MGMT 200 2/6

Prepayments occur when: A. Cash payment (or an obligation to pay cash) occurs before the expense recognition. B. Sales are delayed pending credit approval. C. Customers are unable to pay the full amount due when goods are delivered. D. Cash payment occurs after the expense is incurred and liability is recorded.

A. Cash payment (or an obligation to pay cash) occurs before the expense recognition.

Which of the following is recorded with an adjusting entry associated with a prepaid expense? A. Credit an asset B. Debit a liability C. Credit an expense D. Debit an asset

A. Credit an asset

The adjusting entry for a prepaid expense has the effect of reducing total assets and reducing net income. A. True B. False

A. True

Boiler Bagels opened for business on January 1, 2018, and paid for two insurance policies effective that date. The liability policy was $36,000 for 18 months, and the property damage policy was $12,000 for a two‐year term. What was the balance in Boiler's Prepaid Insurance account as of December 31, 2018? A. $9,000 B. $18,000 C. $30,000 D. $48,000

B. $18,000

Which of the following is equivalent to the book value of an asset? A. Cost of the asset plus the accumulated depreciation B. Cost of the asset less the accumulated depreciation C. The estimate of time that the asset will last D. Cost of the asset divided by its life

B. Cost of the asset less the accumulated depreciation

Amalgamated Company begins the year with $1,000 in supplies, purchases an additional $5,500 of supplies during the year, and ends the year with $700 in supplies. The year‐end adjusting entry includes Supplies Expense of $7,200. A. True B. False

B. False

Adjusting entries: A. Often include the Cash account. B. Usually are recorded at the beginning of the accounting period. C. Always involve at least one income statement account and one balance sheet account. D. Adjust the balance of revenue and expense accounts to zero.

C. Always involve at least one income statement account and one balance sheet account.

Which one of the following best describes the characteristics of adjusting entries? A. Adjusting entries reduce the balance of revenue, expense, and dividend accounts to zero. B. Adjusting entries allow for the proper recognition of cash flows. C. Adjusting entries allow for the proper recognition of investments from and distributions to stockholders. D. Adjusting entries allow for the proper recognition of revenue and expenses.

D. Adjusting entries allow for the proper recognition of revenue and expenses.

On July 1, 2018, Silver Co. paid $18,000 to Rent‐An‐ Office for rent covering 18 months from July 2018 through December 2019. What adjusting entry should Silver Co. record on December 31, 2018?

Rent Expense-Prepaid Expense 6,000