Financial Accounting, 3e (Kemp/Waybright)
Chapter 3 Adjusting and Closing Entries
3.1 Questions
1) Under accrual accounting, the most important GAAP concepts to remember are the
recognition principle for expenses and the matching principle for revenues.
2) Accounts Receivable and Accounts Payable are examples of accruals.
3) Recording office supplies as an asset after paying for them would be considered a deferral.
4) Because inventories are high, Wal-Mart should end its fiscal year in either November or
December.
5) It does not matter when a fiscal year starts as long as it is twelve consecutive months long.
6) Accounting for revenue on an accrual basis means that no entry of revenue is made until the
cash is actually received.
7) GAAP requires the use of accrual accounting.
8) If revenues are recognized and recorded when earned, the company is using the:
A) cash basis of accounting.
B) accrual basis of accounting.
C) adjustment basis of accounting.
D) the expense basis of accounting.
9) If Bloom company records revenue when cash is received, they are using the:
A) cash basis of accounting.
B) accrual basis of accounting.
C) adjustment basis of accounting.
D) expense basis of accounting.
10) If Blue company records expenses in the time period when incurred, they are using the:
A) cash basis of accounting.
B) accrual basis of accounting.
C) adjustment basis of accounting.
D) expense basis of accounting.
11) If a business records expenses when paid, the company is using the:
A) cash basis of accounting.
B) accrual basis of accounting.
C) adjustment basis of accounting.
D) the expense basis of accounting.
12) The matching principle in accounting requires the matching of:
A) revenue earned with the assets used to produce the revenue.
B) revenue earned with the assets used less the liabilities incurred.
C) revenue earned with the liabilities used to produce the revenue.
D) revenue earned with the expenses incurred to produce the revenue.
13) Part of accrual accounting depends upon recording ________ entries at the end of the fiscal
year.
A) expense
B) revenue
C) adjusting
D) debit
14) At the end of the period, which is prepared first?
A) Income Statement
B) Balance sheet
C) Adjusting entries
D) Unadjusted trial balance
15) Item costs that have been incurred, but not yet paid, are called:
A) referrals.
B) deferrals.
C) accruals.
D) non-cash items.
16) Items for which we have received payment, but have not yet delivered the service, are called:
A) referrals.
B) deferrals.
C) accruals.
D) non-cash items.
17) The type of accounting required by GAAP is:
A) modified cash.
B) hybrid cash.
C) cash.
D) accrual.
18) The majority of businesses normally end their fiscal year on:
A) June 30.
B) September 30.
C) December 31.
D) some other date.
19) It is necessary to post:
A) asset and liability entries.
B) revenue and expense entries.
C) adjusting entries.
D) all journal entries.
20) A period of time, such as a month or quarter, could be considered a(n):
A) fiscal year.
B) accounting period.
C) revenue period.
D) income period.
3.2 Questions
1) Adjusting entries are used to update accounts at the end of an accounting period.
2) An example of a contra-account would be Accumulated Depreciation.
3) Adjusting entries are made only for accrued revenues and accrued expenses.
4) Unearned Ticket Revenue must be adjusted to show how much of the deferred revenue has
been earned during the period.
5) The Supplies account must be adjusted to reflect the supplies that were used during the period.
6) Land must be adjusted for depreciation at the end of the period.
7) Wages that have been accrued need to be recorded so that the matching principle is reflected
in Wages Expense.
8) Adjusting entries are completed before the unadjusted trial balance is prepared.
9) Accumulated Depreciation is recorded in the Liabilities section of the Balance Sheet.
10) Adjusting entries always include a debit or credit to Cash.
11) Recording Interest Receivable would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
12) Recording Income Taxes Payable would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
13) Recording Prepaid Rent would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
14) Recording Unearned Subscriptions Revenue would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
15) Recording Accounts Receivable would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
16) Recording Wages Payable would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
17) Recording Social Security Taxes Payable would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
18) Recording the collection of three months of advance rent from a client in an unearned
account would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
19) Recording the purchase of supplies in a prepaid account would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
20) The recording of depreciation is related to a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
21) Recording season ticket monies received in advance as unearned revenue would be an
example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
22) The value of an asset after all allowable depreciation has been taken is called:
A) depreciable value.
B) market value.
C) salvage value.
D) trade-in value.
23) At the beginning of the period, the Supplies account has a balance of $500. At the end of the
period, the balance in the account was $275. The adjusting entry would be:
A) debit Supplies Expense, $275; credit Supplies, $275.
B) debit Supplies, $275; credit Supplies Expense, $275.
C) debit Supplies Expense, $225; credit Supplies, $225.
D) debit Supplies, $225; credit Supplies Expense, $225.
24) A piece of equipment cost $1,000 and has a salvage value of $200. If it has an 8-year life, the
annual depreciation expense under straight-line depreciation would be:
A) $125.
B) $100.
C) $200.
D) $800.
25) Adjusting entries for Supplies and Prepaid Rent would be adjustments for:
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
26) During a recent week, incurred wages were $700. However, $280 of the wages had not been
paid. The adjusting entry for wages would be:
A) debit Wages Payable, $280; credit Wages Expense, $280.
B) debit Wages Expense, $280; credit Wages Payable, $280.
C) debit Wages Payable, 420; credit Wages Expense, $420.
D) debit Wages Expense, $420; credit Wages Payable, $420.
27) Allied, Inc. bought a 2-year insurance policy on August 1 for $3,600. The adjusting entry on
December 31 would be:
A) debit Insurance Expense, $150; credit Prepaid Insurance, $150.
B) debit Prepaid Insurance, $150; credit Insurance Expense, $150.
C) debit Insurance Expense, $750; credit Prepaid Insurance, $750.
D) debit Prepaid Insurance, $750; credit Insurance Expense, $750.
28) A machine with a salvage value of $4,000 and a cost of $36,000 was purchased on January 1,
2012. What is the depreciation expense for 2012 if the company uses straight-line depreciation
for 10 years?
A) $36,000
B) $32,000
C) $3,600
D) $3,200
29) Supplies on hand were $900 at the start of the year. At the end of the year, it was determined
that $350 of supplies had been used. What is the adjusting entry for supplies?
A) debit Supplies, $350; credit Supplies Expense, $350
B) debit Supplies, $550; credit Supplies Expense, $550
C) debit Supplies Expense, $350; credit Supplies, $350
D) debit Supplies Expense, $550; credit Supplies, $550
30) Which of the following accounts would NOT be debited or credited in an adjusting entry?
A) Supplies Expense
B) Office Equipment
C) Wages Expense
D) Wages Payable
31) Which of the following accounts would NOT be adjusted?
A) Accumulated Depreciation
B) Cash
C) Depreciation Expense
D) Wages
32) Fixed assets that are depreciated are sometimes called:
A) Accounts Payable.
B) current assets.
C) long-term assets.
D) long-term liabilities.
33) Which of the following accounts is NOT affected by an accrued expense?
A) Sales Tax Payable
B) Supplies
C) Interest Expense
D) Wages Payable
34) Which of the following accounts would never be adjusted in a journal entry?
A) Prepaid Rent
B) Supplies
C) Inventory
D) Cash
35) The difference between the cost of office equipment and accumulated depreciation–office
equipment is called:
A) market value.
B) salvage value.
C) book value.
D) original value.
36) The total dollars in an Accumulated Depreciation account are:
A) added to the corresponding asset account.
B) divided into the corresponding asset account.
C) subtracted from the corresponding asset account.
D) subtracted from the corresponding liability account.
37) If a piece of equipment was purchased on September 1, it would have ________ months
depreciation included in the adjusting entry for the calendar year.
A) 12
B) 8
C) 4
D) 6
38) A 20-month insurance policy was purchased for $1,500 on May 1. How much insurance will
be expensed on December 31?
A) $1,500
B) $75
C) $300
D) $600
39) A machine with a cost of $15,000, a salvage value of $3,000 and expected life of 20 years
was purchased on September 1. For a calendar year company, the journal entry to record
depreciation expense for the first year would be to:
A) debit Depreciation Expense, $50; credit Accumulated Depreciation, $50.
B) debit Depreciation Expense, $250; credit Accumulated Depreciation, $250.
C) debit Depreciation Expense, $200; credit Accumulated Depreciation, $200.
D) debit Depreciation Expense, $150; credit Accumulated Depreciation, $150.
40) Supplies on hand were $777 of the original $1,034. The adjusting amount for supplies for the
year would be:
A) $1,034.
B) $777.
C) $257.
D) some other number.
41) Another name for “book value” is:
A) Accumulated Depreciation.
B) carrying value.
C) market value.
D) Depreciation Expense.
42) A machine costing $45,000 has a life of 12 years. The salvage value is $10,000. It was
purchased on February 1. The depreciation expense for the calendar year is:
A) $312.50.
B) $3,437.50.
C) $243.06.
D) $2,673.61.
43) The adjusting entry to record $785 of revenues that have been earned but not yet recorded
would be to:
A) debit Cash, $785; credit Service Revenue, $785.
B) debit Unearned Revenue, $785; credit Service Revenue, $785.
C) debit Service Revenue, $785; credit Accounts Receivable, $785.
D) debit Accounts Receivable, $785; credit Service Revenue, $785.
44) Salary expense is $975 per day, Monday through Friday, and the business pays employees
each Friday. If December 31 falls on a Wednesday, the amount of the adjusting entry to record
accrued salaries would be:
A) $2,925.
B) $975.
C) $1,950.
D) $4,875.
45) The journal entry to record $2,750 of depreciation expense for the year would be to:
A) debit Depreciation Expense, $2,750; credit Equipment, $2,750.
B) debit Accumulated Depreciation, $2,750; credit Depreciation Expense, $2,750.
C) debit Accumulated Depreciation, $2,750; credit Equipment, $2,750.
D) debit Depreciation Expense, $2,750; credit Accumulated Depreciation, $2,750.
46) Salary expense is $2,200 per day, Monday through Friday, and the business pays employees
each Friday. If December 31 falls on a Tuesday, the adjusting entry to record accrued salaries
would be to:
A) debit Salaries Payable, $2,200; credit Salaries Expense, $2,200.
B) debit Salaries Expense, $4,400; credit Salaries Payable, $4,400.
C) debit Salaries Expense, $2,200; credit Salaries Payable, $2,200.
D) debit Salaries Payable, $4,400; credit Salaries Expense, $4,400.
47) The balance in Unearned Revenues prior to adjustment was $2,750. If the amount still
unearned as of the end of the period is $1,100, the adjusting entry needed would be to:
A) debit Cash, $2,750; credit Unearned Service Revenue, $785.
B) debit Unearned Service Revenue, $1,100; credit Service Revenue, $1,100.
C) debit Unearned Service Revenue, $1,650; credit Service Revenue, $1,650.
D) debit Service Revenue, $1,650; credit Unearned Service Revenue, $1,650.