Question 1

An example of an accrued expense is

Accepted Answer

An accrued expense is an expense that has been incurred but not yet paid for. Interest accrued on a note payable fits this definition. Option A, interest accrued on a note receivable, would be an accrued revenue. Option C, unearned revenue, is not an expense, but rather a liability for a service or product that has not yet been delivered. Option D, accounts receivable, is an asset representing money that is owed to the company by customers who have purchased goods or services on credit.

Question 2

Which of the following statements is not true?

Accepted Answer

Adjusting entries do not directly affect the cash account. They are made to ensure that the financial statements accurately reflect the transactions and events of the period, including the recognition of revenues and expenses and the appropriate allocation of prepaid and accrued items.

Question 3

Deferred expenses (prepaid expenses) are initially recorded as assets, but over time are expected to become

Accepted Answer

Deferred expenses (prepaid expenses) are initially recorded as assets because they represent a payment made for goods or services that will be received in the future. However, over time, they are expected to be used up or expire, and the cost of the asset will be recognized as an expense on the income statement. Therefore, the correct choice is D, expenses.

Question 4

Total Liabilities on the Balance Sheet at December 31, 2010 are:

Accepted Answer

The answer of Total Liabilities on the Balance Sheet at...

Question 5

A company declared and paid a dividend of $8,000 this year. The entry to close the dividend account at the end of the year is:

Accepted Answer

The answer of A company declared and paid a dividend...

Question 6

Adjusting journal entries:

Accepted Answer

Adjusting journal entries are made at the end of an accounting period to ensure that the financial statements reflect accurate and complete information. These entries can affect both income statement and balance sheet accounts, as they are used to record items such as accrued expenses, unearned revenue, depreciation, and inventory adjustments. Adjusting entries do not impact cash flow accounts directly, as they reflect non-cash items, but they can indirectly impact cash flow by affecting income and expenses that impact net income and, therefore, cash flow.

Question 7

What is the amount of Total Assets to be reported on the Balance Sheet at December 31, 2010?

Accepted Answer

Total Assets = Cash + Accounts Receivable + Inventory + Prepaid Expenses + Equipment + Accumulated Depreciation + Land= $2,500 + $5,000 + $10,000 + $1,000 + $5,000 + ($2,500) + $4,000= $26,950

Question 8

A company billed a client for services rendered in January. The payment was received, partially in January and the balance in February. When should the entry be made to record the service revenue?

Accepted Answer

Revenue should be recorded in January when the services were rendered, according to the accrual basis of accounting, which recognizes revenue when earned, regardless of when payment is received.

Question 9

The periodic expense that is used for the allocation of the cost of equipment to the periods in which it is used, representing the expense of using the asset, is called

Accepted Answer

Depreciation expense is the periodic expense used to allocate the cost of equipment over the periods in which it is used. Accumulated depreciation is the total amount of depreciation that has been recorded for an asset, while a contra account is an account that offsets a related account. Investment expense refers to expenses incurred in the process of investing funds for a company.

Question 10

An example of an accrued revenue is

Accepted Answer

Accrued revenue is revenue that has been earned but not yet received or recorded. Option A, interest accrued on a note receivable, fits this definition since the revenue has been earned (via lending money and charging interest) but has not yet been received. The other options do not fit the definition of accrued revenue.

Question 11

Which of the following errors cause net income to be overstated?

Accepted Answer

If depreciation expense is not recorded, the cost of a fixed asset is carried on the balance sheet at its original cost and not reduced by its accumulated depreciation. This leads to an overstatement of the asset's value and an overstatement of net income.

Question 12

Which of the following is the usual last step in the accounting process?

Accepted Answer

The usual last step in the accounting process is preparing a post-closing trial balance, which ensures that all temporary accounts have been closed and the books are ready for the next accounting period.

Question 13

Which of the following errors cause net income to be understated?

Accepted Answer

Revenue that has been earned but not yet collected has not been recorded, leading to an understatement of net income. The other choices either do not affect net income directly or result in an overstatement of net income.

Question 14

Accrued revenues recorded at the end of the current year:

Accepted Answer

Accrued revenues are revenues that have been earned but not yet received in cash or recorded. Therefore, they often result in cash receipts from customers in the next period. Option B is incorrect because it refers to accrued expenses, which are expenses that have been incurred but not yet paid or recorded. Option C is incorrect because unearned revenues are advance cash payments from customers for goods or services that have not been delivered or provided. Option D is incorrect because accrued revenues are recorded in the current year when they are earned, regardless of whether cash is received or not.

Question 15

What is the amount of Retained Earnings on the Balance Sheet at December 31, 2010?

Accepted Answer

The answer of What is the amount of Retained Earnings...

Question 16

An error is indicated if the following account appears on the post-closing trial balance with a positive balance.

Accepted Answer

Depreciation expense is a temporary account that should not have a balance on the post-closing trial balance. It is closed out at the end of each accounting period to retained earnings. The other options, office equipment, contributed capital, and accumulated depreciation, are all permanent accounts that can have a balance on the post-closing trial balance.

Question 17

If the total amount that should have been debited to insurance expense is mistakenly debited to prepaid insurance, what will be the effect on the financial statements for the year?

Accepted Answer

Since the total amount that should have been debited to insurance expense is mistakenly debited to prepaid insurance, it will result in an overstatement of assets (prepaid insurance) and an understatement of expenses (insurance expense). This will lead to an overstatement of net income, which will in turn overstate retained earnings and stockholders' equity.

Question 18

Which of the following is not a true statement?

Accepted Answer

When making an adjustment to recognize supplies used in a period, the supplies expense will increase, which will decrease net income, and total assets will decrease as well because supplies have been used up.

Quiz 4: Adjustments, Financial Statements, and Financial Results