7) Hen House, Inc. collects all subscription revenue in advance. At December 31, 2011, the
company owed $50,000 to customers for unearned revenue. During 2012, the company received
$150,000 in advance from its customers and delivered $190,000 of magazines to its customers.
How much unearned revenue will Hen House report on its balance sheet at December 31, 2012?
A) $200,000
B) $190,000
C) $10,000
D) $210,000
8) Reader, Inc. collected $12,000 in October 2011 from customers in exchange for 12-month
subscriptions to its monthly magazine Reader. The October issue was the first issue of the
subscription. How much revenue should the company report on its income statement for the year
ended March 31, 2012?
A) $12,000
B) $8,000
C) $6,000
D) No revenue will be recognized until all the magazines are delivered.
9) Magic, Inc. collected $12,000 in October 2011 from customers in exchange for 12-month
subscriptions to its monthly magazine Magic Times. The October issue was the first issue of the
subscription. How much revenue should the company report on its income statement for the year
ended December 31, 2011?
A) $3,000
B) $6,000
C) $12,000
D) No revenue will be recognized until all the magazines are delivered.
10) Magic, Inc. collected $24,000 in October 2011 from customers in exchange for 12-month
subscriptions to its monthly magazine Magic Times. The October issue was the first issue of the
subscription. Which statement below is true regarding the effects of collecting the cash from
customers in October?
A) Assets and liabilities will increase by $24,000.
B) Assets will increase and shareholders’ equity will decrease by $24,000.
C) Liabilities and shareholders’ equity will increase by $24,000.
D) Assets and shareholders’ equity will increase by $2,000.
11) Prepaid rent is a(n) ________.
A) expense representing rent used up during the period
B) liability representing an obligation to pay for rent
C) part of shareholders’ equity
D) asset representing rent that has been paid but not used
12) Rent-a-Wreck, Inc. paid $36,000 cash for a two-year insurance policy on April 1, 2011.
What adjustment should the company make before preparing its annual financial statements on
December 31, 2011?
A) Decrease Cash and increase Prepaid insurance by $36,000.
B) Decrease Prepaid insurance and recognize Insurance expense of $18,000.
C) Decrease Prepaid insurance and recognize Insurance expense of $13,500.
D) Decrease Cash and recognize Insurance expense of $13,500.
13) Rent-a-Wreck, Inc. paid $36,000 cash for a one-year insurance policy on July 1, 2011. What
adjustment should the company make before preparing its annual financial statements on
December 31, 2011?
A) Decrease Cash and increase Prepaid insurance by $18,000.
B) Decrease Prepaid insurance and recognize Insurance expense of $18,000.
C) Decrease Prepaid insurance and recognize Insurance expense of $36,000.
D) Decrease Cash and recognize Insurance expense of $18,000.
14) Rent-a-Wreck, Inc. paid $12,000 cash for a one-year insurance policy on November 1, 2012.
What adjustment should the company make before preparing its annual financial statements on
December 31, 2012?
A) Decrease Cash and increase Prepaid insurance by $2,000.
B) Decrease Cash and recognize Insurance expense of $12,000.
C) Decrease Prepaid insurance and recognize Insurance expense of $1,000.
D) Decrease Prepaid insurance and recognize Insurance expense of $2,000.
15) Rent a Wreck, Inc. began operations on July 1, 2012. On July 1, the company paid $9,600
cash in advance for a one-year insurance policy beginning on that day. How much insurance
expense will appear on the company’s income statement for the month ended July 31, 2012?
A) $800
B) $9,600
C) $4,800
D) $8,800
16) Rent a Wreck, Inc. began operations on July 1, 2012. On July 1, the company paid $9,600
cash in advance for a one-year insurance policy beginning on that day. How much insurance
expense will appear on the company’s income statement for the year ended December 31, 2012?
A) $800
B) $9,600
C) $4,800
D) $8,800
17) Rent a Wreck, Inc. began operations on July 1, 2012. On July 1, the company paid $9,600
cash in advance for a one-year insurance policy beginning on that day. What will the company
report for prepaid insurance on its balance sheet at December 31, 2012?
A) $800
B) $9,600
C) $4,800
D) $8,800
18) Rent a Wreck, Inc. began operations on July 1, 2012. On July 1, the company paid $9,600
cash in advance for a one-year insurance policy beginning on that day. What will the company
report for prepaid insurance on its balance sheet at July 31, 2012?
A) $800
B) $9,600
C) $4,800
D) $8,800
19) Rent a Wreck, Inc. began operations on July 1, 2012. On July 1, the company paid $9,600
cash in advance for a one-year insurance policy beginning on that day. Cash paid for insurance
on the company’s statement of cash flows for the month ended July 31, 2012 equals ________.
A) $(800)
B) $(9,600)
C) $(4,800)
D) $(8,800)
20) Fair Play, Inc. paid $3,600 on September 1, 2011 for an 18-month insurance policy
beginning on that day. The company recorded the entire amount as prepaid insurance. How much
insurance expense should the company show on its income statement for the year ended
December 31, 2011?
A) $200
B) $600
C) $800
D) $3,600
21) Fair Play, Inc. paid $3,600 on September 1, 2011 for an 18-month insurance policy
beginning on that day. The company recorded the entire amount as prepaid insurance. How much
insurance expense should the company show on its income statement for the year ended
December 31, 2012?
A) $200
B) $2,400
C) $800
D) $3,600
22) Fair Play, Inc. paid $3,600 on September 1, 2011 for an 18-month insurance policy
beginning on that day. The company recorded the entire amount as prepaid insurance. How much
prepaid insurance should the company show on its balance sheet at December 31, 2011?
A) $2,800
B) $3,000
C) $800
D) $3,600
23) Fair Play, Inc. paid $3,600 on September 1, 2011 for an 18-month insurance policy
beginning on that day. The company recorded the entire amount as prepaid insurance. How much
prepaid insurance should the company show on its balance sheet at December 31, 2012?
A) $2,800
B) $3,200
C) $400
D) $3,600
24) Fair Play, Inc. paid $3,600 on September 1, 2011 for an 18-month insurance policy
beginning on that day. The company recorded the entire amount as prepaid insurance. How much
cash paid for insurance should the company show on its statement of cash flows for the year
ended December 31, 2011?
A) $(200)
B) $(600)
C) $(800)
D) $(3,600)
25) Prepaid insurance had a balance of $1,000 on the company’s December 31, 2011 balance
sheet. On June 1, 2012, the company paid an additional insurance premium of $3,000. Prepaid
insurance had a balance of $1,250 on the company’s December 31, 2012 balance sheet. How
much insurance expense will be reported on the company’s income statement for the year ended
December 31, 2012?
A) $3,000
B) $4,250
C) $1,000
D) $2,750
26) Prepaid insurance had a balance of $1,000 on the company’s December 31, 2011 balance
sheet. On June 1, 2012, the company paid an additional insurance premium of $3,000. Prepaid
insurance had a balance of $1,250 on the company’s December 31, 2012 balance sheet. How
much cash paid for insurance will be reported on the company’s statement of cash flows for the
year ended December 31, 2012?
A) $(1,000)
B) $(3,000)
C) $(1,250)
D) $(4,000)
27) Clean Sweep, Inc. paid $7,200 on May 1, 2011 for 12 months’ insurance coverage starting
May 1. How much insurance expense should appear on the company’s balance sheet at
December 31, 2011?
A) $7,200
B) $4,200
C) $4,800
D) $0. Insurance expense does not appear on the balance sheet.
28) Clean Sweep, Inc. paid $7,200 on May 1, 2011 for 12 months’ insurance coverage starting
May 1. How much insurance expense should appear on the company’s income statement for the
year ended December 31, 2011?
A) $7,200
B) $4,200
C) $4,800
D) $0. Insurance expense does not appear on the income statement.
29) Clean Sweep, Inc. paid $7,200 on May 1, 2011 for 12 months’ insurance coverage starting
May 1. How much prepaid insurance should appear on the company’s balance sheet at December
31, 2011?
A) $7,200
B) $2,400
C) $3,000
D) $4,800
30) Clean Sweep, Inc. started the month of June with $800 worth of cleaning supplies. During
the month, Clean Sweep purchased $300 of supplies for cash. At June 30, $200 worth of supplies
was unused. How much cleaning supplies expense will the company show on its income
statement for the month of June?
A) $800
B) $500
C) $1,100
D) $900
31) Clean Sweep, Inc. started the month of June with $800 worth of cleaning supplies. During
the month, Clean Sweep purchased $300 of supplies for cash. At June 30, $200 worth of supplies
was unused. How will the company report its unused supplies on June 30?
A) $200 of unused supplies will appear as an expense on the income statement.
B) $900 of unused supplies will appear as an expense on the income statement.
C) $200 of unused supplies will appear as an asset on the balance sheet.
D) $900 of unused supplies will appear as an asset on the balance sheet.
32) Clean Sweep, Inc. started the month of June with $800 worth of cleaning supplies. During
the month, Clean Sweep purchased $300 of supplies for cash. At June 30, $200 worth of supplies
was unused. How will the company report these events on its statement of cash flows for the
month of June?
A) The statement of cash flows will show cash paid for supplies of $(300).
B) The statement of cash flows will show supplies expense of $900.
C) The statement of cash flows will show supplies expense of $200.
D) This is a trick question. The statement of cash flows will not report anything about any of
these events.
33) Clean Sweep, Inc. started the month of June with $600 worth of cleaning supplies. During
the month, Clean Sweep purchased $400 of supplies for cash. At June 30, $300 worth of supplies
was unused. How much cleaning supplies expense will the company show on its income
statement for the month of June?
A) $300
B) $100
C) $1,000
D) $700
34) Clean Sweep, Inc. started the month of June with $600 worth of cleaning supplies. During
the month, Clean Sweep purchased $400 of supplies for cash. At June 30, $300 worth of supplies
was unused. How will the company report its unused supplies on June 30?
A) $400 of unused supplies will appear as an expense on the income statement.
B) $700 of unused supplies will appear as an expense on the income statement.
C) $300 of unused supplies will appear as an asset on the balance sheet.
D) $700 of unused supplies will appear as an asset on the balance sheet.
35) Clean Sweep, Inc. started the month of June with $600 worth of cleaning supplies. During
the month, Clean Sweep purchased $400 of supplies for cash. At June 30, $300 worth of supplies
was unused. How will the company report these events on its statement of cash flows for the
month of June?
A) The statement of cash flows will show $(400) cash paid for supplies.
B) The statement of cash flows will show supplies expense of $(1,000).
C) The statement of cash flows will show supplies expense of $(700).
D) This is a trick question. The statement of cash flows will not report anything about any of
these events.
36) On June 1, Stackable, Inc. has a balance of $6,000 in Supplies. During June, the company
buys another $2,000 of supplies. On June 30, the company counts the supplies and finds that
$800 are left unused. What is the proper adjustment at June 30?
A) Decrease Supplies and shareholders’ equity by $7,200.
B) Decrease Supplies and shareholders’ equity by $8,000.
C) Decrease Cash and increase Supplies by $2,000.
D) Decrease Cash and increase Accounts payable by $7,200.
37) The dollar amount shown on the balance sheet for Supplies represents ________.
A) the current market value of the supplies that are available for resale to customers
B) the cost of all supplies purchased during the period
C) the cost of supplies used during the period
D) the cost of supplies that remain unused at the end of the period
38) On April 1, Spring Floral, Inc. has a balance of $300 in office supplies. During April, the
company buys $900 more of the office supplies. On April 30, the company counts the supplies
and finds $200 of supplies remaining. The effect of the April 30 entry to adjust supplies will
include a ________.
A) decrease to Cash and an increase to Supplies of $1,000
B) decrease to Cash and an increase to Accounts payable of $900
C) increase to Supplies and Supplies expense of $1,200
D) decrease to Supplies and Supplies expense of $1,000
39) On April 1, Spring Floral, Inc. has a balance of $300 in Supplies. During April, the company
buys another $900 of supplies. On April 30, the company counts the supplies and finds $200 of
supplies remaining. What will the company report on its April 30 balance sheet?
A) Supplies expense of $1,000
B) Supplies of $1,000
C) Supplies of $200
D) Supplies expense of $200
40) On April 1, Spring Floral, Inc. has a balance of $300 in Supplies. During April, the company
buys $900 more of the supplies. On April 30, the company counts the supplies and finds $200 of
supplies remaining. What will the company report on its month ended April 30 income
statement?
A) Supplies expense of $1,000
B) Supplies of $1,000
C) Supplies of $200
D) Supplies expense of $200
41) On May 1, Counts, Inc. has a balance of $1,000 in office supplies. During May, the company
buys $500 more of the office supplies. On May 31, the company counts the supplies and finds
$200 of supplies remaining. What will the company report on its May 31 balance sheet?
A) Supplies expense of $500
B) Supplies of $1,300
C) Supplies of $200
D) Supplies expense of $1,500
42) On May 1, Counts, Inc. has a balance of $1,000 in office supplies. During May, the company
buys $500 more of the office supplies. On May 31, the company counts the supplies and finds
$200 of supplies remaining. What will the company report on its income statement for the month
of May?
A) Supplies expense of $1,300
B) Supplies of $500
C) Supplies of $1,500
D) Supplies expense of $500
43) On May 1, Counts, Inc. has a balance of $1,000 in office supplies. During May, the company
pays $500 for more supplies. On May 31, the company counts the supplies and finds $200 of
supplies remaining. What will the company report on its statement of cash flows for the month of
May?
A) Supplies expense of $500
B) Supplies of $500
C) Cash paid for supplies of $(500)
D) Accounts payable of $500
44) If a company buys an asset that will be used for more than one accounting period, an expense
associated with the asset will be recognized ________.
A) when the asset is purchased
B) in the periods during which the asset is used to generate revenue
C) when the asset is sold
D) in the accounting periods during which the company has a profit
45) What accounting principle justifies depreciating certain long-term assets?
A) the revenue principle
B) the depreciation principle
C) the cost-based principle
D) the matching principle
46) On January 1, 2011, Swinger, Inc. purchases a batting machine for $240,000 that has an
estimated useful life of 5 years and an expected residual value of $20,000. Calculate the annual
amount of depreciation expense.
A) $48,000
B) $44,000
C) $20,000
D) $88,000
47) On January 1, 2011, Swinger, Inc. purchases a batting machine for $240,000 that has an
estimated useful life of 5 years and an expected residual value of $20,000. Calculate the book
value of the equipment that will be reported on the balance sheet dated December 31, 2012.
A) $44,000
B) $88,000
C) $172,000
D) $152,000
48) On January 1, 2011, Swinger, Inc. purchases a batting machine for $240,000 that has an
estimated useful life of 5 years and an expected residual value of $20,000. Calculate the amount
of accumulated depreciation at December 31, 2012.
A) $48,000
B) $88,000
C) $172,000
D) $152,000
49) A contra-asset is ________.
A) an amount that is deducted from an asset
B) an amount that is added to an asset
C) an amount that revalues an asset to fair market value as of the balance sheet date
D) an amount that is classified as shareholders’ equity
50) On January 1, 2011, Beyers Company pays $205,000 cash for factory equipment that has an
estimated useful life of 10 years and an expected residual value of $5,000. Calculate the annual
amount of depreciation expense.
A) $20,500
B) $20,000
C) $500
D) $200,000
51) On January 1, 2011, Swinger, Inc. purchases a batting machine for $240,000 that has an
estimated useful life of 5 years and an expected residual value of $20,000. What is the effect of
this transaction on the company’s statement of cash flows for the year ended December 31,
2011?
A) Financing activity cash inflow of $240,000
B) Financing activity cash outflow of $(240,000)
C) Investing activity cash outflow of $(240,000)
D) The transaction will not be reported on the statement of cash flows.
52) On January 1, 2011, Swinger, Inc. purchases a batting machine for $240,000 that has an
estimated useful life of 5 years and an expected residual value of $20,000. What is the effect of
this transaction on the company’s statement of cash flows for the year ended December 31,
2012?
A) Financing activity cash outflow of $(44,000)
B) Operating activity cash outflow of $(44,000)
C) Investing activity cash outflow of $(240,000)
D) The transaction will not be reported on the statement of cash flows in 2010.
53) On January 1, 2011, Swinger, Inc. purchases a batting machine for $240,000 that has an
estimated useful life of 5 years and an expected residual value of $20,000. What will the
company report on its income statement for the year ended December 31, 2012?
A) Financing activity cash outflow of $(44,000)
B) Equipment will be reported as an asset at a book value of $152,000.
C) Depreciation expense of $44,000
D) Depreciation expense of $88,000
54) On January 1, 2011, Beyers Company pays $205,000 cash for factory equipment that has an
estimated useful life of 10 years and an expected residual value of $5,000. Calculate the book
value of the equipment that will be reported on the balance sheet dated December 31, 2012.
A) $205,000
B) $165,000
C) $160,000
D) $200,000
55) On January 1, 2011, Beyers Company pays $205,000 cash for factory equipment that has an
estimated useful life of 10 years and an expected residual value of $5,000. Calculate the amount
of accumulated depreciation at December 31, 2012.
A) $40,000
B) $165,000
C) $205,000
D) $38,000
56) On January 1, 2011, Beyers Company pays $205,000 cash for factory equipment that has an
estimated useful life of 10 years and an expected residual value of $5,000. What will the
company report on its statement of cash flows for the year ended December 31, 2011?
A) Operating activity cash outflow of $(205,000)
B) Operating activity cash outflow of $(20,500)
C) Investing activity cash outflow of $(205,000)
D) Financing activity cash outflow of $(205,000)
57) On January 1, 2011, Beyers Company pays $205,000 cash for factory equipment that has an
estimated useful life of 10 years and an expected residual value of $5,000. What will Beyers
report on its income statement for the year ended December 31, 2011?
A) Financing activity cash outflow of $(20,000)
B) Investing activity cash outflow of $(20,000)
C) Cash payment of $205,000
D) Depreciation expense of $20,000
58) Avatar, Inc. bought a machine on January 1, 2011 for $96,000. The machine is expected to
last for 8 years, after which it will be worthless. How much depreciation expense will Avatar
show on its income statement for the year ended December 31, 2011?
A) $96,000
B) $16,000
C) $12,000
D) $0. Depreciation expense does not appear on the income statement.
59) Avatar, Inc. bought a machine on January 1, 2011 for $96,000. The machine is expected to
last for 8 years, after which it will be worthless. How much depreciation expense will Avatar
show on its balance sheet at December 31, 2011?
A) $96,000
B) $16,000
C) $12,000
D) $0. Depreciation expense does not appear on the balance sheet.
60) Avatar, Inc. bought a machine on January 1, 2011 for $96,000. The machine is expected to
last for 8 years, after which it will be worthless. How much accumulated depreciation will
Avatar report at December 31, 2011?
A) $96,000
B) $16,000
C) $12,000
D) $0. Accumulated depreciation does not appear on the balance sheet.
61) Avatar, Inc. bought a machine on January 1, 2011 for $96,000. The machine is expected to
last for 8 years, after which it will be worthless. What is the book value of the machine on
Avatar’s balance sheet at December 31, 2011?
A) $96,000
B) $16,000
C) $12,000
D) $84,000
62) Avatar, Inc. bought a machine on January 1, 2011 for $96,000. The machine is expected to
last for 8 years, after which it will be worthless. How much depreciation expense will Avatar
show on its income statement for the year ended December 31, 2012?
A) $96,000
B) $72,000
C) $12,000
D) $24,000
63) Avatar, Inc. bought a machine on January 1, 2011 for $96,000. The machine is expected to
last for 8 years, after which it will be worthless. How much accumulated depreciation will
Avatar report at December 31, 2012?
A) $96,000
B) $72,000
C) $12,000
D) $24,000
64) Avatar, Inc. bought a machine on January 1, 2011 for $96,000. The machine is expected to
last for 8 years, after which it will be worthless. What is the book value of the machine on
Avatar’s balance sheet at December 31, 2012?
A) $96,000
B) $84,000
C) $72,000
D) $24,000
65) Sure Enuf, Inc. paid $4,800 on May 1, 2012 for 12 months’ insurance coverage starting May
1. How much insurance expense should appear on the company’s balance sheet at December 31,
2012?
A) $4,800
B) $2,800
C) $3,200
D) $0. Insurance expense does not appear on the balance sheet.
66) Sure Enuf, Inc. paid $4,800 on May 1, 2012 for 12 months’ insurance coverage starting May
1. How much insurance expense should appear on the company’s income statement for the year
ended December 31, 2012?
A) $4,800
B) $2,800
C) $3,200
D) $0. Insurance expense does not appear on the income statement.
67) Sure Enuf, Inc. paid $4,800 on May 1, 2012 for 12 months’ insurance coverage starting May
1. How much prepaid insurance should appear on the company’s balance sheet at December 31,
2012?
A) $4,800
B) $1,600
C) $1,000
D) $3,200
68) Maxine, Inc. bought a machine on January 1, 2012 for $48,000. The machine is expected to
last for 8 years, after which it will be worthless. How much depreciation expense will Maxine
show on its income statement for the year ended December 31, 2012?
A) $48,000
B) $8,000
C) $6,000
D) $0. Depreciation expense does not appear on the income statement.
69) Maxine, Inc. bought a machine on January 1, 2012 for $48,000. The machine is expected to
last for 8 years, after which it will be worthless. How much depreciation expense will Maxine
show on its balance sheet at December 31, 2012?
A) $48,000
B) $8,000
C) $6,000
D) $0. Depreciation expense does not appear on the balance sheet.
70) Maxine, Inc. bought a machine on January 1, 2012 for $48,000. The machine is expected to
last for 8 years, after which it will be worthless. How much accumulated depreciation will
Maxine report at December 31, 2012?
A) $48,000
B) $8,000
C) $6,000
D) $0. Accumulated depreciation does not appear on the balance sheet.
71) Maxine, Inc. bought a machine on January 1, 2012 for $48,000. The machine is expected to
last for 8 years, after which it will be worthless. What is the book value of the machine on
Maxine’s balance sheet at December 31, 2012?
A) $48,000
B) $44,000
C) $6,000
D) $42,000
72) Maxine, Inc. bought a machine on January 1, 2012 for $48,000. The machine is expected to
last for 8 years, after which it will be worthless. How much depreciation expense will Maxine
show on its income statement for the year ended December 31, 2013?
A) $48,000
B) $36,000
C) $9,000
D) $6,000
73) Maxine, Inc. bought a machine on January 1, 2010 for $24,000. The machine is expected to
last for 8 years, after which it will be worthless. How much accumulated depreciation will
Maxine report at December 31, 2011?
A) $24,000
B) $16,000
C) $3,000
D) $6,000
74) Maxine, Inc. bought a machine on January 1, 2012 for $48,000. The machine is expected to
last for 8 years, after which it will be worthless. What is the book value of the machine on
Maxine’s balance sheet at December 31, 2013?
A) $48,000
B) $42,000
C) $36,000
D) $12,000