Financial Accounting David Spiceland Wayne Thomas Don Herrmann 4th Edition- Test Bank
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Sample Test
Chapter 03
The Accounting Cycle: End of the Period
True / False Questions
1. Accrual-basis
accounting involves recording revenues when earned and recording expenses with
their related revenues.
True False
2. The
revenue recognition principle states that we record revenue in the period in
which we collect cash.
True False
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.
True False
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.
True False
5. The
matching principle states that we recognize expenses in the same period as the
revenues they help to generate.
True False
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.
True False
7. Under
cash-basis accounting, we record revenues at the time we receive cash and
expenses at the time we pay cash.
True False
8. Under
cash-basis accounting, the timing of cash inflows and outflows exactly matches
the reporting of revenues and expenses in the income statement.
True False
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.
True False
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.
True False
11.
Because cash-basis accounting violates both the revenue
recognition principle and the matching principle, it is generally not accepted
in preparing financial statements.
True False
12.
Adjusting entries involve recording events that have occurred
but that have not yet been recorded by the end of the period.
True False
13.
Adjusting entries should be prepared after financial statements
are prepared.
True False
14.
Because adjusting entries allow the proper application of the
revenue recognition principle or the matching principle, they are a necessary
part of cash-basis accounting.
True False
15.
Prepaid expenses involve payment of cash (or an obligation to
pay cash) for the purchase of an asset before the expense is incurred.
True False
16.
Deferred revenues occur when cash is received after the revenue
is earned.
True False
17.
Accrued expenses involve the payment of cash before recording an
expense and a liability.
True False
18.
Accrued revenues involve the receipt of cash after the revenue
has been earned and an asset has been recorded.
True False
19.
The adjusting entry for a prepaid expense always includes a
debit to an expense account and a credit to a liability account.
True False
20.
The adjusting entry for a prepaid expense has the effect of
reducing total assets and reducing net income.
True False
21.
The Supplies account is an example of an accrued expense.
True False
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.
True False
23.
The adjusting entry for a deferred revenue always includes a
debit to an asset account and a credit to a revenue account.
True False
24.
The adjusting entry for a deferred revenue has the effects of
reducing liabilities and increasing net income.
True False
25.
On November 1, 2018, a company receives $1,800 for services to
be provided evenly over the next six months. The December 31, 2018, adjusting
entry for the company would include a credit to Deferred Revenue for $600.
True False
26.
The adjusting entry for an accrued expense always includes a
debit to an expense account and a credit to a liability account.
True False
27.
The adjusting entry for an accrued expense has the effects of
decreasing net income and decreasing liabilities.
True False
28.
On December 31, 2018, employees who earn $500 per day have
worked eight days and will be paid on January 6, 2019. The adjusting entry on
December 31, 2018, includes a debit to Salaries Expense for $4,000.
True False
29.
At December 31, 2018, a company has received, but not paid, a
utility bill for $250. The amount of utility expense for 2018 equals $250.
True False
30.
The adjusting entry for an accrued revenue always includes a
debit to a liability account and a credit to a revenue account.
True False
31.
The adjusting entry for an accrued revenue has the effects of
increasing assets and increasing net income.
True False
32.
Adjusting entries are unnecessary for transactions that do not
involve revenue or expense activities, such as selling common stock or paying
dividends.
True False
33.
Adjusting entries are not necessary when cash is received at the
same time revenues are earned.
True False
34.
Adjusting entries are not necessary when cash is paid at the same
time expenses are incurred.
True False
35.
A post-closing trial balance is a list of all accounts and their
balances after we have updated account balances for adjusting entries.
True False
36.
Once the adjusted trial balance is complete, financial
statements are prepared.
True False
37.
A classified balance sheet separates assets into current and
long-term, and separates liabilities into current and long-term.
True False
38.
Current assets are assets that provide a benefit to a company
over more than one year.
True False
39.
Long-term assets are assets that provide a benefit to a company
for more than one year.
True False
40.
Current liabilities are liabilities due within one year.
True False
41.
Long-term liabilities are liabilities due in more than one year.
True False
42.
Long-term asset categories include investments; property, plant,
and equipment; and intangible assets.
True False
43.
The components of retained earnings include assets, expenses, and
dividends.
True False
44.
Closing entries transfer the balances of all temporary accounts
(revenues, expenses, and dividends) to the Common Stock account.
True False
45.
The closing entry for revenue accounts includes a debit to
Retained Earnings and a credit to all revenue accounts.
True False
46.
The closing entry for expense accounts includes a debit to
Retained Earnings and a credit to all expense accounts.
True False
47.
The closing entry for dividends includes a debit to the Dividends
account and a credit to Retained Earnings.
True False
48.
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.
True False
49.
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.
True False
50.
After closing entries are posted to the accounts in the general
ledger, all asset and liability accounts have a balance of zero.
True False
51.
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.
True False
52.
The post-closing trial balance is a list of all accounts and
their balances at a particular date after the account balances have been
updated for closing entries.
True False
53.
The post-closing trial balance does not include any assets or
liabilities, because these accounts all have zero balances after closing
entries.
True False
Multiple Choice Questions
54.
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. Cash-basis.
1. Accrual-basis.
1. Matching-basis.
1. Reporting-basis.
55.
The accounting basis that records revenues when goods or
services are provided to customers and expenses with related revenues is
referred to as:
1. Cash-basis.
1. Matching-basis.
1. Accrual-basis.
1. Reporting-basis.
56.
The revenue recognition principle states that:
1. Revenue
should be recognized in the period the cash is received.
1. Revenue
should be recognized in the period goods and services are provided.
1. Revenue
should be recognized in the balance sheet.
1. Revenue
is a component of common stock.
57.
Which accounting principle states that a company should “record
revenues when they provide goods and services to customers?”
1. Matching.
1. Revenue
recognition.
1. Conservatism.
1. Materiality.
58.
The concept of matching in accounting refers to:
1. All costs
that are used to generate revenue are recorded in the period the revenue is
recognized.
1. All
transactions are recorded at the exchange price.
1. The
business is separate from its owners.
1. The
business will continue to operate indefinitely unless there is evidence to the
contrary.
59.
Which of the following concepts suggests that expenses should be
recognized in the same period as the revenues they help to generate?
1. Accounting
equation.
1. Revenue
recognition.
1. Matching.
1. Conservatism.
60.
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. January.
1. February.
1. April.
1. Evenly
in each of the three months.
61.
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. November.
1. December.
1. Evenly
in each of the two months.
1. One-third
in November and two-thirds in December.
62.
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. June.
1. July.
1. August.
1. Evenly
over the three months.
63.
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. June.
1. July.
1. August.
1. Evenly
over the three months.
64.
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. June.
1. July.
1. August.
1. Evenly
over the three months.
65.
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. November.
1. December.
1. January.
1. Evenly
over the three months.
66.
The accounting basis that records revenues when cash is received
and expenses when cash is paid is referred to as:
1. Cash-basis.
1. Accrual-basis.
1. Matching-basis.
1. Reporting-basis.
67.
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. May
1.
5. May
5.
8. May 8.
9. May
9.
68.
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. (1)
No effect, (2) No effect, (3) Increase.
1. (1)
No effect, (2) No effect, (3) No effect.
1. (1)
Increase, (2) Increase, (3) Increase.
1. (1)
Increase, (2) Increase, (3) No effect.
69.
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. (1)
No effect, (2) No effect, (3) Decrease.
1. (1)
Decrease, (2) Decrease, (3) No effect.
1. (1)
Decrease, (2) Decrease, (3) Decrease.
1. (1)
Decrease, (2) No effect, (3) No effect.
70.
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. (1)
No effect, (2) No effect, (3) Decrease.
1. (1)
Decrease, (2) Decrease, (3) No effect.
1. (1)
Decrease, (2) Decrease, (3) Decrease.
1. (1)
Decrease, (2) No effect, (3) No effect.
71.
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. Received
$600 from customers for services to be provided in May.
31.
Paid $1,800 for a six-month insurance policy covering the period
July 1—December 31.
1. Paid
$700 for an advertisement that appeared in the April 17 edition of the
LasVegasSun newspaper.
1. Received
$300 from customers for services performed in March.
72.
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. Purchased
$500 of office supplies on account (supplies were used in May and paid for in
May).
31.
Paid $1,800 for a six-month insurance policy covering the period
July 1—December 31.
1. Paid
$700 for an advertisement that appeared in the May 17 edition of the Las Vegas
Sun newspaper.
1. Received
$300 from customers for services performed in March.
73.
The following events pertain to Bills Company:
December 28,
2018 Bills was contacted by a
customer for possible accounting and tax services.
December 30,
2018 Bills signed a formal
agreement with the customer to provide
accounting and tax services in 2019.
January 4, 2019 The customer paid $1,000 in advance for the
services to be provided by Bills Company.
January 11,
2019
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?
2018.
December 30, 2018.
2018.
December 31, 2018.
2019.
January 4, 2019.
2019.
January 11, 2019.
74.
When a company provides services on account, which of the
following would be recorded using cash-basis accounting?
1. Debit
to Cash.
1. Debit
to Service Revenue.
1. Credit
to Deferred Revenue.
1. No
entry would be recorded.
75.
The following events pertain to Bills Company:
December 28,
2018 Bills was contacted by a
customer for possible accounting and
tax services.
December 30,
2018 Bills signed a formal
agreement with the customer to provide
accounting and tax services in 2019.
January 4, 2019 The customer paid $1,000 in advance for the
services to be
provided by Bills Company.
January 11,
2019
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?
2018.
December 30, 2018.
2018.
December 31, 2018.
2019.
January 4, 2019.
2019.
January 11, 2019.
76.
Consider the following transactions:
1. The
company uses supplies purchased in the previous period, $1,500.
2. The
company pays cash for rent in advance, $6,000.
3. 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. $6,000;
11,500
1. $6,000;
$16,000
1. $1,500;
16,000
1. $1,500;
$6,000
77.
A company has the following three events in December:
1. December
1 – Pay last month’s rent (November), $500.
2. December
15 – Pay rent for the current month (December), $500.
3. December
31 – Pay rent for the following year, $6,000.
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