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Chapter 3
d.
decrease unearned revenue and increase revenue.
43. Perill Co. has a five-day workweek (Monday through Friday). Employees earn $650 per day. How much cash will be
paid on Friday?
a.
$650
b.
$1,950
c.
$1,300
d.
$3,250
44. On June 1, Unidevo, Inc. purchased $1,700 worth of supplies on account. Prior to the purchase, the balance in the
supplies account was $0. On December 31, the fiscal year-end for Unidevo, it is determined that $800 of supplies still
remain. What is the balance in the supplies account after adjustment?
Chapter 3
a.
$800
b.
$900
c.
$0
d.
$1,700
45. Speedy Company's weekly payroll of $250 is paid on Fridays (five-day work week). Assume that the last day of the
month falls on Thursday. Which of the following is the required month-end adjusting entry?
a.
Increase Salaries Expense $200 and increase Salaries Payable $200
b.
Increase Salaries Expense $50 and increase Salaries Payable $50
c.
Increase Salaries Payable $200 and increase Cash $200
d.
Increase Salaries Expense $250 and increase Cash $250
Chapter 3
46. Perill Co. has a five-day workweek (Monday through Friday). Employees earn $650 per day. If the month ends on
Wednesday, and wages will not be paid until Friday, how much wage expense should be accrued on Wednesday?
a.
$650
b.
$1,950
c.
$3,250
d.
$1,300
47. When an entry is made to adjust the supplies account and recognize supplies expense for the period, which section of
the statement of cash flows is affected?
a.
Cash Flow from Operating Activities
b.
Cash Flow from Investing Activities
c.
Cash Flow from Financing Activities
d.
There is no effect on the statement of cash flows.
Chapter 3
48. St. Nick Corporation's Toy-Making Supplies account showed a beginning balance of $200 and supplies purchased of
$800. There were $400 of supplies on hand at year-end. The year-end adjustment would include an increase in Toy-
Making Supplies Expense for
a.
$1,000.
b.
$800.
c.
$600.
d.
$400.
49. Which of the following is normally the result of cash being received or paid before the revenue is earned or the
expense is incurred?
a.
A deferred expense
b.
An accrued expense
c.
A contra asset
d.
An intangible asset
Chapter 3
50. Which of the following assets never loses its ability to provide service and, as a result, does not need to be
depreciated?
a.
A copyright
b.
Office equipment
c.
A patent
d.
Land
51. When an adjusting entry is made to record insurance expense and reduce the prepaid insurance account, which section
of the statement of cash flows is affected?
a.
Cash Flow from Operating Activities
b.
Cash Flow from Investing Activities
c.
Cash Flow from Financing Activities
d.
There is no effect on the statement of cash flows.
Chapter 3
52. Deferred revenue is initially recorded as:
a.
revenue but becomes a liability over time.
b.
an asset but becomes revenue over time.
c.
a liability but becomes revenue over time.
d.
revenue but becomes an asset over time.
53. Identify the item that should be treated as a deferred expense by a company.
a.
Prepaid advertising
b.
Unpaid wages
c.
Unearned rent
d.
Notes receivable
Chapter 3
54. A deferred expense is initially recorded as:
a.
an asset but becomes an expense over time.
b.
an expense but becomes an asset over time.
c.
a liability but becomes an expense over time.
d.
an expense but becomes a liability over time.
55. Which of the following accounts would require an adjustment when making an adjusting entry for a deferral?
a.
Accrued interest
b.
Unearned rent
c.
Salary expense
d.
Notes receivable
Chapter 3
56. On June 1, Unidevo, Inc. purchased $2,300 worth of supplies on account. Prior to the purchase, the balance in the
supplies account was $350. On December 31, the fiscal year-end for Unidevo, it is determined that $500 of supplies still
remain. What is the balance in the supplies account after adjustment?
a.
$0
b.
$1,800
c.
$500
d.
$2,300
57. The updating of accrual accounting records before preparing financial statements is referred to as the:
a.
consolidation process.
b.
full disclosure process.
c.
adjustment process.
d.
money measurement process.
Chapter 3
58. Unearned interest is categorized as:
a.
a fixed asset.
b.
stockholders' equity.
c.
an intangible asset.
d.
a liability.
59. On April 1, Tenity, Inc. paid $3,300 for an insurance premium on a three-year insurance policy. At the end of
December, Tenity's fiscal year-end, what should be the balance in the prepaid insurance account?
a.
$1,100
b.
$2,475
c.
$3,300
Chapter 3
d.
$2,200
60. On April 1, Smart, Inc. paid $7,200 for an insurance premium on a three-year insurance policy. How does this
transaction affect Smart's accounts?
a.
Increase insurance expense and decrease cash by $7,200 each
b.
Increase prepaid insurance and decrease cash by $7,200 each
c.
Increase unearned insurance and decrease cash by $7,200 each
d.
Increase prepaid insurance and decrease retained earnings by $7,200 each
61. While calculating the carrying value of a building, its accumulated depreciation is:
a.
not taken into consideration.
Chapter 3
b.
subtracted from the building's cost.
c.
added to the building's cost.
d.
subtracted from the fair market value of the building.
62. The reduction in the ability of a fixed asset to provide service over time is called:
a.
deferral recognition.
b.
depreciation.
c.
consolidation.
d.
accumulation.
Chapter 3
63. The balance in the office supplies account on May 1 was $6,380, supplies purchased during June were $4,740, and the
supplies on hand at May 31 were $2,360. The amount to be used for the appropriate adjusting entry is:
a.
$8,740.
b.
$4,740.
c.
$8,760.
d.
$13,480.
64. Accrued expenses are ordinarily reported on the balance sheet as:
a.
assets.
b.
liabilities.
c.
fixed assets.
d.
prepaid expenses.
Chapter 3
65. Accumulated depreciation is a(n):
a.
contra asset.
b.
contingent asset.
c.
revenue expenditure.
d.
accrued expense.
66. Accrued revenue is shown on a balance sheet as:
a.
an asset.
b.
common stock.
c.
a liability.
d.
retained earnings.
Chapter 3
67. Interest receivable is an example of:
a.
accrued revenue.
b.
retained earnings.
c.
deferred revenue.
d.
a prepaid expense.
68. Eagle Eye, Inc., a corporation, received an additional investment of $6,000 cash in exchange for shares of common
stock. How does this transaction affect Eagle Eye's accounts?
a.
Increase in stock expense and decrease cash by $6,000 each
b.
Increase common stock and increase cash by $6,000 each
c.
Increase common stock and increase revenue by $6,000 each
d.
Increase common stock and decrease retained earnings by $6,000 each
69. QRT Co. received $1,560 advance from Zync Inc. as rent for the use of a building owned by QRT Co. How does this
transaction affect QRT's accounts if QRT recognizes a liability on receipt of the rent?
a.
Cash is increased, and sales revenue is increased.
b.
Cash is increased, and rent income is decreased.
c.
Cash is increased, and unearned rent is increased.
d.
Cash is increased, and prepaid rent is increased.
70. A&M Co. provided services of $1,000,000 to clients on account. How does this transaction affect A&M's accounts?
a.
Increase accounts receivable and cash by $1,000,000 each
b.
Increase accounts receivable and revenues by $1,000,000 each
c.
Increase accounts receivable and unearned revenues by $1,000,000 each
d.
Increase cash and decrease accounts receivable by $1,000,000 each
Chapter 3
71. Electrodo Co. purchased land for $55,000 with $20,000 paid in cash and $35,000 in notes payable. What effect does
this transaction have on the accounts under the accrual basis of accounting?
a.
Net increase in assets and liabilities of $55,000
b.
Net increase in assets of $35,000 and a net increase in liabilities of $35,000
c.
Net increase in assets of $55,000 and a net decrease in liabilities of $35,000
d.
Net increase in assets of $75,000 and a net decrease in liabilities of $30,000
72. The unearned rent account has a balance of $60,000. If $4,000 of the $60,000 is unearned at the end of the accounting
period, the amount of the adjusting entry is:
a.
$64,000.
b.
$56,000.
c.
$60,000.
d.
$4,000.
Chapter 3
73. X&Y Co. received $4,000 in payments from clients for services billed in a previous month. What effect does this
transaction have on the accounts under the accrual basis of accounting?
a.
Total assets increase by $4,000.
b.
Assets will increase by $4,000 and revenues will increase $4,000.
c.
Total assets will be decrease by $4,000.
d.
The net effect on assets is zero.
74. XYZ Co. received $3,000 in payments from clients for services billed in a previous month. Which accounts will be
affected and by what amounts under the accrual basis of accounting?
a.
Cash will increase by $3,000 and accounts receivable decrease by $3,000.
b.
Cash will increase by $3,000 and revenues will increase $3,000.
c.
Accounts receivable will increase by $3,000 and revenue will increase by $3,000.
d.
Accounts receivable will increase by $3,000 and cash will increase by $3,000.
Chapter 3
75. Unearned rent, representing rent for the next six months' occupancy, would be reported on the landlord's balance sheet
as a(n):
a.
asset.
b.
liability.
c.
common stock.
d.
revenue.
76. XYZ Co. paid $1,000 in dividends to stockholders. How does this transaction affect the accounts of XYZ?
a.
Cash will decrease by $1,000 and retained earnings will decrease by $1,000.
b.
Cash will decrease by $1,000 and expenses will increase $1,000.
c.
Cash will decrease by $1,000 and revenues will decrease $1,000.
d.
Net income will decrease by $1,000.
Chapter 3
77. When cash is received in payment of an account receivable, which section of the Statement of Cash Flows is affected?
a.
Cash Flow from Operating Activities
b.
Cash Flow from Investing Activities
c.
Cash Flow from Financing Activities
d.
There is no effect on the Statement of Cash Flows.
78. When cash is paid to suppliers on account, which section of the Statement of Cash Flows is affected?
a.
Cash Flow from Operating Activities.
b.
Cash Flow from Investing Activities.
c.
Cash Flow from Financing Activities
d.
There is no effect on the Statement of Cash Flows.
Chapter 3
79. Which of the following statements is prepared with various sections, subsections, and captions?
a.
A statement of current assets
b.
A statement of stockholders' equity
c.
A pro forma contra asset statement
d.
A classified balance sheet
80. Which of the following is an example of an intangible asset?
a.
Goodwill
b.
Patents
c.
Copyrights
