Chapter 4—Completing the Accounting Cycle Key
1. Under accrual-basis accounting, revenues are always recognized when
2. The idea that all expenses incurred in generating revenues should be recognized in the same period as those
revenues is called the
3. In accrual basis accounting, when are expenses usually recognized?
4. The matching principle requires that
5. A twelve-month accounting period ending on December 31 is known as a
6. The idea that a company’s life can be divided into distinct time periods so that accounting information can be
reported on a timely basis is the
7. A system of accounting in which revenues and expenses are recorded as they are earned and incurred, is
called
8. A system of accounting in which revenues and expenses are recorded only when cash is received or paid, is
called
9. Under accrual-basis accounting, revenue is recognized
10. Under accrual-basis accounting, expenses are recognized
11. Which of the following is true about accrual-basis accounting?
12. During 2013, Rumbo Corporation had cash and credit sales of $21,760 and $15,225, respectively. The
company also collected accounts receivable of $9,765 and incurred operating expenses of $27,700, 80 percent
of which were paid during the year. In addition, Rumbo paid $4,500 for an 18-month advertising campaign that
began on September 30. Rumbo’s accrual-basis net income (loss) for 2009 was
13. The 2013 accrual-basis income statement for Razorri Corporation reports sales revenue of $81,000. The
related balance sheet accounts for the beginning and end of the year were
Jan. 1, 2013
Dec. 31, 2013
Unearned Sales Revenue
0
$29,250
Accounts Receivable
6,750
2,250
Based on this information, the amount of cash collected during 2013 from Razorri’s customers was
14. Nona Corporation, a calendar-year company, had the following transactions during 2012:
·
Rented an office building to Erma Company. On September 1, Erma paid $27,000 for the year ending August 31, 2013.
·
Received notice that a $1,200 dividend would be paid on January 2, 2013, by Leslie Corporation.
·
Received a check for $13,000 from a client on December 31 for services that will be performed during 2013.
Assuming cash-basis accounting for Nona Corporation, how much income should be reported on its 2012 income statement?
15. Adjusting entries are
16. Which of the following are usually NOT directly affected by adjusting entries?
17. Which of the following statements about adjusting entries is NOT true?
18. In analyzing accounts to determine which adjusting entries are necessary, accountants should determine
19. Each adjusting entry will always affect
20. Which of the following types of accounts will always be debited to adjust for an unrecorded receivable?
21. Revenue items that are earned but have NOT been collected or recognized are called
22. Which of the following will occur if an adjusting entry to record an unrecorded receivable is NOT made?
23. What is the effect on account balances when an adjusting entry to record an unrecorded receivable is made?
24. If rent revenue of $5,000 is earned in 2012 but will NOT be received until 2013, what is the appropriate
adjusting entry at December 31, 2013?
25. On October 1, Doe Hunting Supplies, a calendar-year company, sold inventory that cost $60,000 for
$100,000. The customer signed a six-month, 10 percent note in payment. On December 31, Woods should
26. On October 1, Mathis Company entered into a six-month contract with Lewis Company to provide custodial
services on a daily basis. The terms of the contract state that the cost will be $3,000 per month and Mathis will
bill Lewis at the end of every two months. If Mathis is a calendar year company, what is the appropriate
adjusting entry at December 31?
27. Which of the following types of accounts will always be debited to adjust for an unrecorded liability?
28. Which of the following will occur if an adjusting entry to record an accrued but unrecorded liability is NOT
made?
29. Unrecognized interest expense on a note is an example of a(n)
30. An adjusting entry to record an unrecorded liability usually includes a credit to
31. For which of the following types of adjusting entries is there no original entry?
32. If on December 31, 2012, interest expense of $600 is owed on a bank note that will NOT be paid until July
2013, what is the appropriate adjusting entry at the end of 2012?
33. Bay Graphics pays its employees each Friday for a five-day total workweek. The payroll is $9,000 per
week. If the end of the accounting period occurs on a Wednesday, what is the adjusting entry to record wages
payable?
34. Boudin Corporation, a calendar-year company, obtained a $15,000, one-year, 10 percent bank loan on
October 31 of the current year. Interest is payable at the end of the loan term. The adjusting entry needed on
December 31 is
35. Bay Graphics pays its employees each Friday for a five-day total workweek. The payroll is $9,000 per
week. If the end of the accounting period occurs on a Wednesday, the adjusting entry to record wages payable
would include a
36. Which of the following types of accounts will always be credited when a prepaid expense account is
adjusted?
37. Prepaid expense accounts are usually classified as
38. The failure to adjust a prepaid expense that has partially expired and was originally recorded by debiting a
prepaid expense for the entire amount will usually result in an
39. An expired asset is called a(n)
40. An adjusting entry to record the expired portion of a prepaid expense that was originally debited to a prepaid
expense account always includes
41. The original entry to record a prepaid expense will usually include
42. On April 1, Ciaunna Company paid $48,000 for two years rent and recorded the entire amount as a debit to
Prepaid Rent. The adjusting entry on December 31 of that year would include a
43. On June 30, 2012, Sinise Co. purchased a three-year fire insurance policy at a cost of $27,000 and debited
Prepaid Insurance for the entire amount. The policy covers the period July 1, 2012, to June 30, 2015. The
adjusting entry needed on December 31, 2012, includes a credit to
44. On August 1, 2012, Base Line Realty purchased a two-year insurance policy for $15,000. On that date, the
company debited Prepaid Insurance for $15,000. The adjusting entry on December 31, 2012, would include a
debit to
45. Kim Company purchased a two-year insurance policy on October 1, 2012, for $6,000. The policy covers its
buildings for the next two years. If Kim debited Prepaid Insurance to record the purchase of the policy, the
adjusting entry on December 31, 2012 (year-end) would include a credit to
46. At the beginning of the period, Hann Corporation had $4,000 of supplies on hand. During the period, it
purchased $1,300 of supplies and debited supplies for the same amount. At the end of the period, Hann
Corporation determined that only $1,000 of supplies were still on hand. What adjusting entry should Hann
Corporation make at the end of the period?
47. Scully Corporation purchased a three-year insurance policy on November 1 for $3,600. Assuming that
Scully Corporation recorded the original transaction by debiting Prepaid Insurance, the adjusting entry on
December 31 will include a
48. Given the following data, what is the amount in the supplies account to be shown as an asset on the balance
sheet at the end of the period?
Supplies at beginning of period
$500
Supplies purchased during period
425
Supplies used during period
375
49. From the following data, determine the amount of supplies on hand at the beginning of the period.
Supplies on hand, end of period
$1,025
Supplies expense for period
425
Supplies purchased during period
800
50. Brooklynne Company paid $25,400 in insurance premiums during 2012. Brooklynne showed $6,800 in
prepaid insurance on its December 31, 2012, balance sheet and $4,600 on December 31, 2013. The insurance
expense on the income statement for 2013 was
51. Montana Inc.’s fiscal year ended on December 31, 2012. The balance in the prepaid insurance account as of
December 31, 2012, was $34,800 (before adjustment) and consisted of the following policies:
Policy
Date of
Date of
Balance in
Number
Purchase
Expiration
Account
279248
10/1/11
9/30/12
$14,400
694421
3/1/12
2/28/14
9,600
800616
7/1/11
6/30/13
10,800
$34,800
The adjusting entry required on December 31, 2012, would be
52. Amounts received before they are earned are called
53. An unearned revenue account is usually considered to be a(n)
54. If a company receives rent for January 2013 from a tenant in December 2012, that rent would be
55. The failure to adjust an unearned revenue that has been partially earned and was originally recorded as a
credit to Unearned Revenue will usually result in an
56. An adjusting entry to record the portion of unearned revenue that was earned in the current period usually
includes a debit to
57. Garcia Company has received advance payment for services yet to be performed. This prepayment is an
example of a(n)
58. On June 1, 2013, Marino Corporation received $1,800 as advance payment for 12 months’ advertising. The
receipt was recorded as a credit to Unearned Fees. What adjusting entry is required at December 31, 2013?
59. On December 16, 2012, Keen Company received $5,400 from Smith Company for rent on an office
building owned by Keen. The $1,800 covers the period December 16, 2012, through February 15, 2013. If Keen
Company credited Unearned Rent to record the $5,400 rent collected on December 16, the adjusting entry
needed on December 31, 2012, would include
60. On September 1, 2012, Carter’s Construction Company received a $5,400 deposit towards the construction
of a new house. The house will not be finished until February 28, 2013. The deposit was originally recorded as
Unearned construction revenue. What adjusting entry is required at December 31, 2012?
61. On December 31, the trial balance of Fife Company included the following account with a credit balance:
Unearned advertising revenue
$16,200
If it is determined that the amount of advertising revenue applicable to future periods is $10,400, the correct adjusting entry would be:
62. From the following data, determine the amount of rent revenue earned during the period.
Unearned Rent, end of period
$20,300
Unearned Rent, beginning of period
15,200
Cash received for rent during period
40,700
63. Which of the following describes the correct order of how financial statements are prepared from the
information taken from the trial balance?
64. Which of the following sources provides the raw material to prepare the financial statements?
65. The notes to the financial statements tell all of the following EXCEPT
66. When conducting an audit of a company’s financial statements, auditors will usually be more concerned
about which of the following?
67. When preparing its financial statements, a company is more concerned about which of the following?
68. Which of the following is a true statement about an auditor’s evaluation of an accounting system?
69. The audit procedures conducted by the external auditor include all of the following, EXCEPT
70. Which of the following is true of a work sheet?
71. The purpose of financial statement analysis is to
72. Prior to making any adjusting entries, Terra Corporation had net income of $155,100. The following
adjusting entries were made: salaries payable, $1,574; interest earned on short-term investments but not yet
recorded or collected, $7,268; adjustment to prepaid insurance for $5,538 for an insurance policy that expired
during the period; and fees of $586 collected in advance that have now been earned. After recording these
adjustments, net income would be
73. Exhibit 4-1
The following are a selection of account balances taken from the Adjusted Trial Balance of Cajon Corporation
for December 31, 2012:
Debit
Credit
Cash
$150
Store Supplies
300
Service Fees Revenue
$600
Retained Earnings (1/1/2012)
50
Accounts Payable
70
Dividends
200
Unearned Service Fees Revenue
180
Wage Expense
200
Store Supplies Expense
50
Refer to Exhibit 4-1. Given the information above, Cajon Corporation had net income in 2012 of
74. Exhibit 4-1
The following are a selection of account balances taken from the Adjusted Trial Balance of Cajon Corporation
for December 31, 2012:
Debit
Credit
Cash
$150
Store Supplies
300
Service Fees Revenue
$600
Retained Earnings (1/1/2012)
50
Accounts Payable
70
Dividends
200
Unearned Service Fees Revenue
180
Wage Expense
200
Store Supplies Expense
50
75. Exhibit 4-1
The following are a selection of account balances taken from the Adjusted Trial Balance of Cajon Corporation
for December 31, 2012:
Debit
Credit
Cash
$150
Store Supplies
300
Service Fees Revenue
$600
Retained Earnings (1/1/2012)
50
Accounts Payable
70
Dividends
200
Unearned Service Fees Revenue
180
Wage Expense
200
Store Supplies Expense
50
Refer to Exhibit 4-1. Given the information above, what is the amount of total liabilities and owner’s equity on Cajon Corporation’s balance sheet in
2012?
76. The closing entry involving a net loss will include a
77. Nominal accounts are NOT found on which of the following financial statements?
78. Nominal accounts are temporary subcategories of which account?
79. Which of the following accounts is NOT a real account?
80. Closing entries are
81. The entry to close the revenue accounts normally includes a
82. Which of the following is NOT a true statement?
83. The entry to close the expense accounts normally includes a
84. The dividends account is
85. The dividends account is
86. Which of the following accounts would be closed at year-end?
87. A post-closing trial balance does NOT include the
88. Which of the following statements is true of a post-closing trial balance?
89. Which of the following accounts would NOT appear in the post-closing trial balance?