Chapter 3 accounting

An adjusting entry that debits an expense and credits an asset is necessary for A. prepaid expenses. B. unearned revenues. C. accrued revenues. D. accrued expenses.

A. prepaid expenses.

Adjustments for unearned revenues A. decrease liabilities and increase revenues. B. have an assets and revenues account relationship. C. increase assets and increase revenues. D. decrease revenues and decrease assets.

A. decrease liabilities and increase revenues.

If an adjusting entry for depreciation is not made A. assets will be understated. B. stockholders' equity will be understated. C. net income will be understated. D. expenses will be understated

D. expenses will be understated

On December 15, Jay Cleaning Co. agreed to provide Kay Co. with bimonthly cleaning services for its offices. The services will be billed to Kay Co. on the fifteenth of each month at a rate of $400. As of December 31, Jay Cleaning has provided its first cleaning of Kay's offices. The adjusting entry for Jay's Cleaning should include a a. credit to Accounting Receivable for $400. b. debit to Accounts Receivable for $200. c. debit to Accounts Receivable for $400. d. credit to Accounts Receivable for $200.

NOT A

The following are line items from the vertical analysis of a balance sheet: Amount Percent Total assets $300,000 300% Total liabilities $200,000 200% Total stockholders' equity 100,000 100% Total liabilities and stockholders' equity $300,000 300% What needs to be changed on the statement? a. Total assets should be expressed as 100%. b. Total liabilities and stockholders' equity should be expressed as 100%. c. Total stockholders' equity should be expressed as 33%. d. All of these changes should be made.

NOT A

The unearned subscriptions account reflected a balance of $32,500 prior to any adjustments. It is determined that $9,800 in subscriptions remain unearned at the end of the period. The adjusting journal entry should include a a. debit to Unearned Subscriptions for $9,800. b. credit to Subscriptions Earned for $9,800. c. credit to Unearned Subscriptions for $22,700. d. credit to Subscriptions Revenue for $22,700.

NOT A OR C

Which of the following statements is not true about vertical analysis? a. Each line item is expressed as a percentage of some total or key amount within the same statement. b. It is useful for analyzing relationships within a financial statement. c. It is useful for analyzing changes in financial statements over time. d. The dollar amount of change in each line item is calculated.

NOT A OR C

The adjusted trial balance a. is for a period of time. b. is at a specific date. c. does not have a date. d. None of these choices are correct.

NOT A OR D

In the vertical analysis of an income statement a. each item is stated as a percent of total expenses. b. each item is stated as a percent of change from the previous period's statement. c. total revenues are stated as a percent of stockholders' equity. d. each item is stated as a percent of revenues or fees earned.

NOT B

If the following adjusting entry is omitted, what effect will it have on the financial statements? Unearned Rent 1,900 Rent Revenue 1,900 a. Revenues will be understated by $1,900. b. Revenues will be overstated by $1,900. c. There will be no effect on net income. d. There will be no effect on liabilities.

NOT B OR C

Using the following information, prepare a vertical analysis of two years' income statements. Fees Earned is $153,500 for Year 2 and $149,700 for Year 1. Operating expenses are $122,800 for Year 2 and $127,245 for Year 1. Which of the following statements is true? a. Operating expenses have increased as a percentage of revenue. b. Operating income has increased as a percentage of revenue. c. Operating income has decreased as a percentage of revenue. d. None of these choices are correct.

NOT C

Which statement is true regarding the cash basis of accounting? a. Revenues are reported in the period in which a service has been performed or a product has been delivered. b. Revenues are reported in the period in which cash is received, and expenses are reported when cash is paid out. c. Expenses are reported in the same period as the revenues to which they relate. d. The cash basis of accounting is used by most large businesses to provide accurate financial statements for users.

NOT D

Which of the following would not cause the adjusted trial balance totals to be unequal? a. The adjustment for prepaid insurance was omitted. b. The adjustment for accrued fees of $16,340 was journalized as a debit to Accounts Payable for $16,430 and a credit to Fees Earned of $16,340. c. The adjustment for depreciation of $3,545 was journalized as debit to Depreciation Expense for $3,454 and a credit to Accumulated Depreciation of $3,545. d. None of these choices are correct.

a. The adjustment for prepaid insurance was omitted.

Prepaid expenses a. are an advance payment of cash. b. do not require an adjusting entry. c. are similar to accrued expenses because both have been recorded. d. are an advance receipt of cash.

a. are an advance payment of cash.

Unearned revenues a. are referred to as future revenues. b. are recorded as assets when cash is received. c. are recorded when services have been performed for the customer. d. All of these choices are correct.

a. are referred to as future revenues.

The adjusting entry for accrued revenues includes a a. debit to an asset account. b. credit to an expense account. c. credit to an asset account. d. debit to a revenue account.

a. debit to an asset account. Accounting records that do not include adjusting entries for accrued revenues understate total assets, total revenues, and net income.

In the vertical analysis of a balance sheet a. each asset item is stated as a percent of total assets. b. each liability item is stated as a percent of total liabilities. c. each item is stated as a percent of stockholders' equity. d. each item is stated as a percent of change from the previous period's statement.

a. each asset item is stated as a percent of total assets.

Comparing each line of a financial statement with a total amount from the same financial statement a. is referred to as vertical analysis. b. is referred to as horizontal analysis. c. Both of these choices are correct. d. None of these choices are correct.

a. is referred to as vertical analysis.

The recording of adjusting entries is supported by the a. matching principle. b. cost concept. c. cash basis of accounting. d. accuracy concept.

a. matching principle.

If the adjustment for prepaid expenses is not recorded a. net income will be overstated. b. net income will be correctly stated. c. expenses will be overstated. d. assets will be understated.

a. net income will be overstated.

The $9,600 balance in Fellows Company's prepaid insurance account represents 6 months of insurance. The insurance was purchased on December 1. Which of the following should be included in the adjusting journal entry on December 31? a. Debit to Cash for $9,600 b. Debit to Insurance Expense for $1,600 c. Debit to Prepaid Insurance for $1,600 d. Debit to Insurance Expense for $9,600

b. Debit to Insurance Expense for $1,600

If an adjustment for $7,500 in accrued revenues is omitted, how will this affect the financial statements? a. Net income will be overstated by $7,500. b. Net income will be understated by $7,500. c. Accounts Receivable will be overstated by $7,500. d. There will be no effect on the financial statements.

b. Net income will be understated by $7,500.

Which of the following represents a deferral? a. Fees earned b. Prepaid insurance c. Wages payable d. Accumulated depreciation

b. Prepaid insurance

The adjusted trial balance is prepared a. prior to completing the adjusting entries. b. The adjusted trial balance is prepared after adjusting entries are posted. c. only if errors are suspected when problems arise while preparing the financial statements. d. after financial statements are prepared.

b. The adjusted trial balance is prepared after adjusting entries are posted.

The adjusting entry for accrued expenses includes a. a credit to an asset account. b. a debit to an expense account. c. a debit to a liability account. d. a credit to an expense account.

b. a debit to an expense account.

The adjusting entry to record depreciation includes a. a debit to a liability account. b. a debit to an expense account. c. a debit to an asset account. d. None of these choices are correct.

b. a debit to an expense account.

When recording an adjusting entry for unearned revenues a. a liability account is credited. b. a liability account is debited. c. a revenue account is debited. d. an asset account is credited.

b. a liability account is debited.

When recording an adjusting entry for a prepaid expense a. a liability account is debited. b. an asset account is credited. c. an asset account is debited. d. an expense account is credited.

b. an asset account is credited.

All of the following are types of adjustments except a. prepaid expenses. b. cash expenses. c. accrued revenues. d. accrued expenses.

b. cash expenses

Because collecting the adjustment data requires time, the adjusting entries are often a. entered and dated later than the last day of the period. b. entered later but dated as of the last day of the period. c. estimated and recorded earlier than the last day of the period. d. omitted.

b. entered later but dated as of the last day of the period

The adjusting entry for accrued revenues a. differs from the journal entry to record revenue on account. b. is the same journal entry as recording revenue on account. c. includes a credit to an asset account. d. includes a debit to a revenue account.

b. is the same journal entry as recording revenue on account

The balance in the unearned rent account for Jackson Co. as of December 31 is $1,500. If Jackson Co. failed to record the adjusting entry of $500 of rent earned in December, the effect on the balance sheet and income statement for December would be a. assets understated $500; net income overstated $500. b. liabilities overstated $500; net income understated $500. c. liabilities overstated $1,000; net income overstated $1,000. d. liabilities understated $500; net income understated $500.

b. liabilities overstated $500; net income understated $500.

The purpose of the adjusted trial balance is to verify a. the equality of the total debit balances and the total credit balances before adjustments have been recorded. b. the equality of the total debit balances and the total credit balances after adjustments have been recorded. c. that the net income reported is accurate. d. that all of the accounts are correct.

b. the equality of the total debit balances and the total credit balances after adjustments have been recorded.

The adjusted trial balance is prepared a. to determine whether the balance sheet is in balance. b. to verify the equality of total debit and credit balances. c. to determine the net income or loss. d. for all of these reasons.

b. to verify the equality of total debit and credit balances.

Which of the following would be classified as unearned revenue? a. Insurance paid for the next year b. Wages owed but not yet paid c. Cash received for services not yet rendered d. Rent revenue earned but not yet received

c. Cash received for services not yet rendered

The difference between the cost of a fixed asset and its accumulated depreciation is known as its a. market value. b. contra value. c. book value. d. depreciation expense.

c. book value.

An adjustment to record unrecorded fees earned was posted during the current period. Which of the following would cause the adjusted trial balance totals to be unequal? a. The adjustment was posted as a debit to Cash and a credit to Fees Earned. b. The adjustment was posted as a debit to Fees Earned and a credit to Accounts Receivable. c. The adjustment was posted as a debit to Accounts Receivable for $870 and a credit to Fees Earned for $780. d. The adjustment was completely omitted.

c. The adjustment was posted as a debit to Accounts Receivable for $870 and a credit to Fees Earned for $780.

The following are line items from the vertical analysis of an income statement: Amount Percent Total revenues $600 300% Total expenses $400 200% Net income $200 100% What needs to be changed on the statement? a. The percentage for total expenses should be 33%. b. The percentage for net income should 25%. c. Total revenues should be the base expressed as 100%. d. None of these changes should be made.

c. Total revenues should be the base expressed as 100%.

Which of the following represents an accrual? a. Prepaid insurance b. Accumulated depreciation c. Wages payable d. Fees earned

c. Wages payable

Adjusting entries are dated a. at the beginning of the accounting period. b. when cash is received. c. at the end of the accounting period. d. when an economic event occurs.

c. at the end of the accounting period.

If the adjustment for depreciation is not recorded a. revenues are overstated. b. net income is correctly stated. c. net income is overstated. d. assets are understated.

c. net income is overstated

If the adjustment for accrued revenue is not recorded a. net income will be overstated. b. liabilities will be overstated. c. net income will be understated. d. assets will be overstated.

c. net income will be understated.

If the adjustment for unearned revenues is not recorded a. net income will be correctly stated. b. liabilities will be understated. c. net income will be understated. d. assets will be overstated.

c. net income will be understated.

Once the adjusted trial balance is balanced, it can be used to prepare a. the classified balance sheet and the income statement. b. the classified balance sheet. c. the income statement, the retained earnings statement, and the classified balance sheet. d. None of these financial statement choices are prepared with the adjusted trial balance.

c. the income statement, the retained earnings statement, and the classified balance sheet.

Vertical analysis can be used to analyze changes a. on an income statement. b. on a balance sheet. c. over time. d. All of these choices are correct.

d. All of these choices are correct.

If an adjustment for salaries earned but not recorded or paid in the amount of $85,000 were to be omitted, how would this affect the financial statements? a. Net income would be overstated on the income statement by $85,000. b. Expenses would be understated on the income statement by $85,000. c. Liabilities would be understated on the balance sheet for $85,000. d. All of these effects would occur.

d. All of these effects would occur.

Indicate which of the following accounts will never require an adjusting entry. a. Salaries Expense b. Salaries Payable c. Fees Earned d. Cash

d. Cash

Which of the following is true regarding adjusting entries? a. Adjusting entries are not posted to the ledger. b. Adjusting entries are dated as of the first day of the new accounting period. c. Adjusting entries are optional with accrual-basis accounting. d. None of these statements are true.

d. None of these statements are true.

Brown Co. pays weekly salaries of $10,500 on Friday for a five-day workweek ending on that day. Assuming the end of the accounting period ends on Wednesday, the adjusting journal entry will include a a. credit to Wages Payable for $4,200. b. credit to Wages Expense for $10,500. c. credit to Wages Expense for $6,300. d. credit to Wages Payable for $6,300.

d. credit to Wages Payable for $6,300.

If the estimated amount of depreciation on equipment for a period is $3,500, the adjusting entry to record depreciation would be a. debit Accumulated Depreciation $3,500; credit Depreciation Expense $3,500. b. debit Depreciation Expense $3,500; credit Equipment $3,500. c. debit Equipment $3,500; credit Depreciation Expense $3,500. d. debit Depreciation Expense $3,500; credit Accumulated Depreciation $3,500.

d. debit Depreciation Expense $3,500; credit Accumulated Depreciation $3,500.

If the adjustment for accrues expenses is not recorded a. revenues will be understated. b. net income will be understated. c. expenses will be overstated. d. net income will be overstated.

d. net income will be overstated.

Revenue is recorded when services have been performed or products have been delivered to customers. The accounting principle supporting this reporting is a. the adjusting principle. b. the cash basis principle. c. the income statement principle. d. the revenue recognition principle.

d. the revenue recognition principle.