Chapter 3 pretest

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

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

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

a.Cash

Which of the following statements about vertical analysis is true? a.It is useful in analyzing relationships within a financial statement. b.The amount of change in each line item is calculated. c.Each line item is expressed as a percent of stockholders' equity. d.It is not useful for analyzing changes in financial statements over time

a.It is useful in analyzing relationships within a financial statement.

If an adjustment for salaries earned but not recorded or paid in the amount of $92,000 were to be omitted, how would this affect the financial statements? a.Liabilities would be understated on the balance sheet for $92,000. b.Net income would be understated on the income statement by $92,000. c.Expenses would be overstated on the income statement by $92,000. d.Assets would be understated on the balance sheet for $92,000.

a.Liabilities would be understated on the balance sheet for $92,000.

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

a.after adjusting entries are posted but before financial statements are prepared.

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

a.at the end of the accounting period.

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

a.cash expenses.

If the estimated amount of depreciation on equipment for a period is $2,700, the adjusting entry to journalize depreciation would be a.debit Depreciation Expense for $2,700 and credit Accumulated Depreciation for $2,700. b.debit Equipment for $2,700 and credit Depreciation Expense for $2,700. c.debit Accumulated Depreciation for $2,700 and credit Depreciation Expense for $2,700. d.debit Depreciation Expense for $2,700 and credit Equipment for $2,700.

a.debit Depreciation Expense for $2,700 and credit Accumulated Depreciation for $2,700.

Barry Company received $16,000 full payment in advance for services that are 70% complete at the end of the period. The adjusting entry will a.debit Unearned Revenue for $11,200 and credit Fees Earned for $11,200. b.debit Cash for $11,200 and credit Fees Earned for $11,200. c.debit Unearned Revenue for $16,000 and credit Fees Earned for $16,000. d.debit Fees Earned for $11,200 and credit Unearned Revenue for $11,200.

a.debit Unearned Revenue for $11,200 and credit Fees Earned for $11,200.

Barry Company received $7,000 full payment in advance for services that are 60% complete at the end of the period. The adjusting entry will a.debit Unearned Revenue for $4,200 and credit Fees Earned for $4,200. b.debit Unearned Revenue for $7,000 and credit Fees Earned for $7,000. c.debit Fees Earned for $4,200 and credit Unearned Revenue for $4,200. d.debit Cash for $4,200 and credit Fees Earned for $4,200.

a.debit Unearned Revenue for $4,200 and credit Fees Earned for $4,200.

The adjusted trial balance a.is prepared on a specific date. b.has dates for the beginning and ending of the period. c.is for a period of time. d.does not have a date.

a.is prepared on a specific date.

Vertical analysis can be used to analyze changes except a.on a statement of cash flows. b.over time. c.on an income statement. d.on a balance sheet.

a.on a statement of cash flows.

Unearned revenues are a.referred to as future revenues. b.referred to as prepaid revenue. c.recorded when services have been performed for the customer. d.recorded as assets when cash is received.

a.referred to as future revenues.

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

a.revenue recognition principle.

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

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

Comparing each line of a financial statement with a total amount from the same financial statement is referred to as a.vertical analysis. b.ratio analysis. c.horizontal analysis. d.financial analysis.

a.vertical analysis.

Which of the following fixed asset accounts is not depreciated?? a.Buildings b.Land c.Office Equipment d.Store Equipment

b.Land

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

b.Liabilities would be understated on the balance sheet for $85,000.

If an adjustment for $11,000 in accrued revenues is omitted, how will this affect the financial statements? a.There will be no effect on the financial statements. b.Net income will be understated by $11,000. c.Accounts receivable will be overstated by $11,000. d.Net income will be overstated by $11,000.

b.Net income will be understated by $11,000.

If an adjustment for $8,000 in accrued revenues is omitted, how will this affect the financial statements? a.Accounts receivable will be overstated by $8,000. b.Net income will be understated by $8,000. c.There will be no effect on the financial statements. d.Net income will be overstated by $8,000.

b.Net income will be understated by $8,000.

Using the following information, prepare a vertical analysis of 2 years of income statements. Fees earned is $153,000 for Year 2 and $149,200 for Year 1. Operating expenses are $122,400 for Year 2 and $126,820 for Year 1. Which of the following statements is true? a.Operating expenses have increased as a percent of revenue. b.Operating income has increased as a percent of revenue. c.Operating income has decreased as a percent of revenue. d.Operating expenses have remained constant as a percent of revenue.

b.Operating income has increased as a percent of revenue.

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

b.The dollar amount of change in each line item is calculated.

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

b.The dollar amount of change in each line item is calculated.

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

b.been earned but not received or recorded in the books.

The accumulated depreciation account is called a(n) a.liability account. b.contra asset account. c.prepaid asset account. d.expense account.

b.contra asset account.

If the estimated amount of depreciation on equipment for a period is $2,400, the adjusting entry to journalize depreciation would be a.debit Equipment for $2,400 and credit Depreciation Expense for $2,400. b.debit Depreciation Expense for $2,400 and credit Accumulated Depreciation for $2,400. c.debit Depreciation Expense for $2,400 and credit Equipment for $2,400. d.debit Accumulated Depreciation for $2,400 and credit Depreciation Expense for $2,400.

b.debit Depreciation Expense for $2,400 and credit Accumulated Depreciation for $2,400.

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

b.debit to an asset account.

The adjusting entry to journalize depreciation includes a a.debit to an asset account. b.debit to an expense account. c.debit to a liability account. d.credit to the stockholders' equity account.

b.debit to an expense account.

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

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

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 on the last day of the period.

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

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

b.matching principle.

Vertical analysis can be used to analyze changes except a.on a balance sheet. b.on a statement of cash flows. c.on an income statement. d.over time.

b.on a statement of cash flows.

The adjusted trial balance is prepared a.to determine the net income or loss. b.to verify the equality of total debit and credit balances. c.to determine whether the balance sheet is in balance. d.to verify that assets equal liabilities plus stockholders' equity.

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

Clever Computers has a 5-day workweek and pays the office staff $2,700 each week. If the month ends on a Thursday, the adjusting entry will credit Wages Payable for a.$540. b.$1,080. c.$2,160. d.$2,700.

c.$2,160.

Which of the following statements regarding adjusting entries is true? 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 usually recorded after the end of the period but are dated as of the last day of the period. d.Adjusting entries are optional with accrual basis accounting.

c.Adjusting entries are usually recorded after the end of the period but are dated as of the last day of the period.

The $7,200 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 Prepaid Insurance for $1,200 b.Debit to Cash for $7,200 c.Debit to Insurance Expense for $1,200 d.Debit to Insurance Expense for $7,200

c.Debit to Insurance Expense for $1,200

Which of the following statements about vertical analysis is true? a.The amount of change in each line item is calculated. b.It is not useful for analyzing changes in financial statements over time. c.It is useful in analyzing relationships within a financial statement. d.Each line item is expressed as a percent of stockholders' equity.

c.It is useful in analyzing relationships within a financial statement.

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

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

Which of the following would not cause the adjusted trial balance totals to be unequal? a.The adjustment for accrued fees of $16,740 was journalized as a debit to Accounts Payable for $16,740 and a credit to Fees Earned for $16,740. 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 for $3,545. c.The adjustment for prepaid insurance was omitted. d.The adjustment for accrued salary expenses of $12,028 was journalized as a debit to Salary Expense for $12,028 and a debit to Accrued Salary Expense for $12,028.

c.The adjustment for prepaid insurance was omitted.

Which of the following would not cause the adjusted trial balance totals to be unequal? a.The adjustment for depreciation of $3,545 was journalized as a debit to Depreciation Expense for $3,454 and a credit to Accumulated Depreciation for $3,545. b.The adjustment for accrued salary expenses of $12,128 was journalized as a debit to Salary Expense for $12,128 and a debit to Accrued Salary Expense for $12,128. c.The adjustment for prepaid insurance was omitted. d.The adjustment for accrued fees of $17,240 was journalized as a debit to Accounts Payable for $17,240 and a credit to Fees Earned for $17,240.

c.The adjustment for prepaid insurance was omitted.

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

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

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

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

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

c.is the same as the entry for journalizing revenue.

The balance in the unearned rent account for Jackson Co. as of December 31 is $1,700. If Jackson Co. failed to journalize the adjusting entry of $300 of rent earned in December, the effect on the balance sheet and income statement for December would be a.liabilities understated $300; net income understated $300. b.assets understated $300; net income overstated $300. c.liabilities overstated $300; net income understated $300. d.liabilities overstated $1,400; net income overstated $1,400.

c.liabilities overstated $300; net income understated $300.

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

c.net income is overstated.

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

c.net income will be understated.

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

c.stays the same.

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

c.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 verify that assets equal liabilities plus stockholders' equity. b.to determine whether the balance sheet is in balance. c.to verify the equality of total debit and credit balances. d.to determine the net income or loss.

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

The adjusted trial balance is prepared a.to verify that assets equal liabilities plus stockholders' equity. b.to determine whether the balance sheet is in balance. c.to verify the equality of total debit and credit balances. d.to determine the net income or loss.

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

Clever Computers has a 5-day workweek and pays the office staff $3,250 each week. If the month ends on a Thursday, the adjusting entry will credit Wages Payable for a.$3,250. b.$1,300. c.$650. d.$2,600.

d.$2,600.

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

d.Cash received for services not yet rendered

The $11,400 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 $11,400 b.Debit to Insurance Expense for $11,400 c.Debit to Prepaid Insurance for $1,900 d.Debit to Insurance Expense for $1,900

d.Debit to Insurance Expense for $1,900

If the following adjusting entry is omitted, what effect will it have on net income? Depreciation Expense 3,400 Accumulated Depreciation 3,400 a.Net income will be understated by $3,400. b.Net income will be overstated by $6,800. c.It will have no effect on net income. d.Net income will be overstated by $3,400.

d.Net income will be overstated by $3,400.

When journalizing an adjusting entry for a prepaid expense, a(n) a.expense account is credited. b.liability account is debited. c.asset account is debited. d.asset account is credited.

d.asset account is credited.

All adjusting entries affect a.only income statement accounts. b.only balance sheet accounts. c.the cash account. d.at least one income statement account and one balance sheet account.

d.at least one income statement account and one balance sheet account.

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

d.cash expenses.

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

d.debit to an expense account.

The adjusting entry to journalize depreciation includes a a.debit to a liability account. b.credit to the stockholders' equity account. c.debit to an asset account. d.debit to an expense account.

d.debit to an expense account.

Question Content Area 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.

d.each item is stated as a percent of revenues or fees earned.

The balance in the unearned rent account for Jackson Co. as of December 31 is $1,200. If Jackson Co. failed to journalize the adjusting entry of $300 of rent earned in December, the effect on the balance sheet and income statement for December would be a.assets understated $300; net income overstated $300. b.liabilities understated $300; net income understated $300. c.liabilities overstated $900; net income overstated $900. d.liabilities overstated $300; net income understated $300.

d.liabilities overstated $300; net income understated $300.

When journalizing an adjusting entry for unearned revenues, a(n) a.liability account is credited. b.asset account is credited. c.revenue account is debited. d.liability account is debited.

d.liability account is debited.

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

d.matching principle.

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

d.revenue recognition principle.

When journalizing 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.is decreased by the amount of the depreciation. d.stays the same.

d.stays the same.