Fundamental Accounting Principles 23rd Edition By by John Wild – Test Bank
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Sample Test
Chapter 03 Adjusting Accounts and Preparing Financial Statements
MULTIPLE CHOICE QUESTIONS
1)
A company’s fiscal year must correspond with the calendar year.
1. True
2. False
Answer: B Explanation:
Diff: 1
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of periodic
reporting and the time period assumption. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
- The
time period assumption assumes that an organization’s activities can be
divided into specific time periods such as months, quarters, or
A)
True
1. False
Answer: A Explanation:
Diff: 1
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of periodic
reporting and the time period assumption. 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.
1. True
2. False
Answer: B Explanation:
Diff: 1
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of periodic
reporting and the time period assumption. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Reporting
- A
fiscal year refers to an organization’s accounting period that spans
twelve consecutive months or 52
A)
True
1. False
Answer: A Explanation:
Diff: 1
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of periodic
reporting and the time period assumption. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Decision Making
5)
Adjusting entries are made after the
preparation of financial statements.
1. True
2. False
Answer: B Explanation:
Diff: 1
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. 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.
1. True
2. False
Answer: A Explanation:
Diff: 1
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
- Two
main accounting principles used in accrual accounting are expense
recognition and full closure.
A)
True
1. False
Answer: B Explanation:
Diff: 1
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
- Adjusting
entries are necessary so that asset, liability, revenue, and expense
account balances are correctly
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Adjusting Entries
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
- 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
A)
True
1. False
Answer: B Explanation:
Diff: 2
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
- The
revenue recognition principle is the basis for making adjusting entries
that pertain to unearned and accrued
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
- The
cash basis of accounting commonly increases the comparability of financial
statements from period to
A)
True
1. False
Answer: B Explanation:
Diff: 2
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
- Under
the cash basis of accounting, no adjustments are made for prepaid,
unearned, and accrued
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- Since
the revenue recognition principle requires that revenues be recorded when
earned, there are no unearned revenues in accrual
A)
True
1. False
Answer: B Explanation:
Diff: 2
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- 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 pa
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- The
cash basis of accounting is a system in which revenues are recorded when
earned and expenses are recorded when
A)
True
1. False
Answer: B Explanation:
Diff: 1
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
- The
cash basis of accounting recognizes revenues when cash payments from
customers are
A)
True
1. False
Answer: A Explanation:
Diff: 1
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
17)
The accrual basis of accounting recognizes revenues when cash is received from
customers.
1. True
2. False
Answer: B Explanation:
Diff: 1
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
18)
The accrual basis of accounting recognizes expenses when cash is paid.
1. True
2. False
Answer: B Explanation:
Diff: 1
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
- Recording
revenues early overstates current-period income; recording revenues late
understates current period
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- Recording
expenses early overstates current-period income; recording expenses late
understates current period
A)
True
1. False
Answer: B Explanation:
Diff: 2
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- 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
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- A
company paid $9,000 for a twelve-month insurance policy on February The
policy coverage began on February 1. On February 28, $750 of insurance
expense must be recorded.
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- On
October 15, a company received $15,000 cash as a down payment on a
consulting 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.
A)
True
1. False
Answer: A Explanation:
Diff: 3
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- The
accrual basis of accounting reflects the principle that revenue is
recorded when it is earned, not when cash is
A)
True
1. False
Answer: A Explanation:
Diff: 1
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
- The
accrual basis of accounting requires adjustments to recognize revenues in
the periods they are earned and to match expenses with
A)
True
1. False
Answer: A Explanation:
Diff: 1
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
26)
Adjusting entries are designed primarily to correct accounting errors.
1. True
2. False
Answer: B Explanation:
Diff: 2
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
- Adjustments
are necessary to bring an asset or liability account to its proper amount
and also update a related expense or revenue
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
28)
Each adjusting entry will affect a balance sheet account.
1. True
2. False
Answer: A Explanation:
Diff: 2
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
29)
Adjusting entries always affect the cash account.
1. True
2. False
Answer: B Explanation:
Diff: 2
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
- Accrued
expenses at the end of one accounting period are expected to result in
cash payments in a future
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
- Accrued
revenues at the end of one accounting period are expected to result in
cash collections in a future
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Measurement
- Each
adjusting entry affects one or more income statement account, one or more
balance sheet account, and never
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. 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.
1. True
2. False
Answer: B Explanation:
Diff: 2
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- Under
the accrual basis of accounting, adjustments are often made for prepaid
expenses and unearned
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- 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
A)
True
1. False
Answer: B Explanation:
Diff: 2
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. 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.
1. True
2. False
Answer: A Explanation:
Diff: 1
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
37)
An adjusting entry often includes an entry to Cash.
1. True
2. False
Answer: B Explanation:
Diff: 2
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and their
purpose. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- Before
an adjusting entry is made to recognize the cost of expired insurance for
the period, Prepaid Insurance and Insurance Expense are both
A)
True
1. False
Answer: B Explanation:
Diff: 2
Topic: Links to Financial Statements
Learning Objective: 03-A1 Explain how accounting adjustments
link to financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- Before
an adjusting entry is made to accrue employee salaries, Salaries Expense
and Salaries Payable are both
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Links to Financial Statements
Learning Objective: 03-A1 Explain how accounting adjustments
link to financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
40)
Failure to record depreciation expense will overstate assets and understate
expenses.
1. True
2. False
Answer: A Explanation:
Diff: 2
Topic: Links to Financial Statements
Learning Objective: 03-A1 Explain how accounting adjustments
link to financial statements. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- 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.
A)
True
1. False
Answer: A Explanation:
Diff: 3
Topic: Links to Financial Statements
Learning Objective: 03-A1 Explain how accounting adjustments
link to financial statements. Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
42)
Profit margin can also be called return on sales.
1. True
2. False
Answer: A Explanation:
Diff: 1
Topic: Profit Margin
Learning Objective: 03-A2 Compute profit margin and describe its
use in analyzing company performance. Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: FN Decision Making; BB Resource Management
43)
Profit margin measures the relation of debt to assets.
1. True
2. False
Answer: B Explanation:
Diff: 1
Topic: Profit Margin
Learning Objective: 03-A2 Compute profit margin and describe its
use in analyzing company performance. Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: FN Decision Making; BB Resource Management
44)
Profit margin reflects the percent of profit in each dollar of revenue.
1. True
2. False
Answer: A Explanation:
Diff: 2
Topic: Profit Margin
Learning Objective: 03-A2 Compute profit margin and describe its
use in analyzing company performance. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: FN Decision Making; BB Resource Management
45)
Profit margin is calculated by dividing net sales by net income.
1. True
2. False
Answer: B Explanation:
Diff: 2
Topic: Profit Margin
Learning Objective: 03-A2 Compute profit margin and describe its
use in analyzing company performance. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: FN Decision Making; BB Resource Management
- Torsten
had total assets of $149,501,000, net income of $6,242,000, and net sales
of $209,203,000. Its profit margin was 98%.
A)
True
1. False
Answer: A Explanation:
Diff: 3
Topic: Profit Margin
Learning Objective: 03-A2 Compute profit margin and describe its
use in analyzing company performance. Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: FN Decision Making; BB Resource Management
- 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
A)
True
1. False
Answer: B Explanation:
Diff: 2
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- 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.
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- Accumulated
depreciation is shown on the balance sheet as a subtraction from the cost
of its related
A)
True
1. False
Answer: A Explanation:
Diff: 1
Topic: Adjusting Entries
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.
1. True
2. False
Answer: A Explanation:
Diff: 1
Topic: Adjusting Entries
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.
1. True
2. False
Answer: B Explanation:
Diff: 2
Topic: Adjusting Entries
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.
1. True
2. False
Answer: B Explanation:
Diff: 2
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- Earned
but uncollected revenues are recorded during the adjusting process with a
credit to a revenue account and a debit to an expense
A)
True
1. False
Answer: B Explanation:
Diff: 2
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- Depreciation
expense for a period is the portion of a plant asset’s cost that is
allocated to that
A)
True
1. False
Answer: A Explanation:
Diff: 2
Topic: Adjusting Entries
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.
1. True
2. False
Answer: B Explanation:
Diff: 2
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- Net
income for a period will be understated if accrued revenues are not
recorded at the end of the accounting
A)
True
1. False
Answer: A Explanation:
Diff: 2
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.
1. True
2. False
Answer: B Explanation:
Diff: 2
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- A
company owes its employees $5,000 for the year ended December 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.
A)
True
1. False
Answer: B Explanation:
Diff: 2
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- A
company purchased $6,000 worth of supplies in August and recorded the
purchase in the Supplies 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.
A)
True
1. False
Answer: B Explanation:
Diff: 2
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- A
company performs 20 days of work on a 30-day contract before the end of
the 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.
A)
True
1. False
Answer: B Explanation:
Diff: 3
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- A
company performs 20 days of work on a 30-day contract before the end of
the 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.
A)
True
1. False
Answer: A Explanation:
Diff: 3
Topic: Adjusting Entries
Learning Objective: 03-P1 Prepare and explain adjusting entries.
Bloom’s: Apply
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- A
company entered into a 2-month contract for $50,000 on April 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.
A)
True
1. False
Answer: B Explanation:
Diff: 2
Topic: Adjusting Entries
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.
1. True
2. False
Answer: B Explanation:
Diff: 1
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
- An
unadjusted trial balance is a list of accounts and balances prepared before adjustments
are
A)
True
1. False
Answer: A Explanation:
Diff: 1
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.
1. True
2. False
Answer: A Explanation:
Diff: 1
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.
1. True
2. False
Answer: B Explanation:
Diff: 1
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.
1. True
2. False
Answer: A Explanation:
Diff: 1
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
- Revenue
and expense balances are transferred from the adjusted trial balance to
the income
A)
True
1. False
Answer: A Explanation:
Diff: 1
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.
1. True
2. False
Answer: B Explanation:
Diff: 2
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
- 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
A)
True
1. False
Answer: A Explanation:
Diff: 1
Topic: Alternative Accounting for Prepayments
Learning Objective: 03-P4 Appendix 3A-Explain the alternatives
in accounting for prepaids. Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- 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
A)
True
1. False
Answer: A Explanation:
Diff: 1
Topic: Alternative Accounting for Prepayments
Learning Objective: 03-P4 Appendix 3A-Explain the alternatives
in accounting for prepaids. Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- The
time period assumption assumes that an organization’s activities may be
divided into specific reporting time periods including all of the
following except:
A)
Months.
1.
2. Fiscal
3. Calendar
4.
Answer: B Explanation: A)
B)
C)
D)
E)
Diff: 1
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of periodic
reporting and the time period assumption. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
- A
broad principle that requires identifying the activities of a business
with specific time periods such as months, quarters, or years is the:
A)
Time period assumption.
1. Operating
cycle of a
2. Going-concern
3. Accrual
basis of
4. Expense
recognition (matching) Answer: A
Explanation: A)
B)
C)
D)
E)
Diff: 1
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of periodic reporting
and the time period assumption. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
74)
Interim financial statements refer to financial reports:
1. That
show the assets above the liabilities and the liabilities above the
2. That
cover less than one year, usually spanning one, three, or six-month
3. That
are prepared before any adjustments have been
4. Where
the adjustment process is used to assign revenues to the periods in which they
are earned and to match expenses with
5. Where
revenues are reported on the income statement when cash is received and
expenses are reported when cash is
Answer:
B Explanation: A)
B)
C)
D)
E)
Diff: 2
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of periodic
reporting and the time period assumption. Bloom’s: Understand
AACSB: Communication
AICPA: BB Industry; FN Reporting
- The
12-month period that ends when a company’s sales activities are at their
lowest level is called the:
A)
Natural business year.
1. Interim
2. Fiscal
3. Accounting
4. Calendar
Answer: A Explanation: A)
B)
C)
D)
E)
Diff: 1
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of periodic
reporting and the time period assumption. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
- The
length of time covered by a set of periodic financial statements,
primarily a year for most companies, is referred to as the:
A)
Calendar year.
1. Accounting
2. Business
3. Fiscal
4. Natural
business Answer: B
Explanation: A)
B)
C)
D)
E)
Diff: 1
Topic: The Accounting Period
Learning Objective: 03-C1 Explain the importance of periodic
reporting and the time period assumption. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
77)
The accounting principle that requires revenue to be recorded when earned is
the:
1. Expense
recognition (matching)
2. Going-concern
3. Time
period
4. Accrual
reporting
5. Revenue
recognition Answer: E
Explanation: A)
B)
C)
D)
E)
Diff: 1
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Remember
AACSB: Communication
AICPA: BB Industry; FN Measurement
78)
Adjusting entries:
1. Affect
only income statement
2. Affect
only equity
3. Affect
cash
4. Affect
only balance sheet
5. Affect
both income statement and balance sheet Answer: E
Explanation: A)
B)
C)
D)
E)
Diff: 1
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
79)
The main purpose of adjusting entries is to:
1. Correct
errors in the accounting
2. Recognize
assets purchased during the
3. Record
internal transactions and
4. Recognize
debts paid during the
5. Record
external transactions and Answer: C
Explanation: A)
B)
C)
D)
E)
Diff: 2
Topic: Framework for Adjustments
Learning Objective: 03-C3 Identify the types of adjustments and
their purpose. Bloom’s: Understand
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
- The
broad principle that requires expenses to be reported in the same period
as the revenues that were earned as a result of the expenses is the:
A)
Expense recognition (Matching) principle.
1. Recognition
2. Cost
3. Time
period
4. Cash
basis of Answer: A
Explanation: A)
B)
C)
D)
E)
Diff: 1
Topic: Accrual Basis versus Cash Basis
Learning Objective: 03-C2 Explain accrual accounting and how it
improves financial statements. Bloom’s: Remember
AACSB: Analytical Thinking
AICPA: BB Industry; FN Measurement
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