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Chapter 4: Income Measurement and Accrual Accounting
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
80. What effect does “recognizing an accrued liability for utilities at the end of the accounting period” have on the
accounting equation?
a.
Assets decrease and stockholders’ equity decreases.
b.
Liabilities increase and stockholders’ equity increases.
c.
Assets decrease and liabilities decrease.
d.
Liabilities increase and stockholders’ equity decreases.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
81. What effect does “recognizing revenue at the end of the accounting period for rent previously received in advance”
have on the accounting equation for an insurance company?
a.
Stockholders’ equity increases and liabilities increase.
b.
Assets increase and stockholders’ equity increases.
c.
Assets decrease and liabilities decrease.
d.
Liabilities decrease and stockholders’ equity increases.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
82. Lincoln Corp. received advance payments from customers during 2016 of $10,000. At December 31, 2016, $1,000 of
the advance payments still had not been earned. After the adjustments are recorded and posted at December 31, 2016, the
balances in the Unearned Service Revenue and Service Revenue accounts will be
Unearned Service Revenue Service Revenue
a.
$ 1,000
$ 9,000
b.
$ 1,000
$10,000
c.
$11,000
$ 1,000
d.
$ 9,000
$10,000
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
83. Stockton Co. received advance payments from customers during 2017 of $6,000. At December 31, 2016, $1,300 of the
advance payments still had not been earned. After the adjustments are recorded and posted at December 31, 2016, what
will the balances be in the Unearned Book Revenue and Book Revenue accounts?
Unearned Book Revenue Book Revenue
a.
$1,300
$6,000
b.
$1,300
$4,700
c.
$6,000
$1,300
d.
None of these choices
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
84. Cuisine Company received a 6-month, 6% note for $10,000 from its president on October 1, 2016. The note is due on
March 31, 2017. If Cuisine’s accounting period ends on December 31, how much interest revenue should Cuisine
recognize during 2016 and 2017?
2016 2017
a.
$450
$150
b.
$600
$ 0
c.
$300
$300
d.
$150
$150
ANSWER:
d
RATIONALE:
$10,000 (Principal) × 6% (Interest) × 3/12 (Time) = $150 (This calculation is good for both
years.)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
85. Vivo Co. received an 8-month, 9% note for $100,000 from its agent on October 1, 2016. The note is due on May 30,
2017. If Vivo accounting period ends on December 31, 2016, how much interest revenue should Vivo recognize during
2016 and 2017?
2016 2017
a.
$3,750
$2,250
b.
$2,250
$3,750
c.
$9,000
$ 0
d.
$3,375
$5,625
ANSWER:
b
RATIONALE:
$100,000 (Principal) × 9% (Interest) × (3/12) = $2,250 (Interest for 2016) $100,000
(Principal) × 9% (Interest) × (5/12) = $3,750 (Interest for 2017)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
86. Which one of the following is an example of an accrued liability?
a.
Wages have been earned by employees, but have not been paid at the end of the period.
b.
Equipment that will benefit several periods has been purchased.
c.
An insurance policy that expires in a future period has been acquired.
d.
Supplies are purchased and used over several months.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Applying
87. Adjustments are necessary only if
a.
the cash basis of accounting is used for all accounting periods.
b.
cash receipts and payments occur before or after the point in time when revenues and expenses should be
recognized under the accrual basis of accounting.
c.
management reports its adjustments on the statement of cash flows.
d.
the company reports revenue in the same period cash is collected.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
88. What happens to the accounting equation when the adjustment for depreciation expense for the accounting period is
recorded?
a.
Assets decrease and stockholders’ equity decreases.
b.
Assets increase and stockholders’ equity increases.
c.
Assets decrease and liabilities decrease.
d.
Liabilities increase and stockholders’ equity decreases.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
89. What happens to the accounting equation when the adjustment that recognizes accrued interest revenue is recorded?
a.
Assets increase and liabilities increase.
b.
Assets increase and stockholders’ equity increases.
c.
Assets decrease and liabilities decrease.
d.
Stockholders’ equity increases and decreases by the same amount.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
90. Charlie Company had $1,800 of supplies on hand at January 1. During the year, supplies with a cost of $4,000 were
purchased. At December 31, the actual supplies on hand amount to $1,300. After the adjustments are recorded and posted
at December 31, determine the balances in the Supplies and Supplies Expense accounts.
Supplies Supplies Expense
a.
$1,800
$4,000
b.
$1,300
$4,500
c.
$5,300
$5,800
d.
$1,300
$5,800
ANSWER:
b
RATIONALE:
$1,800 (Supplies at Jan. 1) + $4,000 (Amount purchased) – $1,300 (Supplies at Dec. 31) =
$4,500 (Supplies Expense)
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
91. Lucky Company purchased a truck at a cost of $12,000 in 2011. As of January 1, 2016, depreciation of $10,000 had
been recorded on this asset. Depreciation expense for 2016 is $2,000. After the adjustments are recorded and posted at
December 31, 2016, what is the carrying value of the truck?
a.
$2,000
b.
$5,500
c.
$12,000
d.
$0
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
92. Starlight Associates, Inc. recorded salary expense of $100,000 in 2016. However, additional salaries of $5,000 had
been earned, but not paid or recorded at December 31, 2016. After the adjustments are recorded and posted at December
31, 2016, the balances in the Salaries Expense and Salaries Payable accounts will be:
Salaries Expense Salaries Payable
a.
$105,000
$5,000
b.
$100,000
$ 0
c.
$100,000
$5,000
d.
$105,000
$ 0
ANSWER:
a
RATIONALE:
$5,000 (Adjustment at Dec. 31) + $100,000 (Expenses for the year) = $105,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
93. On December 1, 2016, Vonn Corporation paid $8,000 rent in advance. The rent per month is $1,000. If Hazel’s
accounting period ends on December 31, 2016, what will be reported on the financial statements?
a.
Prepaid Rent of $7,000 on its balance sheet at December 31, 2016
b.
Prepaid Rent of $8,000 on its balance sheet at December 31, 2016
c.
Rent Expense of $8,000 on its 2016 income statement
d.
Rent Revenue of $7,000 on its 2016 income statement
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
94. Frank Corporation purchased supplies at a cost of $15,000 during 2016. At January 1, 2016, supplies on hand were
$2,000. At December 31, 2016, supplies on hand are $2,500. Calculate supplies expense for 2016.
a.
$ 15,500
b.
$ 14,500
c.
$ 15,000
d.
$ 17,000
ANSWER:
b
RATIONALE:
$2,000 (Amount on hand at Jan. 1) + $15,000 (Purchases) – $2,500 (Amount on hand at Dec.
31) = $14,500
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
95. Place Corp. purchased supplies at a cost of $12,000 during the year. At January 1, supplies on hand were $2,000. At
December 31, supplies on hand are $1,000. Determine the amount of supplies expense for the year.
a.
$ 10,000
b.
$ 12,000
c.
$ 13,000
d.
$ 14,000
ANSWER:
c
RATIONALE:
$2,000 (Amount on hand at Jan. 1) + $12,000 (Purchases) – $1,000 (Amount on hand at Dec.
31) = $13,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
96. Windstar Corp. purchased supplies at a cost of $6,000 during the year. At December 31, supplies on hand are $1,400.
Supplies expense for the year was $5,200. How much were supplies on hand at January 1?
a.
$ 2,200
b.
$ 11,200
c.
$ 1,400
d.
$ 600
ANSWER:
d
RATIONALE:
X + $6,000 (Purchases) – $5,200 (Expenses) = $1,400 (Amount at Dec. 31)
X = $600
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
97. Gear Shop purchased supplies at a cost of $1,000 during the year. At January 1, the beginning balance in the supplies
account was $300. At December 31, supplies on hand are $100. Determine supplies expense for the year.
a.
$ 1,300
b.
$ 1,200
c.
$ 1,100
d.
$ 1,400
ANSWER:
b
RATIONALE:
$300 (Beginning Balance) + $1,000 (Purchases) – $100 (Ending Balance) = $1,200
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
98. Vake purchased supplies at a cost of $18,000 during 2016. At January 1, 2016, the beginning balance in the supplies
account was $1,000. For 2016, supplies expense was $16,000. How much "Supplies" are on hand as of December 31,
2016?
a.
$ 1,000
b.
$ 3,000
c.
$16,000
d.
$17,000
ANSWER:
b
RATIONALE:
$1,000 (Beginning Balance) + $18,000 (Purchases) – $16,000 (Expensed) = $3,000
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
99. Which one of the following adjustments will increase assets?
a.
Interest incurred on money borrowed during the period but not yet paid to the bank is accrued.
b.
Rent revenue is recorded for amounts owed by a tenant but not yet paid.
c.
The use of supplies is recorded.
d.
Depreciation for the period is recorded.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
100. A company forgot to record four adjustments during 2016. Which one of the following omissions of adjustments will
understate net income?
a.
Sales made during the last week of the period are not recorded.
b.
Interest on monies borrowed has not yet been recorded.
c.
Prepaid insurance is not reduced for the portion of the policy that has expired during the period.
d.
Income taxes owed but not yet paid are ignored.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
101. A company forgot to record four adjustments during 2016. Which one of the following omissions of adjustments will
overstate assets?
a.
Sales made during the last week of the period are not recorded.
b.
Interest on monies borrowed has not yet been recorded.
c.
Prepaid insurance is not reduced for the portion of the policy that has expired during the period.
d.
Income taxes owed but not yet paid are ignored.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
102. CBA Corp. has grown significantly over the past year. One area that has plagued the Controller of CBA is the
reconciliation of supplies expense. The end-of-year supplies on hand totaled $20, and purchases totaled $500, and supplies
on hand at the beginning of the year amounted to $300. How much will CBA report as supplies expense for the current
year?
a.
$ 20
b.
$ 780
c.
$ 300
d.
$ 500
ANSWER:
b
RATIONALE:
$200 (Beginning Balance) + $500 (Purchases) – $20 (Ending Balance) = $680
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
103. Longitude Company borrowed on a two-year, 10%, $150,000 note on May 1, with interest and principal to be paid at
maturity. How much interest will Longitude report on its income statement for the year ending December 31?
a.
$ 10,000
b.
$ 15,000
c.
$ 30,000
d.
$ 5,000
ANSWER:
a
RATIONALE:
$150,000 (Principal) × 10% (Rate) × 8/12 (Time) = $10,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
104. Innovate Company borrowed on a one-year, 10%, $150,000 note on May 1, 2015 with interest and principal to be
paid at maturity. How much interest should Innovate Company report on its income statement for the year ending
December 31, 2016?
a.
$ 10,000
b.
$ 15,000
c.
$ 30,000
d.
$ 5,000
ANSWER:
d
RATIONALE:
$150,000 (Principal) × 10% (Rate) × 4/12 (Time) = $5,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
105. Masters Company borrowed on a one-year, 10%, $150,000 note on May 1, with interest and principal to be paid at
maturity. How much interest payable will be reported on Masters’ balance sheet as of November 30 of the same year?
a.
$ 7,500
b.
$ 8,750
c.
$ 15,000
d.
$ 30,000
ANSWER:
b
RATIONALE:
$150,000 (Principal) × 10% (Rate) × 7/12 (Time) = $8,750
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
106. Emory Co. operates five days per week with a daily payroll of $4,000. Employees are paid every Saturday for the
workweek just completed (Monday through Friday). The last day of the month is Wednesday, March 31. What is the
effect of the correct adjustment at March 31?
a.
Increases stockholders’ equity and Wages Payable by $8,000
b.
Increases Wages Payable and decreases Cash by $12,000
c.
Decreases stockholders’ equity and increases Wages Payable by $12,000
d.
Increases Wages Payable and increases Wages Expense by $8,000
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
107. Based on its income for the month, Reel Company estimates that federal income taxes for the month of May will be
$11,000. What is the effect of the adjustment on the financial statements?
a.
Increase retained earnings
b.
Increase income taxes expense
c.
Increase net income
d.
Decrease income taxes payable
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
108. Which one of the following adjustments increases net income for the period?
a.
Recognition of the amount of supplies used
b.
Recognition of interest on a note receivable
c.
Recognition of wages earned, but not paid to employees
d.
Recognition of rent costs that had been paid to the landlord in advance
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
109. Jogg Corp. plant operates five days per week with a daily payroll of $50,000. Employees are paid every Tuesday for
the prior week's work (Monday through Friday). The last day of the month is Tuesday, April 30. What effect does the
accrual at April 30 have on Pub’s net income?
a.
Increase by $250,000
b.
Decrease by $150,000
c.
Decrease by $100,000
d.
Increase by $150,000
ANSWER:
c
RATIONALE:
$50,000 (Daily Payroll) × 2 (Days) = $100,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
110. Roman Industries' plant operates five days per week with a daily payroll of $6,000. Employees are paid every
Saturday for the workweek just completed (Monday through Friday). The last day of the month is Wednesday, March 31.
What is the amount of Wages Expense recorded on the next payday, Saturday, April 3?
a.
$ -0-
b.
$ 30,000
c.
$ 12,000
d.
$ 18,000
ANSWER:
c
RATIONALE:
$6,000 (Daily Payroll) × 2 (Days) = $12,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
111. Carrington & Co. rented office space to a tenant on January 31 and received a total of $9,000 for the first three
months of rent. The amount was recorded as Rent Collected in Advance when received. Adjustments are recorded only at
the end of every quarter. What effect does the adjustment at March 31 have on Carrington’s net income for the quarter
ending March 31?
a.
Increase by $9,000
b.
Decrease by $6,000
c.
Decrease by $3,000
d.
Increase by $6,000
ANSWER:
d
RATIONALE:
$9,000 (Amount Received) × 2/3 (February/March rent) = $6,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
112. The asset account, Supplies, has a balance of $700 on January 1. During January, the company purchased $16,000 of
supplies on account and the liability was appropriately recorded. A count of supplies at the end of January indicates a
balance of $900. Which one of the following is a correct amount to be reported on the company's financial statements for
the month ending January 31?
a.
Supplies Expense—$15,800
b.
Supplies on Hand—$700
c.
Accounts Payable—$15,800
d.
Supplies Expense—$16,700
ANSWER:
a
RATIONALE:
$700 (Beginning Balance) + $16,000 (Purchases) – $900 (Ending Balance) = $15,800
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
113. Which of the following adjusting entries involves the cash account?
a.
Deferred Revenue
b.
Accrued Asset
c.
Deferred Liability
d.
None of the Above
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
114. Which one of the following adjustments decreases net income for the period?
a.
Recognition of depreciation on plant assets
b.
Recognition of interest on a note receivable
c.
Recognition of services that had been provided to customers but the cash has not yet been received
d.
Recognition of rent as earned that had been received in advance from customers
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
115. What is the effect on the accounting equation when a company recognizes rent as earned that had previously been
received in advance from customers?
a.
Expenses increase
b.
Revenues decrease
c.
Liabilities increase
d.
Net income increases
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
116. Failure to record accrued interest expense would result in which of the following?
a.
Assets being overstated
b.
Assets being understated
c.
Liabilities being overstated
d.
Liabilities being understated
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
117. Failure to record the earned portion of unearned revenue would result in which of the following?
a.
Net income being understated
b.
No effect on total liabilities
c.
Stockholders’ equity being overstated
d.
Total assets being understated
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
118. Failure to record dividends paid would result in which of the following?
a.
Net income being understated
b.
An increase in total liabilities
c.
Stockholders’ equity being overstated
d.
Total assets being understated
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
119. Failure to record the supplies used during the year would result in which of the following?
a.
Net income being understated
b.
An overstatement of liabilities
c.
Stockholders’ equity being overstated
d.
Total assets being understated
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
120. Failure to record amounts earned for services provided to customers but not yet paid results in which of the
following
a.
Net income being overstated
b.
No effect on total assets
c.
Stockholders’ equity being overstated
d.
Total assets being understated
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
121. Failure to record depreciation expense for the period results in which of the following?
a.
Net income being overstated
b.
No effect on total assets
c.
Stockholders’ equity being overstated
d.
Both a and c above
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
122. Davis Corp. has three employees. Each earns $600 per week for a five day work week ending on Friday. This month
the last day of the month falls on a Wednesday. The company should make which of the following adjusting entries?
a.
Credit Wage Expense for $360 and debit Wages Payable for $360
b.
Debit Wage Expense for $1,080 and credit Wages Payable for $1,080
c.
Credit Wage Expense for $1,080 and debit Wages Payable for $1,080
d.
Debit Wage Expense for $360 and credit Wages Payable for $360
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
123. Which of the following situations does not require an adjusting entry at the end of May?
a.
At the end of May, Bolton Industries pays the custodian for May office cleaning services.
b.
On May 1, Bolton Industries paid rent for six months on its office building.
c.
On May 1, Bolton Industries began delivery service to a client who will pay at the end of a three-month
period.
d.
On May 1, Bolton Industries purchased delivery equipment with an estimated useful life of six years.
ANSWER:
a
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Applying
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
124. Mitchell Company prepares monthly financial statements and will record.a prepaid account for each of the following
except:
a.
Mitchell paid for three months of window washing services in advance.
b.
Mitchell purchases a four-year casualty insurance policy.
c.
A tenant that pays Mitchell for six months of rent in advance.
d.
Mitchell purchases office supplies to last for several months.
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Applying
125. An adjusting entry could not consist of:
a.
A debit to a liability and a credit to revenue.
b.
A debit to an expense and a credit to a liability.
c.
A debit to an expense and a credit to an asset.
d.
A debit to an expense and a credit to revenue.
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
Jenning Co.
Jenning Co. adjusts its books each month but closes its books at the end of the year. The trial balance at July 31 before
adjustments is as follows:
Debit
Credit
Cash
$12,920
Accounts Receivable
9,620
Supplies
1,400
Prepaid Insurance
3,120
Equipment
26,000
Accumulated Depreciation—Equipment
$10,400
Unearned Service Revenue
6,500
Capital Stock
7,190
Retained Earnings
23,500
Dividends
1,560
Service Revenue
16,510
Wages and Salaries Expense
7,800
Utilities Expense
380
Rent Expense
1,300
$64,100
$64,100
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
126. Refer to the trial balance for Jenning Co.
On July 31, the amount of supplies on hand is $520. What amount is reported in the July income statement for supplies
expense?
a.
$520
b.
$1,400
c.
$1,920
d.
$880
ANSWER:
d
RATIONALE:
$1,400 – $520 = $880
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
127. Refer to the trial balance for Jenning Co.
Employees are owed $750 for services since the last payday in July, to be paid the first week in August. The amount to be
reported in the July income statement for salaries expense is:
a.
$750
b.
$8,550
c.
$7,050
d.
$7,800
ANSWER:
b
RATIONALE:
$7,800 + $750 = $8,550
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
128. Refer to the trial balance of Jenning Co. (Round calculations to the nearest dollar.)
If the equipment had an estimated useful life of five years and no salvage value, what is its book value at July 31, after the
proper monthly July adjustment is recorded?
a.
$10,400
b.
$25,567
c.
$15,167
d.
$10,833
ANSWER:
c
RATIONALE:
$26,000 / 60 months = $433 depreciation per month; Accumulated deprec. after adjustment =
$10,400 + $433 = 10,833; Book value = $26,000 – 10,833 = $15,167
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
129. Refer to the trial balance of Jenning Co.
On July 1, Tracy paid four months in advance for insurance. Which of the following is included in the adjusting entry at
July 31?
a.
A debit to Prepaid Insurance for $780
b.
A credit to Prepaid Insurance for $2,340
c.
A debit to Prepaid Insurance for $2,340
d.
A credit to Prepaid Insurance for $780
ANSWER:
d
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
130. Refer to the trial balance for Jenning Co.
According to contracts, $4,810 of Unearned Service Revenue has been earned in July. Which of the following is the
correct amount of Service Revenue to be reported in the July income statement?
a.
$20,410
b.
$11,700
c.
$21,320
d.
$16,510
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
131. Autumn Resorts purchased guest room furniture on January 1, 2015 for $120,000. The furniture has an estimated
useful life of ten years. What amount will appear on Autumn’s income statement for depreciation expense for the year
ending June 30, 2016?
a.
$1,000
b.
$6,000
c.
$10,000
d.
$12,000
ANSWER:
d
RATIONALE:
$120,000/10 = $12,000 per year
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
132. Deacon Company purchased equipment last year for $30,000. The equipment has an estimated useful life of five
years. What amount will appear on the income statement for depreciation expense for the month of March 2016?
a.
$0
b.
$500
c.
$6,000
d.
$30,000
ANSWER:
b
RATIONALE:
$30,000/5 × 1/12 = $500
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
133. Hsu Company purchased a truck on May 31, 2013 for $70,000. The equipment has an estimated useful life of five
years. What amount will appear on Hsu Company's balance sheet for total accumulated depreciation at May 31, 2016?
a.
$14,000
b.
$35,000
c.
$42,000
d.
$28,000
ANSWER:
c
RATIONALE:
$70,000/5 × 3 = $42,000
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Analyzing
134. Accumulated Depreciation
a.
increases when the monthly adjustment for depreciation is recognized.
b.
decreases when the monthly adjustment for depreciation is recognized.
c.
is reported on the income statement with the expense accounts.
d.
is allocated as an expense during future periods.
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
135. Accumulated Depreciation
a.
increases assets.
b.
decreases assets.
c.
increases liabilities.
d.
decreases liabilities.
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
136. Which of the following transactions involves an accrued asset?
a.
Wages earned by employees but not yet paid
b.
Rent collected in advance from a tenant
c.
Rent owed by a tenant but not yet collected
d.
One year’s premium on life insurance policy paid in advance
ANSWER:
c
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-05 - LO: 04-05
KEYWORDS:
Bloom's: Understanding
137. Which one of the following is the last step in the accounting cycle?
a.
Journalizing business transactions
b.
Recording and posting adjustments
c.
Closing the accounts
d.
Preparing financial statements
ANSWER:
c
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Understanding
138. Which one of the following steps in the accounting cycle is optional rather than required?
a.
Business transactions are recorded
b.
Adjustments are recorded
c.
The accounts are closed
d.
Work sheets are prepared
ANSWER:
d
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Understanding
139. Which one of the following steps in the accounting cycle is completed only at the end of an accounting period?
a.
Business transactions are recorded.
b.
Adjustments are recorded.
c.
Transactions are journalized.
d.
Journal entries are posted to the ledger.
ANSWER:
b
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Understanding
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
140. Some of the steps in the accounting cycle are listed below. Select the choice that places these steps in the correct
order.
1. Close the accounts.
2. Post transactions to accounts in the ledger.
3. Journalize daily transactions.
4. Record and post adjustments.
5. Prepare financial statements.
a.
2, 3, 4, 5, 1
b.
3, 2, 4, 5, 1
c.
3, 2, 4, 1, 5
d.
3, 2, 5, 4, 1
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Understanding
141. Balance sheet accounts are also known as which of the following?
a.
Nominal accounts
b.
Real accounts
c.
Temporary accounts
d.
Closing accounts
ANSWER:
b
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Understanding
142. Income statement accounts are also known as which of the following?
a.
Nominal accounts
b.
Real accounts
c.
Closing accounts
d.
Both a and c
ANSWER:
a
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FACC.PONO.13.04-06 - LO: 04-06
KEYWORDS:
Bloom's: Understanding
