ACCT CH 3

A classified balance sheet ______. A. groups asset and liabilities into current and long-term categories B. shows changes in assets, liabilities, revenues and expenses C. contains confidential information D. shows only current assets and current liabilities

A

Adam Corporation uses the cash-basis of accounting. Adam Corporation should record expenses when: A. paid B. the related revenue are recognized C. incurred, regardless of when it is paid

A

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

A

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

A

In an adjusting entry for expenses incurred but not yet paid ______. A. a liability is increasing since cash will be paid in the future due to the expense incurred B. the liability recorded when cash was received is increasing as the expense is incurred C. a liability is decreasing since cash is being paid for an expense incurred at the time of the adjustment D. the liability recorded when cash was received is decreasing as the expense is incurred

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. an asset is decreased since cash is being paid at the time of the adjustment C. the asset recorded when cash was paid is increased as the revenue is earned D. the asset recorded when cash was paid is decreased as the revenue is earned

A

Prepaid rent appears in the ______. A. balance sheet because it is an asset B. income statement because it is an expense C. balance sheet because it is a liability D. balance sheet because it is a stockholders' equity account

A

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as A. closing entries B. external entries C. adjusting entries D. post-closing entries

A

Deferred revenue is a(n) ______. A. asset B. liability C. expense D. revenue

B

During December, Mainzel Interior Design Corporation redecorated the reception areas of a local hotel. The project was completed on December 31 with payment due in 30 days. Payment was received on January 21 of the following year. When should Mainzel recognize the related revenue using accrual accounting? A. January 31 B. December 31 C. January 21

B

How do adjusting entries for accrued expenses affect liabilities and expenses? a. Adjusting entries for accrued expenses can increase liabilities and decrease expenses. b. Adjusting entries for accrued expenses can increase liabilities and increase expenses. c. Adjusting entries for accrued expenses can decrease liabilities and increase expenses. d. Adjusting entries for accrued expenses can decrease liabilities and decrease expenses.

B

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

B

If an adjusting entry's credit is to a liability account, then the debit must be to ______. A. prepaid expense B. expense C. revenue D. cash expense

B

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. accrual-basis accounting. C. cash-basis accounting.

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. depreciation. C. book value. D. contra accounting.

B

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. Income statement B. Statement of stockholders' equity C. Balance sheet D. Comprehensive income statement E. Retained earnings statement

B

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

B

When should supplies be recorded as an expense? A. In the period cash is paid for the supplies, regardless of when the supplies were received B. In the period the supplies are purchased, regardless of when cash is paid C. In the period the supplies are used, regardless of when they were purchased

C

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

C

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. Rent paid in advance D. Advance payments from customers

C

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

C,D

Under cash-basis accounting, (Select all that apply.) A. expenses are recorded in the period related revenue is generated. B. revenues are recorded when goods or services are provided. C. expenses are recorded when cash is paid. D. revenues are recorded when cash is received.

C,D

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred. A. cash transactions B. closing entries C. journal entries D. expenses

D

Adjusting entries help to ensure that all ______ are recorded in the period in which they are incurred. A. closing entries B. journal entries C. cash transactions D. expenses

D

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

D

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

D

If an adjusting entry's credit is to a liability account, then the debit must be to ______. A. cash expense B. prepaid expense C. revenue D. expense

D

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. $12,000 B. $0 C. $23,000 D. $22,000

D

Prepaid insurance is a(n) ______. A. liability in the balance sheet B. expense in the income statement C. expense in the balance sheet D. asset in the balance sheet

D

Which of the following accounts is listed in a post closing trial balance? A. salaries payable B. dividends C. advertising expense D. service revenue

a

Which of the following statements is true? A. Income statement accounts are temporary accounts, while balance sheet accounts are permanent accounts. B. The balance sheet reports financial activities only for the current accounting period. C. The income statement reports the financial position of a company at a point in time.

a

____________-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

___________ 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 ___________.

assets; liabilities

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

b,c

Closing entries move the balances from the ______ accounts into the Retained Earnings account. A. permanent B. balance sheet C. temporary

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

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account. A. liability; revenue B. asset; expense C. revenue; liability D. expense; asset

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

Deferred

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

debits; credits

The statement of stockholders' equity includes these amounts: select all E. dividends for the period F. cash G. net income H. total revenues for the period I. ending balance retained earnings

E,G,I

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

____________ 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

Adjusting entries are made at the __________ of the accounting period, while daily transactions are made throughout the accounting period. (Enter one word per blank.)

end

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

The entries that transfer the balances of all temporary accounts to retained earnings are referred to as D. adjusting entries E. external entries F. post-closing entries G. closing entries

g

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

interest

_____________ is defined as the "cost of borrowing money." (Enter one word per blank)

interest

The adjusting entry for a deferred revenue includes a debit to a(n) _____________ account and a credit to a(n) _____________ account.

liability; revenue

assets, liabilities, equity are _____________ accounts.

permanant

revenues, expenses, dividends are ______________ accounts

temporary

Which of the following statements regarding the statement of cash flows are correct? A. It is an optional financial statement B. The financial statement that is typically prepared last C. The financial statement that is typically prepared first D. Reports cash receipts E. Reports cash disbursements

B, D, E

Andy records an adjusting entry for deferred revenue. Andy should: (Select all that apply.) A. debit revenue account B. credit a revenue account C. debit a liability account D. credit a liability account

B,C

An adjusting entry for accrued expenses involves: (Select all that apply.) A. credit to an expense B. credit to a liability C. debit to a liability D. debit to an expense E. credit to a revenue F. debit to an asset

B,D

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. Prepaid rent of $24,000 b. Rent expense of $2,000 c. Rent expense of $1,000 d. Rent expense of $24,000 e. Prepaid rent of $22,000

B,E

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

C

Adjusting entries ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period. a. Account b. Asset and liability c. Asset d. Revenue e. Expense

C

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

C

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

C

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. liability; asset b. liability; revenue c. asset; revenue d. revenue; asset

C

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. $52,410 B. $88,320 C. $35,910 D. $44,160

C

Prepaid expenses should be ______ by the cost of the asset used during the accounting period. A. unaffected B. increased C. decreased

C

Supplies should be ______ and Supplies Expense should be ______ for the cost of supplies used up during the period. A. increased; increased B. increased; decreased C. decreased; increased D. decreased; decreased

C

The adjusting entry for a prepaid expense includes a debit to a(n) ______ account and a credit to a(n) ____ account. A. revenue; liability B. liability; revenue C. expense; asset D. asset; expense

C

The adjusting entry for an accrued revenue always includes: (Select all that apply.) A. a debit to an asset account B. a credit to a revenue account C. a credit to an asset account D. a credit to a liability account E. a debit to a revenue account F. a debit to a liability account

A,B

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

A,B

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 pays a utility bill for charges incurred in the previous month. C. A company pays for 4 months of advertising in the Wall Street Journal on November 1. D. A company records interest expense that has accrued, but will not be paid until next year.

A,C

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. liability B. revenue C. cash expense D. prepaid expense

A,D

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 for 4 months of advertising in the Wall Street Journal on November 1. 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 a 6-month insurance premium at the beginning of October.

A,D

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 credit Prepaid Insurance for $300 on Dec. 31. B. Taggert will debit Prepaid Insurance for $1,500 on Dec. 31. C. Taggert will debit Insurance Expense for $1,800 on Dec. 1. D. Taggert will debit Insurance Expense for $300 on Dec. 31. E. Taggert will debit Prepaid Insurance for $1,800 on Dec. 1.

A,D,E

When a company records an adjusting entry for services previously recorded as Deferred Revenue, it records a: A. debit to Deferred Revenue B. credit to Deferred Revenue C. debit to Cash D. credit to Cash E. credit to Revenue F. credit to Accounts Receivable

A,E