ACCT CH4

1. Expenses are recognized when: a. they contribute to the production of revenue. b. they are paid. c. they are billed by the supplier. d. the invoice is received.

a. they contribute to the production of revenue

10. Which statement is correct concerning the adjusted trial balance? a. An adjusted trail balance eliminates the need for the preparation of financial statements. b. The purpose of an adjusted trial balance is to prove the equality of the total debit balances and the total credit balances in the ledger. c. An adjusted trial balance will contain only permanent—balance sheet—accounts. d. The adjusted trial balance is prepared after the adjusting entries have been journalized but before they have been posted.

b. The purpose of an adjusted trial balance is to prove the equality of the total debit balances and the total credit balances in the ledger.

5. Accounts often need to be adjusted because: a. there are never enough accounts to record all the transactions. b. many transactions affect more than one time period. c. there are always errors made in recording transactions. d. management can't decide what they want to report.

b. many transactions affect more than one time period.

2. The revenue recognition principle dictates that revenue should be recognized in the accounting records: a. when cash is received. b. when the performance obligation is satisfied. c. at the end of the month. d. in the period that income taxes are paid.

b. when the performance obligation is satisfied.

Which of the following is an example of a deferral adjusting entry? a. Accrued expense b. Accrued revenue c. Prepaid expense d. All of these choices are correct.

c. Prepaid expense

8. Depreciation is the process of: a. valuing an asset at its fair value. b. increasing the value of an asset over the periods in which it is used. c. allocating the cost of an asset to the periods in which it is used. d. writing down an asset to its real value each accounting period.

c. allocating the cost of an asset to the periods in which it is used.

7. On July 1 the Fisher Shoe Store paid $24,000 to Acme Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Fisher Shoe Store is: a. debit Rent Expense, $24,000; credit Prepaid Rent, $4,000. b. debit Prepaid Rent, $4,000; credit Rent Expense, $4,000. c. debit Rent Expense, $4,000; credit Prepaid Rent, $4,000. d. debit Rent Expense, $24,000; credit Prepaid Rent, $20,000.

c. debit Rent Expense, $4,000; credit Prepaid Rent, $4,000.

6. Greese Company purchased office supplies costing $7,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $2,500 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be: a. debit Supplies Expense, $2,500; credit Supplies, $2,500. b. debit Supplies, $4,500; credit Supplies Expense, $4,500. c. debit Supplies Expense, $4,500; credit Supplies, $4,500. d. debit Supplies, $2,500; credit Supplies Expense, $2,500

c. debit Supplies Expense, $4,500; credit Supplies, $4,500.

La More Company had the following transactions during 2016: • Sales of $9,000 on account • Collected $4,000 for services to be performed in 2017 • Paid $3,750 cash in salaries for 2016 • Purchased airline tickets for $500 in December for a trip to take place in 2017 What is La More's 2016 net income using accrual accounting? a. $5,750 b. $9,750 c. $9,250 d. $5,250

d. $5,250