Chapter 3: The Adjusting Process
62.
Adjusting entries are
a.
the same as correcting entries
b.
needed to bring accounts up to date and match revenue and expense
c.
optional under generally accepted accounting principles
d.
rarely needed in large companies
63.
Adjusting entries affect at least one
a.
income statement account and one balance sheet account
b.
revenue and the drawing account
c.
asset and one owner’s equity account
d.
revenue and one capital account
64.
The term used to describe an expense that has not been paid and has not yet been recognized in the accounts by a
routine entry is
a.
prepaid
b.
deferred
c.
accrued
d.
matched
Chapter 3: The Adjusting Process
65.
Which of the following is not a characteristic of accrual basis of accounting?
a.
Revenues and expenses are reported in the period in which cash is received or paid.
b.
Revenues are reported on the income statement in the period in which they are earned.
c.
Accrual basis of accounting supports the matching concept.
d.
Expenses are reported in the same period as the revenues to which they relate.
66.
Generally accepted accounting principles require that companies use the of accounting.
a.
cash basis
b.
deferral basis
c.
accrual basis
d.
account basis
67.
The cash basis of accounting records revenues and expenses when the cash is exchanged while the accrual basis
of accounting
a.
records revenues when they are earned and expenses when they are paid
b.
records revenues and expenses when they are incurred
c.
records revenues when cash is received and expenses when they are incurred
d.
records revenues and expenses when the company needs to apply for a loan
Chapter 3: The Adjusting Process
68.
By matching revenues and expenses in the same period in which they incur
a.
net income or loss will always be underestimated
b.
net income or loss will always be overestimated
c.
net income or loss will be properly reported on the income statement
d.
net income or loss will not be determined
69.
Adjusting entries always include
a.
only income statement accounts
b.
only balance sheet accounts
c.
the cash account
d.
at least one income statement account and one balance sheet account
70.
Prepaid expenses are eventually expected to
a.
become expenses when their future economic value expires
b.
become revenues when services are performed
c.
become expenses in the period when they are paid
d.
become revenues when the liability is no longer owed
Chapter 3: The Adjusting Process
71.
Which of the following is considered to be unearned revenue?
a.
theater tickets sold last month for yesterday’s performance
b.
theater tickets sold yesterday on credit for yesterday’s performance
c.
theater tickets that were not sold for the current performance
d.
theater tickets sold for next month’s performance
72.
Which of the following is an example of accrued revenue?
a.
snow removal services that have been paid for three months in advance
b.
snow removal services that have been provided but have not been billed or paid
c.
an agreement that has been signed for snow removal services for the next three months
d.
snow removal services that has been provided and paid on the same day
73.
Which of the following is considered to be an accrued expense?
a.
A computer technician has installed the latest software updates and was paid on the same day.
b.
A computer technician has been paid in advance to install software updates as they become available.
c.
A computer technician has just signed an agreement with you regarding pricing for future work.
d.
A computer technician has installed the latest software updates, but you have not received an invoice
or
made payment.
Chapter 3: The Adjusting Process
74.
Which account would normally not require an adjusting entry?
a.
Wages Expense
b.
Accounts Receivable
c.
Accumulated Depreciation
d.
Cash
75.
Which one of the accounts below would likely be included in an accrual adjusting entry?
a.
Insurance Expense
b.
Prepaid Rent
c.
Interest Expense
d.
Unearned Rent
76.
Which of the following accounts would likely be included in a deferral adjusting entry?
a.
Interest Revenue
b.
Unearned Revenue
c.
Salaries Payable
d.
Accounts Receivable
Chapter 3: The Adjusting Process
77.
The balance in the prepaid rent account before adjustment at the end of the year is $32,000, which represents
four
months’ rent paid on December 1. The adjusting entry required on December 31 is
a.
debit Rent Expense, $8,000; credit Prepaid Rent, $8,000
b.
debit Prepaid Rent, $24,000; credit Rent Expense, $8,000
c.
debit Rent Expense, $24,000; credit Prepaid Rent, $8,000
d.
debit Prepaid Rent, $8,000; credit Rent Expense, $8,000
78.
The balance in the office supplies account on January 1 was $7,000, supplies purchased during January were
$3,000, and the supplies on hand at January 30 were $2,000. The amount to be used for the appropriate
adjusting
entry is
a. $4,300
b. $12,000
c. $5,000
d. $8,000
79.
Which of the following is the proper adjusting entry, based on a prepaid insurance account balance
before
adjustment of $14,000 and unexpired insurance of $3,000, for the fiscal year ending on April 30?
a.
debit Insurance Expense, $3,000; credit Prepaid Insurance, $3,000
b.
debit Insurance Expense, $14,000; credit Prepaid Insurance, $14,000
c.
debit Prepaid Insurance, $11,000; credit Insurance Expense, $11,000
d.
debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000
Chapter 3: The Adjusting Process
80.
The entry to adjust for the cost of supplies used during the accounting period is
a.
debit Supplies Expense; credit Supplies
b.
debit Owner Capital; credit Supplies
c.
debit Accounts Payable; credit Supplies
d.
debit Supplies; credit Owner Capital
81.
Buster Industries pays weekly salaries of $30,000 on Friday for a five-day week ending on that day. The
adjusting
entry necessary at the end of the fiscal period ending on Tuesday is
a.
debit Salaries Payable, $12,000; credit Cash, $12,000
b.
debit Salary Expense, $12,000; credit Drawing, $12,000
c.
debit Salary Expense, $12,000; credit Salaries Payable, $12,000
d.
debit Drawing, $12,000; credit Cash, $12,000
82.
The difference between the balance of a fixed asset account and the related accumulated depreciation account
is
termed
a.
historical cost
b.
contra asset
c.
book value
d.
market value
Chapter 3: The Adjusting Process
83.
The adjusting entry to record the depreciation of a building for the fiscal period is
a.
debit Depreciation Expense; credit Building.
b.
debit Depreciation Expense; credit Accumulated Depreciation.
c.
debit Accumulated Depreciation; credit Depreciation Expense.
d.
debit Building; credit Depreciation Expense.
84.
As time passes, fixed assets other than land lose their capacity to provide useful services. To account for
this
decrease in usefulness, the cost of fixed assets is systematically allocated to expense through a process
called
a.
equipment allocation
b.
depreciation
c.
accumulation
d.
matching
85.
The entry to adjust the accounts for salaries accrued at the end of the accounting period is
a.
debit Salaries Payable; credit Salaries Income
b.
debit Salaries Income; credit Salaries Payable
c.
debit Salaries Payable; credit Salaries Expense
d.
debit Salaries Expense; credit Salaries Payable
Chapter 3: The Adjusting Process
86.
The supplies account has a balance of $4,400 at the beginning of the year and was debited during the year for
$2,400, representing the total of supplies purchased during the year. If $400 of supplies are on hand at the end
of
the year, the supplies expense to be reported on the income statement for the year is
a. $400
b. $2,000
c. $6,800
d. $6,400
87.
Smokey Company purchases a one-year insurance policy on July 1 for $3,600. The adjusting entry on
December
31 is
a.
debit Insurance Expense, $1,800; credit Prepaid Insurance, $1,800
b.
debit Insurance Expense, $1,500; credit Prepaid Insurance, $1,500
c.
debit Insurance Expense, $2,100; credit Prepaid Insurance, $2,100
d.
debit Prepaid Insurance, $1,800; credit Cash, $1,800
88.
Gracie, Inc. made a prepaid rent payment of $2,800 on January 1. The company’s monthly
rent is $700. The amount of prepaid rent that would appear on the January 31 balance sheet
after adjustment is
a. $2,100
b. $700
c. $2,800
d. $1,400
Chapter 3: The Adjusting Process
89.
Accumulated Depreciation and Depreciation Expense are classified, respectively, as
a.
expense, contra asset
b.
asset, contra liability
c.
revenue, asset
d.
contra asset, expense
90.
The type of account and normal balance of Prepaid Insurance is
a.
asset, credit
b.
asset, debit
c.
contra asset, credit
d.
contra asset, debit
91.
The type of account and normal balance of Unearned Consulting Fees is
a.
revenue, credit
b.
expense, debit
c.
liability, credit
d.
liability, debit
Chapter 3: The Adjusting Process
92.
Data for an adjusting entry described as “accrued wages, $2,020″ requires a
a.
debit to Wages Expense and a credit to Wages Payable
b.
debit to Wages Payable and a credit to Wages Expense
c.
debit to Accounts Receivable and a credit to Wages Expense
d.
debit to Drawing and a credit to Wages Payable
93.
Supplies are recorded as assets when purchased. Therefore, the credit to Supplies in the adjusting entry is for
the
amount of supplies
a.
still on hand
b.
purchased
c.
used
d.
required for the next accounting period
94.
If there is a balance in the prepaid rent account after adjusting entries are made, it represents a(n)
a.
deferral
b.
accrual
c.
revenue
d.
liability
Chapter 3: The Adjusting Process
95.
If there is a balance in the unearned subscriptions account after adjusting entries are made, it represents a(n)
a.
deferral
b.
accrual
c.
drawing
d.
revenue
96.
The cost of office supplies to be used in future periods is ordinarily shown on the balance sheet as a(n)
a.
capital
b.
asset
c.
contra asset
d.
liability
97.
Which of the following is an example of a prepaid expense?
a.
Supplies
b.
Accounts Receivable
c.
Unearned Subscriptions
d.
Unearned Fees
Chapter 3: The Adjusting Process
98.
The unexpired insurance at the end of the fiscal period represents
a.
an accrued asset
b.
an accrued liability
c.
an accrued expense
d.
a deferred expense
99.
Accrued revenues would appear on the balance sheet as
a.
assets
b.
liabilities
c.
capital
d.
prepaid expenses
100.
Prepaid advertising, representing payment for the next quarter, would be reported on the balance sheet as a(n)
a.
asset
b.
liability
c.
contra asset
d.
capital
Chapter 3: The Adjusting Process
101.
Prepaid rent, representing rent for the next six months’ occupancy, would be reported on the tenant’s balance
sheet
as a(n)
a.
asset
b.
liability
c.
capital account
d.
contra liability
102.
Accrued expenses are ordinarily reported on the balance sheet as
a.
assets
b.
liabilities
c.
fixed assets
d.
prepaid expenses
103.
Fees payable would appear on the balance sheet as a(n)
a.
asset
b.
liability
c.
fixed asset
d.
unearned revenue
Chapter 3: The Adjusting Process
104.
The general term used to indicate delaying the recognition of an expense already paid or of a revenue
already
received is
a.
depreciation
b.
deferral
c.
accrual
d.
inventory
105.
The adjusting entry for gym memberships earned that was previously recorded in the unearned gym
memberships
account is
a.
debit Unearned Gym Memberships; credit Gym Memberships Revenue
b.
debit Gym Memberships Revenue; credit Unearned Gym Memberships
c.
debit Unearned Gym Memberships; credit Prepaid Gym Memberships
d.
debit Gym Memberships Expense; credit Unearned Gym Memberships
106.
Which of the following pairs of accounts could not appear in the same adjusting entry?
a.
Service Revenue and Unearned Revenue
b.
Interest Income and Interest Expense
c.
Rent Expense and Prepaid Rent
d.
Salaries Payable and Salaries Expense
Chapter 3: The Adjusting Process
107.
The unearned rent account has a balance of $72,000. If $18,000 of the $72,000 is unearned at the end of
the
accounting period, the amount of the adjusting entry is
a. $18,000
b. $90,000
c. $54,000
d. $36,000
108.
The following adjusting journal entry does not include an explanation. Select the best explanation for the entry.
Unearned Revenue
7,500
Fees Earned
7,500
????????????????
a.
Record payment of fees earned.
b.
Record fees earned at the end of the month.
c.
Record fees that have not been earned at the end of the month.
d.
Record payment of fees to be earned.
Chapter 3: The Adjusting Process
109.
The following adjusting journal entry does not include an explanation. Select the best explanation for the entry.
Supplies Expense
730
Supplies
730
????????????????
a.
Adjust supplies inventory to actual.
b.
Record purchase of supplies.
c.
Reduce supplies expense.
d.
Record sale of supplies.
110.
The following adjusting journal entry found in the journal is missing an explanation. Select the best explanation
for
the entry.
Wages Expense
4,500
Wages Payable
4,500
????????????????
a.
Record payment of wages.
b.
Record wages paid last month.
c.
Record wages paid in advance.
d.
Record wages expense incurred and to be paid next month.
Chapter 3: The Adjusting Process
111.
What effect will this adjustment have on the accounting records?
Unearned Revenue
6,375
Fees Earned
6,375
a.
Increase net income
b.
Increase revenues reported for the period
c.
Decrease liabilities
d.
All of these are true.
112.
What effect will this adjusting journal entry have on the accounting records?
Supplies Expense
760
Supplies
760
a.
Increase income
b.
Decrease net income
c.
Decrease expenses
d.
Increase assets
Chapter 3: The Adjusting Process
113.
What effect will the following adjusting journal entry have on the accounting records?
Depreciation Expense
2,150
Accumulated Depreciation
2,150
a.
Increase net income
b.
Increase revenues
c.
Decrease expenses
d.
Decrease net book value
114.
How will the following adjusting journal entry affect the accounting equation?
Unearned Subscriptions
11,500
Subscriptions Earned
11,500
a.
Increase assets, increase revenues
b.
Increase liabilities, increase revenues
c.
Decrease liabilities, increase revenues
d.
Decrease liabilities, decrease revenues
Chapter 3: The Adjusting Process
115.
Which of the following is not true regarding depreciation?
a.
Depreciation allocates the cost of a fixed asset over its estimated life.
b.
Depreciation expense reflects the decrease in market value each year.
c.
Depreciation is an allocation not a valuation method.
d.
Depreciation expense does not measure changes in market value.
116.
The account type and normal balance of Prepaid Expense is
a.
revenue, credit
b.
expense, debit
c.
liability, credit
d.
asset, debit
117.
The account type and normal balance of Unearned Revenue is
a.
revenue, credit
b.
expense, debit
c.
liability, credit
d.
asset, debit