Finance Chapter 4 Sales Made During The Last Week The Period Are Not Recorded Interest

Chapter 4: Income Measurement and Accrual Accounting

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

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

d.

$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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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