3.3-70 How does an accrued expense adjustment affect the financial statements? The adjustment:
A) increases expenses and decreases assets.
B) increases expenses and increases liabilities.
C) decreases expenses and increases liabilities.
D) decreases expenses and increases assets.
3.3-71 What effect does an accrued revenue adjustment have on a company’s net income?
A) The adjustment has no effect on net income.
B) The adjustment increases net income for the period.
C) The adjustment decreases net income for the period.
D) The effect of the adjustment cannot be determined with the information given.
3.3-72 A debit entry in the Unearned Revenue account indicates 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.
3.3-73 On December 1, 20X7, Debbie’s Plantscape receives $2,400 in advance for an agreement to care, in equal
monthly efforts, for a client’s office plants during the months of December, January, and
February. As of December 31, 20X7, Debbie’s Plantscape would have:
A) a $1,600 liability to its client under accrual accounting, or a $2,400 liability to its client under cash-
basis accounting.
B) recognized $800 revenue under accrual accounting, or $2,400 revenue under cash-basis accounting.
C) a $0 liability to its client under accrual accounting, or a $1,600 liability to its client under cash-basis
accounting.
D) recognized $800 cash under accrual accounting, or $2,400 cash under cash-basis accounting.
3.3-74 An accrual refers to an event where the:
A) expense or revenue is not recorded after the cash settlement.
B) liability is recorded after the cash settlement.
C) expense or revenue is recorded before the cash settlement.
D) asset is recorded only after the cash settlement.
3.3-75 Which of the following is NOT true regarding the adjusting process?
A) The adjusting process updates the balance sheet.
B) Every adjusting entry affects the balance sheet and the income statement.
C) Adjustments are made during the month.
D) The main adjusting entries are deferrals, depreciation and accruals.
3.3-76 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.
3.3-77 After the adjustments are journalized and posted, a(n) _____________ can be prepared to aid in the
preparation of the financial statements:
A) balance sheet.
B) adjusted trial balance
C) post-close trial balance
D) income statement
3.3-78 The adjusted trial balance is prepared:
A) before the adjustments are journalized and posted.
B) after the adjustments are journalized but before they are posted.
C) after the adjustments are journalized and posted.
D) after the financial statements are prepared.
3.3-79 The Accounts Receivable account has a $20,000 debit balance in the unadjusted trial balance. There is a
$1,000 debit adjustment to Accounts Receivable. The adjusted trial balance will show Accounts
Receivable as a:
A) $19,000 debit balance.
B) $21,000 credit balance.
C) $21,000 debit balance.
D) $19,000 credit balance.
3.3-80 The Unearned Rent account has a $6,000 credit balance in the unadjusted trial balance. There is a $1,000
debit adjustment to Unearned Rent. The adjusted trial balance will show Unearned Rent as a:
A) $7,000 debit balance.
B) $7,000 credit balance.
C) $5,000 debit balance.
D) $5,000 credit balance.
3.4-1 The Balance Sheet is the last financial statement to be prepared, after the Income Statement and the
Statement of Changes in Equity.
3.4-2 Net income for the period appears on the Income Statement and the Balance Sheet for the period.
3.4-3 The beginning balance of shareholders’ equity appears on the Balance Sheet and the ending balance of
shareholders’ equity appears on the Statement of Changes in Equity.
3.4-4
3.4-4 In what order are financial statements generally prepared?
A) Balance Sheet, Income Statement, and Statement of Changes in Equity
B) Income Statement, Statement of Changes in Equity, and Balance Sheet
C) Income Statement, Balance Sheet, and Statement of Changes in Equity
D) Statement of Changes in Equity, Balance Sheet, and Income Statement
3.4-5 Dividends appear on:
A) only the Statement of Changes in Equity.
B) only the Income Statement.
C) both the Income Statement and the Balance Sheet.
D) both the Income Statement and the Statement of Changes in Equity.
3.4-6 The beginning balance in shareholders’ equity is found in:
A) only the Statement of Changes in Equity.
B) only the Balance Sheet.
C) both the Income Statement and the Balance Sheet.
D) both the Statement of Changes in Equity and the Balance Sheet.
3.4-7 The financial statements are prepared from the
A) adjustments.
B) unadjusted trial balance.
C) ledger.
D) adjusted trial balance.
3.4-8 The income statement lists:
A) assets, liabilities and shareholders’ equity.
B) the changes in retained earnings.
C) assets, liabilities, revenues and expenses.
D) revenues and expenses.
3.4-19 The balance sheet lists:
A) assets, liabilities and shareholders’ equity.
B) the changes in retained earnings.
C) assets, liabilities, revenues and expenses.
D) revenues and expenses.
3.4-10 The Statement of Changes in Equity lists:
A) assets, liabilities and shareholders’ equity.
B) the changes in shareholders’ equity.
C) assets, liabilities, revenues and expenses.
D) revenues and expenses.
3.4-11 Revenues and expenses affect shareholders’ equity; therefore, net income is then transferred to:
A) the income statement.
B) retained earnings.
C) the balance sheet.
D) none of the above.
3.5-1 The books need to be closed in order to prepare the accounts for the next period’s transactions.
3.5-2 Current liability accounts are closed at the end of the accounting period to “zero out” the balance in
Retained Earnings.
3.5-3 During the closing process, Retained Earnings is debited for all revenues earned.
3.5-4 The closing process applies only to permanent accounts.
3.5-5 The Dividends account is closed by an entry crediting Retained Earnings and debiting Net Income.
3.5-6 Liabilities are classified as current or long-term.
3.5-7 Assume the beginning balance in the Retained Earnings account is zero. If a debit balance of $5,000
exists in Retained Earnings after closing out revenues and expenses at the end of the current period, it
indicates:
A) that the company had net income of $5,000.
B) an increase in cash of $5,000.
C) the company had a net loss of $5,000.
D) a decrease in cash of $5,000.
3.5-8 Permanent accounts include:
A) cash, service revenue and land.
B) cash, prepaid expenses and unearned revenue.
C) cash, land and salaries expense.
D) service revenue, salaries expense and utilities expense.
3.5-9 Closing entries transfer the revenue, expense, and dividends balances to:
A) retained earnings.
B) permanent accounts.
C) temporary accounts.
D) none of the above.
3.5-10 To close the books of a company, you should:
A) debit each revenue account, credit each expense account, and debit the dividends account.
B) credit each revenue account, debit each expense account, and debit the dividends account.
C) debit each revenue account, credit each expense account, and credit the dividends account.
D) debit each revenue account, debit each expense account, and credit the dividends account
3.5-11 The closing entries set the following accounts back to zero at the end of the period.
A) Assets, liabilities, and shareholders’ equity
B) Revenues and expenses
C) All permanent accounts
D) Revenues, expenses, and dividends
3.5-12 Accounts that relate to a limited period are called:
A) asset and liability accounts.
B) permanent accounts.
C) real accounts.
D) temporary accounts.
3.5-13 Which of the following accounts is considered a “temporary” account?
A) Inventory
B) Rent Expense
C) Accounts Payable
D) Share Capital
3.5-14 The entry to close expense account(s):
A) increases total assets.
B) decreases total assets.
C) decreases retained earnings.
D) increases retained earnings.
3.5-15 The entry made to close Service Revenue would include a debit to:
A) Retained Earnings and a credit to Service Revenue.
B) Service Revenue and a credit to Retained Earnings.
C) Service Revenue and a credit to Dividends.
D) Service Revenue and a credit to Net Income.
3.5-16 The closing entry for the Salaries Expense account would include a debit to:
A) Salaries Expense and a credit to Retained Earnings.
B) Salaries Expense and a credit to Net Income.
C) Retained Earnings and a credit to Salaries Expense.
D) Net Income and a credit to Salaries Expense.
3.5-17 The entry to close revenue accounts:
A) increases total assets.
B) decreases total assets.
C) decreases retained earnings.
D) increases retained earnings.
3.5-18 The entry to close the Dividends account would include a debit to:
A) Dividends and a credit to Net Income.
B) Dividends and a credit to Retained Earnings.
C) Retained Earnings and a credit to Dividends.
D) Net Income and a credit to Dividends.
3.5-19 Closing entries transfer net income or loss and dividends paid to:
A) Paid-in Capital.
B) Net Income.
C) Share Capital.
D) Retained Earnings.
3.5-20 To close Dividends, the entry would be to:
A) debit Dividends and credit Retained Earnings.
B) debit net income and credit Retained Earnings.
C) debit Retained Earnings and credit Dividends.
D) debit Cash and credit Dividends.
3.5-21 Kincaid Company’s Retained Earnings balance on January 1 was $6,000. During the current year,
Kincaid earned $3,400 in revenues and incurred $4,200 in expenses. Kincaid paid $2,500 in dividends,
all in cash. After the closing entries are made, Kincaid’s Retained Earnings balance on December 31 will
be:
A) $4,300.
B) $7,700.
C) $6,000.
D) $2,700.
3.5-22 The following accounts are listed in order of liquidity. Which of the following is CORRECT?
A) Cash, Inventory, Accounts Receivable, Furniture
B) Cash, Accounts Receivable, Inventory, Furniture
C) Furniture, Cash, Accounts Receivable, Inventory
D) Furniture, Cash, Inventory, Accounts Receivable
3.5-23 Which of the accounts listed below is a NOT a permanent account?
A) Dividends
B) Prepaid Rent
C) Unearned Revenue
D) Salary Payable
3.5-24 Which of the following is a temporary (or nominal) account?
A) Salaries Payable
B) Rent Expense
C) Unearned Revenue
D) Dividends Payable