ACCT165 Chapter 3 Review Questions
A general journal may be used by any entity in recording its transactions, whereas special journals may be used only by entities whose transactions meet certain requirements. TRUE/FALSE
False
Adjusting entries are an optional step in the accounting process. TRUE/FALSE
False
Adjusting entries are used to correct errors that occur during the posting process. TRUE/FALSE
False
An adjusted trial balance that shows equal debit and credit columnar totals proves the accuracy of the adjusting entries. TRUE/FALSE
False
An example of an internal event would be a flood that destroyed a portion of an entity's inventory. TRUE/FALSE
False
If an entity fails to post one of its journal entries to its general ledger, the trial balance will not show an equal amount of debit and credit balance accounts. TRUE/FALSE
False
In general, debits refer to increases in account balances, and credits refer to decreases TRUE/FALSE
False
It is not necessary to post the closing entries to the ledger accounts because new revenue and expense accounts will be opened in the subsequent accounting period. TRUE/FALSE
False
Real (permanent) accounts are revenue and expense accounts and are periodically closed. TRUE/ FALSE
False
Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions. TRUE/FALSE
False
The Income Summary account used during the closing process is shown in the stockholders' equity section of the balance sheet TRUE/FALSE
False
The post-closing trial balance consists of asset, liability, stockholders' equity, revenue and expense accounts TRUE/FALSE
False
If the following journal entry was made for the purchase of a three-year insurance policy in February of the first year, would an adjusting entry and/or a reversing entry be appropriate at the end of the first year? Unexpired Insurance 3,000 Cash 3,000 Adjusting Entry Reversing Entry A. Yes No B. No Yes C. Yes Yes D. No No
A
The accounting equation (A = L + SE) must remain in balance: A. throughout each step in the accounting cycle. B. only when journal entries are recorded. C. only at the time the trial balance is prepared. D. only when formal financial statements are prepared.
A
A prepaid expense can best be described as an amount: A. Paid and currently matched with earnings. B. Paid and not currently matched with earnings. C. Not paid and not currently matched with earnings. D. Not paid and currently matched with earnings.
B
An accrued expense can best be described as an amount: A. Paid and not currently matched with earnings. B. Not paid and currently matched with earnings. C. Not paid and not currently matched with earnings. D. Paid and currently matched with earnings.
B
An adjusting entry should never include: A. a debit to expense and a credit to a liability. B. a debit to expense and a credit to revenue. C. a debit to a liability and a credit to revenue. D. a debit to revenue and a credit to a liability.
B
During the first year of Wisnewski Co.'s operations, all purchases were recorded as assets. Store supplies in the amount of $6,540 were purchased. Actual year-end store supplies inventory amounted to $2,150. The adjusting entry for store supplies will: A. increase net income $4,390. B. increase expenses by $4,390. C. decrease store supplies by $6,540. D. debit accounts payable for $2,150.
B
When a company makes reversing entries A. it credits all cash payments of expenses to the related expense account. B. it debits all cash payments of expenses to the related expense account. C. it debits all cash receipts to the related revenue account. D. all subsequent cash receipts and cash payments are credited to Income Summary.
B
Which of the following is an example of an accrued liability? A. Supplies purchased at the beginning of the year and debited to an expense account. B. Property taxes incurred during the year, to be paid in the first quarter of the subsequent year. C. Depreciation expense. D. Rent, provided as a service during the period, cash to be received next year
B
A trial balance prepared at year end showed Puccineli Co.'s debit total exceeding the credit total by $6,300. This discrepancy could have been caused by: A. the balance of $47,000 in accounts receivable being entered in the trial balance as $40,700. B. an error in adding the Sales Journal. C. the balance of $700 in the Equipment account being entered as a debit of $7,000. D. a net loss of $6,300.
C
Which of the following is correct regarding double-entry accounting? A. Each transaction is recorded twice, once in the general journal and once in a specialized journal. B. Each transaction must involve two entries, either two debits, two credits, or one debit and one credit. C. Each transaction must result in equal amounts of debits and credits. D. Each transaction appears in at least two of the financial statements
C
Which of the following journal entries is appropriate when a company receives payment in advance for goods or services? A. Debit cash and credit an expense account. B. Credit cash and debit a revenue account. C. Debit cash and credit a liability account. D. Credit cash and debit a liability or revenue account
C
Which of the following statements best describes the purpose of closing entries? A. To facilitate posting and preparing a trial balance. B. To determine the amount of gain or loss for the period. C. To reduce the balances of revenue and expense accounts to zero so that they may be used to accumulate the revenues and expenses of the next period. D. To complete the record of various transactions that were started in a prior period.
C
A worksheet A. can be used in place of financial statements. B. is a formal device for accumulating, sorting, and recording information in the general ledger. C. is used to record and post the closing entries. D. provides considerable assurance the company properly handled all of the details related to end-of-period accounting.
D
If expenses are greater than revenues, the Income Summary account will be closed by a debit to: A. Income Summary and a credit to Cash. B. Income Summary and a credit to Retained Earnings. C. Cash and a credit to Income Summary. D. Retained Earnings and a credit to Income Summary.
D
Rent collected in advance by a landlord is a (an): A. Accrued liability. B. Deferred asset. C. Accrued revenue. D. Unearned revenue
D
The Murphy Company sublet a portion of its warehouse for five years at an annual rental of $24,000, beginning on May 1, 2020. The tenant, Sheri Charter, paid one year's rent in advance, which Murphy recorded as a credit to unearned rental income. Murphy reports on a calendar-year basis. The adjustment on December 31, 2020 for Murphy should be: Dr. Cr. A. No entry B. Unearned rental income 8,000 Rental income 8,000 C. Rental income 8,000 Unearned rental income 8,000 D. Unearned rental income 16,000 Rental income 16,000
D
Which of the following is not a principal purpose of an unadjusted trial balance? A. It proves that debits and credits of equal amounts are in the ledger. B. It is the basis for any adjustments to the account balances. C. It supplies a listing of open accounts and their balances. D. It proves that debits and credits were properly entered in the ledger accounts.
D
With regard to the accounting cycle, which of the following pairings of activities provides a correct chronology? A. The financial statements are prepared and later an adjusted trial balance is prepared. B. Reversing entries are prepared and later a post-closing trial balance is prepared. C. Closing entries are prepared and later financial statements are prepared. D. Transactions are journalized and later posted to the ledger.
D
A worksheet completed through the adjusted trial balance column provides the information needed for preparation of the financial statements without reference to the ledger or other records. TRUE/FALSE
True
Adjusting entries result from compliance with the revenue recognition and expense recognition principles TRUE/FALSE
True
An adjustment for salaries and wages expense, incurred but unpaid at year end, is an example of an accrued liability. TRUE/FALSE
True
Bad debts are recorded in the period in which the sale was made to ensure that receivables are reported at their net realizable value TRUE/FALSE
True
Double-entry accounting is the process that leads to the basic equality in accounting expressed by the formula: assets = liabilities + stockholders' equity. TRUE/FALSE
True
In general, reversing entries are used for two types of adjusting entries: accrued revenues and accrued expenses. TRUE/FALSE
True
One purpose of a trial balance is to prove that debits and credits of an equal amount are in the general ledger. TRUE/FALSE
True
The Interest Expense account is credited during the closing process TRUE/FALSE
True
The use of a worksheet at the end of each month or quarter permits the preparation of interim financial statements even though the books are closed only at the end of each year TRUE/FALSE
True
Use of reversing entries does not change the amounts reported in the financial statements for the previous period. TRUE/FALSE
True
