Chapter 3: Review of a Company’s Accounting System
55. On June 1, 2015, Little Corporation received $5,320 in advance for a two-year rental of some land and properly
credited Unearned Rent. In the adjusting entry at December 31, 2015, there would be a
a.
debit to Unearned Rent for $1,108
b.
credit to Rent Revenue for $1,552
c.
credit to Unearned Rent for $1,552
d.
debit to Unearned Rent for $5,320
b
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56. On February 1, 2015, Apollo Company received $24,000 in advance for a three-year rental of land, and credited Rent
Revenue for the entire amount. The correct December 31, 2015 adjusting entry would be
a.
Unearned Rent 16,667
Rent Revenue 16,667
b.
Rent Revenue 16,667
Unearned Rent 16,667
c.
Unearned Rent 7,333
Rent Revenue 7,333
d.
Rent Revenue 7,333
Unearned Rent 7,333
b
1
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Chapter 3: Review of a Company’s Accounting System
57. On May 1, 2015, Alang Corporation borrowed $3,600 on a two-year, 6% note payable. Interest is due and payable at
the end of each six months. Alang makes all interest payments on schedule. The correct December 31, 2016, adjusting
entry would be
a.
Interest Expense 36
Interest Payable 36
b.
Interest Payable 144
Cash 144
c.
Interest Expense 108
Cash 108
d.
Interest Expense 144
Interest Payable 144
a
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58. Which of the following is an accrued expense?
a.
depreciation
b.
employees’ salaries
c.
interest revenue
d.
rental expense paid three months in advance
b
1
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Chapter 3: Review of a Company’s Accounting System
59. An accrued expense is an expense
a.
incurred but neither paid nor recorded.
b.
incurred, paid, and recorded.
c.
paid and recorded but not incurred.
d.
whose amount is subject to estimation.
a
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60. When cash is debited for rents that are collected but are not yet earned, the amount credited should be
a.
recognized as revenue when collected.
b.
presented as a liability until earned.
c.
recorded as an asset until earned.
d.
presented as a separate item in shareholders’ equity.
b
1
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Chapter 3: Review of a Company’s Accounting System
61. The balances in deferred (unearned) revenue accounts represent amounts that are
Earned
Collected
I.
Yes
No
II.
Yes
Yes
III.
No
No
IV.
No
Yes
a.
I
b.
II
c.
III
d.
IV
d
1
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62. Rental receipts for the period July 1, 2015, through June 30, 2016, were collected on June 30, 2015. The effects of
these economic events on the 2015 financial statements for unearned revenue and rent revenue are
Unearned Revenue
Rent Revenue
I.
Increase
Increase
II.
Increase
Decrease
III.
Decrease
No effect
IV.
Decrease
Increase
a.
I
b.
II
c.
III
d.
IV
a
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Chapter 3: Review of a Company’s Accounting System
63. An adjusting entry always affects
a.
balance sheet accounts only.
b.
income statement accounts only.
c.
an income statement account and a balance sheet account.
d.
either a balance sheet account or an income statement account but not both.
c
1
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64. The Samuel Company uses the straight-line method to depreciate its equipment. On May 1, 2015, the company
purchased some equipment for $224,000. The equipment is estimated to have a useful life of ten years and a salvage
value of $20,000. On December 31, 2015, how much depreciation expense should Samuel record for the equipment in
the adjusting entry?
a.
$20,400
b.
$18,500
c.
$13,600
d.
$8,500
c
1
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Chapter 3: Review of a Company’s Accounting System
65. On November 1, 2015, the Morrison Company purchased a two-year umbrella insurance policy for $3,600 and
recorded the transaction by debiting Prepaid Insurance and crediting Cash. Which of the following adjusting entries
would be used by Morrison to properly account for prepaid insurance on December 31, 2015?
a.
Insurance Expense 300
Prepaid Insurance 300
b.
Prepaid Insurance 3,600
Insurance Expense 3,600
c.
Insurance Expense 300
Accumulated Amortization
-Insurance 300
d.
Prepaid Insurance 1,800
Cash 1,800
a
1
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66. Accrued revenues
a.
have been earned and collected, but not yet recorded.
b.
have been collected, but not yet earned or recorded.
c.
have been collected and recorded.
d.
have been earned, but not yet collected or recorded.
d
1
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Chapter 3: Review of a Company’s Accounting System
67. The Nathan’s Company rents numerous properties throughout the year. Nathan’s pays rents in advance in some cases,
and in other cases rents are paid after the rental period expires. The following data are included in Nathan’s December
31 balance sheets:
2015
2016
Prepaid Rents
$70,000
$30,000
Rent Payable
$50,000
$35,000
During 2016, Nathan paid $200,000 in rentals. In its accrual basis income statement for the year ended December 31,
2016, Nathan should report rent expense of:
a.
$145,000
b.
$175,000
c.
$200,000
d.
$225,000
d
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68. The accountant failed to make the adjusting entry to record the depreciation for the year. This error would cause
a.
an overstatement of assets.
b.
an overstatement of expenses.
c.
an understatement of liabilities.
d.
an understatement of shareholders’ equity.
a
1
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69. Which of the following is not a type of adjusting entry?
a.
depreciation of long-term physical assets
b.
allocation of unearned revenue
c.
correction of an error in the general journal
d.
recording of accrued revenue
c
1
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70. The accountant failed to make the adjusting entry to record the amount of interest owed on a note to the bank at the
end of the year. This error would cause an overstatement of
a.
assets.
b.
expenses.
c.
liabilities.
d.
shareholders’ equity.
d
1
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71. Prior to preparing the organization’s financial statements, the accountant prepares
a.
a balance sheet.
b.
a post-closing trial balance.
c.
an adjusted trial balance.
d.
a closed trial balance.
c
1
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Chapter 3: Review of a Company’s Accounting System
72. The financial statements are the responsibility of the
a.
auditors.
b.
management.
c.
independent certified accountants.
d.
Public Accounting Oversight Board.
b
1
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73. The accountant failed to make the adjusting entry to record the unpaid wages of its employees as of December 31.
This error will cause
a.
an overstatement of assets, liabilities, and shareholders’ equity.
b.
an understatement of expenses, liabilities, and shareholders’ equity.
c.
an understatement of liabilities and an overstatement of shareholders’ equity.
d.
an understatement of assets and liabilities.
c
1
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74. Operating expenses would not include
a.
cost of goods sold.
b.
salaries expenses.
c.
insurance expenses.
d.
a
1
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depreciation expenses.
Chapter 3: Review of a Company’s Accounting System
75. The purpose of closing entries is to
a.
update a periodic inventory account for credit sales.
b.
update the retained earnings account on a daily basis.
c.
apportion prepaid expenses and unearned revenues to bring the accounts up to date.
d.
reduce all temporary accounts to zero.
d
1
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76. Which of the following accounts would not be closed to Income Summary during the year-end closing process?
a.
Loss on Sale of Land
b.
Prepaid Rent
c.
Freight-In
d.
Sales Discounts
b
1
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77. With closing entries, you would expect to find all of the following except
a.
debit Unearned Rent; credit Income Summary.
b.
debit Sales Revenue; credit Income Summary.
c.
debit Retained Earnings; credit Dividends.
d.
debit Income Summary; credit Loss on Sale of Land.
a
1
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Chapter 3: Review of a Company’s Accounting System
78. Where would the closing entries be found for a particular company?
a.
financial statements
b.
general journal
c.
trial balance
d.
journal entries
b
1
Easy
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79. Which of the following is a contra account?
a.
Unearned Rental Revenue
b.
Sales Discounts Taken
c.
Bad Debts Expense
d.
Depreciation Expense
b
1
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80. Which of the following statements regarding a post-closing trial balance is false?
a.
Post-closing trial balances only contain permanent accounts.
b.
Balances in a post-closing trial balance cannot be used to calculate current income.
c.
Post-closing trial balances only contain temporary accounts.
d.
c
1
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A post-closing trial balance verifies that the total of the debit balances equals the total of the credit balances of
all permanent accounts in the general ledger.
Chapter 3: Review of a Company’s Accounting System
81. Which of the following is a purchase return?
a.
A company agrees to keep damaged inventory and receives a refund from the supplier.
b.
A customer agrees to keep damaged inventory and receives a partial refund of the selling price.
c.
A company returns inventory to the supplier and receives a refund of the purchase price.
d.
A customer returns inventory to a company and receives a refund of the purchase price.
c
1
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82. Which of the following is a sales return?
a.
A supplier agrees to take back merchandise and provides a full refund.
b.
A customer returns merchandise for a refund.
c.
A customer keeps damaged merchandise and the company returns a portion of the selling price.
d.
A customer pays within the discount period.
b
1
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83. If the credit subtotal is greater than the debit subtotal in the Income Statement columns of a worksheet, the difference
a.
indicates that the company incurred an operating loss during the period.
b.
could represent payment of dividends by the entity during the period.
c.
indicates that an error has been made in the accounting process.
d.
d
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indicates that the company earned a net income during the period.
Chapter 3: Review of a Company’s Accounting System
84. On a worksheet, which account will not be extended to the Balance Sheet columns?
a.
Unearned Rent
b.
Inventory, January 1
c.
Capital Stock
d.
Accumulated Depreciation
b
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85. Which statement is true?
a.
In the Income Statement columns of a worksheet, if there is net income, it must be added to the credit column
to make the two columns balance.
b.
In the Retained Earnings columns of a worksheet, if there is a loss, it will be entered in the credit column to
make the two columns balance.
c.
In the Income Statement columns of a worksheet, if there is a net loss, it must be added to the credit column to
make the two columns balance.
d.
In the Retained Earnings columns of a worksheet, if there is net income, it will be entered in the debit column
to make the two columns balance.
c
1
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86. The worksheet has a debit and credit column for all of the following except the
a.
trial balance.
b.
adjusted trial balance.
c.
statement of cash flows.
d.
income statement.
c
1
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Chapter 3: Review of a Company’s Accounting System
87. Which of the following is not a reason why a company first prepares a worksheet?
a.
simplify recording of adjusting and closing entries in the general journal
b.
substitute for the trial balance
c.
make it easier to prepare financial statements
d.
minimize errors
b
1
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88. Step two in completing a worksheet is to
a.
prepare the trial balance
b.
subtotal income debit and credit columns
c.
combine the trial balance amount of each account with the adjustments
d.
analyze accounts
d
1
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89. How many steps are there in completing a worksheet?
a.
three
b.
four
c.
five
d.
Six
c
1
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Chapter 3: Review of a Company’s Accounting System
90. On a worksheet, the balance in the accumulated depreciation account should be extended to which column?
a.
Balance Sheet debit column
b.
Balance Sheet credit column
c.
Income Statement debit column
d.
Income Statement credit column
b
1
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91. The Orange Company made year-end adjusting entries affecting each of the following accounts: Office Salaries
Payable (credited); Depreciation Expense (debited); Unearned Rental Revenue (debited); and Prepaid Insurance
(credited). Which account is likely to appear in Orange’s reversing entries?
a.
Office Salaries Payable
b.
Depreciation Expense
c.
Unearned Rental Revenue
d.
Prepaid Insurance
a
1
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Chapter 3: Review of a Company’s Accounting System
92. On October 1, 2015, Jacob’s Beach Umbrellas borrowed $5,000 on a 12%, one-year note payable. Interest was
payable semiannually. A correct adjusting entry was made on December 31, 2015, and a correct reversing entry was
made on January 1, 2016. The entry that should be made on March 31, 2016, is
a.
Interest Payable 300
Cash 300
b.
Interest Expense 150
Interest Payable 150
Cash 300
c.
Interest Expense 150
Cash 150
d.
Interest Expense 300
Cash 300
d
1
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93. Which of the following adjusting entries would not be reversed in the following accounting period?
a.
an entry that recognized an accrued expense of the current period
b.
an entry that allocated the expired portion of a long-lived asset to the current year’s income statement
c.
an entry that transferred a portion of a revenue account to a liability account
d.
an entry that recognized an accrued revenue earned during the current period
b
1
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Chapter 3: Review of a Company’s Accounting System
94. The Yellow Canoe Company made year-end adjusting entries affecting each of the following accounts: Interest
Revenue (credited); Depreciation Expense (debited); Unearned Rental Revenue (debited); and Prepaid Insurance
(credited). Which account is likely to appear in Yellow Canoe’s reversing entries?
a.
Prepaid Insurance
b.
Interest Revenue
c.
Depreciation Expense
d.
None of these answer choices is correct.
b
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95. Which of the following adjusting entries would be the most likely to be reversed?
a.
Depreciation Expense 1,500
Accumulated Depreciation 1,500
b.
Unearned Rent 700
Rent Revenue 700
c.
Insurance Expense 800
Prepaid Insurance 800
d.
Income Tax Expense 950
Income Taxes Payable 950
d
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Chapter 3: Review of a Company’s Accounting System
96. Which of the following is the correct reversing entry?
a.
Depreciation Expense 1,550
Accumulated Depreciation 1,550
b.
Interest Revenue 2,350
Interest Receivable 2,350
c.
Salary Expense 1,980
Salary Payable 1,980
d.
Income Tax Expense 2,500
Income Tax Payable 2,500
1
United States – BUSPROG: Reflective Thinking – BUSPROG: Analytic
97. Which of the following adjusting entries would be the most likely be reversed?
a.
Depreciation Expense 500
Accumulated Depreciation 500
b.
Salary Expense 1,980
Salary Payable 1,980
c.
Insurance Expense 500
Prepaid Insurance 500
d.
Unearned Subscriptions 2,000
Subscription Revenue 2,000
1
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Chapter 3: Review of a Company’s Accounting System
98. Reversing entries should not be made for
a.
adjusting entries related to estimated items such as depreciation.
b.
adjusting entries that create accrued revenues to be collected in the next accounting period.
c.
adjusting entries that create accrued expenses to be paid in the next accounting period.
d.
adjusting entries related to prepayments of costs initially recorded as expenses.
a
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99. Reversing entries should not be made for which of the following?
a.
Adjusting entries that defer costs by recording them as prepaid expenses.
b.
Adjusting entries to expenses that are to be paid in the next period.
c.
Adjusting entries to accrue revenue to be collected in the next period.
d.
Adjusting entries related to estimates.
d
1
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100. A company usually makes a reversing entry
a.
on the first day of the next accounting period.
b.
at the end of the prior accounting period.
c.
on the second day of the next accounting period.
d.
on the last day of the next accounting period.
a
1
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Chapter 3: Review of a Company’s Accounting System
101. The Michael Company has an accounts receivable account in its general ledger, and it also maintains a subsidiary
ledger that contains an individual account for each of its customers who buys merchandise on credit. Which of the
following statements about the general ledger account is not true?
a.
The general ledger account is also called a contra account.
b.
The balance of the general ledger account should agree with the total of all of the accounts in the subsidiary
ledger.
c.
The general ledger account is called a permanent account.
d.
The general ledger account is properly referred to as a control account.
a
1
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102.When reconciling its accounts, Boris Company found the accounts receivable general ledger account had a balance of
$35,000, and the accounts receivable subsidiary ledger account balances totaled $33,000. The most likely reason for
this difference was
a.
a sale to a customer was recorded twice in the subsidiary ledger.
b.
cash received from a customer was posted twice to the subsidiary ledger.
c.
a sale to a customer was not posted to the general ledger.
d.
cash received from a customer was recorded twice in the general ledger.
b
1
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