Question 1

Which of the following is an economic resource that should be depreciated over the accounting periods estimated to be benefited?

Accepted Answer

Only equipment purchased for use in the business operations is an economic resource that should be depreciated over the accounting periods estimated to be benefited. Salaries incurred but unpaid at year-end should be recorded as a liability, rent collected in advance should be recorded as a liability until earned, and interest revenue accrued on investment in bonds should be recorded as revenue when earned.

Question 2

A prepaid expense is

Accepted Answer

A prepaid expense is an item of goods or services purchased by the company for use in its operations but not fully consumed by the end of the accounting period. Examples of prepaid expenses include prepaid rent or insurance. These expenses are recorded as assets on the balance sheet and are gradually expensed over time as they are consumed. Options A, C, and D do not accurately reflect the definition of a prepaid expense.

Question 3

Which of the following is a contra account?

Accepted Answer

A contra account is an account that is paired with and offsets another account. Sales Discounts Taken is a contra account because it is paired with the Sales Revenue account and reduces the overall amount of revenue reported on the income statement. The other choices are all regular accounts, not contra accounts.

Question 4

The Cosmo Construction Company received $12, 000 for six months rental income in advance on November 1, 2010, and credited the Rental Revenue account.The required adjusting entry on December 31, 2010, would include a

Accepted Answer

DThe total rental income for six months is $12,000, which means the monthly rent is $2,000 ($12,000 / 6 months). By December 31, 2010, two months have passed, so $4,000 of the rent ($2,000 per month * 2 months) has been earned, leaving $8,000 unearned. The correct adjusting entries would involve recognizing the earned portion and adjusting the unearned portion accordingly. Option B correctly adjusts the Rental Revenue account by debiting it for $8,000, moving it from earned revenue to unearned, reflecting the amount that is still unearned as of December 31. Option D is also correct as it involves debiting Rental Revenue for $4,000, which correctly adjusts the account to reflect the revenue earned for the two months out of the six-month period.

Question 5

An example of a transposition is

Accepted Answer

The answer of An example of a transposition is
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Question 6

Which of the following is a nominal account?

Accepted Answer

Nominal accounts are accounts that are related to expenses, losses, incomes, gains, and revenues. Purchases Returns and Allowances is an account related to losses and expenses, which makes it a nominal account. Retained Earnings, Accounts Receivable, and Accumulated Depreciation are all examples of real accounts.

Question 7

Which accounts are increased with debits?

Accepted Answer

Assets and Cost of Goods Sold are increased with debits, while Dividends Distributed is decreased. Capital Stock is typically increased with credits, and is not included in the answer choices for accounts increased with debits. Liabilities are also typically increased with credits, and Revenue is typically increased with credits as well.

Question 8

Which of the following rules is incorrect?

Accepted Answer

Capital stock accounts are increased by credit entries and decreased by debit entries.

Question 9

When you prepare a journal entry, the standard format is to list all

Accepted Answer

In standard accounting practices, when preparing a journal entry, accounts to be debited are listed first, followed by accounts to be credited. This format helps in maintaining clarity and consistency in financial record-keeping.

Question 10

Which of the following adjusting entries involves the recognition of an accrued expense?

Accepted Answer

Recognition of salaries owed to employees for work done during the current period that will be paid during the next accounting period involves the recognition of an accrued expense. Accrued expense means an expense that has been incurred but not yet paid for. A and D involve the recognition of depreciation and bad debt expenses, respectively, while B involves the recognition of prepaid expenses.

Question 11

Which of the following errors will be detected by a trial balance?

Accepted Answer

A trial balance checks for the equality of debits and credits after posting. It can detect errors in arithmetic or posting, such as incorrectly computing the balance of an account (like the cash account), but it cannot detect errors where a transaction is completely omitted or misclassified between accounts that still balance.

Question 12

Information related to the Franklin Company for the calendar year 2010 follows: $\begin{array}{ll}
\text { Liabilities, December } 31,2010 & \$ 400 \
\text { Assets, December } 31,2010 & 700 \
\text { Dividends clistributed during } 2010 & 90 \
\text { Liabilities, December } 31,2009 & 250 \
\text { Asssets, December } 31,2009 & 350
\end{array}$ Assuming no capital stock was issued during 2010, the net income earned by the Jones Company during 2010 was

Accepted Answer

The net income can be calculated by understanding the change in equity. Equity at the end of 2010 is Assets - Liabilities = $700 - $400 = $300. Equity at the end of 2009 is $350 - $250 = $100. The change in equity is $300 - $100 = $200. However, dividends reduce equity, so to find the net income, add the dividends back to the change in equity: $200 + $90 = $290.

Question 13

On March 31, 2010, the Trident Company purchased a two-year fire insurance policy.Tricot recorded the purchase by debiting Prepaid Insurance and crediting Cash for $12, 000.Which of the following adjusting entries should Trident prepare at the end of 2010?

Accepted Answer

The total cost of the insurance policy is $12,000 for two years, which equals $6,000 per year. By the end of 2010, one year has passed, so $6,000 should be recognized as an expense. The correct entry decreases Prepaid Insurance and increases Insurance Expense by $6,000, which matches option B (though the amount should be $6,000, not $4,500, based on the correct calculation).

Question 14

Adjusting entries are made

Accepted Answer

Adjusting entries are made for all of these reasons. Adjusting entries are made at the end of the accounting period to ensure that the financial statements reflect the correct financial position and results of operations. These entries may include matching the consumption of prepaid assets against current revenues, recording accrued expenses, and recording estimated items such as depreciation.

Question 15

The basic purpose of a trial balance is to

Accepted Answer

The basic purpose of a trial balance is to verify that the total credits equal the total debits, which is necessary for accurate financial statements. A trial balance lists all accounts and their balances, regardless of whether they have a balance or not. It also does not solely serve the purpose of ensuring that all journal entries have been recorded.

Question 16

Which of the following statements regarding a post-closing trial balance is not true?

Accepted Answer

Post-closing trial balances only contain permanent accounts, not temporary accounts. Temporary accounts are closed at the end of the accounting period and their balances are transferred to the retained earnings account.

Question 17

The entire group of accounts for a company is referred to as the

Accepted Answer

The general ledger contains all of the accounts for a company, including their balances and activity. The worksheet is a tool used during the accounting process for adjusting and closing entries. The journal is a record of all financial transactions in chronological order. The document of original entry is the source document used to record a transaction, such as an invoice or receipt.

Question 18

What relationship exists between the general journal and the general ledger?

Accepted Answer

The general journal records all transactions in chronological order, while the general ledger lists all accounts and their balances in a more organized and systematic way. The general ledger contains the same information as in the general journal but in a different format, allowing for easy analysis and review of account balances. Therefore, choice A is the correct answer.

B is incorrect because the balances in the general ledger may not always equal those in the general journal, particularly if there are errors or omissions in either record.

C is also incorrect because the debit balances in the general ledger should always equal the credit balances, by the principles of double-entry accounting.

D is incorrect because the number of accounts in the general journal and the general ledger will depend on the size and complexity of the business and the transactions being recorded. The two records may have different numbers of accounts, but they should still contain the same information.

Question 19

Which of the following is a permanent account?

Accepted Answer

Allowance for Doubtful Accounts is a permanent account because it reflects the historical balance of the company's estimated uncollectible accounts. The other options are temporary accounts because they are closed out at the end of each accounting period.

Question 20

In terms of debits and credits, which types of accounts will have the same (debit or credit)normal balances?

Accepted Answer

Dividends, expenses, and assets typically have debit balances as their normal balance in accounting. Assets increase with debits, expenses are recorded as debits, and dividends (when distributed) are also recorded as debits.

Quiz 3: Review of a Companys Accounting System