Financial Accounting IFRS Edition 2nd Edition By Weygandt, Kimmel, Kieso – Test Bank
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Sample Test
CHAPTER 3
ADJUSTING
THE ACCOUNTS
CHAPTER
LEARNING OBJECTIVES
1. Explain
the time period assumption. The time period assumption
assumes that the economic life of a business is divided into artificial time
periods.
2. Explain
the accrual basis of accounting. Accrual-basis
accounting means that companies record events that change a company’s financial
statements in the periods in which those events occur, rather than in the
periods in which the company receives or pays cash.
3. Explain
the reasons for adjusting entries. Companies make
adjusting entries at the end of an accounting period. Such entries ensure that
companies record revenues in the period in which the performance obligation is
satisfied and recognize expenses in the period in which they are incurred.
4. Identify
the major types of adjusting entries. The
major types of adjusting entries are deferrals (prepaid expenses and unearned
revenues) and accruals (accrued revenues and accrued expenses).
5. Prepare
adjusting entries for deferrals. Deferrals are either
prepaid expenses or unearned revenues. Companies make adjusting entries for
deferrals to record the portion of the prepayment that represents the expense
incurred or the revenue for services performed in the current accounting
period.
6. Prepare
adjusting entries for accruals. Accruals are either
accrued revenues or accrued expenses. Companies make adjusting entries for
accruals to record revenues for services performed and expenses incurred in the
current accounting period that have not been recognized through daily entries.
7. Describe
the nature and purpose of an adjusted trial balance. An
adjusted trial balance shows the balances of all accounts, including those that
have been adjusted, at the end of an accounting period. Its purpose is to prove
the equality of the total debit balances and total credit balances in the
ledger after all adjustments.
a8. Prepare
adjusting entries for the alternative treatment of deferrals. Companies
may initially debit prepayments to an expense account. Likewise they may credit
unearned revenues to a revenue account. At the end of the period, these
accounts may be overstated. The adjusting entries for prepaid expenses include
a debit to an asset account and a credit to an expense account. Adjusting
entries for unearned revenues include a debit to a revenue account and a credit
to a liability account.
a9. Discuss
financial reporting concepts. To be judged useful, information
should have the primary characteristics of relevance and faithful
representation. In addition, it should be comparable, consistent, verifiable,
timely, and understandable.
The monetary
unit assumption requires that companies include in the
accounting records only transaction data that can be expressed in terms of
money. The economic
entity assumption states that economic events can be
identified with a particular unit of accountability. The time period assumption states
that the economic life of a business can be divided into artificial time
periods and that meaningful accounting reports can be prepared for each period.
The going concern
assumption states that the company will continue in operation
long enough to carry out its existing objectives and commitments.
The historical cost
principle states that companies should record assets at their
cost. The fair value
principle indicates that assets and liabilities should be
reported at fair value. The revenue
recognition principle requires that companies recognize
revenue in the accounting period in which the performance obligation is
satisfied. The expense
recognition principle dictates that efforts (expense) be
matched with results (revenues). The full
disclosure principle requires that companies disclose
circumstances and events that matter to financial statements users.
The cost constraint weighs the cost that companies incur to
provide a type of information against its benefits to financial statement
users.
TRUE-FALSE
STATEMENTS
1. Many
business transactions affect more than one time period.
Ans: T, LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving
2. The
time period assumption states that the economic life of a business entity can
be divided into artificial time periods.
Ans:T, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving
3. The
time period assumption is often referred to as the expense recognition
principle.
Ans: F, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving
4. A
company’s calendar year and fiscal year are always the same.
Ans: F, LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Communications, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
5. Accounting
time periods that are one year in length are referred to as interim periods.
Ans: F, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
6. Under
International Financial Reporting Standards (IFRS) the time period assumption
means companies must issue financial statements using a calendar year time
period.
Ans: F, LO 1, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
7. International
Financial Reporting Standards (IFRS) include a revenue recognition principle
that states that “let the revenues follow the expenses.”
Ans: F, LO 2, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
8. Under
International Financial Reporting Standards (IFRS) revenues occur when assets
are used up or when liabilities are incurred to generate revenue.
Ans: F, LO 2, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
9. Under
International Financial Reporting Standards (IFRS) the cash-basis of accounting
requires companies to record transactions in the period in which the events
occur.
Ans: F, LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
10. Income
will always be greater under the cash basis of accounting than under the
accrual basis of accounting.
Ans: F, LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
11. The
cash basis of accounting is not in
accordance with IFRS.
Ans: T, LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
12. The
expense recognition principle requires that efforts be matched with
accomplishments.
Ans: T, LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
13. Expense
recognition is tied to revenue recognition.
Ans: T, LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
14. The
revenue recognition principle dictates that revenue be recognized in the
accounting period in which cash is received.
Ans: F, LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
15. Adjusting
entries are not necessary
if the trial balance debit and credit columns balances are equal.
Ans: F, LO 3, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
16. An
adjusting entry always involves two statement of financial position accounts.
Ans: F, LO 3, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
17. Adjusting
entries are often made because some business events are not recorded as
they occur.
Ans: T, LO 3, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
18. Adjusting
entries are recorded in the general journal but are not posted to
the accounts in the general ledger.
Ans: F, LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
19. A
company must make adjusting entries every time it prepares an income statement
and a statement of financial position.
Ans: T, LO 3, BT: K, Difficulty: Medium TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
20. Adjusting
entries are needed to enable financial statements to conform to International
Financial Reporting Standards (IFRS).
Ans: T, LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
21. Types
of adjusting entries include deferral of unearned revenue, which requires the
company to record a liability on the statement of financial position.
Ans: T, LO 4, BT: K, Difficulty: Hard, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
22. Revenue
received before it is earned and expenses paid before being used or consumed
are both initially recorded as liabilities.
Ans: F, LO 4, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
23. Accrued
revenues are revenues which have been received but not yet earned.
Ans: F, LO 4, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
24. The
book value of a depreciable asset is always equal to its market value because
depreciation is a valuation technique.
Ans: F, LO 5, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
25. Accumulated
Depreciation is a liability account and has a credit normal account balance.
Ans: F, LO 5, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
26. A
liability—revenue account relationship exists with an unearned rent revenue
adjusting entry.
Ans: T, LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
27. The
balances of the Depreciation Expense and the Accumulated Depreciation accounts
should always be the same.
Ans: F, LO 5, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
28. Unearned
revenue is a prepayment that requires an adjusting entry when services are
performed.
Ans: T, LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
29. A
contra asset account is subtracted from a related account in the statement of
financial position.
Ans: T, LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Communications, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
30. If
prepaid costs are initially recorded as an asset, no adjusting entries will be
required in the future.
Ans: F, LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
31. The
cost of a depreciable asset less accumulated depreciation reflects the book
value of the asset.
Ans: T, LO 5, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
32. Adjusting
entries impact at least one income statement and at least one statement of
financial position account.
Ans: T, LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
33. An
adjusting entry that increases an expense on the income statement and decreases
an asset on the statement of financial position is the result of prepaid
expenses that expire with the passage of time.
Ans: T, LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
34. A
contra account found on the statement of financial position behaves contrary to
accounting rules by being debited on the right and credited on the left.
Ans: F, LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic,
AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
35. Unearned
revenue on the books of Chocolate Company, the landlord, can be a prepaid asset
on the statement of financial position of its tenant, Cupcake, Inc.
Ans: T, LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
36. When
a company receives cash for future service, it debits unearned revenue on the
income statement and credits cash on the statement of financial position.
Ans: F, LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
37. Unearned
revenue is reported on the income statement whereas deferred revenue is
reported on the statement of financial position.
Ans: F, LO 5, BT: K, Difficulty: Medium TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
38. An
adjusting entry for accrued revenues increases an asset account on the
statement of financial position and increases a revenue account on the income
statement.
Ans: T, LO 6, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
39. Accrued
expenses result in an adjustment to both the income statement and the statement
of financial position.
Ans: T, LO 6, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
40. Accrued
revenues are revenues that have been earned and received before financial
statements have been prepared.
Ans: F, LO 6, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
41. Financial
statements can be prepared from the information provided by an adjusted trial
balance.
Ans: T, LO 7, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
42. The
accounts in the adjusted trial balance contain all the data the company needs
to prepare its statement of financial position.
Ans: T, LO 7, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
43. The
total amount of debits on the adjusted trial balance will equal the amount of
assets on the statement of financial position.
Ans: F, LO 7, BT: K, Difficulty: Hard, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
44. In an
adjusted trial balance, all assets and liabilities reported on the statement of
financial position are properly stated.
Ans: T, LO 7, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
45. Under
GAAP revaluation to fair value of items such as land and building is permitted,
which is not permitted
under IFRS.
Ans: F, LO 7, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
a46. The adjusting entry at the end of
the period to record an expired cost may be different depending on whether the
cost was initially recorded as an asset or an expense.
Ans: T, LO 8, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
a47. Rent received in advance and
credited to a rent revenue account which is still unearned at the end of the
period, will require an adjusting entry crediting a liability account for the
amount still unearned.
Ans: T, LO 8, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
a48. An adjusting entry requiring a
credit to Insurance Expense indicates that the initial transaction was charged
to an asset account.
Ans: F, LO 8, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
a49. To be faithfully representative,
accounting information should predict future events, confirm prior
expectations, and be reported on a timely basis.
Ans: F, LO 9, Bloom: K, Difficulty: Easy, Min; 1, AACSB: None,
AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting
a50. Consistent use of the same
accounting principles and methods is necessary for meaningful analysis of
trends within a company.
Ans: T, LO 9, Bloom: C, Difficulty: Easy, Min; 1, AACSB: None,
AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None,
IMA: Reporting
a51. Consistency in accounting means that
a company uses the same accounting principles from one accounting period to the
next accounting period.
Ans: T, LO 9, Bloom: C, Difficulty: Easy, Min; 1, AACSB: None,
AICPA BB: Legal/Regulatory Perspective, AICPA FN: measurement, AICPA PC: None,
IMA: Business Economics
a52. The quality of consistency pertains
to the use of the same accounting principles by firms in the same industry.
Ans: F, LO 9, Bloom: K, Difficulty: Easy, Min; 1, AACSB: None,
AICPA BB: Legal/Regulatory Perspective, AICPA FN: measurement, AICPA PC: None,
IMA: Business Economics
a53. The periodicity assumption states
that the business will remain in operation for the foreseeable future.
Ans: F, LO 9, Bloom: K, Difficulty: Easy, Min; 1, AACSB: None,
AICPA BB: Legal/Regulatory Perspective, AICPA FN: measurement, AICPA PC: None,
IMA: Business Economics
a54. For accounting purposes, business
transactions should be kept separate from the personal transactions of the
stockholders of the business.
Ans: T, LO 9, Bloom: K, Difficulty: Easy, Min; 1, AACSB: None,
AICPA BB: Legal/Regulatory Perspective, AICPA FN: measurement, AICPA PC: None,
IMA: FSA
a55. The economic entity assumption
states that economic events can be identified with a particular unit of
accountability.
Ans: T, LO 9, Bloom: K, Difficulty: Easy, Min; 1, AACSB: None,
AICPA BB: Legal/Regulatory Perspective, AICPA FN: measurement, AICPA PC: None,
IMA: Reporting
a56. The monetary unit assumption states
that transactions that can be measured in terms of money should be recorded in
the accounting records.
Ans: T, LO 9, Bloom: K, Difficulty: Easy, Min; 1, AACSB: None,
AICPA BB: Legal/Regulatory Perspective, AICPA FN: measurement, AICPA PC: None,
IMA: FSA
a57. The going concern assumption is that
the business will continue in operation long enough to carry out its existing
objectives and commitments.
Ans: T, LO 9, Bloom: K, Difficulty: Easy, Min; 1, AACSB: None,
AICPA BB: Legal/Regulatory Perspective, AICPA FN: measurement, AICPA PC: None,
IMA: Business
Economics
a58. A common application of materiality
is weighing the factual nature of cost figures versus the relevance of fair value.
Ans: F, LO 9, Bloom: K, Difficulty: Easy, Min; 1, AACSB: None,
AICPA BB: Legal/Regulatory Perspective, AICPA FN: measurement, AICPA PC: None,
IMA: FSA
Additional True-False Questions
59. The
expense recognition principle requires that expenses be matched with revenues.
Ans: T, LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
60. In
general, adjusting entries are required each time financial statements are prepared.
Ans: T, LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
61. Every
adjusting entry affects one statement of financial position account and one
income statement account.
Ans: T, LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
62. The
Accumulated Depreciation account is a contra asset account that is reported on
the statement of financial position.
Ans: T, LO 5, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Communication, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
63. Accrued
revenues are amounts recorded and received but not yet earned.
Ans: F, LO 6, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
64. An
adjusted trial balance should be prepared before the adjusting entries are
made.
Ans: F, LO 7, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
a65. When a prepaid expense is initially
debited to an expense account, expenses and assets are both overstated prior to
adjustment.
Ans: F, LO 8, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
Answers
to True-False Statements
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Item |
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61. |
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13. |
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23. |
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33. |
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43. |
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a53. |
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63. |
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4. |
F |
14. |
F |
24. |
F |
34. |
F |
44. |
T |
a54. |
T |
64. |
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5. |
F |
15. |
F |
25. |
F |
35. |
T |
45. |
F |
a55. |
T |
a65. |
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6. |
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16. |
F |
26. |
T |
36. |
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a46. |
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a56. |
T |
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7. |
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17. |
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27. |
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37. |
F |
a47. |
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a57. |
T |
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8. |
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18. |
F |
28. |
T |
38. |
T |
a48. |
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a58. |
F |
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9. |
F |
19. |
T |
29. |
T |
39. |
T |
a49. |
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59. |
T |
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30. |
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40. |
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a50. |
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MULTIPLE
CHOICE QUESTIONS
66. Monthly
and quarterly time periods are called
67. calendar
periods.
68. fiscal
periods.
69. interim
periods.
70. quarterly
periods.
Ans: c, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
67. The
time period assumption states that
68. a
transaction can only affect one period of time.
69. estimates
should not be
made if a transaction affects more than one time period.
70. adjustments
to the enterprise’s accounts can only be made in the time period when the
business terminates its operations.
71. the
economic life of a business can be divided into artificial time periods.
Ans: d, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
68. An
accounting time period that is one year in length, but does not begin on
January 1, is referred to as
69. a fiscal
year.
70. an
interim period.
71. the
time period assumption.
72. a
reporting period.
Ans: a, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
69. Adjustments
would not be
necessary if financial statements were prepared to reflect net income from
70. monthly
operations.
71. fiscal
year operations.
72. interim
operations.
73. lifetime
operations.
Ans: d, LO 1, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
70. Management
usually desires ________ financial statements and the taxing authorities
require all businesses to file _________ tax returns.
71. annual,
annual
72. monthly,
annual
73. quarterly,
monthly
74. monthly,
monthly
Ans: b, LO 1, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
71. The
time period assumption is also referred to as the
72. calendar
assumption.
73. cyclicity
assumption.
74. periodicity
assumption.
75. fiscal
assumption.
Ans: c, LO 1, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
72. In
general, the shorter the time period, the difficulty of making the proper
adjustments to accounts
73. is
increased.
74. is
decreased.
75. is
unaffected.
76. depends
on if there is a profit or loss.
Ans: a, LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
73. Which
of the following is not a
common time period chosen by businesses as their accounting period?
74. Daily
75. Monthly
76. Quarterly
77. Annually
Ans: a, LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
74. Which
of the following time periods would not be
referred to as an interim period?
75. Monthly
76. Quarterly
77. Semi-annually
78. Annually
Ans: d, LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
75. The
fiscal year of a business is usually determined by
76. a
government agency.
77. Share
holders.
78. the
business.
79. the
IASB.
Ans: c, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
76. Which
of the following is in accordance with IFRS?
77. Accrual
basis accounting
78. Cash
basis accounting
79. Both
accrual basis and cash basis accounting
80. Neither
accrual basis nor cash basis accounting
Ans: a, LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
77. The
revenue recognition principle dictates that revenue should be recognized in the
accounting records
78. when
cash is received.
79. when
the performance obligation is satisfied.
80. at
the end of the month.
81. in
the period that income taxes are paid.
Ans: b, LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
78. In a
service-type business, revenue is considered earned
79. at
the end of the month.
80. at
the end of the year.
81. when
the service is performed.
82. when
cash is received.
Ans: c, LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
79. The
expense recognition principle matches
80. customers
with businesses.
81. expenses
with revenues.
82. assets
with liabilities.
83. creditors
with businesses.
Ans: b, LO 2, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
80. Ron’s
Hot Rod Shop follows the revenue recognition principle. Ron services a car on
July 31. The customer picks up the vehicle on August 1 and mails the payment to
Ron on August 5. Ron receives the check in the mail on August 6. When should
Ron show that the revenue was earned?
81. July
31
82. August
1
83. August
5
84. August
6
Ans: a, LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
81. A
company spends $10 million dollars for an office building. Over what period
should the cost be written off?
82. When
the $10 million is expended in cash.
83. All
in the first year.
84. Over
the useful life of the building.
85. After
$10 million in revenue is earned.
Ans: c, LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
82. The
expense recognition principle states that expenses should be matched with
revenues. Another way of stating the principle is to say that
83. assets
should be matched with liabilities.
84. efforts
should be matched with accomplishments.
85. dividends
to shareholders should be matched with shareholders’ investments.
86. cash
payments should be matched with cash receipts.
Ans: b, LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
83. A
flower shop makes a large sale and provides flowers to a customer for $1,000 on
November 30. The customer is sent a statement on December 5 and a check is
received on December 10. The flower shop follows IFRS and applies the revenue
recognition principle. When is the $1,000 considered to be earned?
84. December
5.
85. December
10.
86. November
30.
87. December
1.
Ans: c, LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
84. A
candy factory’s employees work overtime to finish an order that is sold and
shipped on February 28. The office sends a statement to the customer in early
March and payment is received by mid-March. The overtime wages should be
expensed in
85. February.
86. March.
87. the
period when the workers receive their checks.
88. either
in February or March depending on when the pay period ends.
Ans: a, LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
85. Expenses
sometimes make their contribution to revenue in a different period than when
they are paid. When wages are incurred in one period and paid in the next
period, this often leads to which account appearing on the statement of
financial position at the end of the time period?
86. Due
from Employees.
87. Due
to Employer.
88. Salaries
and Wages Payable.
89. Salaries
and Wages Expense.
Ans: c, LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
86. Under
accrual-basis accounting
87. cash
must be received before revenue is recognized.
88. net
income is calculated by matching cash outflows against cash inflows.
89. events
that change a company’s financial statements are recognized in the period they occur
rather than in the period in which cash is paid or received.
90. the
ledger accounts must be adjusted to reflect a cash basis of accounting before
financial statements are prepared under IFRS.
Ans: c, LO 2, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
87. Adjusting
entries are required
88. yearly.
89. quarterly.
90. monthly.
91. every
time financial statements are prepared.
Ans: d, LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
88. Which
one of the following is not an
application of revenue recognition?
89. Recording
revenue as an adjusting entry on the last day of the accounting period.
90. Accepting
cash from an established customer for services to be performed over the next
three months.
91. Billing
customers on June 30 for services completed during June.
92. Receiving
cash for services performed.
Ans: b, LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
89. Which
statement is correct?
90. As
long as a company consistently uses the cash basis of accounting, IFRS allow
its use.
91. The
use of the cash basis of accounting violates both the revenue recognition and
expense recognition principles.
92. The
cash basis of accounting is objective because no one can be certain of the
amount of revenue until the cash is received.
93. As
long as management is ethical, there are no problems with using the cash basis
of accounting.
Ans: b, LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
90. The
following is selected information from Alpha-Beta-Gamma Corporation for the
fiscal year ending October 31, 2014.
Cash received from
customers
$300,000
Revenue
earned
330,000
Cash paid for
expenses
170,000
Cash paid for computers on November 1, 2013 that will be used
for 3 years (annual depreciation is
$16,000)
48,000
Expenses incurred, including interest, but excluding any
depreciation 200,000
Proceeds from a bank loan, part of which was used to pay for
the computers
100,000
Based on the accrual basis of accounting, what is
Alpha-Beta-Gamma Corporation’s net income for the year ending October 31, 2014?
1. $194,000.
2. $114,000.
3. $62,000.
4. $130,000.
Ans: b, LO 2, BT: AP, Difficulty: Hard, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
Use the following information for questions 91 and 92.
Ling Company had the following transactions during 2013:
·
Sales of ¥18,000 on account
·
Collected ¥8,000 for services to be performed in 2014
·
Paid ¥2,500 cash in salaries
·
Purchased airline tickets for ¥1,000 in December for a trip to
take place in 2014
91. What
is Ling’s 2013 net income using accrual accounting?
92. ¥15,500.
93. ¥23,500.
94. ¥22,500.
95. ¥14,500.
Ans: a, LO 2, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
92. What
is Ling’s 2013 net income using cash basis accounting?
93. ¥23,500.
94. ¥5,500.
95. ¥22,500.
96. ¥4,500.
Ans: d, LO 2, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
93. Under
International Financial Reporting Standards (IFRS)
94. the
cash-basis method of accounting is accepted.
95. events
are recorded in the period in which the event occurs.
96. interim
period financial statements are either a calendar year or a fiscal year.
97. a
fiscal year is an accounting time period encompassing less than 12 months.
Ans: b, LO 2, BT: K, Difficulty: Medium, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
94. The
expense recognition principle refers to
95. recognizing
revenue in the period when it is earned.
96. matching
the revenue reported on the income statement with the receivable reported on
the statement of financial position.
97. letting
expenses follow revenues.
98. dividing
the life of the business into artificial time periods.
Ans: c, LO 2, BT: K, Difficulty: Medium, TOT: 4 min., AACSB: Analytic,
AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
95. When
companies record transactions in the period in which the events occur, ______
is being applied.
96. accrual-basis
accounting.
97. the
time period assumption.
98. the
matching of the income statement with the statement of financial position.
99. the
expense recognition principle.
Ans: a, LO 2, BT: K, Difficulty: Medium, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
96. A
small company may be able to justify using a cash basis of accounting if they
have
97. sales
under $1,000,000.
98. no
accountants on staff.
99. few
receivables and payables.
100.
all sales and purchases on account.
Ans: c, LO 2, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
97. Which
of the following adjustments would require decreasing the liabilities reported
on the statement of financial position?
98. A
company uses $400 worth of supplies during the year.
99. A
company records $400 worth of depreciation on equipment.
100.
A company has earned $400 of revenue collected at the beginning
of the year.
101.
A company records $400 of wages earned by employees that will be
paid next year.
Ans: c, LO 3, BT: K, Difficulty: Hard, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
98. Adjusting
entries
99. ensure
that the revenue recognition and expense recognition principles are followed.
100.
are necessary to enable the financial statements to conform to International
Financial Reporting Standards (IFRS).
101.
include both accruals and deferrals
102.
all of these answer choices are correct.
Ans: d, LO 3, BT: K, Difficulty: Hard, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
99. Adjusting
entries are required
100.
because some costs expire with the passage of time and
have not yet
been journalized.
101.
when the company’s profits are below the budget.
102.
when expenses are recorded in the period in which they are
incurred.
103.
when revenues are recorded in the period in which they are
earned.
Ans: a, LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
100.
A company must make adjusting entries
101.
to ensure that the revenue recognition and expense recognition
principles are followed.
102.
each time it prepares an income statement and a statement of
financial position.
103.
to account for accruals or deferrals.
104.
all of these answer choices are correct.
Ans: d, LO 3, BT: K, Difficulty: Medium, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: Problem solving
101.
Which one of the following is not a
justification for adjusting entries?
102.
Adjusting entries are necessary to ensure that revenue
recognition principles are followed.
103.
Adjusting entries are necessary to ensure that the expense
recognition principle is followed.
104.
Adjusting entries are necessary to enable financial statements
to be in conformity with IFRS.
105.
Adjusting entries are necessary to bring the general ledger
accounts in line with the budget.
Ans: d, LO 3, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
102.
An adjusting entry
103.
affects two statement of financial position accounts.
104.
affects two income statement accounts.
105.
affects a statement of financial position account and an income
statement account.
106.
is always a compound entry.
Ans: c, LO 3, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
103.
The preparation of adjusting entries is
104.
straight forward because the accounts that need adjustment will
be out of balance.
105.
often an involved process requiring the skills of a
professional.
106.
only required for accounts that do not have a
normal balance.
107.
optional when financial statements are prepared.
Ans: b, LO 3, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
104.
If a resource has been consumed but a bill has not been
received at the end of the accounting period, then
105.
an expense should be recorded when the bill is received.
106.
an expense should be recorded when the cash is paid out.
107.
an adjusting entry should be made recognizing the expense.
108.
it is optional whether to record the expense before the bill is
received.
Ans: c, LO 3, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
105.
Accounts often need to be adjusted because
106.
there are never enough accounts to record all the transactions.
107.
many transactions affect more than one time period.
108.
there are always errors made in recording transactions.
109.
management can’t decide what they want to report.
Ans: b, LO 3, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
106.
Adjusting entries are
107.
not necessary
if the accounting system is operating properly.
108.
usually required before financial statements are prepared.
109.
made whenever management desires to change an account balance.
110.
made to statement of financial position accounts only.
Ans: b, LO 3, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
107.
Expenses incurred but not yet paid or recorded are
called
108.
prepaid expenses.
109.
accrued expenses.
110.
interim expenses.
111.
unearned expenses.
Ans: b, LO 4, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
108.
An asset—expense relationship exists with
109.
liability accounts.
110.
revenue accounts.
111.
prepaid expense adjusting entries.
112.
accrued expense adjusting entries.
Ans: c, LO 4, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
109.
Adjusting entries can be classified as
110.
postponements and advances.
111.
accruals and deferrals.
112.
deferrals and postponements.
113.
accruals and advances.
Ans: b, LO 4, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic,
AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
110.
Accrued revenues are
111.
received and recorded as liabilities before they are earned.
112.
earned and recorded as liabilities before they are received.
113.
earned but not yet
received or recorded.
114.
earned and already received and recorded.
Ans: c, LO 4, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
111.
Prepaid expenses are
112.
paid and recorded in an asset account before they are used or
consumed.
113.
paid and recorded in an asset account after they are used or
consumed.
114.
incurred but not yet
paid or recorded.
115.
incurred and already paid or recorded.
Ans: a, LO 4, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
112.
Accrued expenses are
113.
paid and recorded in an asset account before they are used or
consumed.
114.
paid and recorded in an asset account after they are used or
consumed.
115.
incurred but not yet
paid or recorded.
116.
incurred and already paid or recorded.
Ans: c, LO 4, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
113.
Unearned revenues are
114.
received and recorded as liabilities before they are earned.
115.
earned and recorded as liabilities before they are received.
116.
earned but not yet
received or recorded.
117.
earned and already received and recorded.
Ans: a, LO 4, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
114.
A liability—revenue relationship exists with
115.
prepaid expense adjusting entries.
116.
accrued expense adjusting entries.
117.
unearned revenue adjusting entries.
118.
accrued revenue adjusting entries.
Ans: c, LO 4, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
115.
Which of the following reflect the balances of prepayment
accounts prior to adjustment?
116.
Statement of financial position accounts are understated and income
statement accounts are understated.
117.
Statement of financial position accounts are overstated and
income statement accounts are overstated.
118.
Statement of financial position accounts are overstated and
income statement accounts are understated.
119.
Statement of financial position accounts are understated and
income statement accounts are overstated.
Ans: c, LO 4, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
116.
A law firm received $2,000 cash for legal services to be
rendered in the future. The full amount was credited to the liability account
Unearned Service Revenue. If the legal services have been rendered at the end
of the accounting period and no adjusting entry is made, this would cause
117.
expenses to be overstated.
118.
net income to be overstated.
119.
liabilities to be understated.
120.
revenues to be understated.
Ans: d, LO 5, BT:C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
117.
Bee-In-The-Bonnet Company purchased office supplies costing
$8,000 and debited Supplies for the full amount. At the end of the accounting
period, a physical count of supplies revealed $2,200 still on hand. The
appropriate adjusting journal entry to be made at the end of the period would
be
118.
Debit Supplies Expense, $2,200; Credit Supplies, $2,200.
119.
Debit Supplies, $5,800; Credit Supplies Expense, $5,800.
120.
Debit Supplies Expense, $5,800; Credit Supplies, $5,800.
121.
Debit Supplies, $2,200; Credit Supplies Expense, $2,200.
Ans: c, LO 5, BT: AN, Difficulty: Medium, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
118.
If an adjustment is needed for unearned revenues, the
119.
liability and related revenue are overstated before adjustment.
120.
liability and related revenue are understated before adjustment.
121.
liability is overstated and the related revenue is understated
before adjustment.
122.
liability is understated and the related revenue is overstated
before adjustment.
Ans: c, LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
119.
The balance in the supplies account on June 1 was $5,200,
supplies purchased during June were $3,500, and the supplies on hand at June 30
were $2,000. The amount to be used for the appropriate adjusting entry is
120.
$5,500.
121.
$3,500.
122.
$10,700.
123.
$6,700.
Ans: d, LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
120.
Depreciation expense for a period is computed by taking the
121.
original cost of an asset – accumulated depreciation.
122.
depreciable cost ÷ depreciation rate.
123.
cost of the asset ÷ useful life.
124.
market value of the asset ÷ useful life.
Ans: c, LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
121.
Accumulated Depreciation is
122.
an expense account.
123.
an equity account.
124.
a liability account.
125.
a contra asset account.
Ans: d, LO 5, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Communication
122.
Hercules Company purchased a computer for $4,500 on December 1.
It is estimated that annual depreciation on the computer will be $900. If
financial statements are to be prepared on December 31, the company should make
the following adjusting entry:
123.
Debit Depreciation Expense, $900; Credit Accumulated
Depreciation, $900.
124.
Debit Depreciation Expense, $75; Credit Accumulated
Depreciation, $75.
125.
Debit Depreciation Expense, $3,600; Credit Accumulated
Depreciation, $3,600.
126.
Debit Office Equipment, $4,500; Credit Accumulated Depreciation,
$4,500.
Ans: b, LO 5, BT: AN, Difficulty: Hard, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
123.
Action Real Estate received a check for $24,000 on July 1 which
represents a 6 month advance payment of rent on a building it rents to a
client. Unearned Rent Revenue was credited for the full $24,000. Financial
statements will be prepared on July 31. Action Real Estate should make the
following adjusting entry on July 31:
124.
Debit Unearned Rent Revenue, $4,000; Credit Rent Revenue,
$4,000.
125.
Debit Rent Revenue, $4,000; Credit Unearned Rent Revenue,
$4,000.
126.
Debit Unearned Rent Revenue, $24,000; Credit Rent Revenue,
$24,000.
127.
Debit Cash, $24,000; Credit Rent Revenue, $24,000.
Ans: a, LO 5, BT: AN, Difficulty: Medium, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
124.
As prepaid expenses expire with the passage of time, the correct
adjusting entry will be a
125.
debit to an asset account and a credit to an expense account.
126.
debit to an expense account and a credit to an asset account.
127.
debit to an asset account and a credit to an asset account.
128.
debit to an expense account and a credit to an expense account.
Ans: b, LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
125.
A company usually determines the amount of supplies used during
a period by
126.
adding the supplies on hand to the balance of the Supplies
account.
127.
summing the amount of supplies purchased during the period.
128.
taking the difference between the supplies purchased and the
supplies paid for during the period.
129.
taking the difference between the balance of the Supplies
account and the cost of supplies on hand.
Ans: d, LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
126.
If a company fails to make an adjusting entry to record supplies
expense, then
127.
equity will be understated.
128.
expense will be understated.
129.
assets will be understated.
130.
net income will be understated.
Ans: b, LO 5, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
127.
What is the proper adjusting entry at June 30, the end of the
fiscal year, based on a prepaid insurance account balance before adjustment, €
20,500, and unexpired amounts per analysis of policies of € 4,000?
128.
Debit Insurance Expense, € 4,000; Credit Prepaid Insurance, €
4,000.
129.
Debit Insurance Expense, € 20,500; Credit Prepaid Insurance, €
20,500.
130.
Debit Prepaid Insurance, € 16,500; Credit Insurance Expense, €
16,500.
131.
Debit Insurance Expense, € 16,500; Credit Prepaid Insurance, €
16,500.
Ans: d, LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
128.
At December 31, 2014, before any year-end adjustments, Cable Car
Company’s Insurance Expense account had a balance of $1,450 and its Prepaid
Insurance account had a balance of $3,800. It was determined that $3,200 of the
Prepaid Insurance had expired. The adjusted balance for Insurance Expense for
the year would be
129.
$3,200.
130.
$1,450.
131.
$4,650.
132.
$2,050.
Ans: c, LO 5, BT: AN, Difficulty: Hard, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
129.
Depreciation is the process of
130.
valuing an asset at its fair value.
131.
increasing the value of an asset over its useful life in a
rational and systematic manner.
132.
allocating the cost of an asset to expense over its useful life
in a rational and systematic manner.
133.
writing down an asset to its real value each accounting period.
Ans: c, LO 5, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
130.
A new accountant working for Unitas Company records $800
Depreciation Expense on store equipment as follows:
Depreciation Expense ……………………………………….
800
Cash ………………………………………………………..
800
The effect of this entry is to
31. adjust
the accounts to their proper amounts on December 31.
32. understate
total assets on the statement of financial position as of December 31.
33. overstate
the book value of the depreciable assets at December 31.
34. understate
the book value of the depreciable assets as of December 31.
Ans: c, LO 5, BT: AN, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
131.
From an accounting standpoint, the acquisition of productive
facilities can be thought of as a long-term
132.
accrual of expense.
133.
accrual of revenue.
134.
accrual of unearned revenue.
135.
prepayment for services.
Ans: d, LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
132.
The balance in the Prepaid Rent account before adjustment at the
end of the year is ¥15,000, which represents three months’ rent paid on December
1. The adjusting entry required on December 31 is to
133.
debit Rent Expense, ¥5,000; credit Prepaid Rent, ¥5,000.
134.
debit Rent Expense, ¥10,000; credit Prepaid Rent ¥10,000.
135.
debit Prepaid Rent, ¥5,000; credit Rent Expense, ¥5,000.
136.
debit Prepaid Rent, ¥10,000; credit Rent Expense, ¥10,000.
Ans: a, LO 5, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
133.
An accumulated depreciation account
134.
is a contra-liability account.
135.
increases on the debit side.
136.
is offset against total assets on the statement of financial
position.
137.
has a normal credit balance.
Ans: d, LO 5, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
134.
The difference between the cost of a depreciable asset and its
related accumulated depreciation is referred to as the
135.
fair value of the asset.
136.
blue book value of the asset.
137.
book value of the asset.
138.
depreciated difference of the asset.
Ans: c, LO 5, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
135.
If a business has several types of Non-current assets such as
equipment, buildings, and trucks,
136.
there should be only one accumulated depreciation account.
137.
there should be a separate accumulated depreciation account for
each type of asset.
138.
all the long-term asset accounts will be recorded in one general
ledger account.
139.
there won’t be a need for an accumulated depreciation account.
Ans: b, LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
136.
Which of the following would not result in
unearned revenue?
137.
Rent collected in advance from tenants
138.
Services performed on account
139.
Sale of season tickets to football games
140.
Sale of two-year magazine subscriptions
Ans: b, LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
137.
If business pays rent in advance and debits a Prepaid Rent
account, the company receiving the rent payment will credit
138.
cash.
139.
prepaid rent.
140.
unearned rent revenue.
141.
accrued rent revenue.
Ans: c, LO 5, BT: C, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
138.
Unearned revenue is classified as
139.
an asset account.
140.
a revenue account.
141.
a contra-revenue account.
142.
a liability account.
Ans: d, LO 5, BT: K, Difficulty: Easy, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
139.
If a business has received cash in advance of services performed
and credits a liability account, the adjusting entry needed after the services
are performed will be
140.
debit Unearned Service Revenue and credit Cash.
141.
debit Unearned Service Revenue and credit Service Revenue.
142.
debit Unearned Service Revenue and credit Prepaid Expense.
143.
debit Unearned Service Revenue and credit Accounts Receivable.
Ans: b, LO 5, BT: C, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
140.
Speedy Clean Laundry purchased € 6,500 worth of laundry supplies
on June 2 and recorded the purchase as an asset. On June 30, an inventory of
the laundry supplies indicated only € 1,000 on hand. The adjusting entry that
should be made by the company on June 30 is
141.
Debit Supplies Expense, € 1,000; Credit Supplies, € 1,000.
142.
Debit Supplies, € 1,000; Credit Supplies Expense, € 1,000.
143.
Debit Supplies, € 5,500; Credit Supplies Expense, € 5,500.
144.
Debit Supplies Expense, € 5,500; Credit Supplies, € 5,500.
Ans: d, LO 5, BT: AN, Difficulty: Medium, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
141.
On July 1, Runner’s Sports Store paid $12,000 to Acme Realty for
4 months rent beginning July 1. Prepaid Rent was debited for the full amount.
If financial statements are prepared on July 31, the adjusting entry to be made
by Runner’s Sports Store is
142.
Debit Rent Expense, $12,000; Credit Prepaid Rent, $3,000.
143.
Debit Prepaid Rent, $3,000; Credit Rent Expense, $3,000.
144.
Debit Rent Expense, $3,000; Credit Prepaid Rent, $3,000.
145.
Debit Rent Expense, $12,000; Credit Prepaid Rent, $12,000.
Ans: c, LO 5, BT: AN, Difficulty: Medium, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
142.
Southwestern City College sold season tickets for the 2014
football season for $300,000. A total of 8 games will be played during
September, October and November. In September, three games were played. The
adjusting journal entry at September 30
143.
is not required.
No adjusting entries will be made until the end of the season in November.
144.
will include a debit to Cash and a credit to Ticket Revenue for
$75,000.
145.
will include a debit to Unearned Ticket Revenue and a credit to
Ticket Revenue for $112,500.
146.
will include a debit to Ticket Revenue and a credit to Unearned
Ticket Revenue for $100,000.
Ans: c, LO 5, BT: AN, Difficulty: Medium, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
143.
Southwestern City College sold season tickets for the 2014
football season for $300,000. A total of 8 games will be played during
September, October and November. In September, two games were played. In
October, three games were played. The balance in Unearned Ticket Revenue at
October 31 is
144.
$0.
145.
$75,000.
146.
$112,500.
147.
$187,500.
Ans: c, LO 5, BT: AN, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem solving
144.
Southwestern City College sold season tickets for the 2014
football season for $300,000. A total of 8 games will be played during
September, October and November. Assuming all the games are played, the
Unearned Ticket Revenue balance that will be reported on the December 31
statement of financial position will be
145.
$0.
146.
$112,500.
147.
$187,500.
148.
$300,000.
Ans: a, LO 5, BT: AN, Difficulty: Medium, TOT: 2 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
145.
At March 1, 2014, Jupiter Corp. had supplies on hand of $500.
During the month, Jupiter purchased supplies of $1,200 and used supplies of
$1,000. The March 31 adjusting journal entry should include a
146.
debit to the supplies account for $1,000.
147.
credit to the supplies account for $500.
148.
debit to the supplies account for $1,200.
149.
credit to the supplies account for $1,000.
Ans: d, LO 5, BT: AN, Difficulty: Medium, TOT: 4 min., AACSB:
Analytic, AICPA BB: None, AICPA FN: Measuring, AICPA PC: Problem solving
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