17) Adjusting entries:
A) close the revenue accounts.
B) close the expense accounts.
C) adjust Cash.
D) adjust Unearned Revenue.
18) Adjusting entries:
A) are needed for all balance sheet accounts.
B) must be made on a daily basis to record supplies used during that day.
C) are needed because errors have been made in previous journal entries.
D) are made before the financial statements can be prepared.
19) Prepaid expenses will become ________ when their future benefits expire.
A) expenses
B) revenues
C) liabilities
D) assets
20) ________ is the allocation of the cost of an asset over the asset’s useful life.
A) Accrual
B) Deferral
C) Depreciation
D) Expiration
21) ________ will be increased when a company receives cash before performing the services.
A) Service Revenue
B) Accumulated Depreciation
C) Unearned Service Revenue
D) Accrued Salaries Payable
22) The book value of a plant asset is the:
A) accumulated depreciation less the cost of the asset.
B) cost of the asset.
C) balance in the accumulated depreciation account.
D) cost of the asset less the accumulated depreciation.
23) With an accrual of revenue:
A) the cash is received after the revenue is recorded.
B) the cash is paid before the expense is recorded.
C) plant assets can create an accrual adjustment.
D) prepaid expenses can create an accrual adjustment.
24) When an adjustment is made for prepaid rent:
A) an asset increases and an expense decreases.
B) one asset increases and another decreases.
C) an asset decreases and an expense increases.
D) a liability decreases and an expense decreases.
25) Which account is credited in the adjusting entry to allocate the cost of equipment?
A) Equipment Expense
B) Depreciation Expense, Equipment
C) Accumulated Equipment
D) Accumulated Depreciation, Equipment
26) Which accounts are used in the adjusting entry to record salaries owed to employees, but not paid
until the next accounting period?
A) Salaries Expense and Salaries Payable
B) Unearned Salaries and Salaries Payable
C) Salaries Payable and Deferred Salaries Expense
D) Deferred Salaries Payable and Salaries Receivable
27) At the end of the accounting period, a company has accrued interest revenue that will not be
received until the next accounting period. The adjusting entry would include a:
A) debit to Interest Expense.
B) debit to Interest Payable.
C) debit to Interest Revenue.
D) debit to Interest Receivable.
28) The Houston Mavericks basketball team receives $5000 for season tickets on August 1. By December
31, $3000 of the revenue has been earned. The adjusting entry to be made on December 31 includes a:
A) credit to Unearned Revenue of $3000.
B) debit to Unearned Revenue of $3000.
C) debit to Ticket Revenue of $3000.
D) credit to Prepaid Revenue of $2000.
29) On December 31, 2017, salaries owed to employees total $4850. These will be paid on January 4,
2018. An adjusted trial balance prepared on December 31, 2017, includes which of the following?
A) Salaries Expense, $4850 and Salaries Payable, $4850
B) Salaries Payable, $4850 and Unearned Salaries Revenue, $4850
C) Unearned Salaries, $4850
D) Unearned Salaries, $4850 and Salaries Payable, $4850
30) The Accumulated Depreciation account:
A) is another term for depreciation expense.
B) represents the original cost of a plant asset.
C) is a contra asset account.
D) has a normal balance which is the same as its companion account.
31) A journal entry contains a debit to a liability account and a credit to a revenue account. This is an
example of a(n):
A) accrued expense.
B) deferred expense.
C) unearned revenue.
D) accrued revenue.
32) An adjusting journal entry contains a debit to an expense account and a credit to a contra account.
This is an example of a(n):
A) accrued revenue.
B) deferred revenue.
C) depreciation expense.
D) accrued expense.
33) The adjusted trial balance is used to prepare:
A) the balance sheet and the income statement only.
B) balance sheet, income statement, and statement of retained earnings.
C) the balance sheet only.
D) the income statement only.
34) An accountant failed to record the adjusting entry for accrued revenues. How does this error affect
the balance sheet?
A) The assets at the end of the period will be overstated.
B) The assets at the end of the period will be understated.
C) The liabilities at the end of the period will be overstated.
D) The liabilities at the end of the period will be understated.
35) Which of the following is NOT a correct statement about adjusting entries?
A) Every adjusting entry affects cash.
B) Every adjusting entry affects the balance sheet.
C) Every adjusting entry affects net income.
D) Adjusting entries are posted before the adjusted trial balance is prepared.
36) The adjustment for an accrued expense:
A) increases expenses and decreases assets.
B) increases expenses and increases liabilities.
C) decreases expenses and increases liabilities.
D) decreases expenses and increases assets.
37) The adjustment for an accrued revenue:
A) is necessary because a business often earns revenue before they receive the cash.
B) increases a payable account.
C) decreases a receivable account.
D) is necessary because a business often receives cash before it performs the service.
38) In an adjusting entry, the debit to the Unearned Revenue account represents the:
A) value of services owed to customers.
B) amount of cash to be paid for future services.
C) amount of cash to be collected from customers.
D) value of services performed in the current period.
39) The adjusting entry to record the accrual of income tax expense includes a:
A) debit to Income Tax Payable.
B) credit to Income Tax Expense.
C) credit to Accounts Payable.
D) credit to Income Tax Payable.
40) When using a worksheet to prepare the adjusted trial balance:
A) the unadjusted trial balance columns represent amounts from last period’s financial statements.
B) four columns are needed for the adjustments.
C) the adjusted trial balance columns give the final account balances.
D) the sum of the debits do not have to equal the sum of the credits in the side-by-side columns.
41) On December 1 of the current year, Prepaid Rent was debited $10,800 for three months of rent, to
cover the period December 1 to February 28. The amount of the adjusting entry on December 31 is:
A) $0.
B) $3600.
C) $7200.
D) $10,800.
42) A construction company purchased a new bulldozer for $90,000 on January 1, 2012. The company
estimates that the bulldozer will have a useful life of nine years and then be worthless. Using the
straight-line depreciation method, yearly depreciation expense will be:
A) $0.
B) $10,000.
C) $45,000.
D) $90,000.
43) On October 1, 2016, Golde Company paid $18,600 for one year of insurance for the period, October
1, 2016 through September 30, 2017. Which of the following will be part of the adjusting entry on
December 31, 2016?
A) Debit Prepaid Insurance for $4650
B) Debit Prepaid Insurance for $13,950
C) Debit Insurance Expense for $4650
D) Debit Insurance Expense for $13,950
44) On August 1 of the current year, Trevor Beck received $5400 for legal services to be performed
evenly throughout the next six months. The adjusting entry on December 31 of the current year would
include a:
A) credit to Unearned Service Revenue of $4500.
B) debit to Unearned Service Revenue of $900.
C) debit to Service Revenue of $900.
D) credit to Service Revenue of $4500.
45) On October 1 of the current year, a company received $6600 for services to be performed evenly over
the next six months. If no adjusting entry was made on December 31 of the current year:
A) net income would be understated by $6600.
B) net income would be understated by $3300.
C) net income would be overstated by $1650.
D) net income would be overstated by $3300.
46) On August 1, 2016, Brian Quinn received $9600 for legal services to be performed evenly throughout
the next twelve months, beginning August 1, 2016. An adjusted trial balance prepared on December 31,
2016 will show a credit balance in Unearned Revenue in the amount of:
A) $0.
B) $800.
C) $4000.
D) $5600.
47) A company started the year with $300 of supplies. During the year, the company purchased an
additional $1200 of supplies. There were $500 of supplies on hand at the end of the year. An adjusting
entry prepared at the end of the accounting period includes a:
A) debit to Supplies for $900.
B) debit to Supplies for $500.
C) debit to Supplies Expense for $1000.
D) debit to Supplies Expense for $200.
48) A company started the year with $300 of supplies. During the year the company purchased
additional supplies costing $1800. There were $1000 of supplies on hand at the end of the year. An
adjusted trial balance, prepared at the end of the accounting period, will show the following balance in
Supplies Expense:
A) $700.
B) $1000.
C) $1100.
D) $1800.
49) A company purchased medical equipment for $190,000 on January 1, 2016. The company
determined that the yearly depreciation expense is $19,000. What will be the ending balance in the
Accumulated Depreciation—Medical Equipment at December 31, 2018?
A) $19,000
B) $57,000
C) $114,000
D) $190,000
50) A company purchased supplies during the year totaling $22,000. At the end of the year, they made
an adjusting entry to record $16,000 of supplies that had been used during the year. The ending balance
in the Supplies account after the adjustment was $10,000. The beginning balance in the Supplies account
was:
A) $6000.
B) $4000.
C) $12,000.
D) $10,000.
51) On October 1, McReady Company paid six months’ insurance in advance totaling $7800. The policy
begins on October 1. An adjusted trial balance prepared on December 31 would include a balance in the
Prepaid Insurance account of:
A) $0.
B) $2600.
C) $3900.
D) $7800.
52) Doorglam paid $91,000 for office furniture. The furniture is depreciated using the straight-line
method and has an estimated service life of 7 years and no residual value. After three years of use, the
accumulated depreciation of the furniture will be:
A) $39,000.
B) $52,000.
C) $78,000.
D) $91,000.
53) A company has $300 in Prepaid Advertising before any adjustments. At the end of the year, an
adjusting entry is made to debit Advertising Expense for $110. The ending balance in the Prepaid
Advertising account will be:
A) $0.
B) $110.
C) $190.
D) $300
54) On December 1, 2015, Carrie’s Day Care receives $1500 in advance for an agreement to care for
Susan’s children for the months of December, January, and February. Carrie’s Day Care will make an
adjusting entry on December 31, 2015 to:
A) credit Revenue for $1500.
B) debit Unearned Revenue for $500.
C) credit Revenue for $1000.
D) credit Prepaid Revenue for $1000.
55) At December 31, the NBC Company owes an employee for four days of work that will not be paid
until January 5th. The weekly rate of pay for a five-day workweek is $800. The adjusting entry to record
the accrued wages will include a:
A) debit to Salaries Payable for $800.
B) debit to Salaries Expense for $800.
C) debit to Salaries Payable for $640.
D) debit to Salaries Expense for $640.
56) Deere Company holds a $4800 note receivable dated July 1, 2015, with 10% interest. What adjusting
entry is needed on December 31, 2015?
A) No entry is needed.
B) Debit Interest Receivable for $48 and credit Interest Revenue for $48
C) Debit Interest Receivable for $240 and credit Interest Revenue for $240
D) Debit Interest Receivable for $480 and credit Interest Revenue for $480
57) Why are adjusting entries prepared?
A) Because some accounts are not up to date.
B) Because some day to day transactions have not been recorded.
C) Because the unadjusted trial balance is not quite ready for preparing the financial statements.
D) A and C
58) If adjusting entries are not prepared, which financial statements are misstated?
A) income statement only
B) balance sheet only
C) statement of retained earnings only
D) income statement, balance sheet and statement of retained earnings
59) The Trial Balance Worksheet does NOT have columns for:
A) adjusting journal entries.
B) closing journal entries.
C) unadjusted trial balance.
D) adjusted trial balance.
60) If a Trial Balance Worksheet is prepared, which columns are used to prepare the financial
statements?
A) unadjusted trial balance columns
B) adjustments columns
C) adjusted trial balance columns
D) none of the above
61) A Trial Balance Worksheet can be used to prepare:
A) balance sheet.
B) income statement.
C) statement of retained earnings.
D) all of the above.
62) The adjustments columns of the Trial Balance Worksheet summarize the:
A) day-to–day journal entries.
B) closing journal entries.
C) adjusting journal entries.
D) cash-basis journal entries.
63) The dollar amount for Accounts Receivable in the Adjusted Trial Balance Debit column of a Trial
Balance Worksheet is obtained by taking the:
A) Unadjusted Trial Balance Debit column plus the Debit Adjustments column minus the Credit
Adjustments column.
B) Unadjusted Trial Balance Debit column.
C) Unadjusted Trial Balance Credit column.
D) Unadjusted Trial Balance Credit column plus closing entries.
64) In lieu of using the Trial Balance Worksheet to prepare the financial statements, an accountant can
use the:
A) journal.
B) ledger.
C) prior period financial statements.
D) prior period audit report.
65) A Trial Balance Worksheet lists:
A) balance sheet accounts only.
B) income statement accounts only.
C) Retained earnings at the beginning of the accounting period and dividends declared.
D) all of the above.
35
66) The Schauer Company had the following adjustments at December 31, 2017, the end of the
accounting period:
A. The Schauer Company uses straight-line depreciation for its equipment. The cost of the equipment is
$105,000 and the useful life is 5 years. The equipment was purchased on January 1, 2017 and has no
residual value.
B. Accrued interest of $10,000 on a note receivable will be received in January.
C. On November 1, 2017, the Schauer Company paid $3,000 for six months of rent in advance. The
rental period is November 1, 2017 through April 30, 2018.
D. On August 1, 2017, the company collected $24,000 in advance for a consulting contract, which is to
be earned evenly over the next 24 months.
E. Employees are owed salaries for 3 days of a 5 day workweek; weekly payroll is $30,000.
F. The unadjusted balance of the supplies account is $2,750. Based on a physical count, the cost of
supplies on hand is $1,000.
G. The company has incurred interest expense of $1,000 that will be paid in January.
Required:
1. Journalize the adjusting entries. Explanations are not required.
2. Assuming the adjustments were not made, calculate the net overstatement or understatement this
would have on net income. Would the company appear to be more or less profitable if the adjustments
were not made?
67) Journalize the adjusting entries needed on December 31, 2017 for Kaimann Industries using the
following data. Explanations are not required.
A. The balance in the Supplies account before adjustment is $5,000. A physical count reveals $2,750 of
supplies on hand at December 31.
B. A computer was purchased on January 1, 2017 for $15,000. The computer has a useful life of 3 years
and is depreciated using the straight-line method. The computer has no residual value.
C. A one-year insurance policy costing $6,000 was purchased on November 1, 2017. The insurance
begins on November 1.
D. Employee salaries are owed for 4 days of a regular 5 day work week. Weekly payroll is $15,000.
E. Unearned Maintenance Revenue has a balance of $22,000 before adjustment. Records show that
$14,000 of that amount has been earned by December 31.
68) For the year ended, December 31, 2017, the Aldrich Chemical Company omitted the following
adjusting journal entries in error. For each entry, indicate if net income will be overstated or
understated by placing an “X” in the appropriate box.
JOURNAL ENTRY OMITTED
NET INCOME
NET INCOME
OVERSTATED
UNDERSTATED
1. Revenue previously recorded as
unearned has now been earned.
2. Revenue has been earned but not yet
billed.
3. Wages have been earned by the
employees but have not yet been paid.
4. Supplies have now been used.
5. Prepaid Insurance has expired
6. Depreciation expense for the year.
7. Interest earned on a note receivable has
not been recorded since it has not yet been
received
JOURNAL ENTRY OMITTED
unearned has now been earned.
billed.
employees but have not yet been paid.
4. Supplies have now been used.
5. Prepaid Insurance has expired
6. Depreciation expense for the year.
not been recorded since it has not yet
been received
69) Complete the following chart to show the required adjusting entries for the following situations:
Type of Adjusting Entry
Account Debited in the
Adjusting Entry
Account Credited in the
Adjusting Entry
Prepaid Insurance
Depreciation Expense
Accrued Salaries
Accrued Interest Revenue
Unearned Service Revenue
Accrued Interest Expense
Supplies
Prepaid Rent
Type of Adjusting Entry
Account Debited in the
Adjusting Entry
Account Credited in the
Adjusting Entry
Prepaid Insurance
Insurance Expense
Prepaid Insurance
Depreciation Expense
Depreciation Expense
Accumulated Depreciation
Accrued Salaries
Salary Expense
Salary Payable
Accrued Interest Revenue
Interest Receivable
Interest Revenue
Unearned Service Revenue
Unearned Service Revenue
Service Revenue
Accrued Interest Expense
Interest Expense
Interest Payable
Prepaid Rent
Rent Expense
Prepaid Rent
70) In the following table, indicate the effects of failing to recognize each of the indicated adjustments by
writing “O” for overstated and “U” for understated. If there is no effect, write “NE.”
Failure to Record:
Effect on
Net
Income
Effect on
Assets
Effect on
Liabilities
Effect on
Stock-
holders’
Equity
Depreciation on building
Use of supplies on hand
Earning of interest on bank account
Salaries owed but not paid
Earning of service revenue
received in advance
Accrual of service revenue
Failure to Record:
Effect on
Net
Income
Effect on
Assets
Effect on
Liabilities
Effect on
Stock-
holders’
Equity
Depreciation on building
O
O
O
Use of supplies on hand
O
O
O
Earning of interest on bank account
U
U
U
Salaries owed but not paid
O
U
O
received in advance
U
O
U
Accrual of service revenue
U
U
U