $3,500; Credit Office Supplies, $3,500.
D)Debit Office Supplies, $1,500; Credit Office Supplies Expense, $1,500.

Question 7

Accumulated Depreciation is a liability account and has a credit normal account balance.

Question 8

An adjusting entry

A)affects two balance sheet accounts.
B)affects two income statement accounts.
C)affects a balance sheet account and an income statement account.
D)is always a compound entry.

Question 9

In a service-type business, revenue is considered earned

A)at the end of the month.
B)at the end of the year.
C)when the service is performed.
D)when cash is received.

Question 10

In general, the shorter the time period, the difficulty of making the proper adjustments to accounts

A)is increased.
B)is decreased.
C)is unaffected.
D)depends on if there is a profit or loss.

Question 11

Accrued revenues are revenues that have been earned and received before financial statements have been prepared.

Question 12

The fiscal year of a business is usually determined by

A)the IRS.
B)a lottery.
C)the business.
D)the SEC.

Question 13

A company spends $2 million dollars to build a restaurant.Over what period should the cost be written off?

A)When the $2 million is expended in cash
B)All in the first year
C)Over the useful life of the building
D)After $2 million in revenue is earned

Question 14

Accounts often need to be adjusted because

A)there are never enough accounts to record all the transactions.
B)many transactions affect more than one time period.
C)there are always errors made in recording transactions.
D)management can't decide what they want to report.

Question 15

Expense recognition often follows revenue recognition.

Question 16

A catering company supplies food for a large event for $20,000 on October 30.The customer is sent a statement on November 5 and a check is received on November 10.The catering company follows GAAP and applies the revenue recognition principle.When is the $20,000 considered to be earned?

A)November 5
B)November 10
C)October 30
D)November 1

Question 17

Management usually desires ________ financial statements and the IRS requires all businesses to file _________ tax returns.

A)annual, annual
B)monthly, annual
C)quarterly, monthly
D)monthly, monthly

Question 18

Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal.

Question 19

An adjusting entry always involves two balance sheet accounts.

Question 20

The time period assumption is often referred to as the

Question 21

A new accountant working for Frenchies Catering Company records $1,000 Depreciation Expense on service equipment as follows: Dr.Depreciation Expense 1,000
Cr) Cash 1,000
The effect of this entry is to

A)adjust the accounts to their proper amounts on December 31.
B)understate total assets on the balance sheet as of December 31.
C)overstate the book value of the depreciable assets at December 31.
D)understate the book value of the depreciable assets as of December 31.

Question 22

Accrued expenses are

A)paid and recorded in an asset account before they are used or consumed.
B)paid and recorded in an asset account after they are used or consumed.
C)incurred but not yet paid or recorded.
D)incurred and already paid or recorded.

Question 23

Accrued revenues are

A)received and recorded as liabilities before they are earned.
B)earned and recorded as liabilities before they are received.
C)earned but not yet received or recorded.
D)earned and already received and recorded.

Question 24

If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period, then failure to make an adjusting entry will cause

A)assets to be understated.
B)assets to be overstated.
C)expenses to be understated.
D)contra-expenses to be overstated.

Question 25

Teresa White has performed $900 of CPA services for a country club but has not billed the club as of the end of the accounting period.What adjusting entry must Teresa make?

A)Debit Cash and credit Unearned Service Revenue
B)Debit Accounts Receivable and credit Unearned Service Revenue
C)Debit Accounts Receivable and credit Service Revenue
D)Debit Unearned Service Revenue and credit Service Revenue

Question 26

Depreciation expense for a period is computed by taking the

A)original cost of an asset - accumulated depreciation.
B)depreciable cost ÷ depreciation rate.
C)cost of the asset ÷ useful life.
D)market value of the asset ÷ useful life.

Question 27

An accounting period that is one year in length is referred to as a ______________ year.

Question 28

The accounts of a business before an adjusting entry is made to record an accrued revenue reflect an

A)understated liability and an overstated revenue.
B)overstated asset and an understated revenue.
C)understated expense and an overstated revenue.
D)understated asset and an understated revenue.

Question 29

The ______________ assumption states that the economic life of a business can be divided into artificial time periods.

Question 30

Brown Management received a check for $24,000 on July 1, which represents a 12-month advance payment of rent on a restaurant it rents to a client.Unearned Rent was credited for the full $24,000.Financial statements will be prepared on July 31.Brown Management should make the following adjusting entry on July 31:

A)Debit Unearned Rent, $2,000; Credit Rent Revenue, $2,000.
B)Debit Rent Revenue, $2,000; Credit Unearned Rent, $2,000.
C)Debit Unearned Rent, $12,000; Credit Rent Revenue, $12,000.
D)Debit Cash, $12,000; Credit Rent Revenue, $12,000.

Question 31

Prepaid expenses are

A)paid and recorded in an asset account before they are used or consumed.
B)paid and recorded in an asset account after they are used or consumed.
C)incurred but not yet paid or recorded.
D)incurred and already paid or recorded.

Question 32

Accumulated Depreciation is a(n)

A)expense account.
B)stockholders' equity account.
C)liability account.
D)contra asset account.

Question 33

The Latin Restaurant purchased $5,000 worth of laundry supplies on July 2 and recorded the purchase as an asset.On June 30, an inventory of the laundry supplies indicated only $2,000 on hand.The adjusting entry that should be made by the hotel on July 30 is

A)Debit Laundry Supplies Expense, $2,000; Credit Laundry Supplies, $2,000.
B)Debit Laundry Supplies Expense, $3,000; Credit Laundry Supplies, $2,000.
C)Debit Laundry Supplies, $3,000; Credit Laundry Supplies Expense, $3,000.
D)Debit Laundry Supplies Expense, $3,000; Credit Laundry Supplies, $3,000.

Question 34

Unearned revenues are

A)received and recorded as liabilities before they are earned.
B)earned and recorded as liabilities before they are received.
C)earned but not yet received or recorded.
D)earned and already received and recorded.

Question 35

The Rose Bakery purchased a computer for $4,000 on December 1.It is estimated that annual depreciation on the computer will be $800.If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

A)Debit Depreciation Expense, $800; Credit Accumulated Depreciation, $800.
B)Debit Depreciation Expense, $67; Credit Accumulated Depreciation, $567.
C)Debit Depreciation Expense, $3,200; Credit Accumulated Depreciation, $3,200.
D)Debit Office Equipment, $4,800; Credit Accumulated Depreciation, $4,800.

Question 36

An adjusted trial balance

A)is prepared after the financial statements are completed.
B)proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
C)is a required financial statement under generally accepted accounting principles.
D)cannot be used to prepare financial statements.

Question 37

Which of the following reflect the balances of prepayment accounts prior to adjustment?

A)Balance sheet accounts are understated and income statement accounts are understated.
B)Balance sheet accounts are overstated and income statement accounts are overstated.
C)Balance sheet accounts are overstated and income statement accounts are understated.
D)Balance sheet accounts are understated and income statement accounts are overstated.

Question 38

A gift shop, located in a hotel, signs a three-month note payable to help finance increases in inventory for the Christmas shopping season.The note is signed on November 1 in the amount of $60,000 with annual interest of 12%.What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?

A) Interest Expense.................... $\quad$ 1,200
$\quad$ Interest Payable......................... $\quad$ $\quad$ $\quad$ 1,200
B) Interest Expense................... $\quad$ 1,800
$\quad$ Interest Payable........................ $\quad$ $\quad$ $\quad$ 1,800
C) Interest Expense................... $\quad$ 1,200
$\quad$ Cash.................................... $\quad$ $\quad$ $\quad$ $\quad$ 1,200
D) Interest Expense................... $\quad$ 1,200
$\quad$ Note Payable......................... $\quad$ $\quad$ $\quad$ $\quad$ 1,200

Question 39

Depreciation is the process of

A)valuing an asset at its fair market value.
B)increasing the value of an asset over its useful life in a rational and systematic manner.
C)allocating the cost of an asset to expense over its useful life in a rational and systematic manner.
D)writing down an asset to its real value each accounting period.

Question 40

Rhapsody Red Restaurant shows a balance in Salaries Payable of $20,000 at the end of the month.The next payroll amounting to $30,000 is to be paid in the following month.What will be the journal entry to record the payment of salaries?

A) Salaries Expanse........................... $\quad$ 30,000
$\quad$ Salaries Payable................................ $\quad$ $\quad$ $\quad$ 30,000
B) Salaries Expense........................... $\quad$ 30,000
$\quad$ Cash ............................................ $\quad$ $\quad$ $\quad$ $\quad$ 30,000

C) Salaries Expense......................... $\quad$ $\quad$ 20,000
$\quad$ Cash............................................. $\quad$ $\quad$ $\quad$ $\quad$ 20,000

C. Salaries Expanse........................ $\quad$ $\quad$ 10,000
$\quad$ Salaries Payable....................... $\quad$ $\quad$ 20,000
$\quad$ Cash.......................................... $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ 30,000

Question 41

Failure to adjust a prepaid expense account for the amount expired will cause _______________ to be understated and ________________ to be overstated.

Question 42

Expenses paid and recorded in an asset account before they are used or consumed are called _______________.Revenue received and recorded as a liability before it is earned is referred to as _________________.

Question 43

In a service company, revenue is earned when the service is _______________.