Financial Accounting 15th Edition Carl Warren James M Reeve Jonathan Duchac- Test Bank

 

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Sample Test

Chapter_3_The_Adjusting_Process     True / False

 

1. Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis of accounting.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

2. Generally accepted accounting principles require the accrual basis of accounting.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

3. The revenue recognition principle states that revenue should be recorded in the same period as the cash is received.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

4. The system of accounting where revenues are recorded when they are earned and expenses are recorded when they are incurred is called the cash basis of accounting.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

5. The matching principle requires expenses be recorded in the same period that the related revenue is recorded.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

6. For most large businesses, the cash basis of accounting will provide accurate financial statements for user needs.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.09 – Financial Statements ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

7. An example of deferred revenue is Unearned Rent.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

8. Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue has been earned.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

9. If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to a liability account.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.06 – Recording Transactions ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

10. The revenue recognition principle requires that the reporting of revenue be included in the period when cash for the service is received.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

11. Revenues and expenses should be recorded in the same period to which they relate.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

12. The matching principle supports matching expenses with the related revenues.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

13. The updating of accounts when financial statements are prepared is called the adjusting process.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.06 – Recording Transactions ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

14. Adjusting entries affect balance sheet accounts to the exclusion of income statement accounts.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

15. Adjusting entries affect only expense and asset accounts.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

16. An adjusting entry would adjust revenue so it is reported when earned and not when cash is received.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

17. An adjusting entry would adjust an expense account so the expense is reported when incurred.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

18. An adjusting entry to accrue an incurred expense will affect total liabilities.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

19. The difference between deferred revenue and accrued revenue is that accrued revenue has been recorded and needs adjusting and deferred revenue has never been recorded.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

20. Deferrals are recorded transactions that delay the recognition of an expense or revenue.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

21. Adjustments for accruals are needed to record a revenue that has been earned or an expense that has been incurred but not recorded.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

22. Unearned revenue is a liability.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

23. A company pays an employee $3,000 for a five-day workweek, Monday–Friday.  The adjusting entry on December 31, which is a Wednesday, is a debit to Wages Expense of $1,800, and a credit to Wages Payable of $1,800.   a. True   b. False   ANSWER:   True RATIONALE:   Wages Expense per Day = $3,000/5 = $600 Wages Expense for 3 days = $600 × 3 = $1,800 Debit     Credit Dec. 31 Wages Expense         1,800 Wages Payable                  1,800 DIFFICULTY:   Challenging Bloom’s: Applying LEARNING OBJECTIVES:   ACCT.WARD.18.03-02 – 03-02 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

24. A company realizes that the last two days’ revenue for the month was billed but not recorded.  The adjusting entry on December 31 is a debit to Accounts Receivable and a credit to Fees Earned.   a. True   b. False   ANSWER:   True DIFFICULTY:   Challenging Bloom’s: Applying LEARNING OBJECTIVES:   ACCT.WARD.18.03-02 – 03-02 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

25. If the adjustment for accrued salaries at the end of the period is inadvertently omitted, both liabilities and stockholders’ equity will be understated for the period.   a. True   b. False   ANSWER:   False DIFFICULTY:   Challenging Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-02 – 03-02 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

26. A company pays $36,000 for 12 months’ rent on October 1, recording the prepayment as an asset.  The adjusting entry on December 31 is a debit to Rent Expense of $9,000, and a credit to Prepaid Rent of $9,000.   a. True   b. False   ANSWER:   True RATIONALE:   Rent Expense per Month = $36,000/12 = $3,000 Rent Expense from October 1 to December 31 = $3,000 × 3 = $9,000 ​ ​ Debit Credit Dec. 31 Rent Expense 9,000 ​ ​         Prepaid Rent ​ 9,000 DIFFICULTY:   Challenging Bloom’s: Applying LEARNING OBJECTIVES:   ACCT.WARD.18.03-03 – 03-03 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

27. A company receives $360 for a 12-month trade magazine subscription on August 1.  The adjusting entry on December 31 is a debit to Unearned Subscription Revenue of $150 and a credit to Subscription Revenue of $150.   a. True   b. False   ANSWER:   True RATIONALE:   Unearned Subscription Revenue per Month = $360/12 = $30 Subscription Revenue from August 1 to December 31 = $30 × 5 = $150 Debit      Credit Dec. 31 Unearned Subscription Revenue         150 Subscription Revenue                             150​ DIFFICULTY:   Challenging Bloom’s: Applying LEARNING OBJECTIVES:   ACCT.WARD.18.03-03 – 03-03 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

28. A company receives $6,500 for two season tickets sold on September 1.  If $2,500 is earned by December 31, the adjusting entry made at that time is a debit to Cash of $2,500, and a credit to Ticket Revenue of $2,500.   a. True   b. False   ANSWER:   False DIFFICULTY:   Challenging Bloom’s: Applying LEARNING OBJECTIVES:   ACCT.WARD.18.03-03 – 03-03 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

29. At year-end, the balance in the prepaid insurance account, prior to any adjustments, is $6,000.  The amount of the journal entry required to record insurance expense will be $4,000 if the amount of unexpired insurance applicable to future periods is $2,000.   a. True   b. False   ANSWER:   True RATIONALE:   Insurance Expense = Balance in Prepaid Insurance Account (prior to any adjustments) – Amount of Unexpired Insurance (applicable to future periods) = $6,000 – $2,000 = $4,000 DIFFICULTY:   Challenging Bloom’s: Applying LEARNING OBJECTIVES:   ACCT.WARD.18.03-03 – 03-03 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.ACBSP.APC.15 – Current Assets Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

30. If the adjustment to recognize expired insurance at the end of the period is inadvertently omitted, the assets at the end of the period will be understated.   a. True   b. False   ANSWER:   False DIFFICULTY:   Challenging Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-03 – 03-03 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

31. If the adjustment of the unearned rent account at the end of the period to recognize the amount of rent earned is inadvertently omitted, the net income for the period will be understated.   a. True   b. False   ANSWER:   True DIFFICULTY:   Challenging Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-03 – 03-03 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

32. The systematic allocation of land’s cost to expense is called depreciation.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-04 – 03-04 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.ACBSP.APC.13 – Long-term Assets Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

33. The difference between the balance of a fixed asset account and the balance of its related accumulated depreciation account is termed the book value of the asset.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-04 – 03-04 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.13 – Long-term Assets Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

34. The balance in the accumulated depreciation account is the sum of the depreciation expense recorded in past periods.   a. True   b. False   ANSWER:   True DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-04 – 03-04 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.13 – Long-term Assets Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

35. Accumulated depreciation accounts are liability accounts.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-04 – 03-04 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.13 – Long-term Assets Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

36. Accumulated depreciation is reported on the income statement.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-04 – 03-04 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.09 – Financial Statements ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

37. A contra asset account for Land will normally appear on the balance sheet.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-04 – 03-04 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.09 – Financial Statements ACCT.ACBSP.APC.13 – Long-term Assets Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

38. Depreciation Expense is reported on the balance sheet as an addition to the related asset.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-04 – 03-04 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.09 – Financial Statements ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

39. A company depreciates its equipment $500 a year.  The adjusting entry on December 31 is a debit to Depreciation Expense of $500 and a credit to Equipment of $500.   a. True   b. False   ANSWER:   False DIFFICULTY:   Challenging Bloom’s: Applying LEARNING OBJECTIVES:   ACCT.WARD.18.03-04 – 03-04 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

40. A fixed asset’s market value is reflected on the balance sheet.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-04 – 03-04 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.ACBSP.APC.13 – Long-term Assets Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

41. If the adjustment for depreciation for the year is inadvertently omitted, the assets on the balance sheet at the end of the period will be understated.   a. True   b. False   ANSWER:   False DIFFICULTY:   Challenging Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-04 – 03-04 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

42. Adjusting journal entries are dated on the last day of the period.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-05 – 03-05 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

43. By ignoring and not posting the adjusting journal entries to the appropriate accounts, net income will always be overstated.   a. True   b. False   ANSWER:   False DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-05 – 03-05 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

44. The financial statements are prepared from the unadjusted trial balance.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-06 – 03-06 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.09 – Financial Statements ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

45. The adjustment for accrued fees was debited to Accounts Payable instead of Accounts Receivable.  This error will be detected when the adjusted trial balance is prepared.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-06 – 03-06 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

46. The adjusted trial balance verifies that total debits equal total credits before the adjusting entries are prepared.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-06 – 03-06 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

47. Vertical analysis compares each item in a financial statement with a total amount from the same statement.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-07 – 03-07 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.09 – Financial Statements ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

48. When preparing an income statement vertical analysis, each revenue and expense is expressed as a percent of net income.   a. True   b. False   ANSWER:   False DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-07 – 03-07 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.09 – Financial Statements ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

49. Vertical analysis is useful for analyzing financial statement changes over time.   a. True   b. False   ANSWER:   True DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-07 – 03-07 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.09 – Financial Statements ACCT.ACBSP.APC.23 – Financial Statement Analysis ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

Multiple Choice

 

50. The revenue recognition principle   a. is not in conflict with the cash method of accounting   b. determines when revenue is credited to a revenue account   c. states that revenue is not recorded until the cash is received   d. controls all revenue reporting for the cash basis of accounting   ANSWER:   b DIFFICULTY:   Moderate Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

51. The matching principle   a. addresses the relationship between the journal and the balance sheet   b. determines whether the normal balance of an account is a debit or credit   c. requires that the dollar amount of debits equal the dollar amount of credits on a trial balance   d. states that the revenues and related expenses should be reported in the same period   ANSWER:   d DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

52. Using accrual accounting, revenue is recorded and reported only   a. when cash is received without regard to when the services are rendered   b. when the services are rendered without regard to when cash is received   c. when cash is received at the time services are rendered   d. if cash is received after the services are rendered   ANSWER:   b DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

53. Using accrual accounting, expenses are recorded and reported only   a. when they are incurred, whether or not cash is paid   b. when they are incurred and paid at the same time   c. if they are paid before they are incurred   d. if they are paid after they are incurred   ANSWER:   a DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

54. The accounting principle upon which deferrals and accruals are based is   a. matching   b. cost   c. price-level adjustment   d. conservatism   ANSWER:   a DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

55. If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account, which of the following describes the effect of the credit portion of the entry?   a. decreases the balance of an owner’s equity account   b. increases the balance of a liability account   c. increases the balance of an asset account   d. decreases the balance of an expense account   ANSWER:   b DIFFICULTY:   Challenging Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

56. If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry?   a. increases the balance of a contra asset account   b. increases the balance of an asset account   c. decreases the balance of an owner’s equity account   d. increases the balance of an expense account   ANSWER:   d DIFFICULTY:   Challenging Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

57. Prior to the adjusting process, accrued expenses have   a. not yet been incurred, paid, or recorded   b. been incurred, have not been paid, but have been recorded   c. been incurred but not paid and not recorded   d. been paid but have not yet been incurred   ANSWER:   c DIFFICULTY:   Challenging Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

58. Prior to the adjusting process, accrued revenue has   a. been earned and cash received   b. been earned and not recorded as revenue   c. not been earned but recorded as revenue   d. not been recorded as revenue but cash has been received   ANSWER:   b DIFFICULTY:   Challenging Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

59. Prepaid expenses have   a. not yet been recorded as expenses but have been paid   b. been recorded as expenses and paid   c. been incurred and paid   d. not yet been recorded as expenses   ANSWER:   d DIFFICULTY:   Challenging Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.ACBSP.APC.16 – Current Liabilities Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

60. Deferred revenue is revenue that is   a. earned and the cash has been received   b. earned but the cash has not been received   c. not earned and the cash has not been received   d. not earned but the cash has been received   ANSWER:   d DIFFICULTY:   Challenging Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.ACBSP.APC.15 – Current Assets Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

61. Adjusting entries are   a. the same as correcting entries   b. needed to bring accounts up to date and match revenue and expense   c. optional under generally accepted accounting principles   d. rarely needed in large companies   ANSWER:   b DIFFICULTY:   Moderate Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

62. Adjusting entries affect at least one   a. income statement account and one balance sheet account   b. revenue and the dividends account   c. asset and one owner’s equity account   d. revenue and one owner’s equity account   ANSWER:   a DIFFICULTY:   Moderate Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

63. The term used to describe an expense that has not been paid and has not yet been recognized in the accounts by a routine entry is   a. prepaid   b. deferred   c. accrued   d. matched   ANSWER:   c DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.ACBSP.APC.16 – Current Liabilities Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

64. Which of the following is not a characteristic of the accrual basis of accounting?   a. Revenues and expenses are reported in the period in which cash is received or paid.   b. Revenues are reported on the income statement in the period in which they are earned.   c. The accrual basis of accounting supports the matching concept.   d. Expenses are reported in the same period as the revenues to which they relate.   ANSWER:   a DIFFICULTY:   Challenging Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

65. Generally accepted accounting principles require that companies use the ____ of accounting.   a. cash basis   b. deferral basis   c. accrual basis   d. account basis   ANSWER:   c DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

66. The cash basis of accounting records revenues and expenses when the cash is exchanged, while the accrual basis of accounting   a. records revenues when they are earned and expenses when they are paid   b. records revenues and expenses when they are incurred   c. records revenues when cash is received and expenses when they are incurred   d. records revenues and expenses when the company needs to apply for a loan   ANSWER:   b DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

67. By matching revenue earned during the accounting period to related incurred expenses,   a. net income or loss will always be underestimated   b. net income or loss will always be overestimated   c. net income or loss will be properly reported on the income statement   d. net income or loss will not be determined   ANSWER:   c DIFFICULTY:   Easy Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

68. Adjusting entries always include   a. only income statement accounts   b. only balance sheet accounts   c. the cash account   d. at least one income statement account and one balance sheet account   ANSWER:   d DIFFICULTY:   Moderate Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

69. Prepaid expenses are eventually expected to become   a. expenses when their future economic value expires or is used up   b. revenues when services are performed   c. expenses in the period when they are paid   d. revenues when the liability is no longer owed   ANSWER:   a DIFFICULTY:   Moderate Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.ACBSP.APC.13 – Long-term Assets Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

70. Which of the following is considered to be unearned revenue?   a. theater tickets sold last month for yesterday’s performance   b. theater tickets sold yesterday on credit for yesterday’s performance   c. theater tickets that were not sold for the current performance   d. theater tickets sold for next month’s performance   ANSWER:   d DIFFICULTY:   Challenging Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.ACBSP.APC.16 – Current Liabilities Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

71. Which of the following is an example of accrued revenue?   a. snow removal services that have been paid for three months in advance   b. snow removal services that have been provided but have not been billed or paid   c. an agreement that has been signed for snow removal services for the next three months   d. snow removal services that have been provided and paid on the same day   ANSWER:   b DIFFICULTY:   Moderate Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.ACBSP.APC.15 – Current Assets Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

72. Which of the following is considered to be an accrued expense?   a. A computer technician installed the latest software updates and was paid on the same day.   b. A computer technician has been paid in advance to install software updates as they become available.   c. A computer technician has just signed an agreement with you regarding pricing for future work.   d. A computer technician has installed the latest software updates, but you have not received an invoice or made payment.   ANSWER:   d DIFFICULTY:   Challenging Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.ACBSP.APC.16 – Current Liabilities Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

73. Which of the following accounts would likely be included in an accrual adjusting entry?   a. Insurance Expense   b. Prepaid Rent   c. Interest Expense   d. Unearned Rent   ANSWER:   c DIFFICULTY:   Challenging Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCT.WARD.18.03-02 – 03-02 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

74. Which of the following accounts would likely be included in a deferral adjusting entry?   a. Interest Revenue   b. Unearned Revenue   c. Salaries Payable   d. Accounts Receivable   ANSWER:   b DIFFICULTY:   Challenging Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCT.WARD.18.03-03 – 03-03 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

75. If there is a balance in the prepaid rent account after adjusting entries are made, it represents a(n)   a. deferral   b. accrual   c. revenue   d. liability   ANSWER:   a DIFFICULTY:   Moderate Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

76. If there is a balance in the unearned subscriptions account after adjusting entries are made, it represents a(n)   a. deferral   b. accrual   c. dividend   d. revenue   ANSWER:   a DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

 

 

77. The unexpired insurance at the end of the fiscal period represents a(n)   a. accrued asset   b. accrued liability   c. accrued expense   d. deferred expense   ANSWER:   d DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.ACBSP.APC.09 – Financial Statements ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

78. The general term used to indicate delaying the recognition of an expense already paid or of a revenue already received is   a. depreciation   b. deferral   c. accrual   d. inventory   ANSWER:   b DIFFICULTY:   Easy Bloom’s: Remembering LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual ACCT.ACBSP.APC.16 – Current Liabilities Reporting ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic

 

79. Which account would normally not require an adjusting entry?   a. Wages Expense   b. Accounts Receivable   c. Accumulated Depreciation   d. Cash   ANSWER:   d DIFFICULTY:   Challenging Bloom’s: Understanding LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01 ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries ACCT.AICPA.FN.03 – Measurement BUSPROG: Analytic