ACG 2021 CH 4

Which of the following is not included in the computation of net cash provided by operating activities? A) Supplies Used B) Payment of rent C) Purchase of insurance D) Cash received from customers

A) Supplies Used

Adjusting entries are recorded to ensure that A) expenses are recognized in the period in which they are incurred. B) income statement accounts have zero balances at the end of an accounting period. C) revenues are partitioned between revenue from sales to customers and revenue from other sources (e.g., interest revenue). D) None of the choices are correct. E) All of these choices are correct.

A) expenses are recognized in the period in which they are incurred.

During the adjusting process two transactions were neglected or omitted. The first is for unearned rent revenue of which $415 was earned during the period, the second was for accrued interest payable of which $275 is owed for the period. As a result of these omissions A) expenses are understated by $275. B) These omissions would not affect the financial statements; the financial statements will be correct. C) revenue is overstated by $690. D) net income is overstated by $140. E) liabilities are overstated by $690.

A) expenses are understated by $275.

The closing entry process consists of closing A) only the dividends account. B) all temporary accounts. C) only the Retained Earnings account. D) all permanent accounts. E) all asset and liability accounts.

B) all temporary accounts.

In the closing process total revenues are determined to be $5,750 while total expenses are determined to be $3,875 and total dividends are $1,350. The retained earnings account will A) increase by $1,875. B) decrease by $1,875. C) increase by $525. D) decrease by $525. E) Retained earnings does not change.

C) increase by $525.

Payments from customers received before performing services for the customers are recorded as A) expenses. B) revenues. C) liabilities. D) equity. E) dividends.

C) liabilities.

Employees at the Waco Company were paid on Friday, December 27 for the five days ending on December 27. The next payday is Friday, January 3. Employees work 5 days a week. The weekly payroll amounts to $3,800. The appropriate adjusting journal entry on December 31 would be to credit Salaries and Wages Payable for A) $1,520. B) $630. C) $760. D) $3,800. E) $2,280.

A) $1,520.

Peak Corporation Adjusted Trial Balance As of December 31, 2018 Debit Credit Cash $ 800 Accounts Receivable 200 Inventory 2,500 Building 30,000 Accumulated Depreciation $ 3,000 Notes Payable 500 Common Stock 21,000 Retained Earnings 5,000 Dividends 1,000 Revenues 7,000 Selling and Administrative Expense 1,000 Insurance Expense 1,000 $ 36,500 $ 36,500 Determine the amount that will be reported as retained earnings on the post-closing trial balance. A) $9,000 B) $14,000 C) $6,000 D) $10,000 E) $2,000

A) $9,000

Bonita Realty Management Co. received a check for $36,000 on October 1, which represents a one year advance payment of rent on an office it rents to a client. Unearned Rent Revenue was credited when the realty company collected the rent. Financial statements are prepared on December 31. The appropriate year-end adjusting journal entry that the realty company must record for the first year would be a A) $9,000 debit to Unearned Rent Revenue and a $9,000 credit to Rent Revenue. B) $27,000 debit to Unearned Rent Revenue and a $27,000 credit to Rent Revenue. C) $27,000 debit to Rent Revenue and a $27,000 credit to Unearned Rent Revenue. D) $9,000 debit to Rent Revenue and a $9,000 credit to Unearned Rent Revenue. E) No adjusting entry is necessary.

A) $9,000 debit to Unearned Rent Revenue and a $9,000 credit to Rent Revenue.

The following is information is from Clark Corporation's financial records for the current fiscal year. i. Cash received from customers, $150,000 ii. Revenue earned, $195,000 iii. Cash paid for wages, $85,000 iv. Wage expense incurred, $90,000 v. Cash paid during the current year for computers that will be used for 3 years, $24,000 vi. Depreciation expense, $8,000 vii. Proceeds from issuing debt, $50,000 viii. Interest incurred on debt, $5,000 ix. Cash paid for supplies, $3,000 x. Supplies expense incurred, $2,000 What is the company's net income for the current year using the accrual basis of accounting? A) $90,000 B) $98,000 C) $97,000 D) $138,000 E) $125,000

A) $90,000

At December 31, but before any year-end adjustments, McCarthy Company's Prepaid Insurance account had a balance of $2,400. It was determined that $900 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be A) $900. B) $1,900. C) $1,200. D) $3,300. E) $2,400.

A) $900.

FastAct Company pays its employee his wage each Friday. The most recent payment occurred on Friday, December 27. The next payroll will be paid on January 3. There are two more working days in December after December 27. The employee works 5 days a week and the company pays $2,500 per week in wages. What will be the adjusting entry to accrue wages expense at the end of December? A) A debit to Salaries and Wages Expense for $1,000 B) A debit to Salaries and Wages Expense for $2,500 C) A credit to Salaries and Wages Expense for $1,000 D) A credit to Salaries and Wages Expense for $2,500 E) No adjusting entry would be required.

A) A debit to Salaries and Wages Expense for $1,000

Which principle dictates that efforts (i.e., expenses) be matched with results (i.e., revenues)? A) Expense recognition principle B) Historical cost principle C) Monetary unit assumption D) Revenue recognition principle E) Periodicity principle

A) Expense recognition principle

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) Journalize the transactions, journalize the adjusting entries, and prepare a post-closing trial balance. B) Post the transactions, prepare a post-closing trial balance, and journalize and post the adjusting entries. C) Prepare the financial statements, prepare the trial balance, and post the closing entries. D) Post the closing entries, prepare the adjusted trial balance, and prepare the financial statements, E) Post the transactions, post the closing entries, and prepare the adjusted trial balance.

A) Journalize the transactions, journalize the adjusting entries, and prepare a post-closing trial balance.

Which of the following is not based on accrual accounting? A) Net cash provided by operating activities B) Net income C) Total assets D) Retained earnings

A) Net cash provided by operating activities

A company accepts a customer's order on November 30 and immediately delivers the goods to the customer. On December 1, the company sends the customer an invoice stating payment is due no later than January 1. The company receives a check from the customer for the full amount due on December 22. The company follows the revenue recognition principle and accrual-basis accounting. On what day should the company recognize revenue for this order? A) November 30 B) January 1 C) December 31 D) December 22 E) December 1

A) November 30

Under the cash basis of accounting, an amount received from a customer in advance of providing the services would be reported as a(n): A) an increase to assets and an increase to revenue. B) none of these. C) an increase to assets and an increase to liabilities. D) an increase to assets and an increase to expenses. E) an increase to an asset and a decrease to a different asset.

A) an increase to assets and an increase to revenue.

The year-end trial balance for Beltway Corporation appears as follows: Beltway Corporation Trial Balance December 31 Debit Credit Cash $ 300 Accounts Receivable 500 Prepaid Insurance 60 Supplies 140 Equipment 4,000 Accumulated Depreciation, Equipment $ 800 Accounts Payable 300 Common Stock 1,000 Retained Earnings 1,400 Service Revenue 3,000 Salaries and Wages Expense 1,000 Rent Expense 500 $6,500 $6,500 If the current year depreciation on the equipment were $200, the company should record an adjusting entry that A) debits Depreciation Expense for $200 and credits Accumulated Depreciation for $200. B) debits Depreciation Expense for $200 and credits Equipment for $200. C) debits Accumulated Depreciation for $200 and credits Equipment for $200. D) debits Equipment for $200 and credits Accumulated Depreciation for $200. E) debits Depreciation Expense for $200 and credits Cash for $200.

A) debits Depreciation Expense for $200 and credits Accumulated Depreciation for $200.

If a year-end adjusting entry is not recorded for unearned revenues the result will be to A) overstate liabilities and understate revenues. B) understate retained earnings and overstate revenues. C) Not recording such a journal entry would not affect the financial statements; the financial statements will be correct. D) overstate assets and understate liabilities. E) understate net income and overstate retained earnings.

A) overstate liabilities and understate revenues.

In Year 1, Costello Company performed work for a customer and billed the customer $10,000. In Year 2, the customer pays Costello Company for the services it rendered in Year 1. In Year 1, the company incurred $3,000 of wage expense, but it did not pay the employees until Year 2. If Costello Company uses the cash-basis of accounting, then it will report A) revenue of $10,000 and expense of $3,000 in Year 2. B) revenue of $10,000 in Year 1 and expense of $3,000 in Year 2. C) no revenue or expenses in either year. D) revenue of $10,000 and expense of $3,000 in Year 1. E) revenue of $10,000 in in Year 2 and expense of $3,000 in Year 1.

A) revenue of $10,000 and expense of $3,000 in Year 2.

In Year 1, Costello Company performed work for a customer and billed the customer $14,000. In Year 2, the customer pays Costello Company for the services it rendered in Year 1. In Year 1, the company incurred and paid $6,000 of wage expense. If Costello Company uses the accrual-basis of accounting, then it will report A) revenue of $14,000 and expense of $6,000 in Year 1. B) revenue of $14,000 and expense of $6,000 in Year 2. C) revenue of $14,000 in Year 1 and expense of $6,000 in Year 2. D) revenue of $14,000 in Year 2 and expense of $6,000 in Year 1. E) no revenue and no expense in either year.

A) revenue of $14,000 and expense of $6,000 in Year 1.

Based on the following adjusted trial balance: Peak Corporation Adjusted Trial Balance As of December 31, 2018 Debit Credit Cash $ 800 Accounts Receivable 200 Inventory 3,000 Building 30,000 Accumulated Depreciation $ 2,000 Notes Payable 1,000 Common Stock 21,000 Retained Earnings 6,000 Dividends 2,000 Revenues 8,000 Selling and Administrative Expense 1,000 Insurance Expense 1,000 $ 38,000 $ 38,000 Determine the amount that will be reported as retained earnings on the post-closing trial balance. A) $9,000 B) $10,000 C) $6,000 D) $2,000 E) $14,000

B) $10,000

Bonita Realty Management Co. received a check for $30,000 on October 1, which represents a one year advance payment of rent on an office it rents to a client. Unearned Rent Revenue was credited when the realty company collected the rent. Financial statements are prepared on December 31. The appropriate year-end adjusting journal entry that the realty company must record for the first year would be a A) No adjusting entry is necessary. B) $7,500 debit to Unearned Rent Revenue and a $7,500 credit to Rent Revenue. C) $2,500 debit to Rent Revenue and a $2,500 credit to Unearned Rent Revenue. D) $22,500 debit to Unearned Rent Revenue and a $22,500 credit to Rent Revenue. E) $2,500 debit to Rent Revenue and a $2,500 credit to Unearned Rent Revenue.

B) $7,500 debit to Unearned Rent Revenue and a $7,500 credit to Rent Revenue.

FastAct Company pays its employees their wages each Friday. The most recent payment occurred on Friday, December 28. The next payroll will be paid on January 4. There is one more work day in December after December 28th. Employees work 5 days a week and the company pays $2,000 per day in wages. What will the adjusting entry to accrue wages expense at the end of December include? A) No adjusting entry would be required. B) A debit to Salaries and Wages Expense for $2,000 C) A credit to Salaries and Wages Expense for $400. D) A debit to Salaries and Wages Expense for $400 E) A credit to Salaries and Wages Expense for $2,000

B) A debit to Salaries and Wages Expense for $2,000

Which of the following correctly describes the closing process? A) Net income is transferred to the Common Stock account. B) Each revenue account and expense account is closed to a zero balance. C) All of these are correct. D) Net income is transferred to the Cash account. E) Permanent accounts are closed to zero balances.

B) Each revenue account and expense account is closed to a zero balance.

What is the periodicity assumption? A) A principle that a company's fiscal year-end should correspond with the calendar year. B) The economic life of a business can be divided into artificial time periods. C) Companies should match expenses with revenues. D) Companies should recognize revenue in the accounting period in which the performance obligation is satisfied. E) None of these

B) The economic life of a business can be divided into artificial time periods.

Companies prepare various types of trial balances. Which trial balance lists all of a company's permanent accounts but not its temporary accounts? A) The pre-disclosure trial balance B) The post-closing trial balance C) The adjusted trial balance D) All of these list the same number of accounts. E) The trial balance prepared before recording adjusting entries

B) The post-closing trial balance

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

B) adjusted trial balance.

Under the cash basis of accounting, an amount received from a customer in advance of providing the services would be reported as a(n): A) an increase to assets and an increase to liabilities. B) an increase to assets and an increase to revenue. C) an increase to an asset and a decrease to a different asset. D) none of these. E) an increase to assets and an increase to expenses.

B) an increase to assets and an increase to revenue.

In the closing process total revenues are determined to be $4,750 while total expenses are determined to be $3,875 and total dividends are $1,150. The retained earnings account will A) increase by $875. B) decrease by $275. C) increase by $275. D) Retained earnings does not change. E) decrease by $875.

B) decrease by $275.

Payments from customers received before performing services for the customers are recorded as A) expenses. B) liabilities. C) equity. D) dividends. E) revenues.

B) liabilities.

McMaster Company'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 and total assets will be understated by $800. B) net income and total assets will be correctly stated. C) net income and total assets will be overstated by $800. D) net income will be correctly stated but total assets will be understated by $800. E) net income will be correctly stated but total assets will be overstated by $800.

B) net income and total assets will be correctly stated.

During the adjusting process two transactions were neglected or omitted. The first is for unearned rent revenue of which $540 was earned during the period, the second was for accrued interest payable of which $225 is owed for the period. As a result of these omissions A) These omissions would not affect the financial statements; the financial statements will be correct. B) net income is understated by $315. C) assets are overstated by $315. D) revenue is overstated by $315. E) liabilities are understated by $315.

B) net income is understated by $315.

During the adjusting process two transactions were neglected or omitted. The first is for unearned rent revenue of which $475 was earned during the period, the second was for accrued interest payable of which $315 is owed for the period. As a result of these omissions A) expenses are overstated by $475. B) revenue is understated by $475. C) These omissions would not affect the financial statements; the financial statements will be correct. D) net income is overstated by $315. E) liabilities are understated by $160.

B) revenue is understated by $475.

A company has unearned revenues on its books. If the company fails to record a year-end adjusting entry for unearned revenues, then its financial statements A) understate revenues and overstate stockholders' equity. B) understate retained earnings and understate revenues. C) understate revenues and understate liabilities. D) understate assets and overstate retained earnings. E) overstate assets and overstate revenues.

B) understate retained earnings and understate revenues.

Using accrual accounting, expenses are recognized A) when they are paid regardless of when they are incurred. B) when they are incurred regardless of when they are paid. C) when they are paid if they are paid after they are incurred. D) none of these E) when they are paid if they are paid before they are incurred.

B) when they are incurred regardless of when they are paid.

On December 31, but before any year-end adjustments, McCarthy Company's Prepaid Insurance account had a balance of $2,700. It was determined that $1,500 of the Prepaid Insurance had expired. The Insurance Expense for the year would be A) $1,200. B) $900. C) $1,500. D) $1,900. E) $2,700.

C) $1,500.

Bonita Realty Management Co. received a check for $30,000 on September 1, which represents a one year advance payment of rent on an office it rents to a client. Unearned Rent Revenue was credited when the realty company collected the rent. Financial statements are prepared on December 31. The appropriate year-end adjusting journal entry that the realty company must record for the first year would be a A) $20,000 debit to Unearned Rent Revenue and a $20,000 credit to Rent Revenue. B) No adjusting entry is necessary. C) $10,000 debit to Unearned Rent Revenue and a $10,000 credit to Rent Revenue. D) $20,000 debit to Rent Revenue and a $20,000 credit to Unearned Rent Revenue. E) $10,000 debit to Rent Revenue and a $10,000 credit to Unearned Rent Revenue.

C) $10,000 debit to Unearned Rent Revenue and a $10,000 credit to Rent Revenue.

Based on the following adjusted trial balance: Peak Corporation Adjusted Trial Balance As of December 31, 2018 Debit Credit Cash $ 800 Accounts Receivable 200 Inventory 2,000 Building 30,000 Accumulated Depreciation $ 1,000 Notes Payable 3,000 Common Stock 17,000 Retained Earnings 10,000 Dividends 3,000 Revenues 7,000 Selling and Administrative Expense 1,000 Insurance Expense 1,000 $ 38,000 $ 38,000 Determine the amount that will be reported as retained earnings on the post-closing trial balance. A) $14,000 B) $10,000 C) $12,000 D) $9,000 E) $2,000

C) $12,000

Based on the following adjusted trial balance: Peak Corporation Adjusted Trial Balance As of December 31, 2018 Debit Credit Cash $ 800 Accounts Receivable 200 Inventory 2,000 Building 30,000 Accumulated Depreciation $ 1,000 Notes Payable 3,000 Common Stock 17,000 Retained Earnings 10,000 Dividends 3,000 Revenues 7,000 Selling and Administrative Expense 1,000 Insurance Expense 1,000 $ 38,000 $ 38,000 Determine the amount that will be reported as retained earnings on the post-closing trial balance. A) $2,000 B) $9,000 C) $12,000 D) $14,000 E) $10,000

C) $12,000

Galileo Company borrowed money from a bank by signing a three-month note payable in the amount of $12,000 on November 1. The note requires Galileo Company to pay interest at an annual rate of 8%. Galileo Company records adjusting entries on December 31. The adjusting entry that Galileo Company should record for accrued interest on December 31 would include a debit to Interest Expense for A) $960 B) $270 C) $160 D) $80 E) $1,200

C) $160

Galileo Company borrowed money from a bank by signing a three-month note payable in the amount of $18,000 on November 1. The note requires Galileo Company to pay interest at an annual rate of 9%. Galileo Company records adjusting entries on December 31. The adjusting entry that Galileo Company should record for accrued interest on December 31 would include a debit to Interest Expense for A) $1,620 B) $100 C) $270 D) $1,500 E) $135

C) $270

Kepler Company borrowed money from a bank by signing a three-year note payable in the amount of $15,000 on July 1, 2018. The note requires Kepler Company to pay interest at an annual rate of 8%. Kepler Company records adjusting entries on December 31. The adjusting entry that Kepler Company should record for accrued interest on December 31, 2018 would include a debit to Interest Expense for A) $640 B) $1,200 C) $600 D) $100 E) $3,600

C) $600

On August 1, Crestview Company purchased equipment for $8,000. The equipment's estimated salvage value is $500. The machine will be depreciated using straight-line depreciation and a five year life. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be a A) $625 debit to Depreciation Expense and a $625 credit to Cash. B) $625 debit to Accumulated Depreciation and a $625 credit to Depreciation Expense. C) $625 debit to Depreciation Expense and a $625 credit to Accumulated Depreciation. D) $1,500 debit to Accumulated Depreciation and a $1,500 credit to Depreciation Expense. E) $1,500 debit to Depreciation Expense and a $1,500 credit to Accumulated Depreciation.

C) $625 debit to Depreciation Expense and a $625 credit to Accumulated Depreciation.

The following is information is from Clark Corporation's financial records for the current fiscal year. i. Cash received from customers, $230,000 ii. Revenue earned, $255,000 iii. Cash paid for wages, $110,000 iv. Wage expense incurred, $115,000 v. Cash paid during the current year for computers that will be used for 3 years, $30,000 vi. Depreciation expense, $10,000 vii. Proceeds from issuing debt (e.g., borrowed money from a bank), $30,000 viii. Interest incurred on debt, $3,000 ix. Cash paid for supplies, $4,000 x. Supplies expense incurred, $2,000 What is the company's net income for the current year using the cash-basis of accounting? A) $130,000 B) $135,000 C) $86,000 D) $125,000 E) $92,000

C) $86,000

Adjusting entries are recorded to ensure that A) None of the choices are correct. B) balance sheet and income statement accounts have correct balances at the end of an accounting period. C) All of these choices are correct. D) expenses are recognized in the period in which they are incurred. E) revenues are recorded in the period in which the performance obligation is satisfied.

C) All of these choices are correct.

Which of the following is not based on accrual accounting? A) Total assets B) Retained earnings C) Net cash provided by operating activities D) Net income

C) Net cash provided by operating activities

Which types of accounts will appear in the post-closing trial balance? A) None of these answer choices are correct. B) All accounts will appear in the post-closing trial balance. C) Permanent accounts D) Temporary accounts E) Accounts shown in the income statement

C) Permanent accounts

Which account will have a zero balance after a company has journalized and posted closing entries? A) All of these B) Accumulated Depreciation C) Service Revenue D) Supplies E) None of these

C) Service Revenue

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

C) The post-closing trial balance

If a company fails to adjust for accrued revenues: A) liabilities will be understated and revenues will be understated. B) equity will be overstated and revenue will be understated. C) assets will be understated and revenues will be understated. D) liabilities will be overstated and revenues will be understated. E) assets will be overstated and revenues will be understated.

C) assets will be understated and revenues will be understated.

If the year-end adjusting entry to record salaries owed to employees were omitted then A) retained earnings would be understated. B) liabilities would be overstated. C) assets would be correctly stated. D) stockholders' equity would be correctly stated. E) expenses would be overstated.

C) assets would be correctly stated.

The following information is from the Income Statement of the Crowley Corporation: Revenues Service Revenue $5,500 Expenses Salaries and wages expense $ 1,950 Advertising expense 500 Rent expense 300 Supplies expense 200 Insurance expense 100 Total expenses 3,050 Net Income $2,450 The closing entries includes a: A) debit to expenses for $3,050. B) debit to Retained Earnings for $2,450. C) debit to Income Summary for $2,450. D) credit to Income Summary for $2,450. E) credit to Common Stock for $2,450.

C) debit to Income Summary for $2,450.

In its first year, a company purchased $10,000 of supplies and recorded the purchase by debiting the supplies account. At the end of the year, the company had $3,500 of supplies on hand. If the company failed to make an adjusting entry for supplies, then: A) assets will be understated. B) liabilities will be understated. C) expense will be understated. D) stockholders' equity will be understated. E) net income will be understated.

C) expense will be understated.

The year-end trial balance for Beltway Corporation appears as follows: Beltway Corporation Trial Balance December 31 Debit Credit Cash $ 300 Accounts Receivable 500 Prepaid Insurance 60 Supplies 140 Equipment 4,000 Accumulated Depreciation, Equipment $ 800 Accounts Payable 300 Common Stock 1,000 Retained Earnings 1,400 Service Revenue 3,000 Salaries and Wages Expense 1,000 Rent Expense 500 $6,500 $6,500 If, at year-end, the unexpired insurance were $20, the company should record an adjusting entry that A) debits Insurance Expense for $20 and credits Prepaid Insurance for $20. B) debits Prepaid Insurance for $20 and credits Insurance Expense for $20. C) debits Insurance Expense for $40 and credits Prepaid Insurance for $40. D) debits Prepaid Insurance for $40 and credits Insurance Expense for $40. E) debits Insurance Expense for $20 and credits Cash for $20.

C) debits Insurance Expense for $40 and credits Prepaid Insurance for $40.

During the adjusting process two transactions were neglected or omitted. The first is for unearned rent revenue of which $475 was earned during the period, the second was for accrued interest payable of which $315 is owed for the period. As a result of these omissions A) assets are overstated by $475. B) These omissions would not affect the financial statements; the financial statements will be correct. C) liabilities are overstated by $160. D) revenue is overstated by $790. E) net income is overstated by $315.

C) liabilities are overstated by $160.

McMasters Corporation purchased a one-year insurance policy on March 1 of the current year for $30,000. The insurance policy will be in effect from March 1 through February 28 of the next year. The company recorded the payment as prepaid Insurance. The company neglects to record the year-end adjusting entry at the end of the current year. As a result, the company's current year A) net income and assets will be overstated by $5,000. B) net income and assets will be understated by $5,000. C) net income and assets will be overstated by $25,000. D) neither net income nor assets will be overstated or understated. E) net income and assets will be understated by $25,000.

C) net income and assets will be overstated by $25,000.

If the year-end adjusting entry to record salaries owed to employees were omitted then A) assets would be understated. B) liabilities would be overstated. C) retained earnings would be overstated. D) stockholders' equity would be correctly stated. E) expenses would be overstated.

C) retained earnings would be overstated.

The generally accepted accounting principle which dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied is the A) expense recognition principle. B) periodicity assumption. C) revenue recognition principle. D) accrued revenues principle. E) going concern assumption.

C) revenue recognition principle.

The following is information is from Clark Corporation's financial records for the current fiscal year. i. Cash received from customers, $230,000 ii. Revenue earned, $255,000 iii. Cash paid for wages, $110,000 iv. Wage expense incurred, $115,000 v. Cash paid during the current year for computers that will be used for 3 years, $30,000 vi. Depreciation expense, $10,000 vii. Proceeds from issuing debt (e.g., borrowed money from a bank), $30,000 viii. Interest incurred on debt, $3,000 ix. Cash paid for supplies, $4,000 x. Supplies expense incurred, $2,000 What is the company's net income for the current year using the cash-basis of accounting? A) $135,000 B) $130,000 C) $86,000 D) $125,000 E) $92,000

D) $125,000

On September 1 the Petite-Sizes Store paid $15,000 to the Mega-Mall Co. for 3 months' rent beginning September 1. Prepaid Rent was debited for the payment. If Petite-Sizes Store prepares financial statements on September 30, the appropriate adjusting journal entry to make on September 30 would be a A) $10,000 debit to Prepaid Rent and a $10,000 credit to Rent Expense. B) No adjusting entry is necessary. C) $5,000 debit to Prepaid Rent and a $5,000 credit to Rent Expense. D) $5,000 debit to Rent Expense and a $5,000 credit to Prepaid Rent. E) $10,000 debit to Rent Expense and a $10,000 credit to Prepaid Rent.

D) $5,000 debit to Rent Expense and a $5,000 credit to Prepaid Rent.

On August 1, Crestview Company purchased equipment for $8,000. The equipment's estimated salvage value is $500. The machine will be depreciated using straight-line depreciation and a five year life. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be a A) $1,500 debit to Depreciation Expense and a $1,500 credit to Equipment. B) $1,500 debit to Depreciation Expense and a $1,500 credit to Accumulated Depreciation. C) $625 debit to Depreciation Expense and a $625 credit to Cash. D) $625 debit to Depreciation Expense and a $625 credit to Accumulated Depreciation. E) $625 debit to Depreciation Expense and a $625 credit to Equipment.

D) $625 debit to Depreciation Expense and a $625 credit to Accumulated Depreciation.

On September 1 the Petite-Sizes Store paid $16,000 to the Mega-Mall Co. for 2 months' rent beginning September 1. Prepaid Rent was debited for the payment. If Petite-Sizes Store prepares financial statements on September 30, the appropriate adjusting journal entry to make on September 30 would be a A) $16,000 debit to Prepaid Rent and a $16,000 credit to Rent Expense. B) No adjusting entry is necessary. C) $8,000 debit to Prepaid Rent and a $8,000 credit to Rent Expense. D) $8,000 debit to Rent Expense and a $8,000 credit to Prepaid Rent. E) $16,000 debit to Rent Expense and a $16,000 credit to Prepaid Rent

D) $8,000 debit to Rent Expense and a $8,000 credit to Prepaid Rent.

McMasters Inc. pays its rent of $48,000 annually on January 1 and makes monthly adjusting entries. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following are true? A) Expenses will be overstated by $4,000 and net income and stockholders' equity will be understated by $4,000. B) Assets will be overstated by $8,000 and net income and stockholders' equity will be understated by $8,000. C) Failure to make the adjustment does not affect the February financial statements. D) Assets will be overstated by $4,000 and net income and stockholders' equity will be overstated by $4,000. E) Expenses, net income, and stockholders' equity will be understated by $4,000.

D) Assets will be overstated by $4,000 and net income and stockholders' equity will be overstated by $4,000.

Which principle dictates that efforts (i.e., expenses) be matched with results (i.e., revenues)? A) Periodicity principle B) Monetary unit assumption C) Revenue recognition principle D) Expense recognition principle E) Historical cost principle

D) Expense recognition principle

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) Journalize the closing entries, prepare the adjusted trial balance, and prepare the financial statements, B) Post the transactions, prepare the post-closing trial balance, and journalize the transactions. C) Post the transactions, journalize the closing entries, and prepare the financial statements. D) Post the transactions, journalize the adjusting entries, and prepare the financial statements. E) Prepare the financial statements, prepare the trial balance, and post the closing entries.

D) Post the transactions, journalize the adjusting entries, and prepare the financial statements.

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

D) adjusted trial balance.

The closing entry process consists of closing A) only the dividends account. B) all permanent accounts. C) only the Retained Earnings account. D) all temporary accounts. E) all asset and liability accounts.

D) all temporary accounts.

Adjusting entries are recorded to ensure that A) None of the choices are correct. B) revenues are partitioned between revenue from sales to customers and revenue from other sources (e.g., interest revenue). C) All of these choices are correct. D) expenses are recognized in the period in which they are incurred. E) income statement accounts have zero balances at the end of an accounting period.

D) expenses are recognized in the period in which they are incurred.

During the adjusting process two transactions were neglected or omitted. The first is for unearned rent revenue of which $540 was earned during the period, the second was for accrued interest payable of which $225 is owed for the period. As a result of these omissions A) revenue is overstated by $225. B) These omissions would not affect the financial statements; the financial statements will be correct. C) Liabilities are understated by $225. D) expenses are understated by $225. E) net income is understated by $225.

D) expenses are understated by $225.

On December 31, but before any year-end adjustments, McCarthy Company's Prepaid Insurance account had a balance of $3,000. It was determined that $1,200 of the Prepaid Insurance had expired. The Insurance Expense for the year would be A) $900. B) $1,900. C) $3,000. D) $1,500. E) $1,200.

E) $1,200.

On September 1, Crestview Company purchased equipment for $25,000. The equipment's estimated salvage value is $2,500. The machine will be depreciated using straight-line depreciation and a five year life. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be a A) $1,500 debit to Depreciation Expense and a $1,500 credit to Equipment. B) $4,500 debit to Depreciation Expense and a $4,500 credit to Equipment. C) $4,500 debit to Depreciation Expense and a $4,500 credit to Accumulated Depreciation. D) $4,500 debit to Depreciation Expense and a $4,500 credit to Cash. Correct Answer E) $1,500 debit to Depreciation Expense and a $1,500 credit to Accumulated Depreciation.

E) $1,500 debit to Depreciation Expense and a $1,500 credit to Accumulated Depreciation.

On August 1, Long Corporation signed a $30,000, 14%, 2-year note to help finance renovations being made to the corporation headquarters. Assuming interest is accrued only when the year ends on December 31, the appropriate journal entry for the first year would be a A) $4,200 debit to Interest Expense and a $4,200 credit to Interest Payable. B) $1,750 debit to Interest Expense and a $1,750 credit to Notes Payable. C) $4,200 debit to Interest Expense and a $4,200 credit to Notes Payable. D) No adjusting entry would be required. Correct! E) $1,750 debit to Interest Expense and a $1,750 credit to Interest Payable.

E) $1,750 debit to Interest Expense and a $1,750 credit to Interest Payable.

The following is information is from Clark Corporation's financial records for the current fiscal year. i. Cash received from customers, $255,000 ii. Revenue earned, $230,000 iii. Cash paid for wages, $115,000 iv. Wage expense incurred, $110,000 v. Cash paid during the current year for computers that will be used for 3 years, $30,000 vi. Depreciation expense, $5,000 vii. Proceeds from issuing debt, $24,000 viii. Interest incurred on debt, $3,000 ix. Cash paid for supplies, $4,000 x. Supplies expense incurred, $2,000 What is the company's net income for the current year using the accrual basis of accounting? A) $135,000 B) $155,000 C) $115,000 D) $125,000 E) $110,000

E) $110,000

On July 1, Mesa Verde, Inc. purchased a 3-year insurance policy for $12,600. Prepaid Insurance was debited for the entire amount. On December 31, when the annual financial statements are prepared, the appropriate adjusting journal entry would be a A) $2,100 debit to Prepaid Insurance and a $2,100 credit to Insurance Expense. B) $10,500 debit to Prepaid Insurance and a $10,500 credit to Insurance Expense. C) No adjusting entry is necessary. D) $10,500 debit to Insurance Expense and a $10,500 credit to Prepaid Insurance. E) $2,100 debit to Insurance Expense and a $2,100 credit to Prepaid Insurance.

E) $2,100 debit to Insurance Expense and a $2,100 credit to Prepaid Insurance.

On June 1, Long Corporation signed a $30,000, 18%, 3-year note to help finance renovations being made to the corporation headquarters. Assuming interest is accrued only when the year ends on December 31, the appropriate journal entry for the first year would be a A) $5,400 debit to Interest Expense and a $5,400 credit to Interest Payable. B) $5,400 debit to Interest Expense and a $5,400 credit to Notes Payable. C) No adjusting entry would be required. D) $3,150 debit to Interest Expense and a $3,150 credit to Notes Payable. E) $3,150 debit to Interest Expense and a $3,150 credit to Interest Payable.

E) $3,150 debit to Interest Expense and a $3,150 credit to Interest Payable.

Crowley Company has the following adjusted trial balance: Debit Credit Cash 1,500 Accounts receivable 2,100 Prepaid rent 100 Equipment 3,500 Accumulated depreciation-Equipment 1,500 Accounts payable 150 Unearned service revenue 200 Common stock 1,000 Retained earnings 4,700 Service revenue 800 Interest revenue 100 Salaries and wages expense 150 Depreciation expense 600 Rent expense 500 Total 8,450 8,450 After closing entries have been journalized and posted, the balance in the company's retained earnings account will be A) $8,450. B) $5,050. C) $4,700. D) $4,550. E) $4,350.

E) $4,350.

FastAct Company pays its employees their wages each Friday. The most recent payment occurred on Friday, December 26. The next payroll will be paid on January 2. There are three more work days in December after December 26th. Employees work 5 days a week and the company pays $30,000 per week in wages. What will be the adjusting entry to accrue wages expense at the end of December? A) A credit to Salaries and Wages Expense for $6,000 B) No adjusting entry would be required. C) A credit to Salaries and Wages Expense for $18,000 D) A debit to Salaries and Wages Expense for $6,000 E) A debit to Salaries and Wages Expense for $18,000

E) A debit to Salaries and Wages Expense for $18,000

Which one of the following is not a proper justification for adjusting entries? A) Adjusting entries are necessary to ensure that the expense recognition principle is followed. B) Adjusting entries are necessary to ensure that the revenue recognition principle is followed. C) Adjusting entries are necessary to enable financial statements to be in conformity with generally accepted accounting principles. D) All of these are proper justifications for adjusting entries. E) Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

E) Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

Which of the following is correct concerning the adjusted trial balance? A) The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries. B) 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. C) The adjusted trial balance provides the primary basis for the preparation of financial statements. D) None of these statements are correct. E) All of these statements are correct.

E) All of these statements 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) Prepare the financial statements, prepare the trial balance, and post the closing entries. B) Post the transactions, journalize the closing entries, and prepare the financial statements. C) Journalize the closing entries, prepare the adjusted trial balance, and prepare the financial statements, D) Post the transactions, prepare the post-closing trial balance, and journalize the transactions. E) Post the transactions, journalize the adjusting entries, and prepare the financial statements.

E) Post the transactions, journalize the adjusting entries, and prepare the financial statements.

Companies prepare various types of trial balances. Which trial balance lists all of a company's permanent and temporary accounts? A) The pre-disclosure trial balance B) The post-closing trial balance C) All of these list the same number of accounts. D) The trial balance prepared before recording adjusting entries E) The adjusted trial balance

E) The adjusted trial balance

Cash received before services are performed may be recorded as a debit to a Cash account and a credit to a liability account is called A) None of these answer choices are correct. B) an unrecorded revenue. C) an accrued revenue. D) accounts payable E) an unearned revenue.

E) an unearned revenue.

The following information is from the Income Statement of the Crowley Corporation: Revenues Service Revenue $5,500 Expenses Salaries and wages expense $ 1,950 Advertising expense 500 Rent expense 300 Supplies expense 200 Insurance expense 100 Total expenses 3,050 Net Income $2,450 The closing entries includes a: A) debit to cash for $2,450. B) debit to Salaries and Wages Expense for $1,950. C) credit to Retained Earnings for $3,050. D) credit to Income Summary for $3,050. E) debit to Income Summary for $3,050.

E) debit to Income Summary for $3,050.

The following information is from the Income Statement of Crowley Corporation: Revenues Service Revenue $5,500 Expenses Salaries and wages expense $ 1,950 Advertising expense 500 Rent expense 300 Supplies expense 200 Insurance expense 100 Total expenses 3,050 Net Income $2,450 The closing entries includes a: A) debit to Cash for $3,050. B) debit to Retained Earnings for $5,500. C) credit to Service Revenue for $5,500. D) debit to Income Summary for $5,500. E) debit to Service Revenue for $5,500.

E) debit to Service Revenue for $5,500.

The year-end trial balance for Beltway Corporation appears as follows: Beltway Corporation Trial Balance December 31 Debit Credit Cash $ 300 Accounts Receivable 500 Prepaid Insurance 60 Supplies 140 Equipment 4,000 Accumulated Depreciation, Equipment $ 800 Accounts Payable 300 Common Stock 1,000 Retained Earnings 1,400 Service Revenue 3,000 Salaries and Wages Expense 1,000 Rent Expense 500 $6,500 $6,500 If, at year-end, supplies on hand were $40, the company should record an adjusting entry that A) debits Supplies for $100 and credits Supplies for $100. B) debits Supplies for $40 and credits Supplies Expense for $40. C) debits Supplies Expense for $40 and credits Supplies for $40. D) debits Supplies Expense for $100 and credits Cash for $100. E) debits Supplies Expense for $100 and credits Supplies for $100.

E) debits Supplies Expense for $100 and credits Supplies for $100.

Year-end adjusting entries for unearned revenues A) decrease revenues and decrease assets. B) increase revenues and decrease stockholders' equity. C) increase liabilities and increase revenues. D) increase assets and increase revenues. E) decrease liabilities and increase revenues.

E) decrease liabilities and increase revenues.

If the year-end adjusting entry to record salaries owed to employees were omitted then A) liabilities would be overstated. B) stockholders' equity would be correctly stated. C) expenses would be overstated. D) assets would be understated. E) retained earnings would be overstated.

E) retained earnings would be overstated.

In Year 1, Costello Company performed work for a customer and billed the customer $10,000. In Year 2, the customer pays Costello Company for the services it rendered in Year 1. In Year 1, the company incurred and paid $3,000 of wage expense. If Costello Company uses the cash-basis of accounting, then it will report A) no revenue or expenses in either year. B) revenue of $10,000 and expense of $3,000 in Year 2. C) revenue of $10,000 in Year 1 and expense of $3,000 in Year 2. D) revenue of $10,000 and expense of $3,000 in Year 1. E) revenue of $10,000 in in Year 2 and expense of $3,000 in Year 1.

E) revenue of $10,000 in in Year 2 and expense of $3,000 in Year 1.

A company has unearned revenues on its books. If the company fails to record a year-end adjusting entry for unearned revenues, then its financial statements A) understate retained earnings and overstate revenues. B) understate net income and overstate retained earnings. C) understate revenues and understate liabilities. D) overstate assets and overstate revenues. E) understate revenues and overstate liabilities.

E) understate revenues and overstate liabilities.