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Chapter 04 The Accounting Cycle: Accruals and Deferrals Answer
Key
True / False Questions
1.
Adjusting entries are needed whenever transactions affect the revenue or expenses of
more than one accounting period.
2.
Adjusting entries are usually made on a daily basis.
3.
Adjusting entries are only required when errors are made.
4.
The Cash account is usually affected by adjusting entries.
5.
Every adjusting entry involves the recognition of either revenue or an expense.
6.
Depreciation expense on equipment is considered a cash expense since the company
must pay cash for the equipment.
7.
The failure to record an adjusting entry for depreciation would cause assets to be
overstated and net income to be understated.
8.
If a depreciable asset's market value
increases
during the year, no depreciation expense
should be recorded.
9.
The period of time over which the cost of an asset is allocated to depreciation expense is
called its useful life.
10.
Avalon Company paid $4,400 cash for an insurance policy providing three years protection
against fire loss. This transaction could properly be recorded by a $4,400 debit to
Unexpired Insurance and a $4,400 credit to Cash.
11.
Prepaid expenses are assets that should appear on the balance sheet.
12.
One of the purposes of adjusting entries is to convert assets to expenses.
13.
Since the Accumulated Depreciation account has a credit balance, it is reported on the
liability side of the balance sheet along with other accounts that have a credit balance.
14.
Recording depreciation expense is an example of an adjusting entry to accrue unpaid
expenses resulting from expenses being incurred before cash is paid.
15.
When a company receives cash in advance and is obligated to provide a service or a
product in the future, the entry would be a debit to a revenue account and a credit to a
liability account.
16.
Unearned revenue is a liability and should be reported on the income statement.
17.
The adjusting entry to record estimated income taxes in a profitable period consists of a
debit to Income Tax Payable and a credit to Income Tax Expense.
18.
Unpaid expenses may be included as an expense on the income statement.
19.
Omission of the adjusting entry needed to accrue an expense at the end of the period
would cause liabilities to be understated.
20.
Wages are an expense to the employer when earned, rather than when paid.
21.
An expenditure that benefits year one but is paid for in year two should not be recorded
until year two.
22.
An adjusting entry to recognize revenue that has been earned but not yet billed or
collected will cause an increase in total liabilities.
23.
The realization principle underlies the accounting practices of depreciating plant assets
and amortizing the cost of unexpired insurance policies.
24.
Immaterial items may be accounted for in the most convenient manner, without regard to
other theoretical concepts.
25.
Materiality is determined by the Financial Accounting Standards Board.
26.
The adjusted trial balance may be used in place of the income statement.
27.
The balance in the Retained Earnings account that appears on the adjusted trial balance
is the same as the balance of the Retained Earnings account that is reported on the
balance sheet.
Multiple Choice Questions
28.
Adjusting entries are prepared:
29.
Adjusting entries
30.
We can compare income of the current period with income of a previous period to
determine whether the operating results are improving or declining:
31.
The purpose of adjusting entries is to:
32.
Which of the following is
not
a purpose of adjusting entries?
33.
Which of the following situations does not require Empire Company to record an adjusting
entry at the end of January?
34.
Which of the following is
not
considered a basic type of adjusting entry?
35.
Adjusting entries are needed:
36.
No adjusting entry should consist of:
37.
Which of the following is
not
an example of an adjusting entry?
38.
Which of the following is considered an adjusting entry?
39.
The normal balance of the Accumulated Depreciation account is:
40.
If Hot Bagel Co. estimates depreciation on an automobile to be $578 for the year, the
company should make the following adjusting entry:
41.
Accumulated Depreciation is:
42.
Which of the following statements regarding depreciation is correct?
43.
The entry to record depreciation is an example of an adjusting entry:
44.
Prepaid expenses are:
4-20
45.
Colonial Systems prepares monthly financial statements. Colonial would record a prepaid
expense in each of the following situations except:
46.
Which of the following statements is
not
true regarding prepaid expenses?
