ACG2021 Ch 4 Practice Quiz (TCC)

The balance of which of the following accounts appears in the credit column of an adjusted trial balance? a. Common Stock b. Equipment c. Dividends d. Accounts Receivable

a. Common Stock Common Stock is a stockholders' equity account and, as such, has a credit balance and appears in the credit column. Equipment, Dividends, and Accounts Receivable have debit balances and appear in the debit column.

A company started the year with $3,750 of supplies on hand. During the year the company purchased additional supplies of $2,000 and recorded them as an increase to the supplies asset. At the end of the year the company determined that only $750 of supplies are still on hand. What is the adjusting journal entry to be made at the end of the period? a. Debit Supplies Expense and credit Supplies for $5,000 b. Debit Supplies and credit Supplies Expense for $750 c. Debit Supplies Expense and credit Supplies for $3,000 d. Debit Supplies and credit Supplies Expense for $2,500

a. Debit Supplies Expense and credit Supplies for $5,000 Supplies expense (used) = Beginning balance + Supplies purchased − Supplies on hand at end of period= $3,750 + $2,000 − $750 = $5,000The adjusting journal entry to record the use of supplies would include a debit to Supplies Expense and a credit to Supplies for $5,000, which is the amount of supplies used during the period.

Which of the following statements about an adjusted trial balance is correct? a. It is used to prepare financial statements. b. It is prepared to ensure assets equal liabilities. c. It is prepared at the beginning of the year. d. It is prepared before the adjusting journal entries have been made.

a. It is used to prepare financial statements. An adjusted trial balance is prepared after all the adjusting journal entries have been made to assure that the debits and the credits are equal. The adjusted trial balance typically is used to prepare the financial statements.

The adjusting entry to record services earned but not yet billed requires: a. a debit to Accounts Receivable and credit to Service Revenue. b. a debit to Service Revenue and credit to Accounts Receivable. c. a debit to Accounts Payable and credit to Service Revenue. d. no entry since revenues should not be recorded until collected.

a. a debit to Accounts Receivable and credit to Service Revenue. Companies that provide accounting, legal, or promotional services that span more than one month are unlikely to receive cash or bill customers until the services have been provided in full. The revenue recognition principle indicates they should be recorded during the period earned. Thus, an accrual adjustment is needed to increase Accounts Receivable (with a debit) and increase the related revenue account (with a credit).

The balance in the Prepaid Insurance account after the adjusting entries have been recorded represents the: a. amount of the insurance prepayment that remains to benefit future periods. b. cost of the insurance expired during the period. c. amount owed for insurance at the end of the accounting period. d. cash paid for insurance of current and future periods.

a. amount of the insurance prepayment that remains to benefit future periods. Prepaid Insurance reports the amount of insurance paid for in advance that has not yet expired.

Before the closing entries are prepared, the Retained Earnings balance in the adjusted trial balance is equal to the balance of that account: a. at the beginning of the period. b. after adding revenues and subtracting expenses but before subtracting dividends. c. at the end of the period. d. at the beginning of the next period.

a. at the beginning of the period. The amount of Retained Earnings on the adjusted trial balance is the beginning-of-year balance. This account balance does not yet include revenues, expenses, and dividends for the current period because they have been recorded in their own separate accounts.

In the closing process, expenses and dividends are zeroed out by _______ each account and revenues are zeroed out by _______ each account. a. crediting; debiting b. crediting; crediting c. debiting; crediting d. debiting or crediting (depending on the account); crediting

a. crediting; debiting The first closing entry debits each revenue account for the amount of its credit balance, credits each expense account for the amount of its debit balance, and records the difference in Retained Earnings.

First Corporation had Retained Earnings at the end of December 31, 2018 of $900,000. During 2019, the company had net income of $340,000 and declared dividends of $40,000. The amount of Retained Earnings reported on the balance sheet as of December 31, 2019 will be: a. $860,000. b. $1,200,000. c. $1,240,000. d. $1,280,000.

b. $1,200,000. Ending retained earnings = Beginning retained earnings + Net income − Dividends= $900,000 + $340,000 − $40,000 = $1,200,000

The adjusting entry to record interest owed on obligations at the end of the accounting period includes a debit to: a. Interest Payable and credit to Interest Expense. b. Interest Expense and credit to Interest Payable. c. Interest Receivable and credit to Interest Receivable. d. Interest Expense and credit to Notes Payable.

b. Interest Expense and credit to Interest Payable. A company incurs interest each month on its unpaid note payable. An adjustment is needed to record the Interest Expense relating to the current accounting period and, because this interest has not yet been paid, the adjustment also must record a liability called Interest Payable. The entry includes a debit to Interest Expense and a credit to Interest Payable.

If an expense has been incurred but will be paid later, then: a. nothing is recorded on the financial statements. b. a liability account is created or increased and an expense is recorded. c. an asset account is decreased or eliminated and an expense is recorded. d. a revenue and an expense are accrued.

b. a liability account is created or increased and an expense is recorded. An accrual adjustment is needed when a company has incurred an expense in the current period but has not yet paid the related cash. The related cash will not be paid until a later period. The accrual adjustment record increases in an expense account and a liability account.

Sail, Inc. pays its workforce on Fridays for a five-day workweek ending on that day. The payroll for a week is $165,000. If the accounting year-end falls on a Tuesday, the adjusting journal entry to record this will include a a. debit to Salaries and Wages Expense $165,000. b. debit to Salaries and Wages Expense $66,000. c. credit to Salaries and Wages Payable $99,000. d. credit to Salaries and Wages Payable $165,000.

b. debit to Salaries and Wages Expense $66,000. The adjusting entry would include a debit to Salaries and Wages Expense and a credit to Salaries and Wages Payable for $66,000 [or ($165,000 ÷ 5 days) × 2 days].

At the end of the accounting period: a. all accounts are closed. b. temporary accounts are closed; permanent accounts are not. c. permanent accounts are closed; temporary accounts are not. d. only accounts with a credit balance are closed.

b. temporary accounts are closed; c. permanent accounts are not. At the end of each year, after all the year's transactions and adjustments are recorded, all revenue, expense, and dividends accounts (referred to as the temporary accounts) are closed by moving their balances to their permanent home in Retained Earnings. Permanent accounts, which include the balance sheet accounts, are not closed.

Which of the following trial balances is used as a source for preparing the income statement? a. Unadjusted trial balance b. Pre-adjusted trial balance c. Adjusted trial balance d. Post-closing trial balance

c. Adjusted trial balance The adjusted trial balance is used in the preparation of financial statements because the accounts must be adjusted before financial statements can be prepared. The post-closing trial balance cannot be used to prepare the income statement since it will list zero balances for all the income statement accounts (which have already been closed).

Which of the following statements about adjusting entries is not correct? a. Adjustments are needed to ensure that the accounting system includes all of the revenues and expenses of the period. b. Adjustments help to ensure the related accounts on the balance sheet and income statement are up to date and complete. c. Adjusting entries often affect the cash account. d. Adjusting entries always include one balance sheet and one income statement account.

c. Adjusting entries often affect the cash account. Adjusting entries always include one balance sheet and one income statement account. Adjusting entries never involve the Cash account. Transactions involving cash are recorded as regular journal entries.

Angela is a tenant of Bruce. On March 1, Angela paid Bruce $2,400 for 3 months of rent. On March 31, Angela's adjusting entries will include one with a debit to: a. Rent Expense for $2,400 and a credit to Prepaid Rent for $2,400. b. Prepaid Rent for $2,400 and a credit to Cash for $2,400. c. Rent Expense for $800 and a credit to Prepaid Rent for $800. d. Prepaid Rent for $800 and a credit to Rent Expense for $800.

c. Rent Expense for $800 and a credit to Prepaid Rent for $800. When Angela first made the payment, it provided an economic resource to the company (building space for three months), so it was initially recorded as an asset called Prepaid Rent. At March 31, one month has passed. The adjusting entry will include a debit to Rent Expense (to increase this expense account) and a credit to Prepaid Rent (to decrease this asset account) for $800 [or ($2,400 ÷ 3 months) × 1 month].

What is the purpose of the closing process? a. To record transactions for the period. b. To set all account balances to zero. c. To prepare the accounting records so they are ready to track results for the following year. d. To adjust for accrual and deferral transactions.

c. To prepare the accounting records so they are ready to track results for the following year. The closing process serves two purposes: (1) transfer net income (or loss) and dividends to Retained Earnings and (2) establish zero balances in all income statement and dividend accounts. The revenue and expense accounts and the Dividends accounts are considered temporary accounts because they are used to track only the current year's results and then are closed before the next year's activities are recorded. As a result, in part, closing entries prepare the accounting records so they are ready to track results for the following year.

If certain assets are partially used up during the accounting period, then: a. nothing is recorded on the financial statements until they are completely used up. b. a liability account is decreased and an expense is recorded. c. an asset account is decreased and an expense is recorded. d. nothing is recorded on the financial statements until they are replaced or replenished.

c. an asset account is decreased and an expense is recorded. When the company pays cash before incurring the expense, the prepayment is recorded in an asset account on the balance sheet. When an asset is partially used up during the accounting period, the expense is incurred and recorded with a debit and the asset account is decreased with a credit.

Closing entries: a. are prepared before financial statements are prepared. b. reduce the number of permanent accounts. c. cause the revenue and expense accounts to have zero balances. d. summarize the activity in every account.

c. cause the revenue and expense accounts to have zero balances. At the end of each year, after all the year's transactions and adjustments are recorded, all revenue, expense, and dividends accounts (referred to as the temporary accounts) are closed by moving their balances to their permanent home in Retained Earnings. The temporary accounts, which include the revenue, expense, and Dividends accounts, have zero balances after the closing entries are posted.

A contra-account: a. increases the original value of the account to which it relates. b. always appears in the same column of the trial balance as the account to which it relates. c. offsets, or reduces, another account. d. reduce the asset to its fair value.

c. offsets, or reduces, another account. A contra-account is an account that is an offset to, or reduction of, another account. For example, the contra-account, named Accumulated Depreciation, is like a negative asset account that is subtracted from the Equipment account in the assets section of the balance sheet. As such, in a trial balance, a contra-account appears in the opposite column as the account it offsets.

Closing journal entries: a. transfer revenues and expenses to asset and liability accounts. b. transfer assets and liabilities to Retained Earnings. c. transfer net income (or loss) and Dividends to Retained Earnings. d. close permanent and temporary accounts.

c. transfer net income (or loss) and Dividends to Retained Earnings. The closing process transfers the balances in the temporary accounts (revenue, expenses, and the Dividends accounts) to Retained Earnings.

Which account below is a permanent account? a. Service Revenue b. Depreciation Expense c. Dividends d. Deferred Revenue

d. Deferred Revenue The revenue account and expense accounts (including Depreciation Expense) and the Dividends accounts are considered temporary accounts because they are used to track only the current year's results and then are closed before the next year's activities are recorded. Deferred Revenue, a liability account, is a permanent account.

Which of the following steps is performed last at the end of the year? a.Prepare adjusting entries. b. Prepare an adjusted trial balance. c. Prepare closing journal entries. d. Prepare a post-closing trial balance.

d. Prepare a post-closing trial balance. The post-closing trial balance is the final step in the accounting process.

Accumulated Depreciation appears on the: a. balance sheet in the stockholders' equity section. b. income statement as an expense. c. balance sheet as a liability account. d. balance sheet as a contra-asset account.

d. balance sheet as a contra-asset account. Accumulated depreciation is a contra-asset account that appears on the balance sheet below the account Property and Equipment. Depreciation Expense is the account that appears on an income statement.

Adjusting entries affect: a. only balance sheet accounts. b. only income statement accounts. c. only statement of cash flow accounts. d. both income statement and balance sheet accounts.

d. both income statement and balance sheet accounts. Adjusting entries always include one balance sheet account and one income statement account.

When a deferral adjustment is made to a liability account, that liability becomes a(n): a. asset. b. other liability. c. expense. d. revenue.

d. revenue. Deferral adjustments are used to update amounts that have been previously deferred on the balance sheet. When a company receives cash from customers before delivering the goods or services, this revenue is initially deferred as a liability on the balance sheet (in an account called Deferred Revenue). Later, when the company delivers the goods or services, thereby meeting its obligation and earning the revenue, a deferral adjustment is made to decrease the liability and increase the related revenue account.