Chapter 03 – Adjustments: Accruals and Deferrals
Operating expenses
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.03–06 – LO: 03–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:31 PM
DATE MODIFIED:
10/16/2017 4:29 PM
207. What is the purpose of an adjusted trial balance? What type(s) of error does it detect? What type(s) of error does it
not detect?
ANSWER:
The purpose of an adjusted trial balance is to make sure that debits equal credits before
financial statements are prepared. If a debit is incorrectly posted as a credit or vice
versa, the error will be detected. Likewise, if the debit(s) and credit(s) for a posted
transaction do not equal, that error will be detected. Errors that will not be detected
include omitting a required adjusting entry or posting a debit or credit for the correct
amount to the wrong account.
POINTS:
1
DIFFICULTY:
Moderate
Bloom’s: Remembering
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.03–06 – LO: 03–06
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 5:31 PM
DATE MODIFIED:
10/16/2017 4:29 PM
208. Two income statements for Midnight Enterprises are shown below:
Midnight Enterprises
Income Statement
For Year 1 and Year 2, Ended December 31
Year 2
Fees earned
$674,350
Operating expenses
472,045
Operating income
$202,305
(a) Prepare a vertical analysis of Midnight Enterprises’ income statements.
(b) Does the vertical analysis indicate a favorable or unfavorable trend?
ANSWER:
(a)
Midnight Enterprises
Income Statement
For Year 1 and Year 2 Ended December 31
Fees earned
Chapter 03 – Adjustments: Accruals and Deferrals
Copyright Cengage Learning. Powered by Cognero.
Page 94
b.
decreases the balance of an asset account
c.
increases the balance of a stockholders’ equity account
d.
decreases the balance of a liability account
ANSWER:
d
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.03–01 – LO: 03–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
8/23/2017 1:33 PM
DATE MODIFIED:
10/16/2017 4:29 PM
212. If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account, which of the
following describes the effect of the debit portion of the entry?
a.
increases the balance of a contra expense account
b.
increases the balance of a stockholders’ equity account
c.
decreases the balance of an asset account
d.
decreases the balance of a liability account
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Challenging
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.03–01 – LO: 03–01
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
8/23/2017 1:36 PM
DATE MODIFIED:
10/16/2017 4:29 PM
213. What is the correct debit and credit to record the adjusting entry for $800 of fees earned but not yet billed or paid?
a.
debit Accounts Receivable and credit Fees Earned for $800
b.
debit Fees Earned and credit Accounts Receivable for $800
c.
debit Unearned Income and credit Fees Earned for $800
d.
debit Fees Earned and credit Unearned Income for $800
ANSWER:
a
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
Copyright Cengage Learning. Powered by Cognero.
Page 96
216. The following adjusting journal entry found in the journal is missing an explanation. Select the best explanation for
the entry.
Taxes Expense
3,850
Taxes Payable
3,850
????????????????
a.
Record payment of taxes.
b.
Record taxes expense incurred and to be paid in next period.
c.
Record taxes paid in advance.
d.
Record tax bill received from government.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Bloom’s: Remembering
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.03–02 – LO: 03–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
8/23/2017 2:50 PM
DATE MODIFIED:
10/16/2017 4:29 PM
217. A business makes a loan payment on the 15th of each month. At the end of December, it has accrued 16 days worth
of interest on the loan, which amounts to $450. The adjusting entry necessary at the end of the fiscal period ending
December 31 would be recorded as a
a.
debit to Interest Payable and a credit to Interest Expense of $450
b.
debit to Prepaid Interest and a credit to Interest Expense of $450
c.
debit to Interest Expense and a credit to Interest Payable of $450
d.
debit to Interest Expense and a credit to Prepaid Interest of $450
ANSWER:
c
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Multiple Choice
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.03–02 – LO: 03–02
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG – Analytic
DATE CREATED:
8/23/2017 2:53 PM
DATE MODIFIED:
10/16/2017 4:29 PM
218. The following adjusting journal entry found in the journal is missing an explanation. Select the best explanation for
the entry.
Interest Expense
2,200
Interest Payable
2,200