Question 1

Which of the following statements regarding the presentation of a trial balance is correct?

Accepted Answer

The order of accounts in a trial balance is typically assets, liabilities, stockholders' equity, dividends, revenues, and expenses.

Question 2

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?

Accepted Answer

The company pays the rent owed on the tenth of each month for the previous month, which means that at the end of each month they have incurred an expense (accrual) that has not yet been paid. To reflect this, an accrual adjustment is required at the end of each month.

Question 3

One major difference between deferral and accrual adjustments is:

Accepted Answer

Deferral adjustments involve adjusting previously recorded transactions (such as prepaid expenses or unearned revenue) to reflect the current accounting period, while accrual adjustments involve recording previously unrecorded events (such as accrued expenses or revenue earned but not yet billed).

Question 4

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?

Accepted Answer

This is a deferral adjustment, specifically a depreciation expense adjustment. The company is recognizing the use of an existing asset over time and reducing its book value accordingly.

Question 5

One major difference between deferral and accrual adjustments is:

Accepted Answer

The answer of One major difference between deferral and accrual...

Question 6

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

Accepted Answer

The answer of A company makes a deferral adjustment that...

Question 7

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

Accepted Answer

When the future benefits of existing assets are used up in the ordinary course of business, it means that the asset has been consumed or exhausted in order to generate revenue. In accounting, this is recognized as an expense, which is recorded in the income statement. Therefore, the correct choice is A.

Question 8

Accrual adjustments link:

Accepted Answer

Accrual adjustments link assets and revenues moving in the same direction or liabilities and expenses moving in the same direction.

Question 9

Which of the following statements regarding timing issues associated with closing entries is true?

Accepted Answer

The answer of Which of the following statements regarding timing...

Question 10

Which of the following statements regarding the effect of a net loss on the closing process is true?

Accepted Answer

If a company has a net loss, the post-closing Retained Earnings will be smaller than the pre-closing Retained Earnings. This is because the net loss will reduce the overall earnings or profit of the company, thus reducing the Retained Earnings amount that is carried forward to the next accounting period. Option B is incorrect because Contributed Capital is not affected by net income/loss and is not included in the closing entries. Option C is incorrect because the Revenue accounts will be credited and the Expense accounts will be debited in the closing entries for a net loss, not the other way around. Option D is incorrect because if a company has a net loss, the amount of expenses being closed will be greater than the amount of revenues being closed, which reflects the reduction in overall earnings.

Question 11

Which of the following statements regarding the adjusted financial results is not true?

Accepted Answer

Adjusting entries are not intended to change the operating results to reflect management's objectives for operating performance. Rather, they are intended to ensure that the financial statements accurately and fairly represent the company's financial position, performance, and cash flows. Adjustments help to correct errors, estimate amounts, and allocate costs, among other things, so that the financial statements can present a more complete and reliable picture of the company's financial activity.

Question 12

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

Accepted Answer

When certain assets are partially used up during the accounting period, an asset account is decreased or eliminated and an expense is recorded to reflect the reduction in value or usefulness of the asset. This is known as depreciation or amortization. Option A, B, and D are incorrect as they do not reflect the proper accounting treatment for using up assets.

Question 13

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

Accepted Answer

If an expense has been incurred but will be paid later, a liability account is created or increased (to reflect the amount owed) and an expense is recorded to recognize the cost incurred. This follows the accrual accounting method, which recognizes expenses when they are incurred, not necessarily when they are paid.

Question 14

Which of the following statements regarding the role of cash in adjusting entries is true?

Accepted Answer

Adjusting journal entries do not affect the cash account. Adjusting entries are made to record transactions or events that have not been captured in the regular recording of transactions during the period. These entries are made to adjust the accounts before preparing the financial statements, but they do not involve the cash account.

Question 15

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

Accepted Answer

The adjusting journal entry to record the use of supplies would involve decreasing the balance of supplies (which is an asset account) and increasing the expenses account. Since expenses is a debit account, a debit entry would be made and since supplies is a credit account, a credit entry would be made. Therefore, option B is the correct answer. Option A would be used to record the initial purchase of supplies, Option C would be used to record revenue earned, and Option D would not be appropriate as it involves cash and not the use of supplies.

Question 16

Which of the following statements regarding the trial balance is correct?

Accepted Answer

A trial balance is prepared to ensure that the total debits equal the total credits in an accounting system after all transactions have been recorded and posted. It is a way to verify that the accounts are balanced and error-free. The trial balance is usually prepared before the financial statements are created, and any necessary adjustments are made based on the results of the trial balance. Choices A, B, and D are incorrect because they do not accurately describe the purpose or timing of the trial balance.

Question 17

Which of the following statements regarding financial statements and the trial balance is correct?

Accepted Answer

Financial statements are prepared only after the trial balance has shown that debits equal credits. This is because a balanced trial balance ensures that accounting entries have been recorded accurately and completely. It provides a basis for preparing financial statements.

Question 18

Which of the following statements regarding adjusting entries is not true?

Accepted Answer

Adjusting entries do not always affect the cash account. Some adjusting entries may only affect balance sheet or income statement accounts.

Question 19

Which of the following statements regarding types of adjusting entries is true?

Accepted Answer

The answer of Which of the following statements regarding types...

Question 20

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

Accepted Answer

Accrual value is not a term used to describe the value at which an asset is reported on a financial statement. The terms used are carrying value, book value, and net book value.

Quiz 4: Adjustments, Financial Statements, and Financial Results

Which of the following statements regarding the presentation of a trial balance is correct?

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?

One major difference between deferral and accrual adjustments is:

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?

One major difference between deferral and accrual adjustments is:

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

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

Accrual adjustments link:

Which of the following statements regarding timing issues associated with closing entries is true?

Which of the following statements regarding the effect of a net loss on the closing process is true?

Which of the following statements regarding the adjusted financial results is not true?

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

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

Which of the following statements regarding the role of cash in adjusting entries is true?

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

Which of the following statements regarding the trial balance is correct?

Which of the following statements regarding financial statements and the trial balance is correct?

Which of the following statements regarding adjusting entries is not true?

Which of the following statements regarding types of adjusting entries is true?

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