Financial Accounting 5e David Spiceland 5th Edition- Test Bank

 

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Sample Test

Financial Accounting, 5e (Spiceland)

Chapter 3   The Accounting Cycle: End of the Period

 

1) Accrual-basis accounting involves recording revenues when providing goods and services to customers and recording expenses with their related revenues.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

2) The revenue recognition principle states that we record revenue in the period in which we collect cash.

 

Answer:  FALSE

Explanation:  The revenue recognition principle states that we record revenue in the period in which we provide goods and services to customers.

Difficulty: 1 Easy

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

3) According to the revenue recognition principle, if a company provides services to a customer in the current year but does not collect cash until the following year, the company should report the revenue in the current year.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Reporting

 

 

 

4) Jones Corporation provides services to a customer on June 17, but the customer does not pay for the services until August 12. According to the revenue recognition principle, Jones Corporation should record the revenue on August 12.

 

Answer:  FALSE

Explanation:  The revenue recognition principle requires that revenue be recorded at the time goods or services are provided to the customer (June 17).

Difficulty: 3 Hard

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

5) For financial reporting purposes, we typically recognize expenses in the same period as the revenues they help to generate.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  FN Reporting

 

6) According to the concept of expense recognition under accrual-basis accounting, if costs associated with producing revenue in the current year are not paid in cash until the following year, the costs should be expensed in the current year.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

7) Under cash-basis accounting, we record revenues at the time we receive cash and expenses at the time we pay cash.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

8) Under cash-basis accounting, the timing of cash inflows and outflows exactly matches the reporting of revenues and expenses in the income statement.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  FN Reporting

 

9) Under cash-basis accounting, if a company provides services to a customer in the current year but does not collect cash until the following year, the company should report the revenue in the current year.

 

Answer:  FALSE

Explanation:  Under cash-basis accounting, revenues are recorded at the time cash is collected.

Difficulty: 2 Medium

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Reporting

 

10) Under cash-basis accounting, if costs associated with producing revenue in the current year are not paid in cash until the following year, the costs should be expensed in the following year.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

11) Because cash-basis accounting violates both the principles of revenue recognition and expense recognition, it is generally not accepted in preparing financial statements.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  FN Reporting

 

12) Adjusting entries involve recording events that have occurred but have not yet been recorded by the end of the period.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Adjusting Entries – Accrued Expenses; Adjusting Entries – Accrued Revenues

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

13) Adjusting entries should be prepared after financial statements are prepared.

 

Answer:  FALSE

Explanation:  Adjusting entries should be prepared before financial statements are prepared.

Difficulty: 1 Easy

Topic:  Adjusting Entries – General

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

14) Because adjusting entries update balances for the recognition of revenues and expenses, they are a necessary part of cash-basis accounting.

 

Answer:  FALSE

Explanation:  Adjusting entries are a necessary part of accrual-basis accounting.

Difficulty: 1 Easy

Topic:  Adjusting Entries – General

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

15) Prepaid expenses involve payment of cash (or an obligation to pay cash) for the purchase of an asset before the expense is incurred.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Adjusting Entries – Prepaid Expenses

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

 

 

16) Deferred revenues occur when cash is received after the revenue is recognized.

 

Answer:  FALSE

Explanation:  Deferred revenues occur when cash is received before the revenue is recognized.

Difficulty: 2 Medium

Topic:  Adjusting Entries – Deferred Revenues

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

17) Accrued expenses involve the payment of cash before recording an expense and a liability.

 

Answer:  FALSE

Explanation:  Accrued expenses involve the payment of cash after recording an expense and a liability.

Difficulty: 2 Medium

Topic:  Adjusting Entries – Accrued Expenses

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

18) Accrued revenues involve the receipt of cash after the revenue has been recognized and an asset has been recorded.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Adjusting Entries – Accrued Revenues

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

19) When a prepaid expense has been recorded during the period, the adjusting entry at the end of the period includes recognizing an expense and adjusting the balance of a liability account.

 

Answer:  FALSE

Explanation:  The adjusting entry includes recognizing an expense and adjusting the balance of an asset account.

Difficulty: 2 Medium

Topic:  Adjusting Entries – Prepaid Expenses

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

20) The adjusting entry for a prepaid expense has the effect of reducing total assets and reducing net income.

 

Answer:  TRUE

Difficulty: 3 Hard

Topic:  Adjusting Entries – Prepaid Expenses

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Reporting

 

21) The Supplies account is an example of an accrued expense.

 

Answer:  FALSE

Explanation:  The Supplies account is an example of a prepaid expense.

Difficulty: 2 Medium

Topic:  Adjusting Entries – Accrued Expenses; Adjusting Entries – Prepaid Expenses

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

22) Suppose Simeon Company begins the year with $1,000 in supplies, purchases an additional $5,500 of supplies during the year, and ends the year with $700 in supplies. The year-end adjusting entry includes Supplies Expense of $7,200.

 

Answer:  FALSE

Explanation:  Supplies Expense = beginning ($1,000) + purchases ($5,500) − ending ($700).

Difficulty: 3 Hard

Topic:  Adjusting Entries – Prepaid Expenses

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

23) When a deferred revenue has been recorded during the period, the adjusting entry at the end of the period includes recognizing a revenue and adjusting the balance of an asset account.

 

Answer:  FALSE

Explanation:  The adjusting entry includes recognizing a revenue and adjusting the balance of a liability account.

Difficulty: 2 Medium

Topic:  Adjusting Entries – Deferred Revenues

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

24) The adjusting entry for a deferred revenue has the effects of reducing liabilities and increasing net income.

 

Answer:  TRUE

Difficulty: 3 Hard

Topic:  Adjusting Entries – Deferred Revenues

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Reporting

 

25) On November 1, 2021, a company receives $1,800 for services to be provided evenly over the next six months. The December 31, 2021, adjusting entry for the company would include a credit to Deferred Revenue for $600.

 

Answer:  FALSE

Explanation:  The adjusting entry would involve a debit to Deferred Revenue and a credit to Service Revenue for $600.

Difficulty: 3 Hard

Topic:  Adjusting Entries – Deferred Revenues

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

26) The adjusting entry at the end of the period to recognize an accrued expense includes an expense account and a liability account.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Adjusting Entries – Accrued Expenses

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

 

 

27) The adjusting entry for an accrued expense has the effects of decreasing net income and decreasing liabilities.

 

Answer:  FALSE

Explanation:  The adjusting entry has the effect of increasing liabilities.

Difficulty: 3 Hard

Topic:  Adjusting Entries – Accrued Expenses

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Reporting

 

28) On December 31, 2021, employees who earn $500 per day have worked eight days and will be paid on January 6, 2022. The adjusting entry on December 31, 2021, includes a debit to Salaries Expense for $4,000.

 

Answer:  TRUE

Difficulty: 3 Hard

Topic:  Adjusting Entries – Accrued Expenses

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

29) At December 31, 2021, a company has received, but not paid, its December utility bill for $250. The amount of utility expense for December 2021 equals $250.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Adjusting Entries – Accrued Expenses

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

AICPA:  FN Measurement

 

30) The adjusting entry at the end of the period to recognize an accrued revenue includes a liability account and a revenue account.

 

Answer:  FALSE

Explanation:  The adjusting entry includes an asset account and a revenue account.

Difficulty: 2 Medium

Topic:  Adjusting Entries – Accrued Revenues

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

31) The adjusting entry for an accrued revenue has the effects of increasing assets and increasing net income.

 

Answer:  TRUE

Difficulty: 3 Hard

Topic:  Adjusting Entries – Accrued Revenues

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Reporting

 

32) Adjusting entries are unnecessary for transactions that do not involve revenue or expense activities, such as selling common stock or paying dividends.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Adjusting Entries – General

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

33) Adjusting entries are not necessary when cash is received at the same time revenues are recognized.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Adjusting Entries – General

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

34) Adjusting entries are not necessary when cash is paid at the same time expenses are incurred.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Adjusting Entries – General

Learning Objective:  03-03 Demonstrate the purposes and recording of adjusting entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

 

 

35) A post-closing trial balance is a list of all accounts and their balances after we have updated account balances for adjusting entries.

 

Answer:  FALSE

Explanation:  This is an adjusted trial balance.

Difficulty: 1 Easy

Topic:  Adjusted Trial Balance

Learning Objective:  03-04 Post adjusting entries and prepare an adjusted trial balance.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

36) An adjusted trial balance is a list of all accounts and their balances after we have updated account balances for adjusting entries.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Adjusted Trial Balance

Learning Objective:  03-04 Post adjusting entries and prepare an adjusted trial balance.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

37) An adjusted trial balance is prepared before adjusting entries.

 

Answer:  FALSE

Explanation:  The adjusted trial balance is prepared after adjusting entries.

Difficulty: 1 Easy

Topic:  Adjusted Trial Balance

Learning Objective:  03-04 Post adjusting entries and prepare an adjusted trial balance.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

38) Once the adjusted trial balance is complete, the income statement can be prepared.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Financial Statements – Income Statement

Learning Objective:  03-05 Prepare financial statements using the adjusted trial balance.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  FN Reporting

 

 

 

39) A classified balance sheet separates assets into current and long-term, and separates liabilities into current and long-term.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Financial Statements – Balance Sheet

Learning Objective:  03-05 Prepare financial statements using the adjusted trial balance.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  FN Reporting

 

40) Current assets are assets that provide a benefit to a company over more than one year.

 

Answer:  FALSE

Explanation:  Current assets provide a benefit to a company over the next year only.

Difficulty: 1 Easy

Topic:  Financial Statements – Balance Sheet

Learning Objective:  03-05 Prepare financial statements using the adjusted trial balance.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  FN Reporting

 

41) Long-term assets are assets that provide a benefit to a company for more than one year.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Financial Statements – Balance Sheet

Learning Objective:  03-05 Prepare financial statements using the adjusted trial balance.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  FN Reporting

 

42) Current liabilities are liabilities due within one year.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Financial Statements – Balance Sheet

Learning Objective:  03-05 Prepare financial statements using the adjusted trial balance.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  FN Reporting

 

 

 

43) Long-term liabilities are liabilities due in more than one year.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Financial Statements – Balance Sheet

Learning Objective:  03-05 Prepare financial statements using the adjusted trial balance.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  FN Reporting

 

44) Long-term asset categories include investments; property, plant, and equipment; and intangible assets.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Financial Statements – Balance Sheet

Learning Objective:  03-05 Prepare financial statements using the adjusted trial balance.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Reporting

 

45) The components of retained earnings include assets, expenses, and dividends.

 

Answer:  FALSE

Explanation:  The components of retained earnings include revenues, expenses, and dividends.

Difficulty: 2 Medium

Topic:  Closing Entries

Learning Objective:  03-06 Demonstrate the purposes and recording of closing entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

46) Closing entries transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the Common Stock account.

 

Answer:  FALSE

Explanation:  Balances of temporary accounts are transferred to Retained Earnings.

Difficulty: 2 Medium

Topic:  Closing Entries

Learning Objective:  03-06 Demonstrate the purposes and recording of closing entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

 

 

47) The closing entry for revenue accounts includes a debit to Retained Earnings and a credit to all revenue accounts.

 

Answer:  FALSE

Explanation:  The closing entry for revenue accounts includes a debit to all revenue accounts and a credit to Retained Earnings.

Difficulty: 2 Medium

Topic:  Closing Entries

Learning Objective:  03-06 Demonstrate the purposes and recording of closing entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

48) The closing entry for expense accounts includes a debit to Retained Earnings and a credit to all expense accounts.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Closing Entries

Learning Objective:  03-06 Demonstrate the purposes and recording of closing entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

49) The closing entry for dividends includes a debit to the Dividends account and a credit to Retained Earnings.

 

Answer:  FALSE

Explanation:  The closing entry for dividends includes a debit to Retained Earnings and a credit to the Dividends account.

Difficulty: 2 Medium

Topic:  Closing Entries

Learning Objective:  03-06 Demonstrate the purposes and recording of closing entries.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

 

 

50) If the beginning balance of Retained Earnings equals $10,000, net income for the year equals $6,000, and dividends for the year equal $2,000, then the ending balance of Retained Earnings equals $18,000.

 

Answer:  FALSE

Explanation:  Ending Retained Earnings = beginning Retained Earnings ($10,000) + net income ($6,000) − dividends ($2,000) = $14,000.

Difficulty: 3 Hard

Topic:  Closing Entries

Learning Objective:  03-06 Demonstrate the purposes and recording of closing entries.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

51) If the beginning balance of Retained Earnings equals $12,000, the ending balance of Retained Earnings equals $15,000, and dividends for the year equal $1,000, then net income for the year equals $4,000.

 

Answer:  TRUE

Difficulty: 3 Hard

Topic:  Closing Entries

Learning Objective:  03-06 Demonstrate the purposes and recording of closing entries.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

AICPA:  FN Measurement

 

52) After closing entries are posted to the accounts in the general ledger, all asset and liability accounts have a balance of zero.

 

Answer:  FALSE

Explanation:  After closing entries are prepared, all revenue, expense, and dividend accounts have a balance of zero.

Difficulty: 2 Medium

Topic:  Post-Closing Trial Balance

Learning Objective:  03-07 Post closing entries and prepare a post-closing trial balance.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

 

 

53) After closing entries are prepared, the balance of Retained Earnings is updated to reflect the activity in the revenue, expense, and dividend accounts for the period.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Post-Closing Trial Balance

Learning Objective:  03-07 Post closing entries and prepare a post-closing trial balance.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

54) The post-closing trial balance is a list of accounts and their balances at a particular date after the account balances have been updated for closing entries.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Post-Closing Trial Balance

Learning Objective:  03-07 Post closing entries and prepare a post-closing trial balance.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

55) The post-closing trial balance does not include any assets or liabilities, because these accounts all have zero balances after closing entries.

 

Answer:  FALSE

Explanation:  The post-closing trial balance does not include any revenues, expenses, or dividends, because these accounts all have zero balances after closing entries.

Difficulty: 2 Medium

Topic:  Post-Closing Trial Balance

Learning Objective:  03-07 Post closing entries and prepare a post-closing trial balance.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

 

 

56) The accounting basis that helps to measure and report revenues and expenses in a way that clearly reflects the ability of a company to generate value for its owners is referred to as:

1.   A) Cash-basis.

2.   B) Accrual-basis.

3.   C) Profit-basis.

4.   D) Reporting-basis.

 

Answer:  B

Difficulty: 1 Easy

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

57) The accounting basis that records revenues when goods or services are provided to customers and expenses with related revenues is referred to as:

1.   A) Cash-basis.

2.   B) Profit-basis.

3.   C) Accrual-basis.

4.   D) Reporting-basis.

 

Answer:  C

Difficulty: 1 Easy

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

58) The revenue recognition principle states that:

1.   A) Revenue should be recognized in the period the cash is received.

2.   B) Revenue should be recognized in the period goods and services are provided.

3.   C) Revenue should be recognized in the balance sheet.

4.   D) Revenue is a component of common stock.

 

Answer:  B

Difficulty: 1 Easy

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

 

 

59) Which accounting principle states that a company should “record revenues when they provide goods and services to customers?”

1.   A) Valuation.

2.   B) Revenue recognition.

3.   C) Conservatism.

4.   D) Materiality.

 

Answer:  B

Difficulty: 1 Easy

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

60) A company recognizes revenue in the period in which it records an asset for the related account receivable, rather than in the period in which the account receivable is collected in cash. This company is using:

1.   A) Cash-basis accounting.

2.   B) Accrual-basis accounting.

3.   C) The recording principle.

4.   D) The entity assumption.

 

Answer:  B

Difficulty: 2 Medium

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

61) The basic principle involved with expense recognition is:

1.   A) All costs that are used to generate revenue are recorded in the period the revenue is recognized.

2.   B) All transactions are recorded at the exchange price.

3.   C) The business is separate from its owners.

4.   D) The business will continue to operate indefinitely unless there is evidence to the contrary.

 

Answer:  A

Difficulty: 1 Easy

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

 

 

62) Which of the following provides a description of the relation between revenues and expenses for financial reporting purposes?

1.   A) Valuation consequences.

2.   B) Equal dollar amounts.

3.   C) Cause-and-effect.

4.   D) Comparability of transactions.

 

Answer:  C

Difficulty: 2 Medium

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

63) Air France collected cash on February 4 from the sale of a ticket to a customer on January 26. The flight took place on April 5. According to the revenue recognition principle, in which month should Air France have recognized this revenue?

1.   A) January.

2.   B) February.

3.   C) April.

4.   D) Evenly in each of the three months.

 

Answer:  C

Difficulty: 3 Hard

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

64) A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle?

1.   A) November.

2.   B) December.

3.   C) Evenly in each of the two months.

4.   D) One-third in November and two-thirds in December.

 

Answer:  A

Difficulty: 3 Hard

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

65) A company received an order from a customer in June for services to be provided. Those services were provided in July, and the customer paid the full amount in August. According to the revenue recognition principle, in which month should the company record revenue?

1.   A) June.

2.   B) July.

3.   C) August.

4.   D) Evenly over the three months.

 

Answer:  B

Difficulty: 3 Hard

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

66) A company orders office supplies in June. Those supplies are received and paid for in July. The supplies are used in August. In which month should the company record supplies expense?

1.   A) June.

2.   B) July.

3.   C) August.

4.   D) Evenly over the three months.

 

Answer:  C

Difficulty: 3 Hard

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

67) A company orders office supplies in June. Those supplies are received and used in July. The supplies are paid for in August. In which month should the company record supplies expense?

1.   A) June.

2.   B) July.

3.   C) August.

4.   D) Evenly over the three months.

 

Answer:  B

Difficulty: 3 Hard

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

68) In November, a company hires three temporary employees that are scheduled to work only the month of December. Those employees work during December, and they are then paid their full salaries in January. In which month should the company record salaries expense?

1.   A) November.

2.   B) December.

3.   C) January.

4.   D) Evenly over the three months.

 

Answer:  B

Difficulty: 3 Hard

Topic:  Accrual-Basis Accounting

Learning Objective:  03-01 Understand when revenues and expenses are recorded.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

69) The accounting basis that records revenues when cash is received and expenses when cash is paid is referred to as:

1.   A) Cash-basis.

2.   B) Accrual-basis.

3.   C) Realization-basis.

4.   D) Reporting-basis.

 

Answer:  A

Difficulty: 1 Easy

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Remember

AACSB:  Reflective Thinking

AICPA:  BB Critical Thinking

 

 

 

70) The following events pertain to Jasper Corporation:

 

May		1		Jasper purchased office supplies of $3,000 on account.
May		5		The office supplies were shipped to Jasper.
May		8		Jasper used these office supplies for a one-time event.
May		9		Jasper paid $3,000 cash for the office supplies purchased on May 1.

 

Using cash-basis accounting, on which date should Jasper record supplies expense?

1.   A) May 1.

2.   B) May 5.

3.   C) May 8.

4.   D) May 9.

 

Answer:  D

Difficulty: 3 Hard

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

71) A company provided $1,500 of services to customers during the month of May. The customers paid in June. What would the impact of these transactions be during May on (1) the balance of cash, (2) cash-basis net income, and (3) accrual basis net income?

1.   A) (1) No effect, (2) No effect, (3) Increase.

2.   B) (1) No effect, (2) No effect, (3) No effect.

3.   C) (1) Increase, (2) Increase, (3) Increase.

4.   D) (1) Increase, (2) Increase, (3) No effect.

 

Answer:  A

Difficulty: 3 Hard

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

AICPA:  FN Measurement

 

 

 

72) A company purchased $400 of office supplies on account during May. All the supplies were used in May, and the account was paid during June. What would the impact of these transactions be during May on (1) the balance of cash, (2) cash-basis net income, and (3) accrual-basis net income?

1.   A) (1) No effect, (2) No effect, (3) Decrease.

2.   B) (1) Decrease, (2) Decrease, (3) No effect.

3.   C) (1) Decrease, (2) Decrease, (3) Decrease.

4.   D) (1) Decrease, (2) No effect, (3) No effect.

 

Answer:  A

Difficulty: 3 Hard

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

AICPA:  FN Measurement

 

73) A company paid $900 to workers during May. Of this amount, $600 was for work performed in April, while the other $300 was for work performed during May. What would the impact of this transaction be during May on (1) the balance of cash, (2) cash-basis net income, and (3) accrual-basis net income?

1.   A) (1) No effect, (2) No effect, (3) Decrease.

2.   B) (1) Decrease, (2) Decrease, (3) No effect.

3.   C) (1) Decrease, (2) Decrease, (3) Decrease.

4.   D) (1) Decrease, (2) No effect, (3) No effect.

 

Answer:  C

Difficulty: 3 Hard

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

AICPA:  FN Measurement

 

 

 

74) Pawn Shops Unlimited recorded the following four transactions during April. Which of these transactions would have the same income statement impact in April regardless of whether the company used accrual-basis or cash-basis accounting?

1.   A) Received $600 from customers for services to be provided in May.

2.   B) Paid $1,800 for a six-month insurance policy covering the period July 1—December 31.

3.   C) Paid $700 for an advertisement that appeared in the April 17 edition of the Las Vegas Sun

4.   D) Received $300 from customers for services performed in March.

 

Answer:  C

Difficulty: 3 Hard

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

AICPA:  FN Reporting

 

75) Pawn Shops Unlimited recorded the following four transactions during April. Which of these transactions would have the same income statement impact in April regardless of whether the company used accrual-basis or cash-basis accounting?

1.   A) Purchased $500 of office supplies on account (supplies were used in May and paid for in May).

2.   B) Paid $1,800 for a six-month insurance policy covering the period July 1—December 31.

3.   C) Paid $700 for an advertisement that appeared in the May 17 edition of the Las Vegas Sun

4.   D) Received $300 from customers for services performed in March.

 

Answer:  A

Difficulty: 3 Hard

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

AICPA:  FN Reporting

 

 

 

76) The following events pertain to Bills Company:

 

December		28, 2021		Bills was contacted by a customer for possible accounting and tax services.
December		30, 2021		Bills signed a formal agreement with the customer to provide accounting and tax services in 2022.
January		4, 2022		The customer paid $1,000 in advance for the services to be provided by Bills Company.
January		11, 2022		Bills provided accounting and tax services to the customer.

 

Using cash-basis accounting, on which date should Bills Company record revenue for the accounting and tax services?

2021.         A) December 30, 2021.

2022.         B) December 31, 2021.

2023.         C) January 4, 2022.

2024.         D) January 11, 2022.

 

Answer:  C

Difficulty: 3 Hard

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

77) When a company provides services on account, which of the following would be recorded using cash-basis accounting?

1.   A) Debit to Cash.

2.   B) Debit to Service Revenue.

3.   C) Credit to Deferred Revenue.

4.   D) No entry would be recorded.

 

Answer:  D

Difficulty: 2 Medium

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Understand

AACSB:  Reflective Thinking

AICPA:  FN Measurement

 

 

 

78) The following events pertain to Bills Company:

 

December		28, 2021		Bills was contacted by a customer for possible accounting and tax services.
December		30, 2021		Bills signed a formal agreement with the customer to provide accounting and tax services in 2022.
January		4, 2022		The customer paid $1,000 in advance for the services to be provided by Bills Company.
January		11, 2022		Bills provided accounting and tax services to the customer.

 

Using accrual-basis accounting, on which date should Bills Company record revenue for the accounting and tax services?

2021.         A) December 30, 2021.

2022.         B) December 31, 2021.

2023.         C) January 4, 2022.

2024.         D) January 11, 2022.

 

Answer:  D

Difficulty: 3 Hard

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

79) Consider the following transactions:

 

The company uses supplies purchased in the previous period, $1,500.

The company pays cash for rent in advance, $6,000.

The company repays a loan to the bank, $10,000 (ignore any interest cost).

 

The amount of accrual-basis expense is ________ while the amount of cash-basis expense is ________.

1.   A) $6,000; $11,500

2.   B) $6,000; $16,000

3.   C) $1,500; $16,000

4.   D) $1,500; $6,000

 

Answer:  D

Difficulty: 3 Hard

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

 

 

80) A company has the following three events in December:

 

December 1 – Pay last month’s rent (November), $500.

December 15 – Pay rent for the current month (December), $500.

December 31 – Pay rent for the following year, $6,000.

 

How much would be recorded as Rent Expense for the month of December using accrual-basis accounting?

500.             A) $6,500.

501.             B) $7,000.

502.             C) $1,000.

503.             D) $500.

 

Answer:  D

Difficulty: 3 Hard

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Measurement

 

81) A company has the following transactions:

 

Pay employees’ salaries for the current period.

Pay rent in advance.

Pay dividends to stockholders in the current period.

Receive (but do not pay) a utility bill.

Use supplies previously purchased.

 

How many of these transactions result in an expense being reported in the current period using accrual-basis accounting?

1.   A) 1.

2.   B) 2.

3.   C) 3.

4.   D) 4.

 

Answer:  C

Explanation:  The three accrual-basis expenses include paying employees’ salaries for the current period, receiving a utility bill, and using supplies previously purchased.

Difficulty: 3 Hard

Topic:  Accrual-Basis Compared with Cash-Basis Accounting

Learning Objective:  03-02 Distinguish between accrual-basis and cash-basis accounting.

Bloom’s:  Apply

AACSB:  Knowledge Application

AICPA:  FN Reporting