Intermediate Acct WVU- (Ch 3)

The ending retained earnings balance is reported on both the retained earnings statement and the balance sheet

T

A general journal a. chronologically lists transactions and other events, expressed in terms of debits and credits. b. contains one record for each of the asset, liability, stockholders' equity, revenue, and expense accounts. c. lists all the increases and decreases in each account in one place. d. contains only adjusting entries.

A

Adjustments are often prepared a. after the balance sheet date, but dated as of the balance sheet date. b. after the balance sheet date, and dated after the balance sheet date. c. before the balance sheet date, but dated as of the balance sheet date. d. before the balance sheet date, and dated after the balance sheet date.

A

At the time a company prepays a cost a. it debits an asset account to show the service or benefit it will receive in the future. b. it debits an expense account to match the expense against revenues earned. c. its credits a liability account to show the obligation to pay for the service in the future. d. more than one of the above.

A

Nominal accounts are also called a. temporary accounts. b. permanent accounts. c. real accounts. d. none of these.

A

Stockholders' equity is not affected by all a. cash receipts. b. dividends. c. revenues. d. expenses

A

The accounting equation must remain in balance a. throughout each step in the accounting cycle. b. only when journal entries are recorded. c. only at the time the trial balance is prepared. d. only when formal financial statements are prepared

A

The debit and credit analysis of a transaction normally takes place a. before an entry is recorded in a journal. b. when the entry is posted to the ledger. c. when the trial balance is prepared. d. at some other point in the accounting cycle

A

The failure to properly record an adjusting entry to accrue an expense will result in an: a. understatement of expenses and an understatement of liabilities. b. understatement of expenses and an overstatement of liabilities. c. understatement of expenses and an overstatement of assets. d. overstatement of expenses and an understatement of assets

A

The omission of the adjusting entry to record depreciation expense will result in an: a. overstatement of assets and an overstatement of owners' equity. b. understatement of assets and an understatement of owner's equity. c. overstatement of assets and an overstatement of liabilities. d. overstatement of liabilities and an understatement of owners' equity.

A

Unearned revenue on the books of one company is likely to be a. a prepaid expense on the books of the company that made the advance payment. b. an unearned revenue on the books of the company that made the advance payment. c. an accrued expense on the books of the company that made the advance payment. d. an accrued revenue on the books of the company that made the advance payment.

A

When an item of expense is paid and recorded in advance, it is normally called a(n) a. prepaid expense. b. accrued expense. c. estimated expense. d. cash expense.

A

Lopez Company received $6,400 on April 1, 2010 for one year's rent in advance and recorded the transaction with a credit to a nominal account. The December 31, 2010 adjusting entry is a. debit Rent Revenue and credit Unearned Rent, $1,600. b. debit Rent Revenue and credit Unearned Rent, $4,800. c. debit Unearned Rent and credit Rent Revenue, $1,600. d. debit Unearned Rent and credit Rent Revenue, $4,800

A 3/12 x $6,400 = $1,600.

In November and December 2010, Lane Co., a newly organized magazine publisher, received $90,000 for 1,000 three-year subscriptions at $30 per year, starting with the January 2011 issue. Lane included the entire $90,000 in its 2010 income tax return. What amount should Lane report in its 2010 income statement for subscriptions revenue? a. $0. b. $5,000. c. $30,000. d. $90,000.

A $0, none of the $90,000 is earned.

A journal entry to record the sale of inventory on account will include a a. debit to inventory. b. debit to accounts receivable. c. debit to sales. d. credit to cost of goods sold

B

A prepaid expense can best be described as an amount a. paid and currently matched with revenues. b. paid and not currently matched with revenues. c. not paid and currently matched with revenues. d. not paid and not currently matched with revenues

B

A reversing entry should never be made for an adjusting entry that a. accrues unrecorded revenue. b. adjusts expired costs from an asset account to an expense account. c. accrues unrecorded expenses. d. adjusts unexpired costs from an expense account to an asset account.

B

An adjusted trial balance a. is prepared after the financial statements are completed. b. proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made. c. is a required financial statement under generally accepted accounting principles. d. cannot be used to prepare financial statements

B

An adjusting entry should never include a. a debit to an expense account and a credit to a liability account. b. a debit to an expense account and a credit to a revenue account. c. a debit to a liability account and a credit to revenue account. d. a debit to a revenue account and a credit to a liability account.

B

An unearned revenue can best be described as an amount a. collected and currently matched with expenses. b. collected and not currently matched with expenses. c. not collected and currently matched with expenses. d. not collected and not currently matched with expenses.

B

Which of the following is not an internal event? a. Depreciation b. Using raw materials in the production process c. Dividend declaration and subsequent payment d. All of these are internal transactions

C

Recording the adjusting entry for depreciation has the same effect as recording the adjusting entry for a. an unearned revenue. b. a prepaid expense. c. an accrued revenue. d. an accrued expense.

B

The difference between the accounting process and the accounting cycle is a. the accounting process results in the preparation of financial statements, whereas the accounting cycle is concerned with recording business transactions. b. the accounting cycle represents the steps taken to accomplish the accounting process. c. the accounting process represents the steps taken to accomplish the accounting cycle. d. merely semantic, because both concepts refer to the same thing.

B

Which of the following is a nominal (temporary) account? a. Unearned Revenue b. Salary Expense c. Inventory d. Retained Earnings

B

Which of the following is an example of an accrued expense? a. Office supplies purchased at the beginning of the year and debited to an expense account. b. Property taxes incurred during the year, to be paid in the first quarter of the subsequent year. c. Depreciation expense d. Rent earned during the period, to be received at the end of the year

B

A ledger is where the company initially records transactions and selected other events.

F

Which of the following properly describes a deferral? a. Cash is received after revenue is earned. b. Cash is received before revenue is earned. c. Cash is paid after expense is incurred. d. Cash is paid in the same time period that an expense is incurred.

B

Allen Corp.'s liability account balances at June 30, 2011 included a 10% note payable in the amount of $2,400,000. The note is dated October 1, 2009 and is payable in three equal annual payments of $800,000 plus interest. The first interest and principal payment was made on October 1, 2010. In Allen's June 30, 2011 balance sheet, what amount should be reported as accrued interest payable for this note? a. $180,000. b. $120,000. c. $60,000. d. $40,000.

B $1,600,000 × 9/12 × 10% = $120,000.

During the first year of Wilkinson Co.'s operations, all purchases were recorded as assets. Store supplies in the amount of $19,350 were purchased. Actual year-end store supplies amounted to $6,450. The adjusting entry for store supplies will a. increase net income by $12,900. b. increase expenses by $12,900. c. decrease store supplies by $6,450. d. debit Accounts Payable for $6,450.

B $19,350 - $6,450 = $12,900.

Chen Company's account balances at December 31, 2010 for Accounts Receivable and the Allowance for Doubtful Accounts are $320,000 debit and $600 credit. Sales during 2010 were $900,000. It is estimated that 1% of sales will be uncollectible. The adjusting entry would include a credit to the allowance account for a. $9,600. b. $9,000. c. $8,400. d. $3,200.

B $900,000 x 1% = $9,000.

All liability and stockholders' equity accounts are increased on the credit side and decreased on the debit side

F

A journal entry to record a payment on account will include a a. debit to accounts receivable. b. credit to accounts receivable. c. debit to accounts payable. d. credit to accounts payable.

C

An accrued revenue can best be described as an amount a. collected and currently matched with expenses. b. collected and not currently matched with expenses. c. not collected and currently matched with expenses. d. not collected and not currently matched with expenses

C

An adjusting entry to record an accrued expense involves a debit to a(an): a. expense account and a credit to a prepaid account. b. expense account and a credit to Cash. c. expense account and a credit to a liability account. d. liability account and a credit to an expense account

C

At the end of 2010, Drew Company made four adjusting entries for the following items: 1. Depreciation expense, $25,000. 2. Expired insurance, $2,200 (originally recorded as prepaid insurance.) 3. Interest payable, $6,000. 4. Rental revenue receivable, $10,000. In the normal situation, to facilitate subsequent entries, the adjusting entry or entries that may be reversed is (are) a. Entry No. 3. b. Entry No. 4. c. Entry No. 3 and No. 4. d. Entry No. 2, No. 3 and No. 4.

C

If, during an accounting period, an expense item has been incurred and consumed but not yet paid for or recorded, then the end-of-period adjusting entry would involve a. a liability account and an asset account. b. an asset or contra asset account and an expense account. c. a liability account and an expense account. d. a receivable account and a revenue account.

C

All revenues, expenses, and the dividends account are closed through the Income Summary account.

F

Reversing entries are 1. normally prepared for prepaid, accrued, and estimated items. 2. necessary to achieve a proper matching of revenue and expense. 3. desirable to exercise consistency and establish standardized procedures. a. 1 b. 2 c. 3 d. 1 and 2

C

The double-entry accounting system means a. Each transaction is recorded with two journal entries. b. Each item is recorded in a journal entry, then in a general ledger account. c. The dual effect of each transaction is recorded with a debit and a credit. d. More than one of the above.

C

When a corporation pays a note payable and interest, a. the account notes payable will be increased. b. the account interest expense will be decreased. c. they will debit notes payable and interest expense. d. they will debit cash.

C

When an item of revenue is collected and recorded in advance, it is normally called a(n) ___________ revenue. a. accrued b. prepaid c. unearned d. cash

C

When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash paid for operating expenses to determine accrual basis operating expenses? a. Add beginning accrued liabilities. b. Add beginning prepaid expense. c. Subtract ending prepaid expense. d. Subtract interest expense.

C

When converting from cash basis to accrual basis accounting, which of the following adjustments should be made to cash receipts from customers to determine accrual basis service revenue? a. Subtract ending accounts receivable. b. Subtract beginning unearned service revenue. c. Add ending accounts receivable. d. Add cash sales.

C

Which type of account is always debited during the closing process? a. Dividends. b. Expense. c. Revenue. d. Retained earnings

C

Why are certain costs of doing business capitalized when incurred and then depreciated or amortized over subsequent accounting cycles? a. To reduce the federal income tax liability b. To aid management in cash-flow analysis c. To match the costs of production with revenues as earned d. To adhere to the accounting constraint of conservatism

C

Pappy Corporation received cash of $13,500 on September 1, 2010 for one year's rent in advance and recorded the transaction with a credit to Unearned Rent. The December 31, 2010 adjusting entry is a. debit Rent Revenue and credit Unearned Rent, $4,500. b. debit Rent Revenue and credit Unearned Rent, $9,000. c. debit Unearned Rent and credit Rent Revenue, $4,500. d. debit Cash and credit Unearned Rent, $9,000.

C $13,500 x 4/12 = $4,500.

Maso Company recorded journal entries for the issuance of common stock for $40,000, the payment of $13,000 on accounts payable, and the payment of salaries expense of $21,000. What net effect do these entries have on owners' equity? a. Increase of $40,000. b. Increase of $27,000. c. Increase of $19,000. d. Increase of $6,000

C $40,000 - $21,000 = $19,000.

Mune Company recorded journal entries for the declaration of $50,000 of dividends, the $32,000 increase in accounts receivable for services rendered, and the purchase of equipment for $21,000. What net effect do these entries have on owners' equity? a. Decrease of $71,000. b. Decrease of $39,000. c. Decrease of $18,000. d. Increase of $11,000.

C $50,000 - $32,000 = $18,000.

Panda Corporation paid cash of $18,000 on June 1, 2010 for one year's rent in advance and recorded the transaction with a debit to Prepaid Rent. The December 31, 2010 adjusting entry is a. debit Prepaid Rent and credit Rent Expense, $7,500. b. debit Prepaid Rent and credit Rent Expense, $10,500. c. debit Rent Expense and credit Prepaid Rent, $10,500. d. debit Prepaid Rent and credit Cash, $7,500.

C $18,000 x 7/12 = $10,500.

On September 1, 2010, Lowe Co. issued a note payable to National Bank in the amount of $600,000, bearing interest at 12%, and payable in three equal annual principal payments of $200,000. On this date, the bank's prime rate was 11%. The first payment for interest and principal was made on September 1, 2011. At December 31, 2011, Lowe should record accrued interest payable of a. $24,000. b. $22,000. c. $16,000. d. $14,667.

C ($600,000 - $200,000) × 12% × 4/12 = $16,000.

Brown Company's account balances at December 31, 2010 for Accounts Receivable and the related Allowance for Doubtful Accounts are $460,000 debit and $700 credit, respectively. From an aging of accounts receivable, it is estimated that $12,500 of the December 31 receivables will be uncollectible. The necessary adjusting entry would include a credit to the allowance account for a. $12,500. b. $13,200. c. $11,800. d. $700.

C $12,500 - $700 = $11,800.

On June 1, 2010, Nott Corp. loaned Horn $400,000 on a 12% note, payable in five annual installments of $80,000 beginning January 2, 2011. In connection with this loan, Horn was required to deposit $5,000 in a noninterest-bearing escrow account. The amount held in escrow is to be returned to Horn after all principal and interest payments have been made. Interest on the note is payable on the first day of each month beginning July 1, 2010. Horn made timely payments through November 1, 2010. On January 2, 2011, Nott received payment of the first principal installment plus all interest due. At December 31, 2010, Nott's interest receivable on the loan to Horn should be a. $0. b. $4,000. c. $8,000. d. $12,000.

C $400,000 × 12% × 2/12 = $8,000.

Starr Corporation loaned $90,000 to another corporation on December 1, 2010 and received a 3-month, 8% interest-bearing note with a face value of $90,000. What adjusting entry should Starr make on December 31, 2010? a. Debit Interest Receivable and credit Interest Revenue, $1,800. b. Debit Cash and credit Interest Revenue, $600. c. Debit Interest Receivable and credit Interest Revenue, $600. d. Debit Cash and credit Interest Receivable, $1,800.

C 1/12 x 8% x $90,000 = $600.

One purpose of a trial balance is to prove that debits and credits of an equal amount are in the general ledger

T

A journal entry to record a receipt of rent revenue in advance will include a a. debit to rent revenue. b. credit to rent revenue. c. credit to cash. d. credit to unearned rent.

D

A trial balance a. proves that debits and credits are equal in the ledger. b. supplies a listing of open accounts and their balances that are used in preparing financial statements. c. is normally prepared three times in the accounting cycle. d. all of these.

D

A trial balance may prove that debits and credits are equal, but a. an amount could be entered in the wrong account. b. a transaction could have been entered twice. c. a transaction could have been omitted. d. all of these.

D

Adjusting entries are necessary to 1. obtain a proper matching of revenue and expense. 2. achieve an accurate statement of assets and equities. 3. adjust assets and liabilities to their fair market value. a. 1 b. 2 c. 3 d. 1 and 2

D

Adjusting entries that should be reversed include a. all accrued revenues. b. all accrued expenses. c. those that debit an asset or credit a liability. d. all of these.

D

Adjusting entries that should be reversed include those for prepaid or unearned items that a. create an asset or a liability account. b. were originally entered in a revenue or expense account. c. were originally entered in an asset or liability account. d. create an asset or a liability account and were originally entered in a revenue or expense account.

D

An accounting record into which the essential facts and figures in connection with all transactions are initially recorded is called the a. ledger. b. account. c. trial balance. d. none of these

D

An accrued expense can best be described as an amount a. paid and currently matched with earnings. b. paid and not currently matched with earnings. c. not paid and not currently matched with earnings. d. not paid and currently matched with earnings.

D

An optional step in the accounting cycle is the preparation of a. adjusting entries. b. closing entries. c. a statement of cash flows. d. a post-closing trial balance.

D

Debit always means a. right side of an account. b. increase. c. decrease. d. none of these

D

External events do not include a. interaction between an entity and its environment. b. a change in the price of a good or service that an entity buys or sells, a flood or earthquake. c. improvement in technology by a competitor. d. using buildings and machinery in operations

D

Factors that shape an accounting information system include the a. nature of the business. b. size of the firm. c. volume of data to be handled. d. all of these.

D

If ending accounts receivable exceeds the beginning accounts receivable: a. cash collections during the period exceed the amount of revenue earned. b. net income for the period is less than the amount of cash basis income. c. no cash was collected during the period. d. cash collections during the year are less than the amount of revenue earned.

D

Maintaining a set of accounting records is a. optional. b. required by the Internal Revenue Service. c. required by the Foreign Corrupt Practices Act. d. required by the Internal Revenue Service and the Foreign Corrupt Practices Act.

D

An adjusted trial balance that shows equal debit and credit columnar totals proves the accuracy of the adjusting entries

F

The failure to properly record an adjusting entry to accrue a revenue item will result in an: a. understatement of revenues and an understatement of liabilities. b. overstatement of revenues and an overstatement of liabilities. c. overstatement of revenues and an overstatement of assets. d. understatement of revenues and an understatement of assets.

D

The worksheet for Sharko Co. consisted of five pairs of debit and credit columns. The dollar amount of one item appeared in both the credit column of the income statement section and the debit column of the balance sheet section. That item is a. net income for the period. b. beginning inventory. c. cost of goods sold. d. Net loss for the period.

D

Under the cash basis of accounting, revenues are recorded a. when they are earned and realized. b. when they are earned and realizable. c. when they are earned. d. when they are realized.

D

When an item of revenue or expense has been earned or incurred but not yet collected or paid, it is normally called a(n) ____________ revenue or expense. a. prepaid b. adjusted c. estimated d. none of these

D

Which of the following criteria must be met before an event or item should be recorded for accounting purposes? a. The event or item can be measured objectively in financial terms. b. The event or item is relevant and reliable. c. The event or item is an element. d. All of these must be met.

D

Which of the following errors will cause an imbalance in the trial balance? a. Omission of a transaction in the journal. b. Posting an entire journal entry twice to the ledger. c. Posting a credit of $720 to Accounts Payable as a credit of $720 to Accounts Receivable. d. Listing the balance of an account with a debit balance in the credit column of the trial balance.

D

Which of the following is a real (permanent) account? a. Goodwill b. Sales c. Accounts Receivable d. Both Goodwill and Accounts Receivable

D

Which of the following is a recordable event or item? a. Changes in managerial policy b. The value of human resources c. Changes in personnel d. None of these

D

Which of the following is not a principal purpose of an unadjusted trial balance? a. It proves that debits and credits of equal amounts are in the ledger. b. It is the basis for any adjustments to the account balances. c. It supplies a listing of open accounts and their balances. d. It proves that debits and credits were properly entered in the ledger accounts.

D

Which of the following must be considered in estimating depreciation on an asset for an accounting period? a. The original cost of the asset b. Its useful life c. The decline of its fair market value d. Both the original cost of the asset and its useful life.

D

Which of the following statements is associated with the accrual basis of accounting? a. The timing of cash receipts and disbursements is emphasized. b. A minimum amount of record keeping is required. c. This method is used less frequently by businesses than the cash method of accounting. d. Revenues are recognized in the period they are earned, regardless of the time period the cash is received.

D

Which of the following would not be a correct form for an adjusting entry? a. A debit to a revenue and a credit to a liability b. A debit to an expense and a credit to a liability c. A debit to a liability and a credit to a revenue d. A debit to an asset and a credit to a liability

D

Year-end net assets would be overstated and current expenses would be understated as a result of failure to record which of the following adjusting entries? a. Expiration of prepaid insurance b. Depreciation of fixed assets c. Accrued wages payable d. All of these

D

Tate Company purchased equipment on November 1, 2010 and gave a 3-month, 9% note with a face value of $20,000. The December 31, 2010 adjusting entry is a. debit Interest Expense and credit Interest Payable, $1,800. b. debit Interest Expense and credit Interest Payable, $450. c. debit Interest Expense and credit Cash, $300. d. debit Interest Expense and credit Interest Payable, $300.

D 2/12 x 9% x $20,000 = $300.

The Office Supplies account had a balance at the beginning of year 3 of $4,000 (before the reversing entry). Payments for purchases of office supplies during year 3 amounted to $25,000 and were recorded as expense. A physical count at the end of year 3 revealed supplies costing $4,750 were on hand. Reversing entries are used by this company. The required adjusting entry at the end of year 3 will include a debit to: a. Office Supplies Expense for $750. b. Office Supplies for $750. c. Office Supplies Expense for $24,250. d. Office Supplies for $4,750.

D $4,750 + $4,000 - $4,000 = $4,750.

Gibson Company paid $3,600 on June 1, 2010 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2010 adjusting entry is a. debit Insurance Expense and credit Prepaid Insurance, $1,050. b. debit Insurance Expense and credit Prepaid Insurance, $2,550. c. debit Prepaid Insurance and credit Insurance Expense, $1,050 d. debit Prepaid Insurance and credit Insurance Expense, $2,550.

D 17/24 x $3,600 = $2,550. 

At December 31, 2010, Sue's Boutique had 1,000 gift certificates outstanding, which had been sold to customers during 2010 for $50 each. Sue's operates on a gross margin of 60% of its sales. What amount of revenue pertaining to the 1,000 outstanding gift certificates should be deferred at December 31, 2010? a. $0. b. $20,000. c. $30,000. d. $50,000.

D 1,000 × $50 = $50,000.

An example of an internal event would be a flood that destroyed a portion of a company's inventory

F

Big-Mouth Frog Corporation had revenues of $200,000, expenses of $120,000, and dividends of $30,000. When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a a. debit of $50,000. b. debit of $80,000. c. credit of $50,000. d. credit of $80,000.

D $200,000 - $120,000 = $80,000.

If a company fails to post one of its journal entries to its general ledger, the trial balance will not show an equal amount of debit and credit balance accounts

F

In general, debits refer to increases in account balances, and credits refer to decreases

F

It is not necessary to post the closing entries to the ledger accounts because new revenue and expense accounts will be opened in the subsequent accounting period

F

Real (permanent) accounts are revenue, expense, and dividend accounts and are periodically closed

F

Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of transactions

F

The accrual basis recognizes revenue when earned and expenses in the period when cash is paid.

F

The book value of any depreciable asset is the difference between its cost and its salvage value

F

The first step in the accounting cycle is the journalizing of transactions and selected other events

F

The post-closing trial balance consists of asset, liability, owners' equity, revenue and expense accounts

F

NA

NA

A general journal chronologically lists transactions and other events, expressed in terms of debits and credits to accounts

T

Adjusting entries for prepayments record the portion of the prepayment that represents the expense incurred or the revenue earned in the current accounting period

T

An adjustment for wages expense, earned but unpaid at year end, is an example of an accrued expense

T

Nominal (temporary) accounts are revenue, expense, and dividend accounts and are periodically closed

T