40) On September 1, 2018, Real Estate Professionals, Inc. paid $7,000 in advance for an eight-month rental
space covering the period of September 1, 2018 through April 30, 2019. The deferred expense was initially
recorded as an asset. The company makes adjusting entries once a year at year-end. The adjusting entry
on December 31, 2018 would include a ________.
A) debit of $7,000 to Cash
B) credit of $7,000 to Prepaid Rent
C) debit of $3,500 to Rent Expense
D) credit of $3,500 to Rent Expense
41) Accumulated Depreciation is a(n) ________ account and carries a normal ________ balance.
A) revenue; debit
B) expense; debit
C) contra asset; credit
D) liability; credit
42) What type of account is Prepaid Rent, and what is its normal balance?
A) It is an expense account and has a debit balance.
B) It is a liability account and has a credit balance.
C) It is a revenue account and has a credit balance.
D) It is an asset account and has a debit balance.
43) What is the term used for the difference between the Equipment account and the Accumulated
Depreciation-Equipment account?
A) contra asset
B) market value
C) historical cost
D) book value
44) ABC Tax Planning Service started business in January 2018. The company rented an office for $5,400
per month starting from January 1, 2018. On that day, ABC prepaid the rent through June 30. The
company makes adjusting entries at the end of each month. What is the balance in the Prepaid Rent
account as of April 30, 2018?
A) $10,800
B) $900
C) $5,400
D) $2,700
45) Oakland Tax Planning Service bought computer equipment for $22,000 on January 1, 2018. It has an
estimated useful life of four years and zero residual value. Oakland uses the straight-line method to
calculate depreciation and records depreciation expense in the books at the end of each month. Calculate
the amount of Depreciation Expense for the period, January 1, 2018 through September 30, 2018, for this
equipment. (Round any intermediate calculations to two decimal places, and your final answer to the
nearest dollar.)
A) $5,500
B) $4,125
C) $5,958
D) $4,583
46) Maxwell Tax Planning Service bought communications equipment for $10,200 on January 1, 2019. The
equipment has an estimated useful life of five years and zero residual value. Maxwell uses the straight–
line method to calculate depreciation and records depreciation expense in the books at the end of each
month. As of June 30, 2019, the balance in the Accumulated Depreciation account for this equipment is
________.
A) $170
B) $2,040
C) $850
D) $1,020
47) Hudson Landscaping Service bought equipment for $9,600 on January 1, 2019. It has an estimated
useful life of five years and zero residual value. Hudson uses the straight-line method to calculate
depreciation and records depreciation expense in the books at the end of every month. As of June 30,
2019, the book value of this equipment shown on its balance sheet will be ________.
A) $8,640
B) $9,600
C) $10,560
D) $9,760
48) Watson Tax Planning Service has the following plant assets: Communications Equipment: Cost,
$6,880 with useful life of eight years; Furniture: Cost, $22,800 with useful life of 12 years; and Computer:
Cost, $13,600 with useful life of four years. (Assume residual value of all the assets is zero.) Watson’s
monthly depreciation expense calculated using the straight-line method is ________. (Round any
intermediate calculations to two decimal places, and your final answer to the nearest cent.)
A) $283.33
B) $158.33
C) $71.67
D) $513.33
49) Big Rig Delivery Service has the following plant assets: Communications Equipment: Cost, $3,840
with useful life of 8 years; Delivery Equipment: Cost, $17,568 with useful life of 12 years; and Computer:
Cost, $13,440 with useful life of 4 years. Assume the residual value of all the assets is zero and the
straight-line method is used.
Big Rig’s monthly depreciation journal entry will include a ________.
A) debit to Depreciation Expense – Equipment of $5,304
B) credit to Depreciation Expense – Equipment of $5,304
C) debit to Accumulated Depreciation – Equipment of $442
D) credit to Accumulated Depreciation – Equipment of $442
50) Justice, Inc. purchased a machine for $15,000 two years ago. The machine had no residual value and
had an estimated useful life of 10 years. If the company uses the straight-line depreciation method,
calculate the current book value of the machine.
A) $12,000
B) $3,000
C) $16,500
D) $15,000
51) On July 1, Delta, Inc. prepaid rent for an equipment storage building. Delta paid $20,000 to rent the
building from July 1 through the end of the year. Prepare the journal entry needed on July 1 when the
payment is made. (Ignore explanation). Assume the deferred expense is initially recorded as an asset.
52) On July 1, Lamba, Inc. paid rent of $15,000 for an equipment storage building from July 1 until
December 31. Prepare the adjusting journal entry on July 31. (Ignore explanation). Assume the deferred
expense is initially recorded as an asset.
53) On April 1, Beta, Inc. purchased office supplies for $1,500. At the end of April, Beta’s employees took a
count of the remaining supplies and found that there was $500 of supplies left. Provide the adjusting
entry needed at the end of April. (Ignore explanation). Assume the office supplies were initially recorded
as an asset. Assume there were no office supplies on hand prior to the purchase on April 1.
54) In the case of deferred revenue, the cash is received first, and the revenue is earned later.
55) In the case of deferred revenue, the adjusting entry at the end of the period includes a debit to Service
Revenue. Assume the deferred revenue is initially recorded as a liability.
56) In the case of deferred revenue, the adjusting entry at the end of the period includes a credit to Service
Revenue. Assume the deferred revenue is initially recorded as a liability.
57) Deferred Revenue is a liability created when a business collects cash from customers in advance of
completing a service or delivering a product.
58) If a company receives cash before it does the work or delivers a product, no journal entry is needed
until the revenue has been earned.
59) On January 1, Unearned Revenue of Commercial Plumbing Services, Inc. had a beginning balance of
$1,800. During January, the company earned $500 of the deferred revenue. The company also collected
$5,000 from a new customer for services to be performed the following month. At the end of January, the
Unearned Revenue account should have a balance of $5,000.
60) Unearned Revenue is classified as a(n) ________ account.
A) liability
B) asset
C) revenue
D) equity
61) Improvements, a home improvement magazine, collected $960,000 in subscription revenue on June
30. Each subscriber will receive an issue of the magazine in each of the next 12 months, beginning with
the July issue. The company uses the accrual method of accounting. What is the amount of Subscription
Revenue that has been earned by the end of December? (Round any intermediate calculations to two
decimal places, and your final answer to the nearest whole number.)
A) $400,000
B) $560,000
C) $960,000
D) $480,000
62) Wellness, a healthy living magazine, collected $504,000 in subscription revenue on May 31. Each
subscriber will receive an issue of the magazine in each of the next 12 months, beginning with the June
issue. The company uses the accrual method of accounting. What is the balance in the Unearned Revenue
account as of December 31?
A) $210,000
B) $294,000
C) $504,000
D) $378,000
63) The liability created when a business collects cash from its customers before completing a service or
delivering a product is called ________.
A) accrued revenue
B) accrued expense
C) deferred revenue
D) deferred expense
64) Unearned revenue is recorded when ________.
A) revenue will be both collected and earned in the future
B) the business has collected cash, but not yet earned the revenue
C) revenue has been collected and earned during the same accounting period
D) the business has earned, but not collected, cash for the revenue
65) The advance cash receipts of future revenues are called ________.
A) accrued revenues
B) deferred expenses
C) deferred revenues
D) accrued expenses
66) Mercury, Inc. sells tickets in advance for its weekly productions and records the proceeds as
Unearned Revenue. At the end of each month, the company makes an adjusting entry to account for the
tickets used during the month (ticket revenue.) On March 1, the Unearned Revenue account had a credit
balance of $2,000. During March, Mercury sold 300 tickets at $20 each, and 250 tickets were used during
the month. What is the balance in Unearned Revenue at the end of March?
A) credit balance of $3,000
B) debit balance of $2,000
C) credit balance of $2,000
D) debit balance of $3,000