Cengage Chapter 3_sc

Nance Realty Company received a check for $15,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $15,000. Financial statements will be prepared on July 31. Nance Realty should make the following adjusting entry on July 31: A. Debit Unearned Rent, $2,500; Credit Rental Revenue, $2,500. B. Debit Rental Revenue, $2,500; Credit Unearned Rent, $2,500. C. Debit Unearned Rent, $15,000; Credit Rental Revenue, $15,000. D. Debit Cash, $15,000; Credit Rental Revenue, $15,000.

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

Unearned revenues are A. received and recorded as liabilities before they are earned. B. earned and recorded as liabilities before they are received. C. earned but not yet received or recorded. D. earned and already received and recorded.

A

Boomer Company purchased office equipment for $1,000 on December 5. The office equipment depreciated $30 during December. The adjusting entry should include a: A. debit to Depreciation Expense for $30. B. debit to Accumulated Depreciation—Office Equipment for $30. C. debit to Depreciation Expense for $970. D. credit to Depreciation Expense for $30.

A. debit to Depreciation Expense for $30.

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.

B

As prepaid expenses expire with the passage of time, the correct adjusting entry will be a A. debit to an asset account and a credit to an expense account. B. debit to an expense account and a credit to an asset account. C. debit to an asset account and a credit to an asset account. D. debit to an expense account and a credit to an expense account.

B

If a company fails to make an adjusting entry to record supplies expense, then A. owner's equity will be understated. B. expense will be understated. C. assets will be understated. D. net income will be understated.

B

The matching principle matches A. customers with businesses. B. expenses with revenues. C. assets with liabilities. D. creditors with businesses.

B

The revenue recognition principle dictates that revenue should be recognized in the accounting records A. when cash is received. B. when it is earned. C. at the end of the month. D. in the period that income taxes are paid.

B

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 earned. B. earned and recorded as liabilities before they are received. C. earned but not yet received or recorded. D. earned and already received and recorded.

C

At December 31, 2002, before any year-end adjustments, Karr Company's Insurance Expense account had a balance of $400 and its Prepaid Insurance account had a balance of $1,900. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be A. $1,500. B. $400. C. $1,900. D. $2,300.

C

Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause A. net income to be understated. B. an overstatement of assets and an overstatement of liabilities. C. an understatement of expenses and an understatement of liabilities. D. an overstatement of expenses and an overstatement of liabilities.

C

Kim Roberts has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Kim make? a. Debit Cash and credit Unearned Revenue b. Debit Accounts Receivable and credit Unearned Revenue c. Debit Accounts Receivable and credit Service Revenue D. Debit Unearned Revenue and credit Service Revenue

C

On July 1 the Vinson Shoe Store paid $8,000 to Ace Realty for 4 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 Vinson Shoe Store is A. Debit Rent Expense, $8,000; Credit Prepaid Rent, $2,000. B. Debit Prepaid Rent, $2,000; Credit Rent Expense, $2,000. C. Debit Rent Expense, $2,000; Credit Prepaid Rent, $2,000. D. Debit Rent Expense, $8,000; Credit Prepaid Rent, $8,000.

C

Quirk Company purchased office supplies costing $3,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,200 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be A. Debit Office Supplies Expense, $1,200; Credit Office Supplies, $1,200. B. Debit Office Supplies, $1,800; Credit Office Supplies Expense, $1,800. C. Debit Office Supplies Expense, $1,800; Credit Office Supplies, $1,800. D. Debit Office Supplies, $1,200; Credit Office Supplies Expense, $1,200.

C

Trent Tables paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (29-31). Employees work 5 days a week and the company pays $1,000 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January? a. Wages Expense 1,000 Wages Payable 1,000 b. Wages Expense 5,000 Wages Payable 5,000 c. Wages Expense 3,000 Wages Payable 3,000 d. No adjusting entry is required

C

Under accrual-basis 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

If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect will this have on that month's financial statements? A. Failure to make an adjustment does not affect the financial statements. B. Expenses will be overstated and net income and owner's equity will be understated. C. Assets will be overstated and net income and owner's equity will be understated. D. Assets will be overstated and net income and owner's equity will be overstated.

D

Which one of the following is not a justification for adjusting entries? A. Adjusting entries are necessary to ensure that revenue recognition principles are followed. B. Adjusting entries are necessary to ensure that the matching 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

White Laundry Company purchased $7,500 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 $2,000 on hand. The adjusting entry that should be made by the company on June 30 is A. Debit Laundry Supplies Expense, $2,000; Credit Laundry Supplies, $2,000. B. Debit Laundry Supplies Expense, $5,500; Credit Laundry Supplies, $2,000. C. Debit Laundry Supplies, $5,500; Credit Laundry Supplies Expense, $5,500. D. Debit Laundry Supplies Expense, $5,500; Credit Laundry Supplies, $5,500.

D

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

a

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

a

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

a

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

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 $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

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 understated on the income statement by $85,000. b. Assets would be understated on the balance sheet for $85,000. c. Expenses would be overstated on the income statement by $85,000. d. Liabilities would be understated on the balance sheet for $85,000.

a. Net income would be understated on the income statement by $85,000.

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

a. are an advance receipt of cash.

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

a. expenses will be overstated.

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

a. net income is overstated.

Barry Company received $8,000 full payment in advance for services that are 60 percent complete at the end of the period. The adjusting entry will a. debit Service Revenue for $4,800 and credit Unearned Revenue for $4,800. b. debit Unearned Revenue for $4,800 and credit Service Revenue for $4,800. c. debit Unearned Revenue for $8,000 and credit Service Revenue for $8,000. d. debit Cash for $4,800 and credit Service Revenue for $4,800.

b

The *recording of adjusting entrie*s is supported by the a. cash-basis of accounting. b. matching concept. c. accuracy concept. d. cost concept.

b

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 are correct.

b

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

b

Clever Computers has a five-day workweek and pays the office staff $3,050 each week. If the month ends on a Thursday, the adjusting entry will credit Wages Payable for a. $610. b. $2,440. c. $3,050. d. $1,220.

b. $2,440.

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

b. Revenues are reported in the period in which cash is received, and expenses are reported when cash is paid out.

Which of the following errors would cause the adjusted trial balance to be unequal? a. The adjustment for unearned revenue was omitted. b. The adjustment for depreciation of $3,545 was journalized as a debit to Depreciation Expense for $3,454 and a credit to Accumulated Depreciation of $3,545. c. The adjustment for prepaid insurance was omitted. d. The adjustment for accrued fees of $16,340 was journalized as a debit to Accounts Payable for $16,340 and a credit to Fees Earned of $16,340.

b. The adjustment for depreciation of $3,545 was journalized as a debit to Depreciation Expense for $3,454 and a credit to

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 statement of owners' equity, and the classified balance sheet. d. None of these financial statement choices are prepared with the adjusted trial balance.

c

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 statement of owners' equity, and the classified balance sheet. d. None of these financial statement choices are prepared with the adjusted trial balance.

c

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

c

Which of the following is true regarding adjusting entries? a. Adjusting entries are not posted to the ledger. b. Adjusting entries are usually recorded after the end of the period but are dated as of the last day of the period. c. Adjusting entries are dated as of the first day of the new accounting period. d. Adjusting entries are optional with accrual-basis accounting.

c. Adjusting entries are dated as of the first day of the new accounting period.

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

c. Cash

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

c. Cash received for services not yet rendered

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

c. a debit to an expense account.

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

c. debit to an asset account.

1. Accrued revenues are revenues that a. have not been earned but for which cash has been received. b. have been earned and received. c. have been earned but have not been received or recorded in the books. d. have not been earned or received.

c. have been earned but have not been received or recorded in the books.

When recording the adjusting entry for depreciation expense, the fixed asset account balance a. is increased by the amount of the depreciation. b. is decreased by its book value. c. stays the same. d. is decreased by the amount of the depreciation.

c. stays the same.

GreenSource Company began the period with $330 in supplies. During the month, an additional $1,500 of supplies were purchased. A physical inventory at the end of the period revealed that there were $585 of supplies on hand. The adjusting entry should include a a. credit to Supplies Expense for $585. b. debit to Supplies for $585. c. credit to Supplies Expense for $1,245. d. credit to Supplies for $1,245.

d

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

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

d

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

d. Revenues are reported in the period in which cash is received, and expenses are reported when cash is paid out.

Once the adjusted trial balance is balanced, it can be used to prepare a. the classified balance sheet and the income statement. b. the statement of cash flows and the classified balance sheet. c. the classified balance sheet. d. the income statement, the statement of stockholders' equity, and the classified balance sheet.

d. the income statement, the statement of stockholders' equity, and the classified balance sheet.

The adjusting entry for accrued revenues includes a

debit to an asset account.

The adjusted trial balance is prepared

to verify the equality of total debit and credit balances.