ACC Exam 1 (Chapter 3)

Perill Co. has a five-day workweek (Monday through Friday). Employees earn $650 per day. If the month ends on Wednesday, and wages will not be paid until Friday, how much wage expense should be accrued on Wednesday? a. $650 b. $1,950 c. $3,250 d. $1,300

b. $1,950

On April 1, Tenity, Inc. paid $3,300 for an insurance premium on a three-year insurance policy. At the end of December, Tenity's fiscal year-end, what should be the balance in the prepaid insurance account? a. $1,100 b. $2,475 c. $3,300 d. $2,200

b. $2,475

A&M Co. provided services of $1,000,000 to clients on account. How does this transaction affect A&M's accounts? a. Increase accounts receivable and cash by $1,000,000 each b. Increase accounts receivable and revenues by $1,000,000 each c. Increase accounts receivable and unearned revenues by $1,000,000 each d. Increase cash and decrease accounts receivable by $1,000,000 each

b. Increase accounts receivable and revenues by $1,000,000 each

Electrodo Co. purchased land for $55,000 with $20,000 paid in cash and $35,000 in notes payable. What effect does this transaction have on the accounts under the accrual basis of accounting? a. Net increase in assets and liabilities of $55,000 b. Net increase in assets of $35,000 and a net increase in liabilities of $35,000 c. Net increase in assets of $55,000 and a net decrease in liabilities of $35,000 d. Net increase in assets of $75,000 and a net decrease in liabilities of $30,000

b. Net increase in assets of $35,000 and a net increase in liabilities of $35,000

_____ is the process that begins with analyzing transactions and ends with preparing financial statements. a. Liquidity reporting b. The accounting cycle c. Amortization of accounts d. Cost reporting

b. The accounting cycle

Accrued expenses are ordinarily reported on the balance sheet as: a. assets. b. liabilities. c. fixed assets. d. prepaid expenses.

b. liabilities.

Unearned rent, representing rent for the next six months' occupancy, would be reported on the landlord's balance sheet as a(n): a. asset. b. liability. c. common stock. d. revenue.

b. liability.

While calculating the carrying value of a building, its accumulated depreciation is: a. not taken into consideration. b. subtracted from the building's cost. c. added to the building's cost. d. subtracted from the fair market value of the building.

b. subtracted from the building's cost.

Using accrual accounting, revenue is recorded and reported only: a. when cash is received without regard to when the services are rendered. b. when the services are rendered without regard to when cash is received. c. when cash is received before services are rendered. d. if cash is received after the services are rendered.

b. when the services are rendered without regard to when cash is received.

ASE Company sold goods, receiving $35,000 in cash and $15,000 on credit. How much revenue should it record under the accrual basis of accounting? a. $35,000 b. $15,000 c. $50,000 d. $150,000

c. $50,000

QRT Co. received $1,560 advance from Zync Inc. as rent for the use of a building owned by QRT Co. How does this transaction affect QRT's accounts if QRT recognizes a liability on receipt of the rent? a. Cash is increased, and sales revenue is increased. b. Cash is increased, and rent income is decreased. c. Cash is increased, and unearned rent is increased. d. Cash is increased, and prepaid rent is increased.

c. Cash is increased, and unearned rent is increased.

Deferred revenue is initially recorded as: a. revenue but becomes a liability over time. b. an asset but becomes revenue over time. c. a liability but becomes revenue over time. d. revenue but becomes an asset over time.

c. a liability but becomes revenue over time.

The updating of accrual accounting records before preparing financial statements is referred to as the: a. consolidation process. b. full disclosure process. c. adjustment process. d. money measurement process.

c. adjustment process

The liabilities that are due to be paid usually within a year or less are called: a. long-term liabilities. b. deferred liabilities. c. current liabilities. d. contingent liabilities.

c. current liabilities.

Expenses not related to the primary operations of the business are sometimes reported as: a. administrative expense. b. operating expense. c. other expense. d. all of these.

c. other expense.

Perill Co. has a five-day workweek (Monday through Friday). Employees earn $650 per day. How much cash will be paid on Friday? a. $650 b. $1,950 c. $1,300 d. $3,250

d. $3,250

Which of the following statements is prepared with various sections, subsections, and captions? a. A statement of current assets b. A statement of stockholders' equity c. A pro forma contra asset statement d. A classified balance sheet

d. A classified balance sheet

Which of the following is an example of an intangible asset? a. Goodwill b. Patents c. Copyrights d. All of these

d. All of these

Which of the following is true of an accrual? a. It is normally the result of cash being received or paid before the revenue is earned or the expense is incurred. b. It is initially recorded as an asset but becomes an expense over time. c. It is initially recorded as a liability but become revenue over time. d. It is normally the result of cash being received or paid after revenue has been earned or an expense has been incurred.

d. It is normally the result of cash being received or paid after revenue has been earned or an expense has been incurred.

Which of the following assets never loses its ability to provide service and, as a result, does not need to be depreciated? a. A copyright b. Office equipment c. A patent d. Land

d. Land

Which transaction would be recorded in a cash basis system of accounting? a. Purchase of equipment by signing a note b. Purchase of supplies on credit c. Sale of goods against a note d. Sale of goods for cash

d. Sale of goods for cash

X&Y Co. received $4,000 in payments from clients for services billed in a previous month. What effect does this transaction have on the accounts under the accrual basis of accounting? a. Total assets increase by $4,000. b. Assets will increase by $4,000 and revenues will increase $4,000. c. Total assets will be decrease by $4,000. d. The net effect on assets is zero.

d. The net effect on assets is zero.

When an adjusting entry is made to record insurance expense and reduce the prepaid insurance account, which section of the statement of cash flows is affected? a. Cash Flow from Operating Activities b. Cash Flow from Investing Activities c. Cash Flow from Financing Activities d. There is no effect on the statement of cash flows.

d. There is no effect on the statement of cash flows.

Unearned interest is categorized as: a. a fixed asset. b. stockholders' equity. c. an intangible asset. d. a liability.

d. a liability.

The expired amount of a prepaid expense is recorded as: a. accrued revenue. b. a contra asset. c. a liability. d. an expense.

d. an expense.

In August, Falcon Inc. received cash in advance of rendering services to its clients. If only a few of those services were provided by December 31, the year-end adjustment would: a. increase unearned revenue and decrease revenue. b. increase accounts payable and decrease revenue. c. increase cash and decrease accounts receivable. d. decrease unearned revenue and increase revenue.

d. decrease unearned revenue and increase revenue.

On June 1, Unidevo, Inc. purchased $1,700 worth of supplies on account. Prior to the purchase, the balance in the supplies account was $0. On December 31, the fiscal year-end for Unidevo, it is determined that $800 of supplies still remain. What is the balance in the supplies account after adjustment? a. $800 b. $900 c. $0 d. $1,700

a. $800

Which of the following is normally the result of cash being received or paid before the revenue is earned or the expense is incurred? a. A deferred expense b. An accrued expense c. A contra asset d. An intangible asset

a. A deferred expense

Speedy Company's weekly payroll of $250 is paid on Fridays (five-day work week). Assume that the last day of the month falls on Thursday. Which of the following is the required month-end adjusting entry? a. Increase Salaries Expense $200 and increase Salaries Payable $200 b. Increase Salaries Expense $50 and increase Salaries Payable $50 c. Increase Salaries Payable $200 and increase Cash $200 d. Increase Salaries Expense $250 and increase Cash $250

a. Increase Salaries Expense $200 and increase Salaries Payable $200

Flyer Co. billed a client for flying lessons given in January. The payment was received in February. Under the accrual basis of accounting, when should Flyer Co. record the revenue? a. January b. February c. Some in January and some in February d. Flyer Co. should not record any revenue

a. January

Identify the item that should be treated as a deferred expense by a company. a. Prepaid advertising b. Unpaid wages c. Unearned rent d. Notes receivable

a. Prepaid advertising

Which of the following is an accrued expense? a. Rent owed but not yet paid b. Accumulated depreciation c. Inventory in process d. A prepaid advertising expense

a. Rent owed but not yet paid

Which of the following is not reported as revenue on the income statement? a. Unearned revenue b. Fees revenue c. Commissions revenue d. Rent revenue

a. Unearned revenue

Interest receivable is an example of: a. accrued revenue. b. retained earnings. c. deferred revenue. d. a prepaid expense.

a. accrued revenue.

A deferred expense is initially recorded as: a. an asset but becomes an expense over time. b. an expense but becomes an asset over time. c. a liability but becomes an expense over time. d. an expense but becomes a liability over time.

a. an asset but becomes an expense over time.

Accrued revenue is shown on a balance sheet as: a. an asset. b. common stock. c. a liability. d. retained earnings.

a. an asset.

Accumulated depreciation is a(n): a. contra asset. b. contingent asset. c. revenue expenditure. d. accrued expense.

a. contra asset.

Cash and other assets that are expected to be converted to cash or sold or used up within one year or less through the normal operations of the business are called: a. current assets. b. intangible assets. c. fixed assets. d. notes receivable.

a. current assets.

Using accrual accounting, expenses are recorded and reported only: a. when they are incurred, whether or not cash is paid. b. when they are incurred and paid at the same time. c. if they are paid before they are incurred. d. if they are paid after they are incurred.

a. when they are incurred, whether or not cash is paid.