978-1337276337 Test Bank Chapter 4 Part 3

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102. Longitude Company borrowed on a two-year, 10%, $150,000 note on May 1, with interest and principal to be paid at

maturity. How much interest will Longitude report on its income statement for the year ending December 31?

a. $10,000

b. $15,000

c. $30,000

d. $5,000

103. Innovate Company borrowed on a one-year, 10%, $150,000 note on May 1, 2017 with interest and principal to be

paid at maturity. How much interest should Innovate Company report on its income statement for the year ending

December 31, 2017?

a. $10,000

b. $15,000

c. $30,000

d. $5,000

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104. Masters Company borrowed on a one-year, 10%, $150,000 note on May 1, with interest and principal to be paid at

maturity. How much interest payable will be reported on Masters’ balance sheet as of November 30 of the same year?

a. $7,500

b. $8,750

c. $15,000

d. $30,000

105. Emory Co. operates five days per week with a daily payroll of $4,000. Employees are paid every Saturday for the

workweek just completed (Monday through Friday). The last day of the month is Wednesday, March 31. What is the

effect of the correct adjustment at March 31?

a. Increases Stockholders’ Equity and Wages Payable by $8,000

b. Increases Wages Payable and decreases Cash by $12,000

c. Decreases Stockholders’ Equity and increases Wages Payable by $12,000

d. Increases Wages Payable and increases Wages Expense by $8,000

106. Based on its income for the month, Reel Company estimates that federal income taxes for the month of May will be

$11,000. What is the effect of the adjustment on the financial statements?

a. Increase retained earnings

b. Increase income taxes expense

c. Increase net income

d. Decrease income taxes payable

107. Which one of the following adjustments increases net income for the period?

a. Recognition of the amount of supplies used

b. Recognition of interest on a note receivable

c. Recognition of wages earned, but not paid to employees

d. Recognition of rent costs that had been paid to the landlord in advance

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109. Roman Industries’ plant operates five days per week with a daily payroll of $6,000. Employees are paid every

Saturday for the workweek just completed (Monday through Friday). The last day of the month is Wednesday, March 31.

What is the amount of Wages Expense recorded on the next payday, Saturday, April 3?

a. $0

b. $30,000

c. $12,000

d. $18,000

110. Carrington & Co. rented office space to a tenant on January 31 and received a total of $9,000 for the first three

months of rent. The amount was recorded as Rent Collected in Advance when received. Adjustments are recorded only at

the end of every quarter. What effect does the adjustment at March 31 have on Carrington’s net income for the quarter

ending March 31?

a. Increase by $9,000

b. Decrease by $6,000

c. Decrease by $3,000

d. Increase by $6,000

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111. The asset account, Supplies, has a balance of $700 on January 1. During January, the company purchased $16,000 of

supplies on account and the liability was appropriately recorded. A count of supplies at the end of January indicates a

balance of $900. Which one of the following is a correct amount to be reported on the company’s financial statements for

the month ending January 31?

a. Supplies Expense—$15,800

b. Supplies on Hand—$700

c. Accounts Payable—$15,800

d. Supplies Expense—$16,700

112. Which of the following adjusting entries involves the Cash account?

a. Deferred revenue

b. Accrued asset

c. Deferred liability

d. None of these are correct

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113. Which one of the following adjustments decreases net income for the period?

a. Recognition of depreciation on plant assets

b. Recognition of interest on a note receivable

c. Recognition of services that had been provided to customers but the cash has not yet been received

d. Recognition of rent as earned that had been received in advance from customers

114. What is the effect on the accounting equation when a company recognizes rent as earned that had previously been

received in advance from customers?

a. Expenses increase

b. Revenues decrease

c. Liabilities increase

d. Net income increases

115. Failure to record accrued interest expense would result in which of the following?

a. Assets being overstated

b. Assets being understated

c. Liabilities being overstated

d. Liabilities being understated

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116. Failure to record the earned portion of unearned revenue would result in which of the following?

a. Net income being understated

b. No effect on total liabilities

c. Stockholders’ equity being overstated

d. Total assets being understated

117. Failure to record dividends paid would result in which of the following?

a. Net income being understated

b. An increase in total liabilities

c. Stockholders’ equity being overstated

d. Total assets being understated

118. Failure to record the supplies used during the year would result in which of the following?

a. Net income being understated

b. An overstatement of liabilities

c. Stockholders’ equity being overstated

d. Total assets being understated

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119. Failure to record amounts earned for services provided to customers but not yet paid results in which of the

following

a. Net income being overstated

b. No effect on total assets

c. Stockholders’ equity being overstated

d. Total assets being understated

120. Failure to record depreciation expense for the period results in which of the following?

a. Net income being overstated

b. No effect on total assets

c. Stockholders’ equity being overstated

d. Net income and stockholders’ equity being overstated

121. Davis Corp. has three employees. Each earns $600 per week for a five-day workweek ending on Friday. This month

the last day of the month falls on a Wednesday. The company should make which of the following adjusting entries?

a. Credit Wages Expense for $360 and debit Wages Payable for $360

b. Debit Wages Expense for $1,800 and credit Wages Payable for $1,800

c. Credit Wages Expense for $1,800 and debit Wages Payable for $1,800

d. Debit Wages Expense for $360 and credit Wages Payable for $360

122. Which of the following statements is true concerning the matching principle?

a. All costs can be directly matched with revenue.

b. All costs can be indirectly matched with periods in which they provide a benefit.

c. The association of assets for a period with the liabilities necessary to generate the assets is known as the matching

principle.

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d. Cost of goods sold matched with sales revenue is a classic example of direct matching under the matching

principle.

123. Which of the following situations does not require an adjusting entry at the end of May?

a. At the end of May, Bolton Industries pays the custodian for May office cleaning services.

b. On May 1, Bolton Industries paid rent for six months on its office building.

c. On May 1, Bolton Industries began delivery service to a client who will pay at the end of a three-month period.

d. On May 1, Bolton Industries purchased delivery equipment with an estimated useful life of six years.

124. Mitchell Company prepares monthly financial statements and will record a prepaid expense account for each of the

following except

a. Mitchell paid for three months of window washing services in advance.

b. Mitchell purchases a four-year casualty insurance policy.

c. a tenant that pays Mitchell for six months of rent in advance.

d. Mitchell purchases office supplies to last for several months.

125. An adjusting entry could not consist of a debit to a(n)

a. liability and a credit to revenue.

b. expense and a credit to a liability.

c. expense and a credit to an asset.

d. expense and a credit to revenue.

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126. Refer to the trial balance for Jenning Co.

On July 31, the amount of supplies on hand is $520. What amount is reported in the July income statement for supplies

expense?

a. $520

b. $1,400

c. $1,920

d. $880

127. Refer to the trial balance for Jenning Co.

Employees are owed $750 for services since the last payday in July, to be paid the first week in August. The amount to be

reported in the July income statement for salaries expense is

a. $750.

b. $8,550.

c. $7,050.

d. $7,800.

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128. Refer to the trial balance of Jenning Co. (Round calculations to the nearest dollar.)

If the equipment had an estimated useful life of five years and no salvage value and depreciation is recorded monthly,

what is its book value at July 31, after the proper monthly July adjustment is recorded? (Assume that depreciation has

been recorded properly through July 1.)

a. $10,400

b. $25,567

c. $15,167

d. $10,833

129. Refer to the trial balance of Jenning Co.

On July 1, Jenning paid four months in advance for an insurance. Assume that the balance in the Prepaid Insurance

account includes only this payment. Which of the following is included in the adjusting entry at July 31?

a. A debit to Prepaid Insurance for $780

b. A credit to Prepaid Insurance for $2,340

c. A debit to Prepaid Insurance for $2,340

d. A credit to Prepaid Insurance for $780

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130. Refer to the trial balance for Jenning Co.

According to contracts, $4,810 of Unearned Service Revenue has been earned in July. Which of the following is the

correct amount of Service Revenue to be reported in the July income statement?

a. $20,410

b. $11,700

c. $21,320

d. $16,510

131. Autumn Resorts purchased guest room furniture on January 1, 2017 for $120,000. The furniture has an estimated

useful life of 10 years and no salvage value. What amount will appear on Autumn’s income statement for depreciation

expense for the year ending June 30, 2018?

a. $1,000

b. $6,000

c. $10,000

d. $12,000

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132. Deacon Company purchased equipment last year for $30,000. The equipment has an estimated useful life of five

years and no salvage value. What amount will appear on the income statement for depreciation expense for the month of

March 2017?

a. $0

b. $500

c. $6,000

d. $30,000

133. Hsu Company purchased a truck on May 31, 2014 for $70,000. The equipment has an estimated useful life of five

years. What amount will appear on Hsu Company’s balance sheet for total accumulated depreciation at May 31, 2017?

a. $14,000

b. $35,000

c. $42,000

d. $28,000

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134. Accumulated depreciation

a. increases when the monthly adjustment for depreciation is recognized.

b. decreases when the monthly adjustment for depreciation is recognized.

c. is reported on the income statement with the expense accounts.

d. is allocated as an expense during future periods.

135. Accumulated depreciation

a. increases assets.

b. decreases assets.

c. increases liabilities.

d. decreases liabilities.

136. Which of the following transactions involves an accrued asset?

a. Wages earned by employees but not yet paid

b. Rent collected in advance from a tenant

c. Rent owed by a tenant but not yet collected

d. One year’s premium on life insurance policy paid in advance

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137. Which one of the following is the last step in the accounting cycle?

a. Journalizing business transactions

b. Recording and posting adjustments

c. Closing the accounts

d. Preparing financial statements

138. Which one of the following steps in the accounting cycle is optional rather than required?

a. Business transactions are recorded

b. Adjustments are recorded

c. The accounts are closed

d. Work sheets are prepared

139. Which one of the following steps in the accounting cycle is completed only at the end of an accounting period?

a. Business transactions are recorded.

b. Adjustments are recorded.

c. Transactions are journalized.

d. Journal entries are posted to the ledger.

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140. Some of the steps in the accounting cycle are listed below. Select the choice that places these steps in the correct

order.

1. Close the accounts.

2. Post transactions to accounts in the ledger.

3. Journalize daily transactions.

4. Record and post adjustments.

5. Prepare financial statements.

a. 2, 3, 4, 5, 1

b. 3, 2, 4, 5, 1

c. 3, 2, 4, 1, 5

d. 3, 2, 5, 4, 1

141. Balance sheet accounts are also known as which of the following?

a. Nominal accounts

b. Real accounts

c. Temporary accounts

d. Closing accounts

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142. Income statement accounts are also known as which of the following?

a. Nominal accounts

b. Real accounts

c. Closing accounts

d. Final accounts

143. The Dividend account is known as which of the following?

a. Nominal account

b. Closing account

c. Real account

d. Investment account

144. Which of the following accounts is not closed to Income Summary at the end of the accounting period?

a. Rent Expense

b. Service Revenue

c. Unearned Revenue

d. Supplies Expense

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145. When using a work sheet

a. an equal number of account titles are applicable to the Income Statement columns and the Balance Sheet columns.

b. adjusting entries are not made since they appear on the work sheet.

c. net income appears in both the Income Statement debit column and the Balance Sheet credit column.

d. the Income Statement column and Balance Sheet column of the work sheet eliminate the need to prepare formal

financial statements.

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146.

Oregon Company

Adjusted Trial Balance

For the Year ended December 31, 2017

Cash $ 6,030

Accounts Receivable 2,100

Prepaid Expenses 700

Equipment 13,700

Accumulated Depreciation $ 1,100

Accounts Payable 1,900

Notes Payable 4,200

Capital Stock 12,940

Dividends 790

Fees Earned 8,750

Wages Expense 2,500

Rent Expense 1,960

Utilities Expense 775

Depreciation Expense 250

Miscellaneous Expense 85 ______

Totals $28,890 $28,890

Determine the net income (loss) for the period.

a. Net loss, $5,570

b. Net income, $3,180

c. Net loss, $790

d. Net income, $2,390