Accounting Test (Quiz 4)

decrease liabilities increase revenues

Adjustments for unearned revenues: Entry field with correct answer decrease revenues and decrease assets. decrease liabilities and increase revenues. increase liabilities and increase revenues. increase assets and increase revenues.

debit to a liability and a credit to a revenue.

An adjusting entry can include a: Entry field with correct answer debit to a liability and a credit to a revenue. debit to an expense and a credit to a revenue. debit to a revenue and a credit to an asset. debit to an asset and a credit to a liability.

Liabilities at the end of the year are understated.

At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true? Entry field with correct answer Assets at the end of the year are understated. Salaries and Wages Expense for the year is overstated. Stockholders' equity at the end of the year is understated. Liabilities at the end of the year are understated.

decrease assets and increase expenses.

Adjustments for prepaid expenses Entry field with correct answer decrease expenses and increase assets. decrease revenues and increase assets. decrease assets and increase expenses. decrease assets and increase revenues.

100

A company lends $15,000 at 8% interest for 3 months on June 1. If adjusting entries are recorded on June 30, how much will be credited to Interest Revenue? Entry field with correct answer $100 $1,200 $900 $300

recognized but not yet received or recorded.

Accrued revenues are: Entry field with correct answer recognized and already received and recorded. recognized and recorded as liabilities before they are received. received and recorded as liabilities before they are recognized. recognized but not yet received or recorded.

all

Adjusting entries are made to ensure that: Entry field with correct answer revenues are recorded in the period in which the performance obligation is satisfied. All of these answer choices are correct. expenses are recognized in the period in which they are incurred. balance sheet and income statement accounts have correct balances at the end of an accounting period.

unearned revenue

Cash received before services are performed which is recorded as a debit to a Cash account and a credit to a liability account is called Entry field with correct answer an unearned revenue. an unrecorded revenue. an accrued revenue. None of these answer choices are correct.

12,000

De Meaning Corporation issued a one-year 6% $300,000 note on April 30, 2014. Interest expense for the year ended December 31, 2014 was: Entry field with incorrect answer $13,500 $12,000 $10,500 $18,000

they contribute to the production of revenue

Expenses are recognized when: Entry field with incorrect answer they are billed by the supplier. they contribute to the production of revenue. the invoice is received. they are paid.

8750

Given the data below for a firm in its first year of operation, determine net income under the accrual basis of accounting. Revenue earned $16,000 Accounts receivable 3,000 Expenses incurred 7,250 Accounts payable (related to expenses) 750 Supplies purchased with cash 1,800 Entry field with correct answer $11,000 $9,200 $6,500 $8,750

4,400

Hoosher Enterprises purchased an 18-month insurance policy on May 31, 2014 for $7,200. The December 31, 2014 balance sheet would report Prepaid Insurance of: Entry field with correct answer $2,800 $7,200 $4,400 $0 because Prepaid Insurance is reported on the Income Statement.

Assets will be overstated and net income and stockholders' equity will be overstated.

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? Entry field with correct answer Expenses will be overstated and net income and stockholders' equity will be understated. Assets will be overstated and net income and stockholders' equity will be understated. Assets will be overstated and net income and stockholders' equity will be overstated. Failure to make an adjustment does not affect the financial statements.

cash

If revenues are recognized only when a customer pays, what method of accounting is being used? Entry field with correct answer Accrual-basis Recognition basis Cash-basis Matching basis

Salaries and Wages Expense 500 Salaries and Wages payable 500

Jill Clown earned a salary of $500 for the last week of October. She will be paid on November 1. The adjusting entry for Jill's employer October 31 is: Entry field with correct answer Salaries and Wages Expense 500 Salaries and Wages payable 500 No entry is required. Salaries and Wages Expense 500 Cash 500 Salaries and Wages Payable 500 Cash 500

425

La More Company had the following transactions during 2013. • Sales of $4,500 on account • Collected $2,000 for services to be performed in 2014 • Paid $1,325 cash in salaries • Purchased airline tickets for $250 in December for a trip to take place in 2014 What is La More's 2013 net income using cash basis accounting? Entry field with correct answer $675 $425 $4,925 $5,175

Debit Cash and credit Accounts Receivable

Mary Richardo, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will she make upon receipt of the payments? Entry field with correct answer Debit Unearned Service Revenue and credit Service Revenue Debit Cash and credit Accounts Receivable Debit Accounts Receivable and credit Service Revenue Debit Cash and credit Service Revenue

Depreciation Expense $700 Accumulated Depreciation $700

On August 1 the Darius Co. purchased a photocopy machine for $8,000. The estimated annual depreciation on the machine is $1,680. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be Entry field with correct answer Depreciation Expense $700 Equipment $700 Depreciation Expense $140 Accumulated Depreciation $140 Depreciation Expense $1,680 Accumulated Depreciation $1,680 Depreciation Expense $700 Accumulated Depreciation $700

Interest Expense $1,750 Interest Payable $1,750

On August 1, Luang Corporation signed a $30,000, 14%, 2-year note to help finance renovations being made to the corporation headquarters. Assuming interest is accrued only when the year ends on December 31, the appropriate journal entry for the first year would be Entry field with correct answer Interest Expense $4,200 Interest Payable $4,200 Interest Expense $1,750 Interest Payable $1,750 Interest Expense $4,200 Notes Payable $4,200 Interest Expense $1,750 Notes Payable $1,750

debit Rent Expense, $3,000; credit Prepaid Rent, $3,000.

On July 1 the Fisher Shoe Store paid $18,000 to Acme Realty for 6 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 Fisher Shoe Store is: Entry field with correct answer debit Rent Expense, $18,000; credit Prepaid Rent, $15,000. debit Rent Expense, $3,000; credit Prepaid Rent, $3,000. debit Rent Expense, $18,000; credit Prepaid Rent, $3,000. debit Prepaid Rent, $3,000; credit Rent Expense, $3,000.

Insurance Expense $2,100 Prepaid Insurance $2,100

On July 1, Mesa Verde, Inc. purchased a 3-year insurance policy for $12,600. Prepaid Insurance was debited for the entire amount. On December 31, when the annual financial statements are prepared, the appropriate adjusting journal entry would be Entry field with correct answer Insurance Expense $2,100 Prepaid Insurance $2,100 Insurance Expense $10,500 Prepaid Insurance $10,500 Prepaid Insurance $2,100 Insurance Expense $2,100 Prepaid Insurance $10,500 Insurance Expense $10,500

Rent Expense $4,000 Prepaid Rent $4,000

On September 1 the Petite-Sizes Store paid $12,000 to the Mega-Mall Co. for 3 months rent beginning September 1. Prepaid Rent was debited for the payment. If Petite-Sizes Store prepares financial statements on September 30, the appropriate adjusting journal entry to make on September 30 would be Entry field with correct answer Rent Expense $4,000 Prepaid Rent $4,000 Prepaid Rent $8,000 Rent Expense $8,000 Rent Expense $8,000 Prepaid Rent $8,000 Prepaid Rent $4,000 Rent Expense $4,000

debit Depreciation Expense, $150; credit Accumulated Depreciation, $150.

The Harris Company purchased equipment for $9,000 on December 1. It is estimated that annual depreciation on the equipment will be $1,800. If financial statements are to be prepared on December 31, the company should make the following adjusting entry: Entry field with incorrect answer debit Depreciation Expense, $7,200; credit Accumulated Depreciation, $7,200. debit Depreciation Expense, $150; credit Accumulated Depreciation, $150. debit Equipment, $9,000; credit Accumulated Depreciation, $9,000. debit Depreciation Expense, $1,800; credit Accumulated Depreciation, $1,800.

debit Laundry Expense, $5,500; credit Laundry Supplies, $5,500.

The Vintage Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indi-cated only $1,000 on hand. The adjusting entry that should be made by the company on June 30 is: Entry field with correct answer debit Laundry, $1,000; credit Laundry Supplies Expense, $1,000. debit Laundry Expense, $1,000; credit Laundry Supplies, $1,000. debit Laundry, $5,500; credit Laundry Supplies Expense, $5,500. debit Laundry Expense, $5,500; credit Laundry Supplies, $5,500.

efforts should be matched with accomplishments

The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that: Entry field with correct answer cash payments should be matched with cash receipts. assets should be matched with liabilities. dividends should be matched with stockholder investments. efforts should be matched with accomplishments.

accured

The general term employed to indicate an expense that has not been paid or revenue that has not been received and has not yet been recognized in the accounts is: Entry field with correct answer contra asset. accrued. asset. prepayment.

when the performance obligation is satisfied

The revenue recognition principle dictates that revenue should be recognized in the accounting records: Entry field with correct answer in the period that income taxes are paid. at the end of the month. when the performance obligation is satisfied. when cash is received.

debit to Insurance Expense for $50.

The trial balance for Greenway Corporation appears as follows: Greenway Corporation Trial Balance December 31, 2014 Cash $300 Accounts Receivable 500 Prepaid Insurance 60 Supplies 140 Equipment 4,000 Accumulated Depreciation, Equipment $800 Accounts Payable 300 Common Stock 1,000 Retained Earnings 1,400 Service Revenue 3,000 Salaries Expense 1,000 Rent Expense 500 0 $6,500 $6,500 If, on December 31, 2014, the insurance still unexpired amounted to $10, the adjusting entry would contain a: Entry field with correct answer debit to Prepaid Insurance for $10. debit to Insurance Expense for $50. debit to Prepaid Insurance for $50. credit to Prepaid Insurance for $10.

credit for Service Revenue for $125.

The trial balance for Greenway Corporation appears as follows: Greenway Corporation Trial Balance December 31, 2014 Cash $300 Accounts Receivable 500 Prepaid Insurance 60 Supplies 140 Equipment 4,000 Accumulated Depreciation, Equipment $800 Accounts Payable 300 Common Stock 1,000 Retained Earnings 1,400 Service Revenue 3,000 Salaries and Wages Expense 1,000 Rent Expense 500 0 $6,500 $6,500 If service for $125 had been performed but not billed, the adjusting entry to record this would include a: Entry field with incorrect answer debit to Unearned Revenue for $125. debit to Service Revenue for $125. credit to Unearned Service Revenue for $125. credit for Service Revenue for $125.

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.

Under the accrual basis of accounting: Entry field with correct answer 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. cash must be received before revenue is recognized. net income is calculated by matching cash outflows against cash inflows. the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles

Accepting cash from an established customer for services to be performed over the next three months.

Which is not an application of revenue recognition? Entry field with correct answer Accepting cash from an established customer for services to be performed over the next three months. Recording revenue as an adjusting entry on the last day of the accounting period. Billing customers on June 30 for services completed during June. Receiving cash for services performed.

earned revenues

Which of the following is not a type of adjusting entry? Entry field with correct answer Prepaid expenses Earned revenues Accrued expenses Accrued revenues

Services performed on account.

Which of the following would not result in unearned revenue? Entry field with correct answer Services performed on account. Sale of two-year magazine subscriptions. Sale of season tickets to football games. Rent collected in advance from tenants.

Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

Which one of the following is not a justification for adjusting entries? Entry field with correct answer Adjusting entries are necessary to bring the general ledger accounts in line with the budget. Adjusting entries are necessary to ensure that the revenue recognition principle is followed. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP. Adjusting entries are necessary to ensure that the expense recognition principle is followed.

expense recognition principle

Which principle dictates that efforts (expenses) be matched with results (revenues)? Entry field with correct answer Expense recognition principle. Revenue recognition principle. Periodicity principle. Historical cost principle.

The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.

Which statement is correct? Entry field with correct answer The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received. As long as a company consistently uses the cash-basis of accounting, generally accepted accounting principles allow its use. As long as management is ethical, there are no problems with using the cash basis of accounting. The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.

Supplies Expense $3,700 Supplies $3,700

gnatenko Company purchased office supplies costing $5,000 and debited Supplies for the full amount. Supplies on hand at the end of the accounting period were $1,300. The appropriate adjusting journal entry to be made would be Entry field with correct answer Supplies Expense $3,700 Supplies $3,700 Supplies $1,300 Supplies Expense $4,000 Supplies $3,700 Supplies Expense $3,700 Supplies Expense $1,300 Supplies $1,300

revenue of 10,000 in 2013

n 2013, Costello Company performs work for a customer and bills the customer $10,000; it also pays expenses of $3,000. The customer pays Costello in 2014. If Costello uses the accrual-basis of accounting, then Costello will report Entry field with correct answer revenue of $10,000 in 2014. revenue of $10,000 in 2013. expenses of $3,000 in 2014. net income of $7,000 in 2014.