Question 1

Recording expenses early overstates current-period income; recording expenses late understates current period income.

Accepted Answer

A) True 
 B)False

Question 2

On July 1 Plum Co. paid $7,500 cash for management services to be performed over a two-year period. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Plum should record:

Accepted Answer

A)  A debit to an expense and credit to Cash for $7,500.
B)  A debit to Cash for $7,500 and a credit to an expense for $7,500.
C)  A debit to an expense and credit to a prepaid expense for $7,500.
D)  A credit to a prepaid expense and a debit to Cash for $7,500.
E)  A debit to a prepaid expense and a credit to Cash for $7,500.F) B) and E)
G) None of the above

Question 3

Asset and liability balances are transferred from the adjusted trial balance to the balance sheet.

Accepted Answer

A) True 
 B)False

Question 4

Profit margin is calculated by dividing net sales by net income.

Accepted Answer

A) True 
 B)False

Question 5

Identify the types of adjusting entries and explain the purpose of each type.

Accepted Answer

Adjusting entries can be grouped into tw...

Question 6

The accrual basis of accounting reflects the principle that revenue is recorded when it is earned, not when cash is received.

Accepted Answer

A) True 
 B)False

Question 7

On December 31, Winters Company's Prepaid Rent account had a balance before adjustment of $6,000. Three months' rent was paid in advance on December 1, the first day of the lease term. The adjusting entry needed on December 31 is:

Accepted Answer

A)  Debit Cash $2,000; credit Prepaid Rent $2,000.
B)  Debit Rent Expense $2,000; credit Accounts Payable $2,000.
C)  Debit Rent Expense $6,000; credit Accounts Payable $6,000.
D)  Debit Rent Expense $2,000; credit Prepaid Rent $2,000.
E)  Debit Prepaid Rent $6,000; credit Cash $6,000.F) C) and D)
G) A) and C)

Question 8

The accrual basis of accounting:

Accepted Answer

A)  Recognizes expenses when paid in cash.
B)  Is generally accepted for external reporting because it is more useful than cash basis for most business decisions.
C)  Recognizes revenues when received in cash.
D)  Is flawed because it gives complete information about cash flows.
E)  Eliminates the need for adjusting entries at the end of each period.F) B) and D)
G) A) and E)

Question 9

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called:

Accepted Answer

A)  Accumulated depreciation.
B)  An accrued account.
C)  A contra account.
D)  Depreciation expense.
E)  The expense recognition (matching) principle.F) B) and E)
G) B) and C)

Question 10

Accumulated depreciation is shown on the balance sheet as a subtraction from the cost of its related asset.

Accepted Answer

A) True 
 B)False

Question 11

What is an adjusted trial balance? Why is it prepared?

Accepted Answer

An adjusted trial balance is a list of a...

Question 12

Explain the purpose of adjusting entries at the end of a period and provide an example of an adjusting entry.

Accepted Answer

Adjusting entries are necessary for tran...

Question 13

If accrued salaries were recorded on December 31 with a debit to Salaries Expense and a credit to Salaries Payable, and no reversing entries were made on January 1, the entry to record payment of these wages on the following January 5 would include:

Accepted Answer

A)  A debit to Cash and a credit to Salaries Payable.
B)  A debit to Cash and a credit to Prepaid Salaries.
C)  A debit to Salaries Payable and a credit to Salaries Expense.
D)  A debit to Salaries Payable and a credit to Cash.
E)  No entry would be necessary on January 5.F) C) and D)
G) B) and E)

Question 14

On October 1, Goodwell Company rented warehouse space to a tenant for $2,500 per month and received $12,500 for five months' rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Rent account. The company's annual accounting period ends on December 31. The Unearned Rent account balance at the end of December, after adjustment, should be:

Accepted Answer

A)  $5,000.
B)  $10,000.
C)  $7,500.
D)  $12,500.
E)  $2,500.F) A) and C)
G) B) and E)

Question 15

Match between columns
                        Premises: The accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred.
The accounting system that recognizes revenue when cash is received and records expenses when cash is paid.
The process of allocating the costs of long-term assets to the income statement over their expected useful lives.
A set of financial statements that covers less than one year, typically one, three, or six months of activity.
Assumes that an organization's activities can be divided into specific time periods such as months, quarters, or years.
Revenues earned in a period that are both unrecorded and not yet received in cash or other assets.
Aims to record expenses in the same accounting period as the revenues that are earned as a result of those expenses.
Any 12 consecutive months or 52-week period that a company adopts for its annual reporting period.
A method that allocates equal amounts of an asset's cost (less any salvage value)to depreciation expense during its useful life.

Accepted Answer

The Answer of Time period assumption and Accrued revenues and is...

Question 16

The main purpose of adjusting entries is to:

Accepted Answer

A)  Correct errors in the accounting records.
B)  Recognize assets purchased during the period.
C)  Record internal transactions and events.
D)  Recognize debts paid during the period.
E)  Record external transactions and events.F) A) and B)
G) A) and C)

Question 17

Accrued revenues:

Accepted Answer

A)  At the end of one accounting period result in cash receipts in a future period.
B)  Are listed on the balance sheet as liabilities.
C)  At the end of one accounting period often result in cash payments in the next period.
D)  Are recorded at the end of an accounting period because cash has already been received for revenues earned.
E)  Are also called unearned revenues.F) A) and B)
G) B) and E)

Question 18

On May 1, Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 this year to April 30 of the following year. The Cash receipt was recorded as unearned fees and at year-end on December 31, $1,000 of the fees had been earned. Assuming adjustments are only made at year-end, the adjusting entry on December 31 would be:

Accepted Answer

A)  A debit to Fees Earned and a credit to Cash for $1,000.
B)  A debit to Unearned Fees and a credit to Cash for $500.
C)  A debit to Unearned Fees and a credit to Fees Earned for $1,000.
D)  A debit to Fees Earned and a credit to Cash for $500.
E)  A debit to Fees Earned and a credit to Unearned Fees for $500.F) B) and C)
G) A) and C)

Question 19

Accrued expenses at the end of one accounting period are expected to result in cash payments in a future period.

Accepted Answer

A) True 
 B)False

Question 20

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.

Accepted Answer

A) True 
 B)False

Exam 3: Adjusting Accounts and Preparing Financial Statements

Correct Answer
verified

What is an adjusted trial balance? Why is it prepared?

Correct Answer
verified
An adjusted trial balance is a list of a...
View Answer

Recording expenses early overstates current-period income; recording expenses late understates current period income.

Correct Answer
verified

Identify the types of adjusting entries and explain the purpose of each type.

Correct Answer
verified
Adjusting entries can be grouped into tw...
View Answer

The accrual basis of accounting:

Correct Answer
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Accumulated depreciation is shown on the balance sheet as a subtraction from the cost of its related asset.

Correct Answer
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On July 1 Plum Co. paid $7,500 cash for management services to be performed over a two-year period. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Plum should record:

Correct Answer
verified

On December 31, Winters Company's Prepaid Rent account had a balance before adjustment of $6,000. Three months' rent was paid in advance on December 1, the first day of the lease term. The adjusting entry needed on December 31 is:

Correct Answer
verified

Asset and liability balances are transferred from the adjusted trial balance to the balance sheet.

Correct Answer
verified

If accrued salaries were recorded on December 31 with a debit to Salaries Expense and a credit to Salaries Payable, and no reversing entries were made on January 1, the entry to record payment of these wages on the following January 5 would include:

Correct Answer
verified

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.

Correct Answer
verified

The accrual basis of accounting reflects the principle that revenue is recorded when it is earned, not when cash is received.

Correct Answer
verified

Correct Answer
verified

Explain the purpose of adjusting entries at the end of a period and provide an example of an adjusting entry.

Correct Answer
verified
Adjusting entries are necessary for tran...
View Answer

The main purpose of adjusting entries is to:

Correct Answer
verified

Accrued expenses at the end of one accounting period are expected to result in cash payments in a future period.

Correct Answer
verified

Accrued revenues:

Correct Answer
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Match the appropriate definition with the following terms.

Profit margin is calculated by dividing net sales by net income.

Correct Answer
verified

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called:

Correct Answer
verified

Exam 3: Adjusting Accounts and Preparing Financial Statements

Correct AnswerverifiedShow Answer

What is an adjusted trial balance? Why is it prepared?

Correct AnswerverifiedAn adjusted trial balance is a list of a...View AnswerShow Answer

Recording expenses early overstates current-period income; recording expenses late understates current period income.

Correct AnswerverifiedShow Answer

Identify the types of adjusting entries and explain the purpose of each type.

Correct AnswerverifiedAdjusting entries can be grouped into tw...View AnswerShow Answer

The accrual basis of accounting:

Correct AnswerverifiedShow Answer

Accumulated depreciation is shown on the balance sheet as a subtraction from the cost of its related asset.

Correct AnswerverifiedShow Answer

On July 1 Plum Co. paid $7,500 cash for management services to be performed over a two-year period. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Plum should record:

Correct AnswerverifiedShow Answer

On December 31, Winters Company's Prepaid Rent account had a balance before adjustment of $6,000. Three months' rent was paid in advance on December 1, the first day of the lease term. The adjusting entry needed on December 31 is:

Correct AnswerverifiedShow Answer

Asset and liability balances are transferred from the adjusted trial balance to the balance sheet.

Correct AnswerverifiedShow Answer

If accrued salaries were recorded on December 31 with a debit to Salaries Expense and a credit to Salaries Payable, and no reversing entries were made on January 1, the entry to record payment of these wages on the following January 5 would include:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The accrual basis of accounting reflects the principle that revenue is recorded when it is earned, not when cash is received.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Explain the purpose of adjusting entries at the end of a period and provide an example of an adjusting entry.

Correct AnswerverifiedAdjusting entries are necessary for tran...View AnswerShow Answer

The main purpose of adjusting entries is to:

Correct AnswerverifiedShow Answer

Accrued expenses at the end of one accounting period are expected to result in cash payments in a future period.

Correct AnswerverifiedShow Answer

Accrued revenues:

Correct AnswerverifiedShow Answer

Match the appropriate definition with the following terms.

Profit margin is calculated by dividing net sales by net income.

Correct AnswerverifiedShow Answer

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
An adjusted trial balance is a list of a...
View Answer

Correct Answer
verified

Correct Answer
verified
Adjusting entries can be grouped into tw...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Adjusting entries are necessary for tran...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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