9) Prepaid Rent is an expense account that appears on the income statement.
10) A contra account’s normal balance (debit or credit) is the opposite of the normal balance of the related
account.
11) The sum of all the depreciation expenses recorded to date for a depreciable asset is called residual
value.
12) The depreciation method that allocates an equal amount of depreciation to each year is called the
straight-line method.
13) In the case of a deferred expense, the adjusting entry required at the end of a period will consist of a
debit to the Prepaid Expense account. Assume the deferred expense was initially recorded as an asset.
14) In the case of a deferred expense, the adjusting entry required at the end of a period will consist of a
credit to the Prepaid Expense account. Assume the deferred expense was initially recorded as an asset.
15) Contra asset accounts, such as Accumulated Depreciation, always have normal debit balances.
16) A contra account’s normal balance is the opposite of the normal balance of the related account.
17) On January 1, 2018, the Prepaid Insurance account of Dogwood, Inc. had a beginning balance of
$2,700. Three months of insurance premiums remain in this beginning balance. On February 21, 2018, the
company paid an annual insurance premium in the amount of $4,300 for the period beginning March 1.
On February 28, 2018, the balance in Prepaid Insurance is $1,800.
18) On January 1, Nash, Inc. had $2,000 of supplies on hand. During January, Nash purchased $5,500
worth of new supplies. At the end of the month, a count revealed $700 worth of supplies remaining on
the shelves. The adjusting entry needed will include a debit to Supplies Expense of $6,800. The supplies
were initially recorded as an asset.
19) Stallings, Inc. purchased manufacturing equipment for $8,400. It has an estimated useful life of seven
years and no residual value. The company should record depreciation expense of $50 per month.
(Assume that the company uses the straight-line method.)
20) Dynamic Services, Inc. purchased computers that are to be used in its consulting services. Based on
the matching principle, the related account that should appear on the income statement for the year
ended December 31, 2018 is ________.
A) Depreciation Expense – Equipment
B) Service Revenue
C) Accumulated Depreciation – Equipment
D) Equipment Expense
21) Princeton Financial Services, Inc. purchased computers that are to be used in its consulting services.
Based on the matching principle, what account, other than Computers, should appear on the balance
sheet as of December 31, 2018?
A) Depreciation Expense – Equipment
B) Service Revenue
C) Accumulated Depreciation – Equipment
D) Equipment Expense
22) The following Office Supplies account information is available for Nabors, Inc.
Beginning balance
$1,100
Office Supplies expensed
7,000
Ending balance
2,000
From the above information, calculate the amount of office supplies purchased.
A) $7,900
B) $7,000
C) $1,100
D) $2,000
23) The asset account, Office Supplies had a beginning balance of $5,300. During the accounting period,
office supplies were purchased, on account, for $5,500. A physical count, on the last day of the
accounting period, shows $2,800 of office supplies on hand. What is the amount of Supplies Expense for
the accounting period?
A) $5,500
B) $2,600
C) $8,000
D) $2,500
24) The asset account, Office Supplies, had a beginning balance of $3,700. During the accounting period,
office supplies were purchased, on account, for $2,500. Supplies Expense for the accounting period is
$4,300. What is the ending balance of Office Supplies?
A) $6,200
B) $1,900
C) $4,300
D) $5,500
25) During the accounting period, office supplies were purchased on account for $3,200. A physical
count, on the last day of the accounting period, shows $1,100 of office supplies on hand. Supplies Expense
for the accounting period is $3,300. What was the beginning balance of Office Supplies?
A) $4,400
B) $2,100
C) $1,200
D) There is not enough information to answer this question.
26) The entry to record depreciation includes a debit to the ________ account.
A) Equipment
B) Cash
C) Accumulated Depreciation
D) Depreciation Expense
27) The entry to record depreciation includes a credit to the ________ account.
A) Depreciation Payable
B) Cash
C) Accumulated Depreciation
D) Depreciation Expense
28) If an adjusting entry includes a debit to Rent Expense, it indicates that the payment of rent had been
previously recorded as a(n) ________.
A) deferred expense
B) depreciation expense
C) accrued expense
D) accrued revenue
29) The allocation of a plant asset’s cost to expense over its useful life is called ________.
A) residual value
B) book value
C) accrued revenue
D) depreciation
30) The expected value of a depreciable asset at the end of its useful life is called ________.
A) book value
B) residual value
C) depreciation expense
D) accrued expense
31) A depreciable asset’s cost minus accumulated depreciation is called ________.
A) book value
B) residual value
C) depreciable value
D) accrued expense
32) Which of the following is the correct formula for calculating depreciation under the straight-line
method?
A) Straight-line depreciation = (Cost + Residual value) / Useful life
B) Straight-line depreciation = (Cost – Residual value) / Useful life
C) Straight-line depreciation = (Cost + Residual value) × Useful life
D) Straight-line depreciation = (Cost – Residual value) × Useful life
33) The sum of all the depreciation expense recorded to date for a depreciable asset is called ________.
A) book value
B) residual value
C) depreciation expense
D) accumulated depreciation
34) Which of the following is a contra account?
A) Depreciation Expense
B) Accumulated Depreciation
C) Unearned Revenue
D) Book Value
35) Advance cash payments of future expenses are called ________.
A) accrued revenues
B) deferred expenses
C) deferred revenues
D) accrued expenses
36) For accounting purposes, depreciation refers to the process of ________.
A) allocating the cost of a plant asset to expense over its useful life
B) recording the decline in the market value of an asset to its book value
C) estimating an asset‘s current market value
D) determining the selling price of an asset
37) The Accumulated Depreciation account is ________.
A) a record of the sum of all the depreciation expense recorded to date for a depreciable asset
B) the price quoted to the buyer of a used asset
C) a liability account
D) the expense account used to allocate the depreciable cost of an asset
38) Murphy, Inc. prepaid $9,600 on October 1, 2018 for a one-year insurance premium. Coverage begins
October 1. On January 1, 2019 (after December 31 adjustments), the Prepaid Insurance account will have
a debit balance of ________. (Round any intermediate calculations to two decimal places, and your final
answer to the nearest whole number.)
A) $8,000
B) $10,400
C) $9,600
D) $7,200
39) A business purchased equipment for $150,000 on January 1, 2019. The equipment will be depreciated
over the five years of its estimated useful life using the straight-line depreciation method. The business
records depreciation once a year on December 31. Which of the following is the adjusting entry required
to record depreciation on the equipment for the year 2019? (Assume the residual value of the acquired
equipment to be zero.)
A) Debit $150,000 to Equipment, and credit $150,000 to Cash.
B) Debit $150,000 to Depreciation Expense—Equipment, and credit $150,000 to Accumulated
Depreciation—Equipment.
C) Debit $30,000 to Depreciation Expense—Equipment, and credit $30,000 to Accumulated
Depreciation—Equipment.
D) Debit $30,000 to Depreciation Expense, and credit $30,000 to Equipment.