Practice Multiple Choice Questions Ch 03

The principle or assumption dictating that efforts (expenses) be matched with accomplishments (revenues) is the: (a) Expense recognition principle. (b) Cost assumption. (c) Time period assumption. (d) Revenue recognition principle.

(/a/) The expense recognition principle dictates that expenses be matched with revenues.

The trial balance shows Supplies $0 and Supplies Expense $1,500. if $800 of supplies are on hand at the end of the period, the adjusting entry is: (a) Debit Supplies $800 and credit Supplies Expense $800. (b) Debit Supplies Expense $800 and credit Supplies $800. (c) Debit Supplies $700 and credit Supplies Expense $700. (d) Debit Supplies Expense $700 and credit Supplies $700.

(/a/) This adjusting entry correctly states that the Supplies account at $800 ($0 + $800) and the Supplies expense account at $700 ($1,500 - $800).

Adjustments for accrued revenues: (a) Have a liabilities-and-revenues-account relationship. (b) Have an assets-and-revenues-account relationship. (c) Decrease assets and revenues. (d) Decrease liabiliies and increase revenues.

(/b/) Adjustments for accrued revenues will have an assets-and-revenues-account relationship.

Anika Wilson earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Anika's employer at September 30 is: (a) No entry is required. (b) Salaries and Wages Expense ________400 _______Salaries and Wages Payable ____________400 (c) Salaries and Wages Expense ________400 _______Cash _____________________________________________400 (d) Salaries and Wages Payable _________400 _______Cash _____________________________________________400

(/b/) The adjusting entry should be to debit Salaries and Wages Expense for $400 and credit Salaries and Wages Payable for $400.

Adjustments for prepaid expenses: (a) Decrease assets and increase revenues. (b) Decrease expenses and increase assets. (c) Decrease assets and increase expenses. (d) Decrease revenues and increase assets.

(/c/) Adjustments for prepaid expenses decrease assets and increase expenses.

Which item is a constraint in financial accounting? (a) Comparability. (b) Materiality. (c) Cost. (d) Consistency.

(/c/) Cost is a constraint in financial accounting. The other choices are all enhancing qualities of useful information.

The trial balance shows supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is: (a) Supplies ______________________600 _____Supplies Expense _______________600 (b) Supplies ______________________750 _____Supplies Expense _______________750 (c) Supplies Expense __________750 _____Supplies ____________________________750 (d) Supplies Expense __________600 _____Supplies ____________________________600

(/c/) Debiting Supplies Expense for $750 and crediting Supplies for $750 will decrease Supplies and increase Supplies Expense.

Neutrality is an ingredient of: FAITHFUL REPRESENTATION RELEVANCE (a) Yes Yes (b) No No (c) Yes No (d) No Yes

(/c/) Neutrality is one of the enhancing qualities that makes information more representationally faithful, not relevant.

Which of the following statements is INCORRECT concerning the adjusted trial balance? (a) An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. (b) The adjusted trail balance provides the primary basis for the preparation of financial statements. (c) The adjusted trial balance lists the account balances segregated by assets and liabilities. (d) The adjusted trial balance is prepared after the adjusting entries have been journalized and posted.

(/c/) The accounts on the trial balance can be segregated by the balance in the account - either debit or credit - not whether they are assets or liabilities.

Rivera Company computes depreciation on delivery equipment of $1,000 for the month of June. The adjusting entry to record this depreciation is as follows. (a) Depreciation Expense _______________1,000 _______Accumulated Depreciation- ____________1,000 _________Rivera Company (b) Depreciation Expense ______________1,000 _______Equipment ___________________________________1,000 (c) Depreciation Expense ______________1,000 _______Accumulated Depreciation- ___________1,000 __________Equipment (d) Equipment Expense ________________1,000 _______Accumulated Depreciation- ___________1,000 __________Equipment

(/c/) The adjusting entry is to debit Depreciation Expense and credit Accumulated Depreciation - Equipment.

Accumulated Depreciation is: (a) A contra asset account. (b) An expense account. (c) An owner's equity account. (d) A liability account.

(/a/) Accumulated Depreciation is a contra asset account; it is offset against an asset account on the balance sheet.

The revenue recognition principle states that: (a) Revenue should be recognized in the accounting period in which a performance obligation is satisfied. (b) Expenses should be matched with revenues. (c) The economic life of a business can be divided into artificial time periods. (d) The fiscal year should correspond with the calendar year.

(/a/) Revenue should be recognized in the accounting period in which a performance obligation is satisfied.

Adjustments for unearned revenues: (a) Decrease liabilities and increase revenues. (b) Have an assets-and-revenues-account relationship. (c) Increase assets and increase revenues. (d) Decrease revenues and decrease assets.

(/a/) Adjustments for unearned revenues will consist of a debit (decrease) to unearned revenues (a liability) and a credit (increase) to a revenue account.

The time period assumption states that: (a) Companies must wait until the calendar year is completed to prepare financial statements. (b) Companies use the fiscal year to report financial information. (c) The economic life of a business can be divided into artificial time periods. (d) Companies record information in the time period in which the events occur.

(/c/) The economic life of a business can be divided into artifical time periods.

Adjusting entries are made to ensure that: (a) Expenses are recognized in the period in which they are incurred. (b) Revenues are recorded in the period in which services are performed. (c) Balance sheet and income statement accounts have correct balances at the end of an accounting period. (d) All responses above are correct.

(/d/) Adjusting entries are made for the reasons noted in choices (a), (b), and (c).

Which of the following statements about the accrual basis of accounting is FALSE? (a) Events that change a company's financial statements are recorded in the periods in which the events occur. (b) Revenue is recognized in the period in which services are performed. (c) The basis is in accord with generally accepted accounting principles (GAAP). (d) Revenue is recorded only when cash is received.

(/d/) Under the accrual basis of accounting, revenue is recognized when the performance obligation is satisfied, not when cash is recieved, and expense is recognized when incurred, not when cash is paid.

Each of the following is a major type (or category) of adjusting entries EXCEPT: (a) Prepaid expenses. (b) Accrued revenues. (c) Accrued expenses. (d) Recognized revenues.

(/d/) Unearned revenues, not recognized revenues, are one of the major categories of adjusting entries.