Financial Accounting Information for Decisions John Wild 9th Edition- Test Bank
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Sample Test
Financial Accounting, 9e (Wild)
Chapter 3 Adjusting Accounts for Financial Statements
1) A company’s fiscal year must correspond with the calendar
year.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
2) The time period assumption assumes that an organization’s
activities can be divided into specific time periods such as months, quarters,
or years.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
3) Interim financial statements report a company’s business
activities for a one-year period.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Reporting
4) A fiscal year refers to an organization’s accounting period
that spans twelve consecutive months or 52 weeks.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of periodic
reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
5) Adjusting entries are made after the preparation of financial
statements.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
6) Adjusting entries result in a better matching of revenues and
expenses for the period.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
7) Two main accounting principles used in accrual accounting are
expense recognition and full closure.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
8) Adjusting entries are necessary so that asset, liability,
revenue, and expense account balances are correctly recorded.
Answer: TRUE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
9) The expense recognition (matching) principle does not aim to
record expenses in the same accounting period as the revenue earned as a result
of these expenses.
Answer: FALSE
Difficulty: 2 Medium
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
10) The revenue recognition principle is the basis for making
adjusting entries that pertain to unearned and accrued revenues.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
11) The cash basis of accounting commonly increases the
comparability of financial statements from period to period.
Answer: FALSE
Difficulty: 2 Medium
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of periodic
reporting and the role of accrual accounting.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
12) Under the cash basis of accounting, no adjustments are made
for prepaid, unearned, and accrued items.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
13) Since the revenue recognition principle requires that
revenues be recorded when earned, there are no unearned revenues in accrual
accounting.
Answer: FALSE
Difficulty: 2 Medium
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
14) The expense recognition (matching) principle requires that
expenses get recorded in the same accounting period as the revenues that are
earned as a result of the expenses, not when cash is paid.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
15) The cash basis of accounting is a system in which
revenues are recorded when earned and expenses are recorded when incurred.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
16) The cash basis of accounting recognizes revenues when cash
payments from customers are received.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
17) The accrual basis of accounting recognizes revenues when
cash is received from customers, regardless of when the goods or services are
provided.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
18) The accrual basis of accounting recognizes expenses when
cash is paid.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
19) Recording revenues early overstates current-period income;
recording revenues late understates current period income.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
20) Recording expenses early overstates current-period income;
recording expenses late understates current period income.
Answer: FALSE
Difficulty: 2 Medium
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
21) Prior to recording adjusting entries at the end of an
accounting period, some accounts may not show correct balances even though all
transactions were properly recorded.
Answer: TRUE
Difficulty: 2 Medium
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
22) A company paid $9,000 for a twelve-month insurance policy on
February 1. The policy coverage began on February 1. On February 28, $750 of
insurance expense must be recorded.
Answer: TRUE
Explanation: Expense = $9,000/12 = $750
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
23) On October 15, a company received $15,000 cash as a down
payment on a consulting contract. The amount was credited to Unearned
Consulting Revenue. By October 31, 10% of the services required by the contract
were completed. The company will record consulting revenue of $1,500 from this
contract for October.
Answer: TRUE
Explanation: Revenue = $15,000 * 10% = $1,500
Difficulty: 3 Hard
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
24) The accrual basis of accounting reflects the principle that
revenue is recorded when it is earned, not when cash is received.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
25) The accrual basis of accounting requires adjustments to
recognize revenues in the periods they are earned and to match expenses with
revenues.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of
periodic reporting and the role of accrual accounting.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
26) Adjusting entries are designed primarily to correct
accounting errors.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
27) Adjustments are necessary to bring an asset or liability
account to its proper amount and also update a related expense or revenue
account.
Answer: TRUE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
28) Each adjusting entry will affect a balance sheet account.
Answer: TRUE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
29) Adjusting entries always affect the cash account.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
30) Accrued expenses at the end of one accounting period are
expected to result in cash payments in a future period.
Answer: TRUE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
31) Accrued revenues at the end of one accounting period are
expected to result in cash collections in a future period.
Answer: TRUE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
32) Each adjusting entry affects one or more income statement
account, one or more balance sheet account, and never cash.
Answer: TRUE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
33) Accrued expenses reflect transactions where cash is
paid before a
related expense is recognized.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
34) Under the accrual basis of accounting, adjustments are often
made for prepaid expenses and unearned revenues.
Answer: TRUE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
35) The entry to record a cash receipt from a customer when the
service is to be provided in a future period involves a debit to an unearned
revenue account.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
36) Costs incurred during an accounting period but unpaid and
unrecorded are accrued expenses.
Answer: TRUE
Difficulty: 1 Easy
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
37) An adjusting entry often includes an entry to Cash.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
38) Before an adjusting entry is made to recognize the cost of
expired insurance for the period, Prepaid Insurance and Insurance Expense are
both overstated.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
39) Before an adjusting entry is made to accrue employee
salaries, Salaries Expense and Salaries Payable are both understated.
Answer: TRUE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
40) Failure to record depreciation expense will overstate assets
and understate expenses.
Answer: TRUE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
41) A company’s month-end adjusting entry for Insurance Expense
is $1,000. If this entry is not made
then expenses are understated by $1,000 and net income is overstated by $1,000.
Answer: TRUE
Difficulty: 3 Hard
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
42) Profit margin can also be called return on sales.
Answer: TRUE
Difficulty: 1 Easy
Topic: Profit Margin
Learning Objective: 03-A1 Compute profit margin and
describe its use in analyzing company performance.
Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Resource Management; FN Decision Making
43) Profit margin measures the relation of debt to assets.
Answer: FALSE
Difficulty: 1 Easy
Topic: Profit Margin
Learning Objective: 03-A1 Compute profit margin and
describe its use in analyzing company performance.
Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Resource Management; FN Decision Making
44) Profit margin reflects the percent of profit in each dollar
of revenue.
Answer: TRUE
Difficulty: 2 Medium
Topic: Profit Margin
Learning Objective: 03-A1 Compute profit margin and
describe its use in analyzing company performance.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Resource Management; FN Decision Making
45) Profit margin is calculated by dividing net sales by net
income.
Answer: FALSE
Difficulty: 2 Medium
Topic: Profit Margin
Learning Objective: 03-A1 Compute profit margin and
describe its use in analyzing company performance.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Leveraging Technology; FN Leveraging Technology
46) Truman had total assets of $149,501,000, net income of
$6,276,090, and net sales of $209,203,000. Its profit margin was 3%.
Answer: TRUE
Explanation: Profit Margin = Net Income/Net Sales
Profit Margin = $6,276,090/$209,203,000 = 3%
Difficulty: 3 Hard
Topic: Profit Margin
Learning Objective: 03-A1 Compute profit margin and
describe its use in analyzing company performance.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Leveraging Technology; FN Leveraging Technology
47) A contra account is an account linked with another account;
it is added to that account to show the proper amount for the item recorded in
the associated account.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
48) If a company reporting on a calendar year basis, paid
$18,000 cash on January 1 for one year of rent in advance (lease beginning
January 1), and adjusting entries are made at the end of each month, the
balance remaining in Prepaid Rent on December 1 should be $1,500.
Answer: TRUE
Explanation: $18,000 * 1/12 = $1,500
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
49) Accumulated depreciation is shown on the balance sheet as a
subtraction from the cost of its related asset.
Answer: TRUE
Difficulty: 1 Easy
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
50) A salary owed to employees is an example of an accrued
expense.
Answer: TRUE
Difficulty: 1 Easy
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
51) In accrual accounting, accrued revenues are recorded as
liabilities.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
52) Depreciation expense is an example of an accrued expense.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
53) Earned but uncollected revenues are recorded during the
adjusting process with a credit to a revenue account and a debit to an expense
account.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
54) Depreciation expense for a period is the portion of a plant
asset’s cost that is allocated to that period.
Answer: TRUE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
55) All plant assets, including land, are depreciated.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
56) Net income for a period will be understated if accrued
revenues are not recorded at the end of the accounting period.
Answer: TRUE
Difficulty: 2 Medium
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
57) Depreciation measures the decline in market value of an
asset.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
58) A company owes its employees $5,000 for the year ended
December 31. It will pay employees on January 6 for the previous two weeks’
salaries. The year-end adjusting entry on December 31 will include a debit to
Salaries Expense and a credit to Cash.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
59) A company purchased $6,000 worth of supplies in August and
recorded the purchase in the Supplies account. On August 31, the fiscal
year-end, the physical count of supplies indicates the cost of unused supplies
is $3,200. The adjusting entry would include a $2,800 debit to Supplies.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
60) A company performs 20 days of work on a 30-day contract
before the end of the year. The total contract is valued at $6,000 and payment
is not due until the contract is fully completed. The required adjusting entry
includes a $4,000 debit to Unearned Revenue.
Answer: FALSE
Difficulty: 3 Hard
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
61) A company performs 20 days of work on a 30-day contract
before the end of the year. The total contract is valued at $6,000, with
payment received in advance. The $6,000 cash receipt was initially recorded as Unearned
Revenue. The required adjusting entry includes a $4,000 debit to Unearned
Revenue.
Answer: TRUE
Difficulty: 3 Hard
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
62) A company entered into a 2-month contract for $50,000 on
April 1. It earned $25,000 of the contract services in April and billed the
customer. The company should recognize the revenue when it receives the
customer’s check.
Answer: FALSE
Difficulty: 2 Medium
Topic: Prepaid (deferred) Expenses
Learning Objective: 03-P1 Prepare and explain adjusting
entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
63) The adjusted trial balance must be prepared before the
adjusting entries are made.
Answer: FALSE
Difficulty: 1 Easy
Topic: Adjusted Trial Balance
Learning Objective: 03-P2 Explain and prepare an adjusted
trial balance.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
64) An unadjusted trial balance is a list of accounts and
balances prepared before adjustments
are recorded.
Answer: TRUE
Difficulty: 1 Easy
Topic: Adjusted Trial Balance
Learning Objective: 03-P2 Explain and prepare an adjusted
trial balance.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
65) Financial statements can be prepared directly from the
information in the adjusted trial balance.
Answer: TRUE
Difficulty: 1 Easy
Topic: Preparing Financial Statements
Learning Objective: 03-P3 Prepare financial statements
from an adjusted trial balance.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Reporting
66) Asset and liability balances are transferred from the
adjusted trial balance to the income statement.
Answer: FALSE
Difficulty: 1 Easy
Topic: Preparing Financial Statements
Learning Objective: 03-P3 Prepare financial statements
from an adjusted trial balance.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Reporting
67) Asset and liability balances are transferred from the
adjusted trial balance to the balance sheet.
Answer: TRUE
Difficulty: 1 Easy
Topic: Preparing Financial Statements
Learning Objective: 03-P3 Prepare financial statements
from an adjusted trial balance.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Reporting
68) Revenue and expense balances are transferred from the
adjusted trial balance to the income statement.
Answer: TRUE
Difficulty: 1 Easy
Topic: Preparing Financial Statements
Learning Objective: 03-P3 Prepare financial statements
from an adjusted trial balance.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Reporting
69) In preparing statements from the adjusted trial balance, the
balance sheet must be prepared first.
Answer: FALSE
Difficulty: 2 Medium
Topic: Preparing Financial Statements
Learning Objective: 03-P3 Prepare financial statements
from an adjusted trial balance.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Reporting
70) It is acceptable to record prepayment of expenses as debits
to expense accounts if an adjusting entry is made at the end of the period to
bring the asset account balance to the correct unused or unexpired amount.
Answer: TRUE
Difficulty: 1 Easy
Topic: Alternative Accounting for Prepayments
Learning Objective: 03-P6 Appendix 3A-Explain the
alternatives in accounting for prepaids.
Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
71) It is acceptable to record cash received in advance of
providing products or services to revenue accounts if an adjusting entry is
made at the end of the period to bring the liability account balance to the
correct unearned amount.
Answer: TRUE
Difficulty: 1 Easy
Topic: Alternative Accounting for Prepayments
Learning Objective: 03-P6 Appendix 3A-Explain the
alternatives in accounting for prepaids.
Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
72) Accounts that appear in the balance sheet are often called
temporary (nominal) accounts.
Answer: FALSE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 03-P4 Describe and prepare closing entries.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
73) Income Summary is a temporary account only used for the
closing process.
Answer: TRUE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 03-P4 Describe and prepare closing
entries.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
74) Revenue accounts are temporary accounts that should begin
each accounting period with zero balances.
Answer: TRUE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 03-P4 Describe and prepare closing
entries.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
75) Closing revenue and expense accounts at the end of the
accounting period serves to make the revenue and expense accounts ready for use
in the next period.
Answer: TRUE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 03-P4 Describe and prepare closing
entries.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
76) The closing process takes place before financial statements
have been prepared.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Accounting Cycle
Learning Objective: 03-P4 Describe and prepare closing
entries.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
77) Revenue and expense accounts are permanent (real) accounts
and should not be closed at the end of the accounting period.
Answer: FALSE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 03-P4 Describe and prepare closing
entries.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
78) Closing entries result in the Dividends account being
transferred into net income or net loss for the period ending.
Answer: FALSE
Difficulty: 2 Medium
Topic: Closing Process
Learning Objective: 03-P4 Describe and prepare closing
entries.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
79) The closing process is a step in the accounting cycle that
prepares accounts for the next accounting
period.
Answer: TRUE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 03-P4 Describe and prepare closing
entries.
Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
80) Closing entries are required at the end of each accounting
period to close all ledger accounts.
Answer: FALSE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 03-P4 Describe and prepare closing
entries.
Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
81) Closing entries are designed to transfer the end-of-period
balances in the revenue accounts, the expense accounts, and the dividends
account to retained earnings.
Answer: TRUE
Difficulty: 2 Medium
Topic: Closing Process
Learning Objective: 03-P4 Describe and prepare closing
entries.
Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Decision Making
82) The Income Summary account is a permanent account that will
be carried forward period after period.
Answer: FALSE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 03-P4 Describe and prepare closing
entries.
Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Decision Making
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