Adjusting & Preparing Statements – Test Bank | 11e

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Testbank

to accompany

Accounting

11^th edition

by

Hoggett et al.

© John Wiley & Sons Australia, Ltd 2020

Chapter 4: Adjusting the accounts and preparing financial statements

Multiple-choice questions

1. Hannah Ltd uses gardening supplies on a daily basis. Under the accrual method of accounting these supplies would be an expense of the period in which they are:

a. paid for.

b. ordered.

c. received.

d. used.

General Feedback:

Learning objective 4.1: describe the difference between the cash basis and the accrual basis of measuring profit

2. Profit for a financial period is measured as:

a. Current assets less current liabilities.

b. DRs less CRs.

c. Income less expenses.

d. Assets less liabilities.

General Feedback:

Learning objective 4.1: describe the difference between the cash basis and the accrual basis of measuring profit.

3. The accrual approach to profit measurement is underpinned by which two main accounting assumptions?

a. historical cost and accounting period

b. going concern and historical cost. .

c. accounting period and going concern.

d. accounting period and entity period.

General Feedback:

Learning objective 4.1: describe the difference between the cash basis and the accrual basis of measuring profit

4. Which of the following statements concerning accrual accounting is correct?

a. Profit is the excess of cash inflows from income over cash outflows for expenses.

b. For most businesses the cash approach gives a better measure of economic performance than does the accrual approach

c. Income from sales is recognised in the period when the cash is received.

d. Expenses are recognised in the period in which the consumption of costs can be measured in a faithful, verifiable manner..

General Feedback:

Learning objective 4.1: describe the difference between the cash basis and the accrual basis of measuring profit

5. Accountants prefer to calculate profitability using the basis rather than the basis:

a. current; non-current

b. permanent; temporary.

c. adjusted; unadjusted.

d. accrual; cash.

General Feedback:

Learning objective 4.1: describe the difference between the cash basis and the accrual basis of measuring profit.

6. The cash approach to profit measurement will not give a reliable profit figure for an entity that conducts a significant portion of its business:

a. on credit.

b. with an overdraft.

c. with subsidiaries.

d. overseas.

General Feedback:

Learning objective 4.1: describe the difference between the cash basis and the accrual basis of measuring profit

7. Sampson Ltd.'s employees perform work to the value of $6500. They are paid $3500 immediately with the balance to be settled in the next accounting period. Under the cash approach to profit measurement, the amount of wages expense that will be recorded in the current period is:

a. $6500.

b. Nil

c. $3500.

d. $3000.

General Feedback:

Learning objective 4.1: describe the difference between the cash basis and the accrual basis of measuring profit

8. Which of the following statements relating to the cash basis of accounting is incorrect?

a. It is considered to be a suitable method of accounting for governments.

b. It is used by small business entities and professionals who conduct most of their business activities in cash.

c. The cost of goods and services consumed in the current period, but not paid for, are recognised as expenses in a later period when cash is paid

d. . Income is recorded in the period in which the cash is received.

General Feedback:

Learning objective 4.1: describe the difference between the cash basis and the accrual basis of measuring profit

9. Which of the following statements relating to balance day adjustments is correct?

a. They only affect the statement of financial performance.

b. They have at least one effect on the statement of financial performance and one effect on the statement of financial position.

c. They affect either the statement of financial performance or the statement of financial position.

d. They always affect the cash/bank account.

General Feedback:

Learning objective 4.2: explain the accounting cycle and the need for end-of-accounting-period adjusting entries.

10. The correct order of steps in the manual recording process is:
i Post transactions to the ledger
ii Record transactions in the journal
iii Prepare financial statements
iv Record adjusting entries

a. i, iv, iii, ii

b. iv, ii, i, iii

c. ii, i, iv, iii

d. i, ii, iii, iv

General Feedback:

Learning objective 4.2: explain the accounting cycle and the need for end-of-accounting-period adjusting entries.

11. The last step in the manual accounting cycle before the preparation of financial statements is:

a. Prepare an adjusted trial balance.

b. Determine adjusting entries.

c. Post adjusting entries to the general journal.

d. Record journal entries and post to the ledger.

General Feedback:

Learning objective 4.2: explain the accounting cycle and the need for end-of-accounting-period adjusting entries.

12. Preparing adjusting entries at the end of the financial year is necessary:

a. to correct any errors made during the period.

b. to calculate the profit or loss as accurately as possible.

c. to prepare the ledger for the next accounting period.

d. to close the accounts.

General Feedback:

Learning objective 4.2: explain the accounting cycle and the need for end-of-accounting-period adjusting entries.

13. The capital account of Benjie Maintenance, a sole trader, was credited with $15 000. Which of the following would not give rise to such a CR?

a. The owner introduced $15 000 new capital

b. The business earned a profit of $15 000.

c. The owner purchased a family holiday valued at $15 000 using funds from the business.

d. The owner brought in his personal ride-on lawn mower (valued at $15 000) to be used by the business.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

14. Adjustments which are necessary because cash for expenses is paid in advance or cash from income is received before the provision of goods or services are called:

a. accruals.

b. temporary adjustments.

c. recorded adjustments.

d. deferrals/prepayments.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries.

15. On 1 October 2022 Tanya's Pools paid $2400 for a 12-month insurance premium. The $2400 was initially recorded in the insurance expense account. The adjusting entry required to accurately represent the expired insurance at 31 December 2022, the close of the annual accounting period, is:

a. DR Prepaid insurance $600; CR Insurance expense $600

b. DR Insurance expense $200; CR Prepaid insurance $200

c. DR Prepaid insurance $1200; CR Insurance expense $1200

d. DR Prepaid insurance $1800; CR Insurance expense $1800

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries.

16. On the first day of the financial year Merv's Boats purchased a truck for $16 000. The truck is to be depreciated by 25% each year and has a zero residual value. At the end of the first year the adjusting entry to record depreciation on the truck is:

a. DR Depreciation - Truck $12000; CR Accumulated depreciation - Truck $12000

b. DR Depreciation - Truck $4000; CR Truck $4000

c. DR Depreciation - Truck $4000; CR Accumulated depreciation - Truck $4000

d. DR Accumulated depreciation - Truck $4000; CR Depreciation - Truck 4000

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

17. What type of account is Unearned Income?

a. Liability

b. Asset

c. Income

d. Expense

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries
Feedback: Unearned income is a liability account as until the work is done it does not belong to the entity and may need to be refunded.

18. The office supplies stock account is a/an:

a. asset.

b. income.

c. expense.

d. liability

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

19. Accrued salaries is a/an:

a. liability account.

b. contra asset account.

c. equity account.

d. asset account.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

20. Which of these is not a name for the original cost of an asset less its accumulated depreciation (if any)?

a. Written down value

b. Carrying amount

c. Book value

d. Depreciable amount

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries Feedback: Carrying amount, book value and written down value are all terms that refer to the cost of an asset less accumulated depreciation. Depreciable amount is cost of an asset less its recoverable amount.

21. Everything Bikes is owed $550 rent which has not been received by 3l December 2018, the last day of the accounting period. The adjusting entry on that date is:

a. DR Rent expense $550; CR Accrued Rent $550

b. DR Bank $550; CR Rent income $550

c. DR Rent income $550; CR Accounts receivable $550

d. DR Accounts receivable $550; CR Rent income $550

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

22. An account that is always deducted from a related account is known as a:

a. temporary account.

b. negative account.

c. carrying account.

d. contra account.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries
Feedback: An account that is always deducted from a related account is known as a contra account, e.g. sales returns is always deducted from the sales account

23. What type of account is Prepaid Rent?

a. Asset

b. Income

c. Liability

d. Expense

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

24. The supplies inventory account of Forever Flowers shows a balance of $1800 on 30 June 2022, the end of the financial year. Supplies of $1550 were used during the month of June 2022. Which of the following is correct after recording the adjustment on 30 June 2022?

a. Supplies expense in the statement of financial performance is $1800 and Supplies inventory in the statement of financial position is $0.

b. Supplies expense in the statement of financial performance is $1550 and Supplies inventory in the statement of financial position is $250.

c. Supplies expense in the statement of financial performance is $250 and Supplies inventory in the statement of financial position is $1550.

d. Supplies expense in the statement of financial performance is $0 and Supplies inventory in the statement of financial position is $1800.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

25. If an adjustment for accrued rent is omitted from the financial reports the effect is:

a. assets are overstated; profit is understated.

b. liabilities are overstated; profit is understated.

c. assets are understated; profit is overstated.

d. liabilities are understated; profit is overstated.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

26. The Prepaid Insurance account of Stephen's Spas shows a balance of $3000, representing a two-year insurance premium paid on 1 February 2022. After recording the adjustment on 30 June 2022, the end of the accounting period:

a. Insurance expense in the statement of financial performance is $625 and Prepaid Insurance in the statement of financial position is $2375.

b. Insurance expense in the statement of financial performance is $3000 and Prepaid Insurance in the statement of financial position is $0.

c. Insurance expense in the statement of financial performance is $750 and Prepaid Insurance in the statement of financial position is $2250.

d. Insurance expense in the statement of financial performance is $2375 and Prepaid Insurance in the statement of financial position is $625.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

27. Deferral type adjustments occur when cash for expenses is paid in advance or cash from income is received in advance. Which of the following will require a deferral type adjustment?
I. Rent paid for in advance
II. Plant and Equipment to be depreciated
III. Rent collected in advance from tenants
IV. Interest is owed to the bank

a. II, III, and IV.

b. I, II, and III.

c. I and III.

d. II and IV.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

28. Which statement relating to the accumulated depreciation account is correct?

a. It reflects the portion of the cost of the asset that has been assigned as an expense since the date of purchase.

b. It provides information on the market value of the asset at a particular date.

c. It normally has a DR balance.

d. It is classified as a liability in the statement of financial position.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

29. Using the following information and assuming all insurance premiums are paid in cash, the total cash paid for insurance during the year is:
Insurance expense (statement of financial performance) $4500
Prepaid Insurance:
Beginning Balance $6500
Ending Balance $3000

a. $1000

b. $2000

c. $4500

d. $3000

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

30. The prepaid insurance account of Downton Ltd shows a balance of $3600 (net of GST) representing a payment on 1 July 2022 of a three-year insurance premium. The correct adjusting entry on 31 December 2022, the close of the annual accounting period is:

a. Insurance expense $1200
Prepaid insurance $1200

b. Insurance expense $600
Prepaid insurance $600

c. Prepaid insurance $1800
Insurance expense $1800

d. Prepaid insurance $1200
Insurance expense $1200

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

31. MAC's Airport Parking purchased two vans for the business on 1 January 2022. The vans cost $80 000 each and have a useful life of 5 years with an expected residual of $10 000 each. The adjusting entry for depreciation on 30 June 2022, using the straight-line method, is:

a. DR Depreciation expense $28 000 CR Accumulated depreciation $28 000

b. DR Accumulated depreciation $14 000; CR Depreciation expense $14 000

c. DR Accumulated depreciation $28 000; CR Depreciation expense $28 000

d. DR Depreciation expense $14 000; CR Accumulated depreciation $14 000

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

32. 1 May 2022, Dress in Style received a $2000 advance payment from a customer for the design and making of a formal gown. The gown is expected to be completed by the end of August 2022. By 30 June 2022, approximately half of the dress is complete. The correct adjusting entry to be recorded at 30 June 2022 is:

a. DR Unearned income $1000; CR Dress-making income $1000

b. DR Unearned income $1000; CR Bank $1000

c. DR Dress-making expenses $1000; CR Unearned income $1000

d. DR Income earned $1000; CR Dress-making income $1000

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

33. On 1 May 2022, Dress in Style received a $2000 advance payment from a customer for the design and making of a formal gown. The gown is expected to be completed by the end of August 2022. The correct accounting entry to initially record the $2000 is:

a. DR Unearned income $2000; CR Bank $2000

b. DR Income earned $2000; CR Bank $2000

c. DR Bank $2000; CR Unearned income $2000

d. DR Bank $2000; CR Accounts payable $2000

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

34. On 1 November 2022 the publishers of 'Home' magazine received $198 (including GST) in advance for a 12-month subscription to their monthly issue. Which is the correct entry to be recorded on receipt of the subscription?

a. DR Cash $198; CR GST payable $18, CR Unearned subscriptions (liability) $180

b. DR Cash $180; CR Subscriptions income $180

c. DR Cash $198; CR GST payable $18, CR Prepaid subscriptions (asset) $180

d. DR Cash $198; CR Subscriptions income $198

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

35. On 1 November 2022 the publishers of 'Home' magazine received $198 (including GST) in advance for a 12-month subscription to their monthly issue. At the end of the financial year on 30 June 2023 the adjusting entry will be:

a. DR Cash $120; CR Subscriptions income $120

b. DR Unearned subscriptions (liability) $132; CR Subscriptions income $120; CR GST payable $12

c. DR Unearned subscriptions (liability) $120; CR Subscriptions income $120

d. DR Cash $198; CR GST payable $18; CR Unearned subscriptions (liability) $180

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

36. On 1 March 2022, Indiana Ltd rented out part of its manufacturing premises and collected $6000 in advance for a one year period. The receipt was credited to a liability account. At 31 December 2022, Indiana Ltd's end of financial year, the following adjusting journal should be recorded:

a. DR Rent receivable $5000; CR Rent income $5000

b. DR Rent income $3000; CR Unearned rent income $3000

c. DR Unearned rent income $4500; CR Rent income $4500

d. DR Unearned rent income $5000; CR Rent income $5000

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

37. The wages expense account for Ray's Plumbing showed the following entries for the month of May. What was the portion of wages that was treated as an expense in April but was not paid until May?

 
Wages expense

a. $ 2 200

b. $ 3 700

c. $34 000

d. $15 400

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

38. Newsome Company purchased equipment for $105 000 on 1 January 2022 with an estimated life of 8 years and a residual value of $5 000. The straight-line method of depreciation is used. What is the carrying amount of the equipment in the statement of financial position of Newsome Company at 30 June 2023?

a. $105 000

b. $81 250

c. $87 500

d. $100 000

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries
Feedback 105,000- (100,000/81.5)

39. During 2023 Annette's Mechanical paid out $85 000 in wages from its bank account. This $85 000 included $5 400 that was owing but unpaid at year-end for 2022. At year-end 2023 wages owing but unpaid were $12 300. The business uses accrual accounting. How much would be reported as wages expense for 2023?

a. $91 900

b. $12 300

c. $85 000

d. $97 300

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

40. If a company has earned income which has not been received in cash at the end of the accounting period an adjustment should be made which will:

a. DR an asset account and CR an income account.

b. DR an income account and CR an asset account.

c. DR cash and CR a liability account.

d. DR an expense account and CR cash.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

41. James Myers Ltd paid salaries and wages of $450 000 during the year ended 30 June 2022. The company owes $12 000 for work carried out during the last week of June but which is not due to be paid until 3 July. Assume there were no salaries and wages outstanding at the beginning of the financial year. After the adjusting entry for the year ended 30 June 2022:

a. Salaries and wages in the statement of financial performance are $438 000 and accrued Salaries and wages in the statement of financial position are $12 000.

b. Salaries and wages in the statement of financial performance are $450 000 and accrued Salaries and wages in the statement of financial position are $12 000.

c. Salaries and wages in the statement of financial performance are $462 000 and accrued Salaries and wages in the statement of financial position are $0.

d. Salaries and wages in the statement of financial performance are $462 000 and accrued Salaries and wages in the statement of financial position are $12 000.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

42. On the first day of the year Major Renos purchased scaffolding for $25 000 which is to be depreciated over 10 years with a zero residual value. At the end of the first year:

a. Depreciation in the statement of financial performance is $5 000 and the carrying value of the scaffolding in the statement of financial position is $20 000.

b. Depreciation in the statement of financial performance is $0 and the carrying value of the scaffolding in t the statement of financial position is $25 000.

c. Depreciation in the statement of financial performance is $1250 and the carrying value of the scaffolding in the statement of financial position is $23 750.

d. Depreciation in the statement of financial performance is $2 500 and the carrying value of the scaffolding in the statement of financial position is $22 500.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

43. Penelope Company's employees carry out work to the value of $8 400. They are paid $6 000 immediately with the balance to be settled in the next accounting period. Under the accrual method of accounting, the amount of wages expense that will be recorded in the current period is:

a. $8 400.

b. nil

c. $2 400.

d. $6 000.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

44. ABC Rentals collects rent from several properties. Prior to recording adjusting entries, assume the rent income account has a credit balance of $4 000. Two adjustments are to be made at the end of the financial year:
One - an accrual for accrued rent income of $800; and
Two - the unearned rent income account is to be decreased by $200.
After processing these adjusting entries the amount of rent income to be shown in the statement of financial performance is:

a. $3 000.

b. $3 400.

c. $4 600.

d. $5 000.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

45. In preparing its 2023 adjusting entries, Zena Ltd forgot to adjust the Office Supplies (asset) account for the amount of supplies used during the year. As a result of this error:

a. 2023 profit is understated, the balance of equity is understated, and assets are understated.

b. 2023 profit is overstated, the balance of equity is overstated, and assets are overstated

c. 2023 profit is overstated, the balance of equity is overstated, and assets are correctly stated.

d. 2023 profit is overstated, the balance of equity is correct, and assets are overstated.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

46. Adjustments where income is earned or expenses incurred before the cash is received or paid are called:

a. accruals.

b. deferrals.

c. prepayments.

d. unrecorded adjustments.

General Feedback:

Learning objective 4.3: identify and prepare the different types of adjusting entries

47. refers to the excess of current assets over current liabilities.

a. Current capital.

b. Net assets.

c. Working capital.

d. Tangible assets.

General Feedback:

Learning objective 4.4: prepare an adjusted trial balance and financial statements.

48. Which of the following is not an advantage of preparing an adjusted trial balance?

a. It verifies that the total DRs equal the total CRs in the ledger after the preparation of the adjusting entries.

b. It reduces the possibility of errors being carried forward from the ledger into the financial reports.

c. It assists in the preparation of the financial statements.

d. It is a shortcut which means that the adjusting entries do not have to be entered into the ledger

General Feedback:

Learning objective 4.4: prepare an adjusted trial balance and financial statements.

49. Obligations of the entity that can be paid over a period of more than one year from the statement of financial position date are classified as:

a. non-current liabilities.

b. current liabilities.

c. non-current assets.

d. long-standing obligations.

General Feedback:

Learning objective 4.5: describe the difference between current and non-current assets and liabilities.

50. Which of the following items is the current liability?

a. accrued utilities expenses.

b. accounts receivable.

c. rent expense.

d. long-term borrowings

General Feedback:

Learning objective 4.5: describe the difference between current and non-current assets and liabilities.

51. Assets that have a physical subsistence and are expected to provide future benefits are known as:

a. cash.

b. current assets.

c. tangible assets.

d. intangible assets.

General Feedback:

Learning objective 4.5: describe the difference between current and non-current assets and liabilities.

52. The portion of a non-current asset, such as machinery, which is transferred to an expense account during an accounting period, is known as:

a. depreciation.

b. carrying amount.

c. unused expense.

d. residual value.

General Feedback:

Learning objective 4.5: describe the difference between current and non-current assets and liabilities.

53. The period of time over which a non-current asset, such as furniture, is expected to be used by the entity is known as its:

a. book life.

b. carrying life.

c. working life.

d. useful life.

General Feedback:

Learning objective 4.5: describe the difference between current and non-current assets and liabilities.

54. Indicate the order that the following current assets should be listed in the statement of financial position
I Accounts receivable
II Cash at Bank
III Prepaid expenses
IV Inventory

a. II, I, IV, III

b. I, II, III, IV

c. III, II, I, IV

d. II, III, I, IV

General Feedback:

Learning objective 4.5: describe the difference between current and non-current assets and liabilities.

55. Which of the following is an intangible asset?

a. All of the options are intangible assets.

b. Patent

c. Goodwill

d. Brand name

General Feedback:

Learning objective 4.5: describe the difference between current and non-current assets and liabilities

56. The primary basis for classifying assets and liabilities in the statement of financial position is:

a. profitability.

b. cost.

c. age.

d. liquidity.

General Feedback:

Learning objective 4.5: describe the difference between current and non-current assets and liabilities.

57. The statement of financial position may list current assets in their order of liquidity. Liquidity refers to:

a. the entity's operating cycle.

b. whether the asset is held as security over a liability.

c. the average length of time it takes to convert an asset into cash.

d. how many buyers there are for the asset.

General Feedback:

Learning objective 4.5: describe the difference between current and non-current assets and liabilities.

58. To assist in evaluating an entity's liquidity, assets and liabilities are classified as:

a. tangible and intangible.

b. operating and non-operating.

c. current and non-current.

d. temporary and permanent.

General Feedback:

Learning objective 4.5: describe the difference between current and non-current assets and liabilities.

59. When preparing the financial statements using a manual accounting system, the worksheet will show profit:

a. in the DR column of the adjustments and in the CR column of the statement of financial position.

b. as a CR to the capital account and a DR to the bank account.

c. as zero.

d. in the DR column of the statement of financial performance and in the CR column of the statement of financial position.

General Feedback:

Learning objective 4.6: use a worksheet to prepare the financial statements.

60. The statement of financial performance columns on the worksheet are not equal because:

a. the difference is the profit or loss for the period.
c. an error has been made with the adjustments.

b. the statement of financial position has not yet been prepared.
d. the unadjusted trial balance was incorrect.

General Feedback:

Learning objective 4.6: use a worksheet to prepare the financial statements.

61. The correct set of column headings used in a worksheet to assist in the preparation of accounting reports in a manual accounting system are:

a. Unadjusted trial balance, adjustments, statement of financial performance, statement of financial position and statement of changes in equity

b. Unadjusted trial balance, adjustments, adjusted trial balance, statement of financial performance, statement of financial position.

c. Adjusted trial balance, statement of financial performance and statement of financial position.

d. Opening balances for the period, adjustments and adjusted trial balance.

General Feedback:

Learning objective 4.6: use a worksheet to prepare the financial statements.

62. Which of the following is correct in matching decisions with information in financial reports?

a. Determine long-term borrowing using the statement of changes in equity.

b. Determine return on investment using both the statement of financial performance and statement of financial position.

c. Determine solvency using the statement of financial performance.

d. Determine profitability using the statement of financial position.

General Feedback:

Learning objective 4.7: explain how financial statements are used in decision making.

63. If an adjustment for depreciation is not recorded for the year the effect on the financial statements will be:

a. Assets are overstated; profit is overstated

b. Assets are understated; profit is understated

c. Assets are understated; profit is overstated

d. Assets are overstated; profit is understated

General Feedback:

Learning objective 4.7: explain how financial statements are used in decision making.

64. At year-end the bookkeeper forgot to accrue an income item. This will result in an:

a. overstatement of assets, profit, and equity.

b. overstatement of liabilities and an understatement of profit and equity.

c. understatement of assets, profit, and equity.

d. understatement of assets and an overstatement of profit and equity.

General Feedback:

Learning objective 4.7: explain how financial statements are used in decision making.