MGMT 200 - Chapter 3

Norbert Inc. delivered goods and services during December. Payment is expected during the first week of January. The related adjusting entry should consist of a debit to a(n) ____ account and a credit to a(n) _____ account. a. asset; revenue b. liability; asset c. liability; revenue d. revenue; asset

a

________ occur when the cash flow occurs after either the expense is incurred or the revenue is earned. (Enter only one word.)

accruals

To complete the measurement process, companies need to update balances of assets, liabilities, revenues and expenses for _________ entries.

adjusting

A prepayment such as "Prepaid Insurance" is originally recorded as a(n) ________ when an insurance policy is purchased and will later be expensed in the period used.

asset

A classified balance sheet shows subtotals for current ________ and current ________. (Enter one word per blank)

assets, liabilities

A prepayment that is originally recorded as an asset will be ______. a. allocated to future accounting periods equally over the periods receiving the benefit b. allocated to future accounting periods based on the cost of the asset used during the period c. transferred to a liability account at the end of the accounting period d. expensed in total at the end of the accounting period

b

An asset that can quickly be turned into cash has the characteristic of a. superior b. liquidity c. currency d. operational

b

Closing entries move the balances from the ______ accounts into the Retained Earnings account. a. permanent b. balance sheet c. temporary

c

Revenues and expenses are reported in the: a. stockholders' equity statement b. statement of cash flows c. income statement d. balance sheet

c

Depreciation is an allocation of the ________ of buildings, vehicles, and equipment to expense over time as they are used. (Enter one word per blank.)

cost

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period. a. asset and liability b. expense c. account d. asset e. revenue

d

________ revenue arises when a business receives cash in one period, but does not provide all of the related goods or services until a later period. (Enter only one word.)

deferred

________ is an allocation of the cost of buildings, vehicles, and equipment to expense over time as they are used. (Enter one word per blank.)

depreciation

Which financial statement would report all of the following information: beginning balances for common stock and retained earnings; current period net income or loss; current period dividends; common stock issued during the year; ending balances of common stock and retained earnings? a. Retained earnings statement b. Income statement c. Balance sheet d. Comprehensive income statement e. Statement of stockholders' equity

e

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) ________ in the period the benefit expires. (Only one word per blank)

expense

True or false: Adjusting entries ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

false

The expense that relates to notes payable and accumulates or accrues throughout the accounting period is referred to as ________ expense.

interest

The adjusting entry for a deferred revenue includes a debit to a(n) ________ account and a credit to a(n) ________ account. (Enter only one word per blank.)

liability, revenue

A primary purpose of adjusting entries is to record events that a. have been recorded incorrectly. b. will occur at the beginning of the next period. c. have occurred but that have not yet been recorded.

c

Prepaid expenses should be ______ by the cost of the asset used during the accounting period. a. decreased b. unaffected c. increased

a

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______. a. amount of the prepayment that remains towards future rental periods b. amount of the prepayment that has expired during the period c. amount that is owed for rent

a

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1. The Prepaid rent balance at December 31, 2019 equals ______. a. $22,000 b. $12,000 c. $0 d. $23,000

a

An adjusting entry for accrued expenses involves: (Select all that apply.) a. credit to a liability b. debit to a liability c. debit to an asset d. credit to an expense e. credit to a revenue f. debit to an expense

a, f

________-basis accounting helps measure and report revenues and expenses in a way that clearly represents the net income of the company. (Enter only one word.)

accrual

After the adjusting entries have been completed, the adjusted balance in the Deferred Revenue account represents: a. the amount of revenues for which goods or services were provided during the current period. b. the amount of the sales or services still owed to the customer. c. the amount of revenues for which goods or services were provided during the current period, but not collected during the period.

b

After the adjusting entries have been completed, the adjusted balance in the Prepaid Rent account represents the ______. a. amount that is owed for rent b. amount of the prepayment that remains towards future rental periods c. amount of the prepayment that has expired during the period

b

After the adjusting entries have been completed, the balance in the Rent Expense account represents the: a. amount of rent owed at the end of the accounting period b. cost of rent for the accounting period c. amount of the future benefit remaining in the account

b

Costs of assets acquired in one period that will be recorded as expense in a future period are referred to as ______ and are initially recorded as _____. a. deferred revenue; liabilities b. prepaid expenses; assets c. prepaid expenses; expenses d. deferred revenue; assets

b

The process of allocating the cost of an asset to expense over the useful life of the asset is called a. asset valuation. b. book value. c. depreciation. d. contra accounting.

c

Which of the following pre-payments requires an adjusting entry at the end of the year? a. On December 31, the company pays next year's fire insurance. b. On December 20, the company pays its liability insurance; coverage starts January 1. c. On November 1, the company pays rent for the next six months.

c

On July 1, Book Palace prepaid 12 months' fire insurance with coverage starting the following month. The adjusting entry on December 31 includes: (Select all that apply.) a. credit to Cash b. debit to Prepaid Insurance c. credit to Prepaid Insurance d. debit to Insurance Expense e. debit to Cash

c, d

Under cash-basis accounting, (Select all that apply.) a. revenues are recorded when goods or services are provided. b. expenses are recorded in the period related revenue is generated. c. revenues are recorded when cash is received. d. expenses are recorded when cash is paid.

c, d

With respect to current assets, ________ refers to how quickly an asset can be converted to cash. (Enter only one word.)

liquidity

Supplies that are not used immediately are recorded as a(n) ______ when purchased. a. asset b. revenue c. liability d. expense

a

If an adjusting entry's credit is to a liability account, then the debit must be to ________. a. cash expense b. expense c. prepaid expense d. revenue

b

A classified balance sheet ______. a. shows only current assets and current liabilities b. shows changes in assets, liabilities, revenues and expenses c. groups asset and liabilities into current and long-term categories d. contains confidential information

c

After the adjusting entries have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies: a. used during the accounting period b. purchased during the accounting period c. on hand at the end of the accounting period d. purchased, but not yet paid for, at the end of the accounting period

a

After the adjusting entries have been completed, the adjusted balance in the Supplies account represents: a. the cost of supplies remaining at the end of the accounting period b. the cost of supplies used during the accounting period c. the cost of supplies purchased but not yet paid for at the end of the accounting period d. the cost of supplies purchased during the accounting period

a

After the adjusting entries have been completed, the ending balance in the Supplies account represents the cost of supplies ______. a. remaining at the end of the accounting period b. used during the accounting period c. purchased during the accounting period d. purchased, but not yet paid for, at the end of the accounting period

a

In recording an accrual adjusting entry to account for revenues earned but not yet collected, ______. a. an asset is increased since cash will be collected at a later date b. the asset recorded when cash was paid is increased as the revenue is earned c. an asset is decreased since cash is being paid at the time of the adjustment d. the asset recorded when cash was paid is decreased as the revenue is earned

a

On August 1, 2019, a firm prepaid $53,520 for 2 years' rent of an office building. On March 1, 2020, the firm prepaid $34,800 for 2 years' rent of a warehouse. The rent agreements on both buildings went into effect on the dates the rents were prepaid. What amount will be shown for prepaid rent on the December 31, 2020 balance sheet? a. $35,910 b. $52,410 c. $88,320 d. $44,160

a

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account. a. expense; asset b. liability; revenue c. revenue; liability d. asset; expense

a

The adjusting entry for supplies used during the period will result in ______ to the Supplies Expense account. a. an increase b. a decrease c. no change

a

The adjusting entry to record the supplies used during the period will result in a(n) ______. a. decrease to Supplies and an increase to Supplies Expense b. increase to Supplies and an increase to Supplies Expense c. increase to Supplies and a decrease to Supplies Expense d. decrease to Supplies and a decrease to Supplies Expense

a

Which of the following financial statements typically is prepared last? a. Statement of cash flows b. Balance sheet c. Income statement d. Statement of stockholders' equity

a

Which of the following statements describes the effect that adjusting entries may have on liabilities? a. Adjusting entries increase liabilities for the amount of any accrued and unpaid expenses at the end of the period. b. Adjusting entries reduce liabilities for the amount of any accrued and unpaid expenses at the end of the period. c. Adjusting entries do not have any effect on liabilities, since cash is not included in the adjusting entries.

a

Andy records an adjusting entry for deferred revenue. Andy should: (Select all that apply.) a. debit a liability account b. credit a revenue account c. credit a liability account d. debit revenue account

a, b

The post-closing trial balance helps to verify that: (Select all that apply.) a. we prepared and posted closing entries correctly b. the accounts are ready for next period's transactions c. the company was profitable during the current period d. we prepared and posted adjusting entries correctly

a, b

The two major categories reported in the income statement are: a. revenue b. assets c. expense d. equity

a, b

The statement of stockholders' equity includes these amounts: a. net income b. dividends for the period c. ending balance retained earnings d. cash e. total revenues for the period

a, b, c

Adjusting entries: (Select all that apply.) a. are needed before financial statement preparation. b. are required in cash-basis accounting only. c. update the accounts to their proper balances. d. are prepared at the beginning of the period.

a, c

On November 1, 2019, Movers, Inc., paid $24,000 for 2 years' rent beginning on November 1 (assume rent is the same amount each month). Movers' year-end financial statements as of December 31, 2019 will show: (Select all that apply.) a. Rent expense of $2,000 b. Rent expense of $24,000 c. Prepaid rent of $22,000 d. Rent expense of $1,000 e. Prepaid rent of $24,000

a, c

Which of the following transactions are examples of prepayments that will require an adjustment at the end of the accounting period on December 31? (Select all that apply.) a. A company pays a 6-month insurance premium at the beginning of October. b. A company records interest expense that has accrued, but will not be paid until next year. c. A company pays a utility bill for charges incurred in the previous month. d. A company pays for 4 months of advertising in the Wall Street Journal on November 1.

a, d

How do temporary accounts differ from permanent accounts? a. Only temporary accounts are used in the adjustments at the end of the accounting period. b. Only temporary accounts are cleared out at the end of the accounting period. c. Only permanent accounts are transferred to Retained Earnings during the closing process. d. Only permanent accounts are found on the financial statements.

b

On April 1, Katie Inc. collected $2,400 from a customer for a 12-month membership starting on that date. On December 31, Katie Inc. should credit: a. Deferred revenue for $1,800 b. Service revenue for $1,800 c. Deferred revenue for $600 d. Service revenue for $600

b

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period. a. increased; decreased b. decreased; increased c. increased; increased d. decreased; decreased

b

The adjusting entry for supplies used during the period will result in ______ to the Supplies Expense account. a. a decrease b. an increase c. no change

b

Taggert Company paid $1,800 for a 6-month insurance premium on December 1. Which of the following statements are correct regarding the accounting for this insurance over the six-month period? (Select all that apply.) a. Taggert will debit Prepaid Insurance for $1,500 on Dec. 31. b. Taggert will credit Prepaid Insurance for $300 on Dec. 31. c. Taggert will debit Insurance Expense for $300 on Dec. 31. d. Taggert will debit Prepaid Insurance for $1,800 on Dec. 1. e. Taggert will debit Insurance Expense for $1,800 on Dec. 1.

b, c, e

If an adjusting entry's debit is to an expense account, then the credit must be to which of the following? (Select all that apply.) a. revenue b. liability c. cash expense d. prepaid expense

b, d

Which of the following would be referred to as "accruals?" (Select all that apply.) a. Cash collected prior to goods or services being provided b. Goods and services provided, not yet collected c. Cash paid prior to expenses being incurred d. Expenses incurred, not yet paid

b, d

Which of the following statements regarding the statement of cash flows are correct? a. The financial statement that is typically prepared first b. Reports cash receipts c. It is an optional financial statement d. The financial statement that is typically prepared last e. Reports cash disbursements

b, d, e

Which of the following statements is correct regarding the adjusting entry to record interest accrued on a note payable? a. Interest on the note payable will not accumulate because it is paid at the end of each year. b. Interest on the note payable is classified as an expense since it is a cost of borrowing. c. Interest on the note payable is classified as a revenue since it is an amount that can be earned on investments. d. Interest on a note payable should be credited to Notes Payable because it increases the amount of principal to be repaid at the maturity of the note.

b?

After the adjusting entries have been completed, the balance in the Rent Expense account represents the: a. amount of the future benefit remaining in the account b. amount of rent owed at the end of the accounting period c. cost of rent for the accounting period

c

At the beginning of the accounting period, the balances of temporary accounts a. reflect the prior period ending balance b. depend on whether the company was profitable during the prior period c. are zero

c

At year-end, companies that utilize accrual-based accounting systems complete the measurement process through a. conversion to cash-basis b. posting of non-cash transactions occurring during the year c. recording of adjusting entries d. the preparation of an unadjusted trial balance

c

Neumann Corporation purchases supplies that will be used during the following quarter. At the time of purchase, the supplies should be recorded as a(n) a. revenue b. liability c. asset d. expense

c

The accounting basis that records revenues in the period that goods and services are provided to customers is referred to as a. GAAP-basis accounting. b. cash-basis accounting. c. accrual-basis accounting.

c

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records a: a. credit to Accounts Receivable b. debit to Cash c. debit to Deferred Revenue d. credit to Revenue e. credit to Cash f. credit to Deferred Revenue

c, d

Reporting revenues only when cash is received and expenses only when cash is paid is called the ________ basis of accounting. (Enter one word per blank.)

cash

A prepayment is originally recorded as an asset. An adjusting entry at the end of the accounting period results in a(n) ______ in the asset account and a(n) ______ in the expense account. a. increase; increase b. increase; decrease c. decrease; decrease d. decrease; increase

d

Adjusting entries for accrued expenses ensure that liabilities are reported for all amounts ______ at the end of the accounting period. a. used b. paid c. that represent probable future benefits d. owed

d

Prepaid insurance is a(n) ______. a. expense in the balance sheet b. liability in the balance sheet c. expense in the income statement d. asset in the balance sheet

d

Revenues and expenses are reported in the: a. balance sheet b. statement of cash flows c. stockholders' equity statement d. income statement

d

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account. a. asset; expense b. revenue; liability c. liability; revenue d. expense; asset

d

The adjusting entry for supplies used during the period will result in a debit to the ______ account and a credit to the ______ account. a. cash; supplies expense b. supplies expense; cash c. supplies; supplies expense d. supplies expense; supplies

d

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as a. post-closing entries b. adjusting entries c. external entries d. closing entries

d

Which of the following transactions would normally be recorded as an asset when cash is paid? a. Current month utilities b. Current month salaries c. Advance payments from customers d. Rent paid in advance

d

The post-closing trial balance checks that total ________ equal total ________ at the end of the period. (Enter only one word per blank.)

debits, credits