Chap 4

The year-end closing entry process consists of closing A.the Retained Earnings account. B. all temporary accounts. C. all permanent accounts. D. all accounts E. all equity accounts.

all temporary accounts.

Under the accrual basis of accounting A. adjusting entries are used to change account balances before financial statements are prepared. B. expenses are recognized only after they are both paid and incurred. C. cash must be received before revenue can be recognized. net income is calculated by subtracting cash outflows from cash inflows. D. net income equals cash flows from operations

adjusting entries are used to change account balances before financial statements are prepared.

Accrued expenses are expenses incurred that are not yet paid or recorded. An adjusting entry made to record an accrued expense A. debit an expense account and credits a liability account. B. debits an equity account and credits an expense account. C. debits an expense account and credits an equity account. D. debits an expense account and credit cash. E. debits a liability account and credits an expense account.

debit an expense account and credits a liability account.

The difference between an asset's cost and its accumulated depreciation is called A. real value. B. book value. C. nominal value. D. fair value. E. market value.

Book Value

Financial statements can be prepared directly from the A.post-closing trial balance. B. All of these are correct. C. reversing trial balance. D. adjusted trial balance. E. trial balance.

Adjusted Trial balance

Adjusting entries are recorded to ensure that A. All of these are correct B. revenues are recorded in the period in which the performance obligation is satisfied. C. balance sheet and income statement accounts have correct balances at the end of an accounting period. D. accrual basis accounting rules are followed. E. expense are recognized in the period in which they are incurred

All of these are correct

The accounting cycle is a series of certain steps that businesses, such as corporations, perform in sequence and repeat in each accounting period. Although steps may be missing among the options listed below, which of the following lists steps of the accounting cycle in their correct order? A. Post the transactions, post the closing entries, and post the adjusting entries. B. Journalize the transactions, post the adjusting entries, journalize the closing entries. C. You Answered Post the transactions, journalize the transactions, and prepare a trial balance. D. Prepare the financial statements, journalize the adjusting entries, and post the closing entries. E. Journalize the closing entries, prepare the adjusted trial balance, and prepare the financial statements,

Correct Answer Journalize the transactions, post the adjusting entries, journalize the closing entries.

Companies prepare various types of trial balances. Which trial balance likely lists the smallest number of accounts for a given company? A. All of these list the same number of accounts. B. The pre-disclosure trial balance C. The post-closing trial balance D. The trial balance prepared before recording adjusting entries E. The adjusted trial balance

Post-closing trial balance

A company borrowed money from a bank by signing a four-month note payable in the amount of $16,000 on December 1. The note requires the company to pay interest at an annual rate of 9%. The company records adjusting entries on December 31. The adjusting entry that the company should record for accrued interest on December 31 would include A. a debit to Interest Expense for $120. B. a debit to Interest Expense for $360. C. a credit to Interest Expense for $360. D. a credit to Interest Expense for $120. E. none of these because no adjusting entry would be necessary.

Solution:Interest = Principal x Rate x Time = $16,000 x 9% x 1/12 = $120 After one month, the accrued interest is $120.Interest rates are always annual interest rates unless specifically stated otherwise. This loan charges 6% annual interest per year. The debtor records an adjusting entry to record accrued interest. Debit: Interest Expense, $120 Credit: Interest Payable, $120

A certain company debited prepaid insurance when it paid for a one-year insurance policy. If the company does not record any year-end adjusting entries then A. nothing would be over or understated. B. liabilities would be understated. C. assets would be understated. D. expenses would be understated. E. stockholders' equity would be understated.

expenses would be understated.

A corporation's depreciation in the current year is $800. The company's accountant recorded the year-end adjusting entry for depreciation as a debit to depreciation expense for $800 and a credit to cash for $800. The company's A. net income will be correctly stated but total assets will be overstated by $800. B. net income and total assets will be overstated by $800. C. net income and total assets will be correctly stated. net income and total assets will be understated by $800. D. net income will be correctly stated but total assets will be understated by $800.

net income and total assets will be correctly stated. net income and total assets will be understated by $800.