Accrual Accounting Concepts
4-21
89. Which of the following would be unethical?
a. Recording accrued salaries and wages expense.
b. Recording accrued interest revenue.
c. Recording backdated revenue.
d. Recording prepaid expense adjustments.
90. Why was Apple required to spread their iPhone revenues over a two year period?
a. Because of its newness, their returns might exceed the normal level of returns.
b. Because they were required to provide software updates over that two year period.
c. Because that was the estimated life of the iPhone.
d. Because they needed to defer revenue recognition since they had a swap program avail-
able for future models.
91. According to some U.S. companies what gives foreign firms a competitive advantage in the
capital market?
a. The foreign companies don’t have standards similar to GAAP.
b. The foreign companies don’t have strict ethical codes.
c. The Sarbanes-Oxley Act which requires more stringent internal controls on U.S. firms.
d. The foreign companies don’t have to be audited.
92. The primary difference between prepaid and accrued expenses is that prepaid expenses
have:
a. been incurred and accrued expenses have not.
b. not been paid and accrued expenses have.
c. been recorded and accrued expenses have not.
d. not been recorded and accrued expenses have.
93. The primary difference between accrued revenues and unearned revenues is that accrued
revenues have:
a. not been recognized and accrued revenues have been.
b. been paid and unearned revenues have not.
c. been recorded and unearned revenues have not.
d. not been recorded and unearned revenues have.
94. The general term employed to indicate an expense that has not been paid or revenue that
has not been received and has not yet been recognized in the accounts is:
a. contra asset.
b. prepayment.
c. asset.
d. accrued.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
4-22
95. Accounts often need to be adjusted because:
a. there are never enough accounts to record all the transactions.
b. many transactions affect more than one time period.
c. there are always errors made in recording transactions.
d. management can’t decide what they want to report.
96. Adjusting entries are made to ensure that:
a. expense are recognized in the period in which they are incurred.
b. revenues are recorded in the period in which the performance obligation is satisfied.
c. balance sheet and income statement accounts have correct balances at the end of an
accounting period.
d. All of these answer choices are correct.
97. Adjusting entries are:
a. not necessary if the accounting system is operating properly.
b. usually required before financial statements are prepared.
c. made whenever management desires to change an account balance.
d. made to balance sheet accounts only.
98. Each of the following is a major type (or category) of adjusting entry except:
a. earned expenses.
b. prepaid expenses.
c. accrued expenses.
d. accrued revenues.
99. Adjusting entries are required:
a. because some costs expire with the passage of time and have not yet been journalized.
b. when the company’s profits are below the budget.
c. when expenses are recorded in the period in which they are earned.
d. None of these answer choices are correct.
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-23
100. Which one of the following is not a justification for adjusting entries?
a. Adjusting entries are necessary to ensure that the revenue recognition principle is fol-
lowed.
b. Adjusting entries are necessary to ensure that the expense recognition principle is fol-
lowed.
c. Adjusting entries are necessary to enable financial statements to be in conformity with
GAAP.
d. Adjusting entries are necessary to bring the general ledger accounts in line with the
budget.
101. An adjusting entry:
a. affects two balance sheet accounts.
b. affects two income statement accounts.
c. affects a balance sheet account and an income statement account.
d. is always a compound entry.
102. Adjusting entries are:
a. the same as correcting entries.
b. needed to ensure that the expense recognition principle is followed.
c. optional.
d. rarely needed.
103. The preparation of adjusting entries is:
a. straightforward because the accounts that need adjustment will be out of balance.
b. needed to ensure that the expense recognition principle is followed.
c. only required for accounts that do not have a normal balance.
d. optional when financial statements are prepared.
104. If a resource has been consumed but a bill has not been received at the end of the account-
ing period, then:
a. an expense should be recorded when the bill is received.
b. an expense should be recorded when the cash is paid out.
c. an adjusting entry should be made recognizing the expense.
d. it is optional whether to record the expense before the bill is received.
105. An asset–expense relationship exists with:
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
4-24
a. liability accounts.
b. revenue accounts.
c. prepaid expense adjusting entries.
d. accrued expense adjusting entries.
106. A liability–revenue relationship exists with:
a. asset accounts.
b. revenue accounts.
c. unearned revenue adjusting entries.
d. accrued expense adjusting entries.
107. Adjusting entries can be classified as:
a. postponements and advances.
b. accruals and deferrals.
c. deferrals and postponements.
d. accruals and advances.
108. Adjusting entries can be classified as:
a. postponements and advances.
b. accruals and advances.
c. deferrals and postponements.
d. accruals and deferrals.
109. Accrued expenses are:
a. incurred but not yet paid or recorded.
b. paid and recorded in an asset account after they are used or consumed.
c. paid and recorded in an asset account before they are used or consumed.
d. incurred and already paid or recorded.
110. Accrued revenues are:
a. received and recorded as liabilities before they are recognized.
b. recognized and recorded as liabilities before they are received.
c. recognized but not yet received or recorded.
d. recognized and already received and recorded.
111. Prepaid expenses are:
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-25
a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded.
112. Goods purchased for future use in the business, such as supplies, are called:
a. prepaid expenses.
b. revenues.
c. stockholders’ equity.
d. liabilities.
113. Accrued expenses are:
a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded.
114. Unearned revenues are:
a. received and recorded as liabilities before they are recognized.
b. recognized and recorded as liabilities before they are received.
c. recognized but not yet received or recorded.
d. recognized and already received and recorded.
115. Adjusting entries affect at least:
a. one revenue and one expense account.
b. one asset and one liability account.
c. one revenue and one balance sheet account.
d. one income statement account and one balance sheet account.
116. An architecture firm earned $2,000 for architecture services provided with the fee to be paid
in the future. No entry was made at the time the service was provided. If the fee has not been
paid by the end of the accounting period and no adjusting entry is made, this would cause:
a. revenues to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.
117. An adjusting entry can include a:
a. debit to an asset and a credit to a liability.
b. debit to a revenue and a credit to an asset.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
4-26
c. debit to a liability and a credit to a revenue.
d. debit to an expense and a credit to a revenue.
118. A law firm received $2,000 cash for legal services to be rendered in the future. The full
amount was credited to the liability account Unearned Service Revenue. If the legal services
have been rendered at the end of the accounting period and no adjusting entry is made, this
would cause:
a. expenses to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.
119. On January 1, 2013, M. Johanson Company purchased equipment for $36,000. The compa-
ny is depreciating the equipment at the rate of $500 per month. The book value of the
equipment at December 31, 2013 is:
a. $0.
b. $6,000.
c. $30,000.
d. $36,000.
120. The Vintage Laundry Company purchased $6,500 worth of laundry supplies on June 2 and
recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only
$1,000 on hand. The adjusting entry that should be made by the company on June 30 is:
a. debit Supplies Expense, $1,000; credit Supplies, $1,000.
b. debit Supplies, $5,500; credit Supplies Expense, $5,500.
c. debit Supplies, $1,000; credit Supplies Expense, $1,000.
d. debit Supplies Expense, $5,500; credit Supplies, $5,500.
121. Greese Company purchased office supplies costing $4,000 and debited Supplies for the full
amount. At the end of the accounting period, a physical count of office supplies revealed
$1,500 still on hand. The appropriate adjusting journal entry to be made at the end of the pe-
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-27
riod would be:
a. debit Supplies Expense, $1,500; credit Supplies, $1,500.
b. debit Supplies, $2,500; credit Supplies Expense, $2,500.
c. debit Supplies Expense, $2,500; credit Supplies, $2,500.
d. debit Supplies, $1,500; credit Supplies Expense, $1,500.
122. A company purchased office supplies costing $3,000 and debited Supplies for the full
amount. At the end of the accounting period, a physical count of office supplies revealed
$900 still on hand. The appropriate adjusting journal entry to be made at the end of the peri-
od would be:
a. debit Supplies Expense, $3,900; credit Supplies, $3,900.
b. debit Supplies, $900; credit Supplies Expense, $900.
c. debit Supplies Expense, $2,100; credit Supplies, $2,100.
d. debit Supplies, $2,100; credit Supplies Expense, $2,100.
123. Unearned revenue is classified as a(n):
a. asset account.
b. revenue account.
c. contra revenue account.
d. liability.
124. Boyce Company purchased office supplies costing $5,000 and debited Supplies for the full
amount. At the end of the accounting period, a physical count of office supplies revealed
$1,800 still on hand. The appropriate adjusting journal entry to be made at the end of the pe-
riod would be:
a. debit Supplies Expense, $3,200; credit Supplies, $3,200.
b. debit Supplies, $1,800; credit Supplies Expense, $1,800.
c. debit Supplies Expense, $1,800; credit Supplies, $1,800.
d. debit Supplies, $3,200; credit Supplies Expense, $3,200.
125. On July 1 the Fisher Shoe Store paid $18,000 to Acme Realty for 6 months rent beginning
July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on
July 31, the adjusting entry to be made by the Fisher Shoe Store is:
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
4-28
a. debit Rent Expense, $18,000; credit Prepaid Rent, $3,000.
b. debit Prepaid Rent, $3,000; credit Rent Expense, $3,000.
c. debit Rent Expense, $3,000; credit Prepaid Rent, $3,000.
d. debit Rent Expense, $18,000; credit Prepaid Rent, $15,000.
126. The balance in the prepaid rent account before adjustment at the end of the year is $15,000
and represents three months rent paid on December 1. The adjusting entry required on De-
cember 31 is:
a. debit Prepaid Rent, $5,000; credit Rent Expense $5,000.
b. debit Prepaid Rent, $10,000; credit Rent Expense, $10,000.
c. debit Rent Expense, $15,000; credit Prepaid Rent, $15,000.
d. debit Rent Expense, $5,000; credit Prepaid Rent, $5,000.
127. If a business has received cash in advance of services performed and credits a liability ac-
count, the adjusting entry needed after the services are performed will be:
a. debit Unearned Service Revenue and credit Cash.
b. debit Unearned Service Revenue and credit Service Revenue.
c. debit Unearned Service Revenue and credit Prepaid Expense.
d. debit Unearned Service Revenue and credit Accounts Receivable.
128. Accumulated Depreciation is a(n):
a. expense account.
b. stockholders’ equity account.
c. liability account.
d. contra asset account.
Accrual Accounting Concepts
4-29
129. The Harris Company purchased equipment for $9,000 on December 1. It is estimated that
annual depreciation on the computer will be $1,800. If financial statements are to be pre-
pared on December 31, the company should make the following adjusting entry:
a. debit Depreciation Expense, $1,800; credit Accumulated Depreciation, $1,800.
b. debit Depreciation Expense, $150; credit Accumulated Depreciation, $150.
c. debit Depreciation Expense, $7,200; credit Accumulated Depreciation, $7,200.
d. debit Equipment, $9,000; credit Accumulated Depreciation, $9,000.
130. Adjustments for unearned revenue:
a. decrease liabilities and increase revenues.
b. increase liabilities and increase revenues.
c. increase assets and increase revenues.
d. decrease revenues and decrease assets.
131. Leyland Realty Company received a check for $15,000 on July 1, which represents a 6–
month advance payment of rent on a building it rents to a client. Unearned Rent Revenue
was credited for the full $15,000. Financial statements will be prepared on July 31. Leyland
Realty should make the following adjusting entry on July 31:
a. debit Unearned Rent Revenue, $2,500; credit Rent Revenue, $2,500.
b. debit Rent Revenue, $2,500; credit Unearned Rent Revenue, $2,500.
c. debit Unearned Rent Revenue, $15,000; credit Rent Revenue, $15,000.
d. debit Cash, $15,000; credit Rent Revenue, $15,000.
132. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a:
a. debit to an asset account and a credit to an expense account.
b. debit to an expense account and a credit to an asset account.
c. debit to an asset account and a credit to an asset account.
d. debit to an expense account and a credit to an expense account.
133. Adjustments for unearned revenue:
a. decrease liabilities and increase revenues.
b. increase liabilities and increase revenues.
c. increase assets and increase revenues.
d. decrease revenues and decrease assets.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
4-30
134. Payments of expenses that will benefit more than one accounting period are identified as:
a. expenses.
b. revenues.
c. prepaid expenses.
d. liabilities.
135. A company usually determines the amount of supplies used during a period by:
a. adding the supplies on hand to the balance of the Supplies account.
b. summing the amount of supplies purchased during the period.
c. taking the difference between the supplies purchased and the supplies paid for during the
period.
d. taking the difference between the balance of the Supplies account and the cost of sup-
plies on hand.
136. If a company fails to make an adjusting entry to record supplies expense, then:
a. stockholders’ equity will be understated.
b. expense will be understated.
c. assets will be understated.
d. net income will be understated.
137. Supplies are recorded as assets when purchased. Therefore, the credit to supplies in the ad-
justing entry is for the amount of supplies:
a. remaining.
b. purchased.
c. used.
d. either used or remaining.
138. If a company fails to adjust for accrued revenues:
a. liabilities will be understated and revenues will be understated.
b. liabilities will be overstated and revenues will be understated.
c. assets will be overstated and revenues will be understated.
d. assets will be understated and revenues will be understated.
139. If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect will
this have on that month’s financial statements?
a. Failure to make an adjustment does not affect the financial statements.
b. Expenses will be overstated and net income and stockholders’ equity will be under- stat-
ed.
c. Assets will be overstated and net income and stockholders’ equity will be understated.
d. Assets will be overstated and net income and stockholders’ equity will be overstated.
Accrual Accounting Concepts
4-31
140. If a company fails to adjust an Unearned Rent Revenue account for rent that has been
earned, what effect will this have on that month’s financial statements?
a. Assets will be understated and revenues will be understated.
b. Liabilities will be understated and revenues will be understated.
c. Liabilities will be overstated and revenues will be understated.
d. Assets will be overstated and revenues will be understated.
141. If a company fails to adjust for accrued expenses, what effect will this have on that month’s
financial statements?
a. Failure to make an adjustment does not affect the financial statements.
b. Expenses will be understated and net income and stockholders’ equity will be over– stat-
ed.
c. Assets will be overstated and net income and stockholders’ equity will be under-stated.
d. Assets will be overstated and net income and stockholders’ equity will be overstated.
142. On January 1, 2013, Leardon Inc. purchased equipment for $60,000. The company is depre-
ciating the equipment at the rate of $800 per month. At January 31, 2014, the balance in
Accumulated Depreciation is:
a. $800 debit.
b. $9,600 credit.
c. $10,400 credit.
d. $53,200 debit.
143. At December 31, 2014, before any year-end adjustments, Dallis Company’s Prepaid Insur-
ance account had a balance of $2,900. It was determined that $1,300 of the Prepaid
Insurance had expired. The adjusted balance for Insurance Expense for the year would be:
a. $1,300.
b. $1,600.
c. $2,900.
d. $1,400.
144. At December 31, 2014, before any year-end adjustments, Janus Company’s Prepaid Insur-
ance account had a balance of $2,800. It was determined that $1,200 of the Prepaid
Insurance had expired. The adjusted balance for Prepaid Insurance for the year would be:
a. $1,200.
b. $1,600.
c. $3,800.
d. $2,800.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
4-32
145. At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was
omitted. Which of the following statements is true?
a. Net income will be overstated for the current year.
b. Total assets will be understated at the end of the current year.
c. The balance sheet and income statement will be misstated but the Retained Earnings
statement will be correct for the current year.
d. Total expenses will be overstated at the end of the current year.
ing
146. The trial balance for Greenway Corporation appears as follows:
Greenway Corporation
Trial Balance
December 31, 2014
Cash $ 300
Accounts Receivable 500
Prepaid Insurance 60
Supplies 140
Equipment 4,000
Accumulated Depreciation, Equipment $ 800
Accounts Payable 300
Common Stock 1,000
Retained Earnings 1,400
Service Revenue 3,000
Salaries and Wages Expense 1,000
Rent Expense 500 0
$6,500 $6,500
If, on December 31, 2014, supplies on hand were $20, the adjusting entry would contain a:
a. debit to Supplies for $20.
b. credit to Supplies for $20.
c. debit to Supplies Expense for $120.
d. credit to Supplies Expense for $120.
Accrual Accounting Concepts
4-33
147. The trial balance for Greenway Corporation appears as follows:
Greenway Corporation
Trial Balance
December 31, 2014
Cash $ 300
Accounts Receivable 500
Prepaid Insurance 60
Supplies 140
Equipment 4,000
Accumulated Depreciation, Equipment $ 800
Accounts Payable 300
Common Stock 1,000
Retained Earnings 1,400
Service Revenue 3,000
Salaries and Wages Expense 1,000
Rent Expense 500 0
$6,500 $6,500
If, on December 31, 2014, the insurance still unexpired amounted to $10, the adjusting entry
would contain a:
a. debit to Prepaid Insurance for $50.
b. credit to Prepaid Insurance for $10.
c. debit to Insurance Expense for $50.
d. debit to Prepaid Insurance for $10.
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
4-34
148. The trial balance for Greenway Corporation appears as follows:
Greenway Corporation
Trial Balance
December 31, 2014
Cash $ 300
Accounts Receivable 500
Prepaid Insurance 60
Supplies 140
Equipment 4,000
Accumulated Depreciation, Equipment $ 800
Accounts Payable 300
Common Stock 1,000
Retained Earnings 1,400
Service Revenue 3,000
Salaries and Wages Expense 1,000
Rent Expense 500 0
$6,500 $6,500
If the estimated depreciation for equipment were $800, the adjusting entry would contain a:
a. credit to Accumulated Depreciation, Equipment for $800.
b. credit to Depreciation Expense, Equipment for $800.
c. debit to Accumulated Depreciation, Equipment for $800.
d. credit to Equipment for $800.
Accrual Accounting Concepts
4-35
149. The trial balance for Greenway Corporation appears as follows:
Greenway Corporation
Trial Balance
December 31, 2014
Cash $ 300
Accounts Receivable 500
Prepaid Insurance 60
Supplies 140
Equipment 4,000
Accumulated Depreciation, Equipment $ 800
Accounts Payable 300
Common Stock 1,000
Retained Earnings 1,400
Service Revenue 3,000
Salaries and Wages Expense 1,000
Rent Expense 500 0
$6,500 $6,500
If as of December 31, 2014, rent of $120 for December had not been recorded or paid, the
adjusting entry would include a:
a. credit to Accumulated Rent for $120.
b. credit to Cash for $120.
c. debit to Rent Payable for $120
d. debit to Rent Expense for $120
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
4-36
150. The trial balance for Greenway Corporation appears as follows:
Greenway Corporation
Trial Balance
December 31, 2014
Cash $ 300
Accounts Receivable 500
Prepaid Insurance 60
Supplies 140
Equipment 4,000
Accumulated Depreciation, Equipment $ 800
Accounts Payable 300
Common Stock 1,000
Retained Earnings 1,400
Service Revenue 3,000
Salaries and Wages Expense 1,000
Rent Expense 500 0
$6,500 $6,500
If service for $125 had been performed but not billed, the adjusting entry to record this would
include a:
a. debit to Service Revenue for $125.
b. credit to Unearned Service Revenue for $125.
c. credit for Service Revenue for $125.
d. debit to Unearned Revenue for $125.
151. Depreciation is the process of:
a. valuing an asset at its fair value.
b. increasing the value of an asset over its useful life in a rational and systematic manner.
c. allocating the cost of an asset to expense over its useful life in a rational and systematic
manner.
d. writing down an asset to its real value each accounting period.
152. The difference between the balance of a plant asset account and the related accumulated
depreciation account is termed:
a. market value.
b. contra asset.
c. book value.
d. liability.
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-37
153. A new accountant working for Metcalf Company records $800 Depreciation Expense on
store equipment as follows:
Dr. Cr.
Depreciation Expense …………………….. …………… 800
Cash ……………………………………………………… 800
The effect of this entry is to:
a. adjust the accounts to their proper amounts on December 31.
b. understate total assets on the balance sheet as of December 31.
c. overstate the book value of the depreciable assets at December 31.
d. understate the book value of the depreciable assets as of December 31.
154. From an accounting standpoint, the acquisition of long-lived assets is essentially a(n):
a. accrual of expense.
b. accrual of revenue.
c. accrual of unearned revenue.
d. prepaid expense.
155. If a business pays rent in advance and debits a Prepaid Rent account, the company receiv-
ing the rent payment will credit:
a. cash.
b. prepaid rent.
c. unearned rent revenue.
d. accrued rent revenue.
156. An accumulated depreciation account:
a. is a contra liability account.
b. increases on the debit side.
c. is offset against total assets on the balance sheet.
d. has a normal credit balance.
157. The difference between the cost of a depreciable asset and its related accumulated depre-
ciation is referred to as the:
a. market value of the asset.
b. blue book value of the asset.
c. book value of the asset.
d. depreciated difference of the asset.
158. Which of the following would not result in unearned revenue?
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
FOR INSTRUCTOR USE ONLY
4-38
a. Rent collected in advance from tenants.
b. Services performed on account.
c. Sale of season tickets to football games.
d. Sale of two-year magazine subscriptions.
159. The policy at Adler Corporation is to expense all office supplies at the time of purchase. On
the last day of the accounting period, there are $1,100 of unused office supplies on hand and
the balance of supplies expense is $3,500. What should the accountant do?
a. Debit Supplies and credit Supplies Expense for $1,100.
b. Nothing, company policy says to expense supplies when purchased.
c. Convince management to change its policy to avoid problems in the future.
d. Debit Supplies Expense for $2,400 and credit Supplies for $2,400.
160. Which statement is correct?
a. Accumulated Depreciation should always have a debit balance in the adjusted trial
balance.
b. Accumulated Depreciation is added to the long-term liabilities on the balance sheet.
c. Accumulated Depreciation, Equipment represents the total cost of equipment that has
expired up to the date of the balance sheet.
d. Accumulated Depreciation is used to reveal the value of the related asset on the date of
the balance sheet.
161. Walton Company collected $9,600 in May of 2013 for 4 months of service which would take
place from October of 2013 through January of 2014. The revenue reported from this trans-
action during 2013 would be:
a. $0.
b. $7,200.
c. $9,600.
d. $2,400.
162. Skypress Company collected $8,400 in May of 2013 for 4 months of service which would
take place from October of 2013 through January of 2014. The revenue reported from this
transaction during 2013 would be:
a. $0.
b. $6,300.
c. $8,400.
d. $2,100.
163. Masterfalls Corporation purchased a one-year insurance policy in January 2013 for $30,000.
The insurance policy is in effect from March 2013 through February 2014. If the company
Accrual Accounting Concepts
FOR INSTRUCTOR USE ONLY
4-39
neglects to make the proper year-end adjustment for the expired insurance:
a. net income and assets will be understated by $25,000.
b. net income and assets will be overstated by $25,000.
c. net income and assets will be understated by $5,000.
d. net income and assets will be overstated by $5,000.
164. James & Younger Corporation purchased a one-year insurance policy in January 2013 for
$48,000. The insurance policy is in effect from March 2013 through February 2014. If the
company neglects to make the proper year-end adjustment for the expired insurance:
a. net income and assets will be understated by $40,000.
b. net income and assets will be overstated by $40,000.
c. net income and assets will be understated by $8,000.
d. net income and assets will be overstated by $8,000.
165. At March 1, 2014, Candy Inc. had supplies on hand of $1,500. During the month, Candy pur-
chased supplies of $2,900 and used supplies of $2,800. The March 31 balance sheet should
report what balance in the supplies account?
a. $1,500
b. $1,600
c. $2,800
d. $2,900
166. Darting Company purchased a computer system for $7,200 on January 1, 2014. The compa-
ny expects to use the computer system for 3 years. It has no salvage value. Monthly
depreciation expense on the asset is:
a. $0.
b. $200.
c. $2,400.
d. $7,200.
167. Fleet Services Company purchased equipment for $9,000 on January 1, 2014. The company
expects to use the equipment for 5 years. It has no salvage value. What balance would be
Test Bank for Accounting: Tools for Business Decision Making, Fifth Edition
4-40
reported on the December 31, 2014 balance sheet for Accumulated Depreciation?
a. $0 because Accumulated Depreciation is reported on the Income Statement.
b. $1,800
c. $7,200
d. $9,000
168. Green Realty Company received a check for $30,000 on July 1 which represents a 6 month
advance payment of rent on a building it rents to a client. Unearned Rent Revenue was cred-
ited for the full $30,000. Financial statements will be prepared on July 31. Green Realty
should make the following adjusting entry on July 31:
a. debit Unearned Rent Revenue, $5,000; credit Rent Revenue, $5,000.
b. debit Rent Revenue, $5,000; credit Unearned Rent Revenue, $5,000.
c. debit Unearned Rent Revenue, $30,000; credit Rent Revenue, $30,000.
d. debit Cash, $30,000; credit Rent Revenue, $30,000.
169. Oakville Inc. purchased a 12-month insurance policy on March 1, 2014 for $1,800. At March
31, 2014, the adjusting journal entry to record expiration of this asset will include:
a. a debit to Prepaid Insurance and a credit to Cash for $1,800.
b. a debit to Prepaid Insurance and a credit to Insurance Expense for $180.
c. a debit to Insurance Expense and a credit to Prepaid Insurance for $150.
d. a debit to Insurance Expense and a credit to Cash for $150.
170. Hoosher Enterprises purchased an 18-month insurance policy on May 31, 2014 for $7,200.
The December 31, 2014 balance sheet would report Prepaid Insurance of:
a. $0 because Prepaid Insurance is reported on the Income Statement.
b. $2,800.
c. $4,400.
d. $7,200.
171. At March 1, I. Repo Inc. reported a balance in Supplies of $200. During March, the company