223) All of the following are true regarding prepaid expenses except:
A) They are paid for in advance of receiving their benefits.
B) They are assets.
C) When they are used, their costs become expenses.
D) The adjusting entry for prepaid expenses increases expenses and decreases liabilities.
E) The adjusting entry for prepaid expenses increases expenses and decreases assets.
224) An annual reporting period consisting of any twelve consecutive months is known as:
A) Fiscal year.
B) Calendar year.
C) Interim financial period.
D) Natural business year.
E) Seasonal year.
225) Two accounting principles central to accrual accounting basis that are relied on in the
adjusting process are:
A) Revenue recognition and monetary unit.
B) Revenue recognition and going-concern.
C) Expense recognition (matching) and cost.
D) Expense recognition (matching) and business entity.
E) Revenue recognition and Expense recognition (matching).
226) All of the following are true regarding unearned revenues except:
A) They are payments received in advance of services performed.
B) The adjusting entry for unearned revenues increases assets and increases revenues.
C) The adjusting entry for unearned revenues increases revenues and decreases liabilities.
D) They are liabilities.
E) As they are earned, they become revenues.
227) Assuming prepaid expenses are originally recorded in balance sheet accounts, the adjusting
entry to record use of a prepaid expense is:
A) Increase an expense; increase a liability.
B) Increase an asset; increase revenue.
C) Decrease a liability; increase revenue.
D) Increase an expense; decrease an asset.
E) Increase an expense; decrease a liability.
228) Assuming unearned revenues are originally recorded in balance sheet accounts, the
adjusting entry to record earning of unearned revenue is:
A) Increase an expense; increase a liability.
B) Increase an asset; increase revenue.
C) Decrease a liability; increase revenue.
D) Increase an expense; decrease an asset.
E) Increase an expense; decrease a liability.
229) The adjusting entry to record an accrued expense is:
A) Increase an expense; increase a liability.
B) Increase an asset; increase revenue.
C) Decrease a liability; increase revenue.
D) Increase an expense; decrease an asset.
E) Increase an expense; decrease a liability.
230) The adjusting entry to record an accrued revenue is:
A) Increase an expense; increase a liability.
B) Increase an asset; increase revenue.
C) Decrease a liability; increase revenue.
D) Increase an expense; decrease an asset.
E) Increase an expense; decrease a liability.
231) On October 1, Vista View Company rented warehouse space to a tenant for $2,500 per
month. The tenant paid five months’ rent in advance on that date, with the lease beginning
immediately. The cash receipt was credited to the Unearned Rent account. The company’s annual
accounting period ends on December 31. The adjusting entry needed on December 31 is:
A) Debit Rent Receivable, $12,500; credit Rent Earned, $12,500.
B) Debit Rent Receivable, $7,500; credit Rent Earned, $7,500.
C) Debit Unearned Rent, $7,500; credit Rent Earned, $7,500.
D) Debit Unearned Rent, $5,000; credit Rent Earned, $5,000.
E) Debit Unearned Rent, $12,500; credit Rent Earned, $12,500.
232) On October 1, Vista View Goodwell Company rented warehouse space to a tenant for
$2,500 per month and received $12,500 for five months’ rent in advance on that date, with the
lease beginning immediately. The cash receipt was credited to the Unearned Rent account. The
company’s annual accounting period ends on December 31. The Unearned Rent account balance
at the end of December, after adjustment, should be:
A) $5,000.
B) $7,500.
C) $12,500.
D) $2,500.
E) $10,000.
233) Chase Company rents space to a tenant for $2,200 per month. The tenant currently owes
rent for November and December. The tenant has agreed to pay the November, December, and
January rents in full on January 15 and has agreed not to fall behind again. The adjusting entry
needed on December 31 is:
A) Debit Rent Receivable, $6,600; credit Rent Earned, $6,600.
B) Debit Unearned Rent, $4,400; credit Rent Earned, $4,400.
C) Debit Unearned Rent, $2,200; credit Rent Earned, $2,200.
D) Debit Rent Receivable, $4,400; credit Rent Earned, $4,400.
E) Debit Rent Receivable, $2,200; credit Rent Earned, $2,200.
234) Chase Company has 10 employees, who earn a total of $1,800 in salaries each working day.
They are paid on Monday for the five-day workweek ending on the previous Friday. Assume that
year ended on December 31, which is a Wednesday, and all employees will be paid salaries for
five full days on the following Monday. The adjusting entry needed on December 31 is:
A) Debit Salaries Expense, $5,400; credit Salaries Payable, $5,400.
B) Debit Salaries Expense, $3,600; credit Salaries Payable, $3,600.
C) Debit Salaries Expense, $9,000; credit Salaries Payable, $9,000.
D) Debit Salaries Payable, $5,400; credit Salaries Expense, $5,400.
E) Debit Salaries Expense, $5,400; credit Cash, $5,400.
235) On January 1, Imlay Company purchases manufacturing equipment costing $95,000 that is
expected to have a five-year life and an estimated salvage value of $5,000. Imlay uses the
straight-line depreciation method to allocate costs, and only prepares adjustments at year-end.
The adjusting entry needed on December 31 of the first year is:
A) Debit Depreciation Expense, $9,000; credit Accumulated Depreciation, $9,000.
B) Debit Depreciation Expense, $18,000; credit Accumulated Depreciation, $18,000.
C) Debit Depreciation Expense, $90,000; credit Accumulated Depreciation, $90,000.
D) Debit Depreciation Expense, $18,000; credit Equipment, $18,000.
E) Debit Depreciation Expense, $9,000; credit Equipment, $9,000.
236) Holman Company owns equipment with an original cost of $95,000 and an estimated
salvage value of $5,000 that is being depreciated at $15,000 per year using the straight-line
depreciation method, and only prepares adjustments at year-end. The adjusting entry needed to
record annual depreciation is:
A) Debit Depreciation Expense, $15,000; credit Equipment, $15,000.
B) Debit Equipment, $15,000; credit Accumulated Depreciation, $15,000.
C) Debit Depreciation Expense, $10,000; credit Accumulated Depreciation, $10,000.
D) Debit Depreciation Expense, $10,000; credit Equipment, $10,000.
E) Debit Depreciation Expense, $15,000; credit Accumulated Depreciation, $15,000.
237) On November 1, Jasper Company loaned another company $100,000 at a 6.0% interest rate.
The note receivable plus interest will not be collected until March 1 of the following year. The
company’s annual accounting period ends on December 31. The amount of interest revenue that
should be reported in the first year is:
A) $0.
B) $6,000.
C) $5,000.
D) $16,667.
E) $1,000.
238) On November 1, Jasper Company loaned another company $100,000 at a 6.0% interest rate.
The note receivable plus interest will not be collected until March 1 of the following year. The
company’s annual accounting period ends on December 31, and adjustments are only made at
year-end. The adjusting entry needed on December 31 is:
A) No entry required.
B) Debit Interest Expense, $5,000; credit Interest Payable, $5,000.
C) Debit Interest Expense, $1,000; credit Note Payable, $1,000.
D) Debit Interest Receivable, $500; credit Interest Revenue, $500.
E) Debit Interest Receivable, $1,000; credit Interest Revenue, $1,000.
239) On December 1, Casualty Insurance Company borrowed $50,000 at a 6.0% interest rate
from One Mutual Bank. The note payable plus interest will not be paid until April 1 of the
following year. The company’s annual accounting period ends on December 31 and adjustments
are only made at year-end. The adjusting entry needed on December 31 is:
A) No entry required.
B) Debit Interest Expense, $250; credit Interest Payable, $250.
C) Debit Interest Expense, $250; credit Note Payable, $250.
D) Debit Interest Payable, $1,000; credit Interest Expense, $1,000.
E) Debit Interest Expense, $1,000; credit Interest Payable, $1,000.
240) Which of the following statements is incorrect?
A) An unadjusted trial balance is a list of accounts and balances prepared before adjustments are
recorded.
B) An adjusted trial balance is a list of accounts and balances prepared after adjusting entries
have been recorded and posted to the ledger.
C) Each trial balance amount is used in preparing the financial statements.
D) Financial statements should be prepared directly from information in the unadjusted trial
balance.
E) Financial statements can be prepared directly from information in the adjusted trial balance.
241) On December 31, Carmack Company received a $215 utility bill for December that it will
not pay until January 15. The adjusting entry needed on December 31 to accrue this expense is:
A) Debit Utilities Expense $215; credit Accounts Payable $215.
B) Debit Accounts Payable $215; credit Utilities Expense $215.
C) Debit Prepaid Utilities $215; credit Cash $215.
D) Debit Utilities Expense $215; credit Prepaid Utilities $215.
E) Debit Prepaid Utilities $215; credit Accounts Payable $215.
242) On December 31, Jacoby Company received a $385 bill for the purchase of supplies in
December that it will not pay for until January 15. Jacoby follows a policy of recording all
prepaid expenses to asset accounts at the time of cash payment. The adjusting entry needed on
December 31 to accrue this cost is:
A) Debit Supplies $385; credit Accounts Payable $385.
B) Debit Accounts Payable $385; credit Supplies $385.
C) Debit Accounts Payable $385; credit Cash $385.
D) Debit Supplies Expense $385; credit Cash $385.
E) Debit Supplies Expense $385; credit Supplies $385.
243) On December 31, Carmack Company’s Prepaid Insurance account had a balance before
adjustment of $6,000. The insurance was purchased on July 1 of the same year for one year of
insurance coverage, with coverage beginning on that date. The adjusting entry needed on
December 31 is:
A) Debit Prepaid Insurance $6,000; credit Cash $6,000.
B) Debit Insurance Expense $3,000; credit Accounts Payable $3,000.
C) Debit Insurance Expense $3,000; credit Prepaid Insurance $3,000.
D) Debit Cash $6,000; credit Prepaid Insurance $6,000.
E) Debit Insurance Expense $6,000; credit Accounts Payable $6,000.
244) On December 31, Jacoby Company’s Prepaid Rent account had a balance before adjustment
of $6,000. Three months’ rent was paid in advance on December 1, the first day of the lease term.
The adjusting entry needed on December 31 is:
A) Debit Prepaid Rent $6,000; credit Cash $6,000.
B) Debit Rent Expense $2,000; credit Accounts Payable $2,000.
C) Debit Rent Expense $2,000; credit Prepaid Rent $2,000.
D) Debit Cash $2,000; credit Prepaid Rent $2,000.
E) Debit Rent Expense $6,000; credit Accounts Payable $6,000.
245) Which of the following accounts is a permanent (real) account?
A) Fees earned.
B) Office supplies expense.
C) Interest revenue.
D) Accounts payable.
E) Salaries expense.
246) Closing the temporary accounts at the end of each accounting period does all of the
following except:
A) Serves to transfer the effects of these accounts to the retained earnings account on the balance
sheet.
B) Prepares the dividends account for use in the next period.
C) Brings the revenue and expense accounts to zero balances.
D) Has no effect on the retained earnings account.
E) Causes retained earnings to reflect increases from revenues and decreases from expenses and
dividends.
247) Journal entries recorded at the end of each accounting period to prepare the revenue,
expense, and dividends accounts for the upcoming period and to update the retained earnings
account for the events of the period just finished are referred to as:
A) Adjusting entries.
B) Closing entries.
C) Final entries.
D) Work sheet entries.
E) Updating entries.
248) The closing process is necessary in order to:
A) Calculate net income or net loss for an accounting period.
B) Ensure that all permanent accounts are closed to zero at the end of each accounting period.
C) Ensure that the company complies with state laws.
D) Ensure that net income or net loss and dividends for the period are closed into the retained
earnings account.
E) Ensure that management is aware of how well the company is operating.
249) Closing entries are required:
A) If management has decided to cease operating the business.
B) Only if the company adheres to the accrual method of accounting.
C) If a company’s bookkeeper does not choose to prepare reversing entries.
D) So that Revenue, expense, and dividends accounts must begin each period with zero balances.
E) In order to satisfy the Internal Revenue Service guidelines.
250) The recurring steps performed each reporting period in preparing financial statements,
starting with analyzing and recording transactions in the journal and continuing through the post-
closing trial balance, is referred to as the:
A) Accounting period.
B) Operating cycle.
C) Accounting cycle.
D) Closing cycle.
E) Natural business year.
251) Which of the following is the usual final step in the accounting cycle?
A) Journalizing transactions.
B) Preparing an adjusted trial balance.
C) Preparing a post-closing trial balance.
D) Preparing the financial statements.
E) Preparing a work sheet.
252) A classified balance sheet:
A) Measures a company’s ability to pay its bills on time.
B) Organizes assets and liabilities into important subgroups that provide more information.
C) Broadly groups items into assets, liabilities and equity.
D) Reports operating, investing, and financing activities.
E) Reports the effect of profit and dividends on retained earnings.
253) The assets section of a classified balance sheet usually includes the subgroups:
A) Current assets, long-term investments, plant assets, and intangible assets.
B) Current assets, long-term assets, revenues, and intangible assets.
C) Current assets, long-term investments, plant assets, and equity.
D) Current liabilities, long-term investments, plant assets, and intangible assets.
E) Current assets, liabilities, plant assets, and intangible assets.
254) The usual order for the asset subgroups of a classified balance sheet is:
A) Current assets, prepaid expenses, long-term investments, intangible assets.
B) Long-term investments, current assets, plant assets, intangible assets.
C) Current assets, long-term investments, plant assets, intangible assets.
D) Intangible assets, current assets, long-term investments, plant assets.
E) Plant assets, intangible assets, long-term investments, current assets.
255) A classified balance sheet differs from an unclassified balance sheet in that:
A) An unclassified balance sheet is never used by large companies.
B) A classified balance sheet groups items into the broad categories of asset, liability, and equity.
C) A classified balance sheet presents information in a manner that makes it easier to calculate a
company’s current ratio.
D) A classified balance sheet will include more accounts than an unclassified balance sheet for
the same company on the same date.
E) A classified balance sheet is not usually provided to outside parties.
256) Two common subgroups for liabilities on a classified balance sheet are:
A) Current liabilities and intangible liabilities.
B) Present liabilities and operating liabilities.
C) General liabilities and specific liabilities.
D) Intangible liabilities and long-term liabilities.
E) Current liabilities and long-term liabilities.
257) Which of the following is classified as a current asset?
A) Office equipment.
B) Patent.
C) Unearned revenue.
D) Office supplies.
E) Land.
258) Which of the following is classified as a plant asset?
A) Office equipment.
B) Patent.
C) Cash.
D) Office supplies.
E) Merchandise inventory.
259) The current ratio:
A) Is used to measure a company’s profitability.
B) Is used to measure the relation between assets and long-term debt.
C) Measures the effect of operating income on profit.
D) Is used to help assess a company’s ability to pay its debts in the near future.
E) Is calculated by dividing current assets by equity.
260) All of the following regarding the current ratio are true except:
A) Current ratio is calculated by dividing current assets by current liabilities.
B) Current ratio helps to assess a company’s ability to pay its debts in the near future.
C) Current ratio does not affect a creditor’s decision on whether to allow a company to buy on
credit.
D) Current ratio can affect a creditor’s decision about whether to lend money to a company.
E) Current ratio can reveal challenges in covering short-term obligations if it is less than 1.
261) The Unadjusted Trial Balance columns of a company’s work sheet shows the Store Supplies
account with a balance of $750. The Adjustments columns shows a credit of $425 for supplies
used during the period. The amount shown as Store Supplies in the Balance Sheet columns of the
work sheet is:
A) $325 debit.
B) $325 credit.
C) $425 debit.
D) $750 debit.
E) $425 credit.
262) An optional columnar working paper used to prepare a company’s unadjusted trial balance,
adjusting entries, adjusted trial balance, and financial statements is a(n):
A) Adjusted trial balance.
B) Work sheet.
C) Post-closing trial balance.
D) Unadjusted trial balance.
E) General ledger.
263) Accumulated Depreciation and Service Fees Earned would be sorted to which respective
columns in completing a work sheet?
A) Balance Sheet and Statement of Retained Earnings-Credit and Income Statement-Credit.
B) Balance Sheet and Statement of Retained Earnings-Debit and Income Statement-Debit.
C) Income Statement-Debit and Income Statement-Credit.
D) Balance Sheet and Statement of Retained Earnings-Debit and Balance Sheet and Statement of
Retained Earnings-Credit.
E) Balance Sheet and Statement of Retained Earnings-Debit; and Income Statement-Credit.
264) Which of the following statements is incorrect?
A) Working papers are useful aids in the accounting process.
B) On the work sheet, the effects of the accounting adjustments are shown on the account
balances.
C) After the work sheet is completed, it can be used to help prepare the financial statements.
D) On the work sheet, the adjusted amounts are sorted into columns according to whether the
accounts are used in preparing the unadjusted trial balance or the adjusted trial balance.
E) A worksheet is not a substitute for financial statements.
265) A company shows a $600 balance in Prepaid Rent in the Unadjusted Trial Balance columns
of the work sheet. The Adjustments columns show expired rent of $200. This adjusting entry
results in:
A) $200 decrease in net income.
B) $200 increase in net income.
C) $200 difference between the debit and credit columns of the Unadjusted Trial Balance.
D) $200 of prepaid insurance.
E) An error in the financial statements.
266) Statements that show the financial statements as if proposed transactions had already
occurred are called:
A) Pro forma statements.
B) Professional statements.
C) Simplified statements.
D) Temporary statements.
E) Interim statements.
267) In preparing a work sheet an adjusted trial balance amount is mistakenly sorted to the
wrong work sheet column. The Balance Sheet columns will balance on completing the work
sheet but with the wrong net income, if the amount sorted in error is:
A) An expense amount placed in the Balance Sheet Credit column.
B) A revenue amount placed in the Balance Sheet Debit column.
C) A liability amount placed in the Income Statement Credit column.
D) An asset amount placed in the Balance Sheet Credit column.
E) A liability amount placed in the Balance Sheet Debit column.
268) If the Balance Sheet and Statement of Retained Earnings columns of a work sheet fail to
balance when the net income is added to the Balance Sheet and Statement of Retained Earnings
Credit column, the cause could be:
A) An expense entered in the Balance Sheet and Statement of Retained Earnings Debit column.
B) A revenue entered in the Balance Sheet and Statement of Retained Earnings Credit column.
C) An asset amount entered in the Income Statement and Statement of Retained Earnings Debit
column.
D) A liability amount entered in the Income Statement and Statement of Retained Earnings
Credit column.
E) An expense entered in the Balance Sheet and Statement of Retained Earnings Credit column.