Chap 4 Mult Choice

An accounting time period that is one year in length is called: a. a fiscal year. b. an interim period. c. the time period assumption. d. a reporting period.

A

Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)? a. Cost principle. b. Periodicity principle. c. Revenue recognition principle. d. Expense recognition principle.

D

On January 1, 2013, M. Johanson Company purchased equipment for $36,000. The company is depreciating the equipment at the rate of $500 per month. The book value of the equipment at December 31, 2013 is: a. $0. b. $6,000. c. $30,000. d. $36,000.

C

An adjusting entry can include a: a. debit to an asset and a credit to a liability. b. debit to a revenue and a credit to an asset. c. debit to a liability and a credit to a revenue. d. debit to an expense and a credit to a revenue.

C

An adjusting entry: a. affects two balance sheet accounts. b. affects two income statement accounts. c. affects a balance sheet account and an income statement account. d. is always a compound entry.

C

Adjusting entries affect at least: a. one revenue and one expense account. b. one asset and one liability account. c. one revenue and one balance sheet account. d. one income statement account and one balance sheet account.

D

An architecture firm earned $2,000 for architecture services provided with the fee to be paid in the future. No entry was made at the time the service was provided. If the fee has not been paid by the end of the accounting period and no adjusting entry is made, this would cause: a. revenues to be overstated. b. net income to be overstated. c. liabilities to be understated. d. revenues to be understated.

D

Each of the following is a major type (or category) of adjusting entry except: a. earned expenses. b. prepaid expenses. c. accrued expenses. d. accrued revenues.

A

(130) Adjustments for unearned revenue: a. decrease liabilities and increase revenues. b. increase liabilities and increase revenues. c. increase assets and increase revenues. d. decrease revenues and decrease assets.

A

A furniture factory's employees work overtime to finish an order that is sold on January 31. The office sends a statement to the customer in early February and payment is received by mid-February. The overtime wages should be expensed in: a. January. b. February. c. the period when the workers receive their checks. d. either January or February depending on when the pay period ends.

A

Accrued expenses are: a. incurred but not yet paid or recorded. b. paid and recorded in an asset account after they are used or consumed. c. paid and recorded in an asset account before they are used or consumed. d. incurred and already paid or recorded.

A

Adjusting entries are required: a. because some costs expire with the passage of time and have not yet been journalized. b. when the company's profits are below the budget. c. when expenses are recorded in the period in which they are earned. d. None of these answer choices are correct.

A

Boyce Company purchased office supplies costing $5,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,800 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be: a. debit Supplies Expense, $3,200; credit Supplies, $3,200. b. debit Supplies, $1,800; credit Supplies Expense, $1,800. c. debit Supplies Expense, $1,800; credit Supplies, $1,800. d. debit Supplies, $3,200; credit Supplies Expense, $3,200.

A

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

Given the data below for a firm in its first year of operation, determine net income under the accrual basis of accounting. Revenue earned $16,000 Accounts receivable 3,000 Expenses incurred 7,250 Accounts payable (related to expenses) 750 Supplies purchased with cash 1,800 a. $8,750 b. $11,000 c. $6,500 d. $9,200

A

Goods purchased for future use in the business, such as supplies, are called: a. prepaid expenses. b. revenues. c. stockholders' equity. d. liabilities.

A

One of the accounting concepts upon which adjustments for prepayments and accruals are based is: a. expense recognition. b. cost. c. monetary unit. d. economic entity.

A

Otto's Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized? a. August 31 b. August 1 c. September 5 d. September 6

A

Prepaid expenses are: a. paid and recorded in an asset account before they are used or consumed. b. paid and recorded in an asset account after they are used or consumed. c. incurred but not yet paid or recorded. d. incurred and already paid or recorded.

A

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. revenue. b. liability. c. expense. d. prepaid expense.

A

Unearned revenues are: a. received and recorded as liabilities before they are recognized. b. recognized and recorded as liabilities before they are received. c. recognized but not yet received or recorded. d. recognized and already received and recorded.

A

Using accrual accounting, expenses are recorded and reported only: a. when they are incurred whether or not cash is paid. b. when they are incurred and paid at the same time. c. if they are paid before they are incurred. d. if they are paid after they are incurred.

A

Wang Company had the following transactions during 2013: • Sales of $10,800 on account • Collected $4,800 for services to be performed in 2014 • Paid $3,100 cash in salaries • Purchased airline tickets for $600 in December for a trip to take place in 2014 What is Wang's 2013 net income using cash basis accounting? a. $1,100 b. $2,300 c. $12,500 d. $1,700

A

Which of the following is not generally an accounting time period? a. A week. b. A month. c. A quarter. d. A year.

A

Why do generally accepted accounting principles require the application of the revenue recognition principle? a. Failure to apply the revenue recognition principle could lead to a misstatement of revenue. b. It is easy to apply the revenue recognition principle because revenue issues are always easy to identify and resolve. c. Recording revenue when cash is received is an objective application of the revenue recognition principle. d. Accounting software has made the revenue recognition easy to apply.

A

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

Adjusting entries are: a. not necessary if the accounting system is operating properly. b. usually required before financial statements are prepared. c. made whenever management desires to change an account balance. d. made to balance sheet accounts only.

B

Adjusting entries are: a. the same as correcting entries. b. needed to ensure that the expense recognition principle is followed. c. optional. d. rarely needed.

B

Adjusting entries can be classified as: a. postponements and advances. b. accruals and deferrals. c. deferrals and postponements. d. accruals and advances.

B

Given the data below for a firm in its first year of operation, determine net income under the accrual basis of accounting. Cash received from customers $48,000 Accounts receivable 12,000 Cash paid for expenses 26,000 Accounts payable (related to expenses) 3,000 Prepaid rent for next period 7,000 a. $22,000 b. $31,000 c. $24,000 d. $15,000

B

If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be: a. debit Unearned Service Revenue and credit Cash. b. debit Unearned Service Revenue and credit Service Revenue. c. debit Unearned Service Revenue and credit Prepaid Expense. d. debit Unearned Service Revenue and credit Accounts Receivable.

B

Management usually wants ________ financial statements and the IRS requires all businesses to file _________ tax returns. a. annual, annual b. monthly, annual c. quarterly, monthly d. monthly, monthly

B

The Harris Company purchased equipment for $9,000 on December 1. It is estimated that annual depreciation on the computer will be $1,800. If financial statements are to be prepared on December 31, the company should make the following adjusting entry: a. debit Depreciation Expense, $1,800; credit Accumulated Depreciation, $1,800. b. debit Depreciation Expense, $150; credit Accumulated Depreciation, $150. c. debit Depreciation Expense, $7,200; credit Accumulated Depreciation, $7,200. d. debit Equipment, $9,000; credit Accumulated Depreciation, $9,000.

B

The expense recognition principle matches: a. customers with businesses. b. expenses with revenues. c. assets with liabilities. d. creditors with businesses.

B

The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that: a. assets should be matched with liabilities. b. efforts should be matched with accomplishments. c. dividends should be matched with stockholder investments. d. cash payments should be matched with cash receipts.

B

The preparation of adjusting entries is: a. straightforward because the accounts that need adjustment will be out of balance. b. needed to ensure that the expense recognition principle is followed. c. only required for accounts that do not have a normal balance. d. optional when financial statements are prepared.

B

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

Which is not an application of revenue recognition? a. Recording revenue as an adjusting entry on the last day of the accounting period. b. Accepting cash from an established customer for services to be performed over the next three months. c. Billing customers on June 30 for services completed during June. d. Receiving cash for services performed.

B

Which statement is correct? a. As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use. b. The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles. c. The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received. d. As long as management is ethical, there are no problems with using the cash basis of accounting.

B

Why was Apple required to spread their iPhone revenues over a two year period? a. Because of its newness, their returns might exceed the normal level of returns. b. Because they were required to provide software updates over that two year period. c. Because that was the estimated life of the iPhone. d. Because they needed to defer revenue recognition since they had a swap program available for future models.

B

A company purchased office supplies costing $3,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $900 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be: a. debit Supplies Expense, $3,900; credit Supplies, $3,900. b. debit Supplies, $900; credit Supplies Expense, $900. c. debit Supplies Expense, $2,100; credit Supplies, $2,100. d. debit Supplies, $2,100; credit Supplies Expense, $2,100.

C

A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be recognized? a. December 5 b. December 10 c. November 30 d. December 1

C

A liability-revenue relationship exists with: a. asset accounts. b. revenue accounts. c. unearned revenue adjusting entries. d. accrued expense adjusting entries.

C

A small company may be able to justify using a cash basis of accounting if they have: a. sales under $1,000,000. b. no accountants on staff. c. few receivables and payables. d. all sales and purchases on account.

C

According to some U.S. companies what gives foreign firms a competitive advantage in the capital market? a. The foreign companies don't have standards similar to GAAP. b. The foreign companies don't have strict ethical codes. c. The Sarbanes-Oxley Act which requires more stringent internal controls on U.S. firms. d. The foreign companies don't have to be audited.

C

Accrued expenses are: a. paid and recorded in an asset account before they are used or consumed. b. paid and recorded in an asset account after they are used or consumed. c. incurred but not yet paid or recorded. d. incurred and already paid or recorded.

C

Accrued revenues are: a. received and recorded as liabilities before they are recognized. b. recognized and recorded as liabilities before they are received. c. recognized but not yet received or recorded. d. recognized and already received and recorded.

C

Accumulated Depreciation is a(n): a. expense account. b. stockholders' equity account. c. liability account. d. contra asset account.

D

An asset-expense relationship exists with: a. liability accounts. b. revenue accounts. c. prepaid expense adjusting entries. d. accrued expense adjusting entries.

C

Given the data below for a firm in its first year of operation, determine net income under the cash basis of accounting. Revenue earned $16,000 Accounts receivable 3,000 Expenses incurred 7,250 Accounts payable (related to expenses) 750 Supplies purchased with cash 1,800 a. $6,500 b. $11,000 c. $4,700 d. $6,950

C

Greese Company purchased office supplies costing $4,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,500 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be: a. debit Supplies Expense, $1,500; credit Supplies, $1,500. b. debit Supplies, $2,500; credit Supplies Expense, $2,500. c. debit Supplies Expense, $2,500; credit Supplies, $2,500. d. debit Supplies, $1,500; credit Supplies Expense, $1,500.

C

If a resource has been consumed but a bill has not been received at the end of the accounting period, then: a. an expense should be recorded when the bill is received. b. an expense should be recorded when the cash is paid out. c. an adjusting entry should be made recognizing the expense. d. it is optional whether to record the expense before the bill is received.

C

In a service-type business, revenue is recognized: a. at the end of the month. b. at the end of the year. c. when the service is performed. d. when cash is received.

C

On July 1 the Fisher Shoe Store paid $18,000 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, $18,000; credit Prepaid Rent, $3,000. b. debit Prepaid Rent, $3,000; credit Rent Expense, $3,000. c. debit Rent Expense, $3,000; credit Prepaid Rent, $3,000. d. debit Rent Expense, $18,000; credit Prepaid Rent, $15,000.

C

The primary difference between prepaid and accrued expenses is that prepaid expenses have: a. been incurred and accrued expenses have not. b. not been paid and accrued expenses have. c. been recorded and accrued expenses have not. d. not been recorded and accrued expenses have.

C

Under the accrual basis of accounting: a. cash must be received before revenue is recognized. b. net income is calculated by matching cash outflows against cash inflows. c. events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received. d. the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.

C

Under the cash basis of accounting: a. revenue is recognized when services are performed. b. expenses are matched with the revenue that is produced. c. cash must be received before revenue is recognized. d. a promise to pay is sufficient to recognize revenue.

C

Which of the following would be unethical? a. Recording accrued salaries and wages expense. b. Recording accrued interest revenue. c. Recording backdated revenue. d. Recording prepaid expense adjustments.

C

A company spends $20 million dollars for an office building. Over what period should the cost be written off? a. When the $20 million is expended in cash. b. All in the first year. c. After $20 million in revenue is earned. d. None of these answer choices are correct.

D

A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause: a. expenses to be overstated. b. net income to be overstated. c. liabilities to be understated. d. revenues to be understated.

D

Adjusting entries are made to ensure that: a. expense are recognized in the period in which they are incurred. b. revenues are recorded in the period in which the performance obligation is satisfied. c. balance sheet and income statement accounts have correct balances at the end of an accounting period. d. All of these answer choices are correct.

D

Adjusting entries can be classified as: a. postponements and advances. b. accruals and advances. c. deferrals and postponements. d. accruals and deferrals.

D

Adjustments would not be necessary if financial statements were prepared to reflect net income from: a. monthly operations. b. fiscal year operations. c. interim operations. d. lifetime operations.

D

Given the data below for a firm in its first year of operation, determine net income under the cash basis of accounting. Cash received from customers $48,000 Accounts receivable 12,000 Cash paid for expenses 26,000 Accounts payable (related to expenses) 3,000 Prepaid rent for next period 7,000 a. $22,000 b. $31,000 c. $24,000 d. $15,000

D

La More Company had the following transactions during 2013. • Sales of $4,500 on account • Collected $2,000 for services to be performed in 2014 • Paid $1,325 cash in salaries • Purchased airline tickets for $250 in December for a trip to take place in 2014 What is La More's 2013 net income using cash basis accounting? a. $5,175 b. $675 c. $4,925 d. $425

D

La More Company had the following transactions during 2013: • Sales of $4,500 on account • Collected $2,000 for services to be performed in 2014 • Paid $1,875 cash in salaries for 2013 • Purchased airline tickets for $250 in December for a trip to take place in 2014 What is La More's 2013 net income using accrual accounting? a. $2,875 b. $4,875 c. $4,625 d. $2,625

D

On April 1, 2013, nPropel Corporation paid $48,000 cash for equipment that will be used in business operations. The equipment will be used for four years. nPropel records depreciation expense of $48,000 for the calendar year ending December 31, 2013. Which accounting principle has been violated? a. Depreciation principle. b. No principle has been violated. c. Cash principle. d. Expense recognition principle.

D

The Vintage Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $1,000 on hand. The adjusting entry that should be made by the company on June 30 is: a. debit Supplies Expense, $1,000; credit Supplies, $1,000. b. debit Supplies, $5,500; credit Supplies Expense, $5,500. c. debit Supplies, $1,000; credit Supplies Expense, $1,000. d. debit Supplies Expense, $5,500; credit Supplies, $5,500.

D

The balance in the prepaid rent account before adjustment at the end of the year is $15,000 and represents three months rent paid on December 1. The adjusting entry required on December 31 is: a. debit Prepaid Rent, $5,000; credit Rent Expense $5,000. b. debit Prepaid Rent, $10,000; credit Rent Expense, $10,000. c. debit Rent Expense, $15,000; credit Prepaid Rent, $15,000. d. debit Rent Expense, $5,000; credit Prepaid Rent, $5,000.

D

The general term employed to indicate an expense that has not been paid or revenue that has not been received and has not yet been recognized in the accounts is: a. contra asset. b. prepayment. c. asset. d. accrued.

D

The periodicity assumption assumes that: a. a transaction can only affect one period of time. b. estimates should not be made if a transaction affects more than one time period. c. adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations. d. the economic life of a business can be divided into artificial time periods.

D

The primary difference between accrued revenues and unearned revenues is that accrued revenues have: a. not been recognized and accrued revenues have been. b. been paid and unearned revenues have not. c. been recorded and unearned revenues have not. d. not been recorded and unearned revenues have.

D

Unearned revenue is classified as a(n): a. asset account. b. revenue account. c. contra revenue account. d. liability.

D

Wang Company had the following transactions during 2013: • Sales of $10,800 on account • Collected $4,800 for services to be performed in 2014 • Paid $3,100 cash in salaries for 2013 • Purchased airline tickets for $600 in December for a trip to take place in 2014 What is Wang's 2013 net income using accrual accounting? a. $8,300 b. $13,100 c. $12,500 d. $7,700

D

Which one of the following is not a justification for adjusting entries? a. Adjusting entries are necessary to ensure that the revenue recognition principle is followed. b. Adjusting entries are necessary to ensure that the expense recognition principle is followed. c. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP. d. Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

D