Question 1

On January 1, 2022, Superfuzz Company purchased equipment for $40,000.The company is depreciating the equipment at a rate of $800 per month.The book value of the equipment at December 31, 2022 is

Accepted Answer

To calculate the book value of the equipment at December 31, 2022, we need to calculate the total depreciation expense for the year and subtract it from the original cost of the equipment.

Total Depreciation Expense for the year:
$800/month x 12 months = $9,600

Book value at December 31, 2022:
$40,000 (original cost) - $9,600 (depreciation expense) = $30,400

Therefore, the correct answer is Choice C) $30,400.

Question 2

SurferRosa Music Store borrowed $30,000 from the bank signing a 9%, three-month note on September 1.Principal and interest are payable to the bank on December 1.If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be

Accepted Answer

Since the note is a 9% three-month note, the interest expense can be calculated as follows:

$30,000 (principal) x 9% (annual interest rate) x 1/12 (number of months in one year) = $225

Therefore, the adjusting entry on September 30 would be:

Debit Interest Expense, $225; Credit Interest Payable, $225.

Question 3

All of the following are characteristics of accounting information except

Accepted Answer

Flexibility is not a commonly recognized characteristic of accounting information. The commonly recognized characteristics of accounting information are relevance, faithful representation, comparability, and understandability.

Question 4

Which of the following statements concerning accrual-basis accounting is incorrect?

Accepted Answer

Accrual-basis accounting recognizes revenues and expenses when they are earned or incurred, regardless of when they are actually paid. Therefore, statement C is incorrect as it suggests that expenses are recognized only when they are paid, which is not in accordance with accrual accounting principles.

Question 5

Revenue recognition fraud is

Accepted Answer

Revenue recognition fraud is a major issue in the U.S. and worldwide. The International Accounting Standards Board (IASB) has implemented International Financial Reporting Standards (IFRS), which also address revenue recognition and aim to reduce the risk of fraud.

Question 6

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

Accepted Answer

The time period assumption is a fundamental accounting principle that assumes the economic life of a business can be divided into artificial time periods, such as months, quarters, or years, for the purpose of financial reporting. This assumption allows for the preparation of regular financial statements that show the financial performance and position of a business over a specific period of time.

Question 7

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

Accepted Answer

Accumulated Depreciation is a contra-asset account and has a normal credit balance, but it is not a liability account.

Question 8

The quality of consistency pertains to the use of the same accounting principles by firms in the same industry.

Accepted Answer

The quality of consistency refers to a company applying the same accounting principles and methods from period to period within its own financial reporting, not necessarily across different firms in the same industry.

Question 9

An accounting time period that is one year in length, but does not begin on January 1, is referred to as

Accepted Answer

A fiscal year is a time period of one year that ends on a date other than December 31. It is often used by businesses to align their financial reporting with their operational cycle, which may not coincide with the Gregorian calendar year.

Question 10

A candy factory's employees work overtime to finish an order that is sold on February 28.The office sends a statement to the customer in early March and payment is received by mid-March.The overtime wages should be expensed in

Accepted Answer

The overtime wages should be expensed in February because expenses should be recognized in the period in which they are incurred, not when payment is made. The work was performed in February to complete the order, so the expense belongs to February.

Question 11

Adjusting entries are

Accepted Answer

Adjusting entries are necessary to ensure that financial statements are accurate and comply with the accounting principles. They are made at the end of the accounting period before the financial statements are prepared. Option A is incorrect because adjusting entries are necessary even if the accounting system is operating properly. Option C is incorrect because adjusting entries are made to correct errors or include transactions that have not yet been recorded, not because management desires to change an account balance. Option D is incorrect because adjusting entries can be made to both income statement and balance sheet accounts.

Question 12

Meat Puppets Company purchased equipment for $7,200 on December 1.It is estimated that annual depreciation on the equipment will be $1,800.If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

Accepted Answer

Since the equipment was purchased on December 1 and the financial statements are prepared on December 31, only one month of depreciation needs to be accounted for. The annual depreciation is $1,800, so the monthly depreciation is $1,800 / 12 = $150. Therefore, the adjusting entry should reflect one month of depreciation.

Question 13

Unearned revenue is classified as

Accepted Answer

Unearned revenue represents cash received from customers for products or services that have not yet been delivered. Until the products or services are provided, the company has an obligation to fulfill the order or refund the customer's money. As a result, unearned revenue is classified as a liability account since the company owes a future performance.

Question 14

Ultramega Company collected $19,600 in May of 2022 for four months of service which would take place from October of 2022 through January of 2023.The revenue reported from this transaction during 2022 would be

Accepted Answer

The revenue for 2022 includes services provided in October, November, and December, totaling 3 months. Therefore, $19,600 / 4 months * 3 months = $14,700.

Question 15

Nirvana Corporation issued a one-year, 9%, $400,000 note on April 30, 2022.Interest expense for the year ended December 31, 2022 is

Accepted Answer

To calculate the interest expense, we need to use the formula:

Interest Expense = Principal x Rate x Time

Here, the Principal is $400,000, the Rate is 9%, and the Time is 8 months (from April 30 to December 31).

To convert 8 months into a fraction of a year, we divide it by 12:

Time = 8/12 = 2/3

Now we can calculate the interest expense:

Interest Expense = $400,000 x 9% x 2/3
= $24,000

Therefore, the answer is B) $24,000.

Question 16

The two fundamental qualities of useful information are

Accepted Answer

Relevant information can be used to make decisions, while faithful representation provides assurance that the information accurately depicts what it claims to represent. Verifiability, timeliness, comparability, flexibility, understandability, and consistency are also important qualities, but relevance and faithful representation are the most fundamental.

Question 17

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

Accepted Answer

The revenue recognition principle dictates that revenue should be recognized in the accounting period in which the performance obligation is satisfied, meaning when the goods or services have been provided to the customer, and the customer has accepted them. This may or may not coincide with the period in which payment is received. Thus, option A and D are incorrect, and option B is not accurate as once revenue is earned, it should be recognized immediately.

Question 18

Cash-basis accounting is in accordance with

Accepted Answer

Cash-basis accounting is not in accordance with either Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). Both GAAP and IFRS require the accrual basis of accounting for the preparation of financial statements by most businesses.

Question 19

The time period assumption is often referred to as the expense recognition principle.

Accepted Answer

The time period assumption is the accounting concept that assumes an organization's operations can be divided into specific and identifiable time intervals. The expense recognition principle is a different accounting concept that requires companies to record expenses in the same period as the revenue they generate.

Question 20

A liability-revenue account relationship exists with an unearned rent revenue adjusting entry.

Accepted Answer

Unearned rent revenue is a liability account, as it represents rent payments received in advance from tenants but not yet earned by the landlord. When an adjusting entry is made to recognize the earned portion of the rent revenue, the liability account is decreased and the corresponding revenue account is increased, establishing a liability-revenue account relationship.

Quiz 3: Adjusting the Accounts