39) The accountant for Noble Jewelry Repair Services forgot to make an adjusting entry for Depreciation expense
for the current year. Which of the following is one of the effects of this error?
A) Net income is understated.
B) Total assets are understated.
C) Net income is overstated.
D) Total liabilities are understated.
40) The accountant for Noble Jewelry Repair Services forgot to make an adjusting entry for Depreciation expense
for the current year. What is the effect of this error on total assets?
A) Total assets are understated.
B) Total assets are not affected.
C) Total assets are overstated.
D) There is not enough information presented to answer the question.
41) What is the effect of the adjusting entry for Depreciation expense?
A) The entry increases total liabilities and increases total expenses.
B) The entry increases total assets and increases total expenses.
C) The entry decreases total assets and increases total expenses.
D) The entry decreases total liabilities and increases total expenses.
42) Entries that record an expense before the cash is paid are:
A) accrued revenues.
B) prepaid expenses.
C) unearned revenues.
D) accrued expenses.
43) Entries that record revenues earned before the cash is collected are:
A) accrued revenues.
B) prepaid expenses.
C) unearned revenues.
D) accrued expenses.
44) Entries that record cash collected before the revenues are earned are:
A) accrued revenues.
B) prepaid expenses.
C) unearned revenues.
D) accrued expenses.
45) Entries that record cash paid out before the expense is incurred are:
A) accrued revenues.
B) prepaid expenses.
C) unearned revenues.
D) accrued expenses.
46) In accounting, depreciation is the:
A) method of spreading the cost of an asset over its useful life.
B) decline in market value of an asset.
C) estimation of an asset’s current value.
D) sale of an asset.
47) The Accumulated depreciation account is:
A) a record of the sum of all the depreciation recorded.
B) a contra account to the asset being depreciated.
C) an expense account.
D) both a record of the sum of all the depreciation recorded and a contra account to the asset being depreciated.
48) On January 1, 2012, Lexmark Company’s Accounts receivable account had a debit balance of $10,000. During
January, 2012, the company billed customers for services in the amount of $300,000. Also during January, the
company collected $240,000 from its customers on account. What was the balance in the Accounts receivable
account at the end of January?
A) $60,000
B) $250,000
C) $70,000
D) $10,000
49) A business pays its insurance premium of $2,400 on November 1 of each year. On January 1 of the new year
(after December 31 adjustments), the Prepaid insurance account has a debit balance of:
A) $1,200.
B) $400.
C) $2,400.
D) $2,000.
50) Active Education sells tickets in advance for their weekly productions and records the proceeds as Unearned
revenue. At the end of each month, they make an adjusting entry to account for the tickets used during the month
(Ticket revenue.) At March 1, the Unearned revenue account had a credit balance of $3,000. During March, they
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 $4,000
B) Debit balance of $4,000
C) Credit balance of $2,000
D) Debit balance of $2,000
51) Smith Technical Services is working on a six-month job for a client, starting February 1. They will collect
$48,000 from their customer when the job is finished. On March 1, their Accounts receivable account has a debit
balance of $8,000. At the end of March, after monthly adjusting entries have been made, what will the balance in
Accounts receivable be?
A) Debit balance of $48,000
B) Credit balance of $8,000
C) Debit balance of $16,000
D) Debit balance of $12,000
52) Classic Artists’ Services has hired a maintenance man to maintain a building they use for instruction. He will
begin work on February 1 and work through till May 31. They will pay the maintenance man $2,000 at the end of
May. Classic Artists’ Services accrue Maintenance expense at the end of every month. What is the balance in the
Accounts payable account for amounts owed to the maintenance man at the end of March?
A) Debit balance of $2,000
B) Credit balance of $1,000
C) Debit balance of $1,000
D) Credit balance of $2,000
53) On December 31, 2012, the adjusting entry for depreciation was made incorrectly. The following is the entry
which was made erroneously:
Depreciation expense
1,500
Accumulated depreciation
1,500
The correct amount of depreciation should have been $5,100. Consider the effects of this error on the balance sheet,
and identify which of the following statements is TRUE.
A) Total liabilities are overstated by $3,600.
B) Total liabilities are understated by $3,600.
C) Total assets are overstated by $3,600.
D) Total assets are understated by $3,600.
54) On December 31, 2012, the adjusting entry for depreciation was made incorrectly. The following entry was
made erroneously:
Depreciation expense
1,500
Accumulated depreciation
1,500
The correct amount of depreciation should have been $5,100. Consider the effects of this error on the income
statement, and identify which of the following statements is TRUE.
A) Net income is overstated by $3,600.
B) Net income is understated by $3,600.
C) Net income is understated y $1,500.
D) Net income is not affected by this error.
55) On August 1, 2011, Xcel Auto Repair paid $6,000 in advance for six months’ rent. Xcel makes proper adjusting
entries at the end of every month. What is the balance of Prepaid rent on December 31, 2011?
A) $6,000
B) $1,000
C) $2,000
D) $4,000
56) On December 31, 2011, the balance in Pinnacle Exploration Company’s Unearned revenue account is credit of
$4,200. In January, 2012, the company received an advance payment of $12,000 from a new customer for services
to be performed. By January 31, adjustments had been made to recognize $8,500 of the revenue which had been
earned during January. What would be the balance in Unearned revenue on January 31, 2012?
A) $16,200 credit
B) $8,500 debit
C) $3,500 credit
D) $7,700 credit
57) The Supplies account for Vulcan Cleaning Services had a debit balance of $200 at the beginning of the month.
Additional supplies of $1,400 were purchased during the month. A physical count of supplies revealed that $600 of
supplies was still on hand at the end of the month. What was total Supplies expense for the month?
A) $1,400
B) $100
C) $1,000
D) $600
58) The adjusting entry to record Depreciation expense accomplishes which of the following?
A) Records an expense
B) Updates a contra asset
C) Updates a liability
D) Both A and B
59) The beginning balance in the Supplies account was $3,000. Purchases of supplies during the year were $25,000.
The business makes adjusting entries for supplies once a year. A count of supplies at year-end revealed that the
ending balance in the Supplies account should be $1,500. What is the amount of the adjusting entry?
A) $1,500
B) $25,000
C) $26,500
D) $3,000
60) A business pays salaries of $140,000 on the first and fifteenth day of every month. Which of the following is the
adjusting entry required on December 31, 2011?
A) A debit $140,000 to Salaries expense and a credit $140,000 to Salaries payable.
B) A debit $140,000 to Salaries receivable and a credit $140,000 to Salaries payable.
C) A debit $140,000 to Salaries expense and a credit $140,000 to Salaries receivable.
D) No adjusting entry is required.
61) A business acquires equipment for $140,000 on January 1, 2011. The equipment depreciation will be $20,000
each year for the seven years of the asset’s expected life. The business records depreciation once a year on December
31. Which of the following is the adjusting entry required on December 31, 2011?
A) A debit $140,000 to Equipment and a credit $140,000 to Cash.
B) A debit $140,000 to Depreciation expense and a credit $140,000 to Accumulated depreciation.
C) A debit $20,000 to Depreciation expense and a credit $20,000 to Accumulated depreciation.
D) A debit $20,000 to Depreciation expense and a credit $20,000 to Equipment.
62) On September 1, 2011, Joy Company paid $4,000 in advance for an 8-month rental space covering the period of
September, 2011 through April, 2012. The business makes adjusting entries once a year at year-end. The adjusting
entry at December 31, 2011 would include a:
A) debit of $4,000 to Prepaid rent expense on December 31, 2011.
B) debit of $2,000 to Prepaid rent expense on December 31, 2011.
C) debit of $2,000 to Rent expense on December 31, 2011.
D) credit of $2,000 to Rent expense on December 31, 2011.
63) ABC Company signed a one-year $12,000 note payable at 8% interest on May 1, 2012. How much interest
expense must be accrued on May 31, 2012?
A) $960
B) $320
C) $80
D) $40
64) ABC Company signed a one-year $12,000 note payable at 8% interest on May 1, 2012. If ABC only adjusts
their accounts once a year at year-end, how much interest expense must be accrued on December 31, 2012?
A) $960.
B) $320.
C) $640.
D) $474.
65) What type of account is Accumulated depreciation and what is its normal balance?
A) Revenue and debit
B) Expense and debit
C) Contra asset and credit
D) Liability and credit
66) What type of account is Unearned revenue and what is its normal balance?
A) Liability and credit
B) Asset and credit
C) Revenue and debit
D) Asset and debit
67) What type of account is Prepaid rent and what is its normal balance?
A) Expense and debit
B) Liability and credit
C) Revenue and credit
D) Asset and debit
68) What is the term for the difference between the Equipment account and the Accumulated depreciation account?
A) Contra asset
B) Market value
C) Historical cost
D) Book value
69) A company received $5,000 for 100 one-year subscriptions on July 1. The journal entry to record this cash
receipt would include a:
A) debit to Unearned revenue.
B) debit to Prepaid expenses.
C) credit to Unearned revenue.
D) credit to Cash.
70) Hank’s Tax Planning Service started business in January, 2012. He rented an office for $900 a month starting
January 1. He prepaid the rentals through June 30. He makes accrual adjustments monthly. As of April 30, Hank’s
ledger shows a balance in Prepaid Rent of how much?
A) $1,800
B) $900
C) $2,700
D) $5,400
71) Hank’s Tax Planning Service has a beginning balance in the Supplies account of $800. During the current
month, he purchased an additional $2,000 of supplies. At the end of the month, he had $250 of supplies left. The
amount of supply expense to be recorded for the month is:
A) $1,750.
B) $2,000.
C) $250.
D) $2,550.
72) Hank’s Tax Planning Service bought computer equipment for $19,200 on January 1, 2012. It has an estimated
useful life of 4 years. Hank records depreciation monthly. As of September 30, 2012, Hank has recorded total
depreciation expense for this equipment of:
A) $2,400.
B) $3,600.
C) $400.
D) $14,400.
73) Hank’s Tax Planning Service bought communications equipment for $7,200 on January 1, 2012. It has an
estimated useful life of 5 years. Hank records depreciation monthly. As of June 30, 2012, the balance in the
Accumulated depreciation account for this equipment is:
A) $1,440.
B) $600.
C) $120.
D) $720.
74) Hank’s Tax Planning Service bought communications equipment for $7,200 on January 1, 2012. It has an
estimated useful life of 5 years. Hank records depreciation monthly. As of June 30, 2012, Hank’s balance sheet will
show book value for this equipment of:
A) $6,480.
B) $7,200.
C) $120.
D) $720.
75) Hank’s Tax Planning Service has the following plant assets:
Communications equipment: Cost, $4,800; useful life 8 years
Furniture: Cost, $15,840; useful life 12 years
Computer equipment: Cost, $10,080; useful life 4 years
Hank’s monthly depreciation expense is:
A) $2,560.
B) $4,440.
C) $210.
D) $370.
76) Hank’s Tax Planning Service has the following plant assets:
Communications equipment: Cost, $4,800; useful life 8 years
Furniture: Cost, $15,840; useful life 12 years
Computer equipment: Cost, $10,080: useful life 4 years
Hank’s monthly depreciation entry will include a:
A) debit to depreciation expense of $210.
B) credit to depreciation expense of $370.
C) debit to Accumulated Depreciation of $210.
D) credit to Accumulated Depreciation of $370.
77) Lucent Electrical Repair performs services costing $3,000 on January 12 and invoices the customer. Lucent
receives the $3,000 on January 31. What entry is made on January 12 when services were rendered?
Accounts receivable
78) Lucent Electrical Repair performs services costing $3,000 on January 12 and invoices the customer. Lucent
receives the $3,000 on January 31. What entry is made on January 31 when the cash was received?
Cash
3,000
Accounts receivable
79) Real Losers, a diet magazine, collected $360,000 in subscription revenue in May. Each subscriber will receive
an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the
accrual method of accounting. What entry is recorded when the cash is collected in May?
Cash
Unearned revenue
80) Real Losers, a diet magazine, collected $360,000 in subscription revenue in May. Each subscriber will receive
an issue of the magazine for each of the next 12 months, beginning with the June issue. The company uses the
accrual method of accounting. What adjusting entry is needed at June 30?
Unearned revenue
Subscription revenue
81) On July 1, Alpha Company prepaid rent for a small equipment storage area. They paid $12,000 to rent the area
for the period of July 1 through the end of the year. Please provide the journal entry needed on July 1 when the
payment is made.
Prepaid rent
Cash
82) On July 1, Alpha Company prepaid rent for a small equipment storage area in the amount of $12,000 for the
period of July 1 through the end of the year. At the end of July, an adjustment entry is needed. Please provide that
adjustment entry.
Rent expense
Prepaid rent
83) On April 1, Balsa Company purchased $800 of office supplies. At the end of April, they took a count of the
remaining supplies and found that there were $150 of supplies left. Please provide the adjusting entry needed at the
end of April.
Supplies expense
Supplies
84) Chelsea Services Company pays its staff their wages every Friday. The staff works a five-day work week and
the payroll amounts to $25,000 per week. The last day of January falls on a Tuesday, and an adjustment entry is
needed to accrue wage expense as of January 31. Please provide that entry.
Wages expense
Wages payable
85) Chelsea Services Company pays its staff their wages every Friday. The staff works a five-day work week and
the payroll amounts to $25,000 per week. The last day of January fell on a Tuesday, and an adjustment entry was
made on that date to accrue wage expense. On Friday, February 3, Chelsea Company pays out $25,000 in wages as
usual. Please provide the entry needed at the time the wages are paid.
Wage expense
Wages payable
86) A business pays its employees’ monthly salaries of $20,000, half on the 15th day of each month, and half on the
first day of the following month. It is now October 15, and the business pays out $10,000 in salaries. Please
provide the journal entry for that payment.
Salary expense
Cash
87) A business pays its employees’ monthly salaries of $20,000, half on the 15th day of each month, and half on the
first day of the following month. It is now October 31, and the business must make an adjusting
entry to accrue salaries for the second half of October. Please provide that adjusting entry.
Salary expense
Salary payable
88) A business pays its employees’ monthly salaries of $20,000, half on the 15th day of each month, and half on the
first day of the following month. On October 31, the business accrued salaries for the second half of October. On
November 1, the business paid their employees $10,000 for the second half of October. Please provide the journal
entry for the payment made on November 1.
Salary payable
Cash