Chapter 4

Practice Question 24: On September 1 the Petite-Sizes Store paid $12,000 to the Mega-Mall Co. for 3-month 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 D:Rent Expense $4,000 C:Prepaid Rent $4,000 D:Prepaid Rent $8,000 C:Rent Expense $8,000 D:Rent Expense $8,000 C:Prepaid Rent $8,000 D:Prepaid Rent $4,000 C:Rent Expense $4,000

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

Practice Question 15: Which one of the following is not a justification for adjusting entries? 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 ensure that the expense recognition principle is followed. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP.

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

Practice Question 13: Adjusting entries are made to ensure that: expenses are recognized in the period in which they are incurred. revenues are recorded in the period in which the performance obligation is satisfied. balance sheet and income statement accounts have correct balances at the end of an accounting period. All of these answer choices are correct.

All of these answer choices are correct.

Practice Question 07: If revenues are recognized only when a customer pays, what method of accounting is being used? Cash-basis Recognition basis Matching basis Accrual-basis

Cash-basis

Practice Question 08: Which one of these statements about the accrual-basis of accounting is false? Companies recognize revenue in the period in which the performance obligation is satisfied. Companies record events that change a company's financial statements in the periods in which the events occur. This basis is in accord with generally accepted accounting principles. Companies record revenue only when they receive cash, and record expense only when they pay out cash.

Companies record revenue only when they receive cash, and record expense only when they pay out cash.

Practice Question 12: Which of the following is not a type of adjusting entry? Accrued expenses Accrued revenues Prepaid expenses Earned revenues

Earned revenues

Practice Question 25: On July 1, Mesa Verde, Inc. purchased a 6-month insurance policy for $12,600. Prepaid Insurance was debited for the entire amount. The adjusting entries to recognize the expired cost were made each month. On December 31, when the annual financial statements are prepared, the appropriate adjusting journal entry would be D:Prepaid Insurance $10,500 C:Insurance Expense $10,500 D:Insurance Expense $2,100 C:Prepaid Insurance $2,100 D:Prepaid Insurance $2,100 C:Insurance Expense $2,100 D:Insurance Expense $10,500 C:Prepaid Insurance $10,500

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

Practice Question 10: Which statement is correct? As long as management is ethical, there are no problems with using the cash-basis of accounting. As long as a company consistently uses the cash-basis of accounting, generally accepted accounting principles allow its use. The cash-basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received. The use of the cash-basis of accounting violates both the revenue recognition and expense recognition principles.

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

Practice Question 28: Bonita Realty Management Co. received a check for $30,000 on October 1, which represents a one year advance payment of rent on an office it rents to a client. Unearned Rent Revenue was credited for the full $30,000. Financial statements are prepared on December 31. The appropriate adjusting journal entry to make on December 31 of the first year would be D:Unearned Rent Revenue $22,500 C:Rent Revenue $22,500 D:Rent Revenue $22,500 C:Unearned Rent Revenue $22,500 D:Rent Revenue $2,500 C:Unearned Rent Revenue $2,500 D:Unearned Rent Revenue $7,500 C:Rent Revenue $7,500

Unearned Rent Revenue $7,500 Rent Revenue $7,500

Practice Question 33: Adjustments for accrued revenues: increase assets and increase liabilities. increase assets and increase revenues. decrease liabilities and increase revenues. decrease assets and decrease revenues.

increase assets and increase revenues.

Practice Question 09: In 2017, 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 2018. If Costello uses the accrual-basis of accounting, then Costello will report: revenue of $10,000 in 2017. revenue of $10,000 in 2018. expenses of $3,000 in 2018. net income of $7,000 in 2018.

revenue of $10,000 in 2017.