Financial Adjustments – Ch4 | Test Bank – 10th Edition

View Product website:

https://selldocx.com/docx/financial-adjustments-ch4-test-bank-10th-edition-1378

Testbank

to accompany

Financial accounting

10^th edition

by

Hoggett et al.

© John Wiley & Sons Australia, Ltd 2018

Chapter 4: Adjusting the accounts and preparing financial statements

Multiple-choice questions

1. Profit for a financial period is measured as:

a. Income less expenses.

b. Assets less liabilities.

c. Current assets less current liabilities.

d. DRs less CRs.

Correct answer: a

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

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

a. adjusted; unadjusted.

b. permanent ; temporary.

c. accrual; cash.

d. current; non-current.

Correct answer: c

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. going concern and historical cost.

b. historical cost and accounting period.

c. accounting period and entity period.

d. accounting period and going concern.

Correct answer: d

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

4. 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. $3000.

b. $3500.

c. $6500.

d. Nil.

Correct answer: b

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

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

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

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

c. Income from sales is recognised in the period when the cheque is cashed.

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

Correct answer: a

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. overseas.

b. on credit.

c. with an overdraft.

d. with subsidiaries.

Correct answer: b

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

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

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

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

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

d. 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.

Correct answer: c

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

8. 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. ordered.

b. used.

c. received.

d. paid for.

Correct answer: b

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

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

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

b. to close the accounts.

c. to correct any errors made during the period.

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

Correct answer: d

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, ii, iii, iv

b. iv, ii, i, iii

c. i, iv, iii, ii

d. ii, i, iv, iii

Correct answer: d

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. Post adjusting entries to the general journal.

b. Determine adjusting entries.

c. Prepare an adjusted trial balance.

d. Record journal entries and post to the ledger.

Correct answer: c

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

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

a. They affect either the income statement or the balance sheet.

b. They only affect the income statement.

c. They always affect the cash/bank account.

d. They have at least one effect on the income statement and one effect on the balance sheet.

Correct answer: d

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

13. 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. deferrals/prepayments.

b. accruals.

c. temporary adjustments.

d. recorded adjustments.

Correct answer: a

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

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

a. deferrals.

b. prepayments.

c. unrecorded adjustments.

d. accruals.

Correct answer: d

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

15. On 1 October 2018 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 2018, the close of the annual accounting period, is:

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

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

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

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

Correct answer: a

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

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

a. liability.

b. asset.

c. income.

d. expense.

Correct answer: b

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

17. 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 $4000; CR Truck $4000

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

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

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

Correct answer: d

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

18. What type of account is Unearned Income?

a. Income

b. Expense

c. Liability

d. Asset

Correct answer: c

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.

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

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

a. Carrying amount

b. Depreciable amount

c. Book value

d. Written down value

Correct answer: b

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.

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

20. Accrued salaries is a/an:

a. contra asset account.

b. asset account.

c. liability account.

d. equity account.

Correct answer: c

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

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 Bank $550; CR Rent income $550

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

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

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

Correct answer: b

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

22. What type of account is Prepaid Rent?

a. Liability

b. Income

c. Asset

d. Expense

Correct answer: c

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

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

a. contra account.

b. temporary account.

c. carrying account.

d. negative account.

Correct answer: a

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.

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 2018, the end of the financial year. Supplies of $1550 were used during the month of June 2018. Which of the following is correct after recording the adjustment on 30 June 2018?

a. Supplies expense in the income statement is $1550 and Supplies inventory in the balance sheet is $250.

b. Supplies expense in the income statement is $1800 and Supplies inventory in the balance sheet is $0.

c. Supplies expense in the income statement is $0 and Supplies inventory in the balance sheet is $1800.

d. Supplies expense in the income statement is $250 and Supplies inventory in the balance sheet is $1550.

Correct answer: a

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

25. The Prepaid Insurance account of Stephen’s Spas shows a balance of $3000, representing a two-year insurance premium paid on 1 February 2018. After recording the adjustment on 30 June 2018, the end of the accounting period:

a. Insurance expense in the income statement is $3000 and Prepaid Insurance in the balance sheet is $0.

b. Insurance expense in the income statement is $625 and Prepaid Insurance in the balance sheet is $2375.

c. Insurance expense in the income statement is $2375 and Prepaid Insurance in the balance sheet is $625.

d. Insurance expense in the income statement is $750 and Prepaid Insurance in the balance sheet is $2250.

Correct answer: b

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

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

a. liabilities are understated; profit is overstated.

b. liabilities are overstated; profit is understated.

c. assets are understated; profit is overstated.

d. assets are overstated; profit is understated.

Correct answer: a

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?

1. Rent paid for in advance
2. Plant and Equipment to be depreciated
3. Rent collected in advance from tenants
4. Interest is owed to the bank

a. I and III.

b. II and IV.

c. I, II, and III.

d. II, III, and IV.

Correct answer: c

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 normally has a DR balance.

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

c. It is classified as a liability in the balance sheet.

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

Correct answer: d

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

29. The prepaid insurance account of Downton Ltd shows a balance of $3600 (net of GST) representing a payment on 1 July 2018 of a three-year insurance premium. The correct adjusting entry on 31 December 2018, the close of the annual accounting period is:

$ $

a. Insurance expense 600

Prepaid insurance 600

b. Insurance expense 1200

Prepaid insurance 1200

c. Prepaid insurance 1800

Insurance expense 1800

d. Prepaid insurance 1200

Insurance expense 1200

Correct answer: a

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

30. 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 (income statement) 4500

Prepaid Insurance:

Beginning Balance 6500

Ending Balance 3000

a. $2000

b. $3000

c. $1000

d. $4500

Correct answer: c

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 2018. 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 2018, using the straight-line method, is:

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

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

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

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

Correct answer: b

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

32. On 1 May 2018, 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 2018. The correct accounting entry to initially record the $2000 is:

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

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

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

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

Correct answer: a

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

33. On 1 May 2018, 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 2018. By 30 June 2018, approximately half of the dress is complete. The correct adjusting entry to be recorded at 30 June 2018 is:

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

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

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

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

Correct answer: c

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

34. On 1 March 2018, 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 2018, Indiana Ltd’s end of financial year, the following adjusting journal should be recorded:

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

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

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

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

Correct answer: c

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

35. On 1 November 2018 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 Subscriptions income $198

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

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

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

Correct answer: b

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

36. On 1 November 2018 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 2019 the adjusting entry will be:

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

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

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

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

Correct answer: a

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. $ 3 700

b. $15 400

c. $ 2 200

d. $34 000

Correct answer: c

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

38. During 2019 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 2018. At year-end 2019 wages owing but unpaid were $12 300. The business uses accrual accounting. How much would be reported as wages expense for 2019?

a. $85 000

b. $91 900

c. $97 300

d. $12 300

Correct answer: b

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

39. 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 expense account and CR cash.

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

c. DR cash and CR a liability account.

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

Correct answer: d

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

40. Newsome Company purchased equipment for $105 000 on 1 January 2018 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 balance sheet of Newsome Company at 30 June 2019?

a. $100 000

b. $105 000

c. $81 250

d. $87 500

Correct answer: c

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

41. On 1 July 2018 Tandem Bicycles paid $4 800, representing a two-year insurance premium. The $4 800 was initially recorded in the Insurance expense account. After adjustment at 31 December 2018, the close of the annual accounting period:

a. Insurance expense in the income statement is $2400 and Prepaid Insurance in the balance sheet is $2400.

b. Insurance expense in the income statement is $3600 and Prepaid Insurance in the balance sheet is $0.

c. Insurance expense in the income statement is $3600 and Prepaid Insurance in the balance sheet is $1200.

d. Insurance expense in the income statement is $1200 and Prepaid Insurance in the balance sheet is $3600.

Correct answer: d

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

42. James Myers Ltd paid salaries and wages of $450 000 during the year ended 30 June 2018. 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 2018:

a. Salaries and wages in the income statement are $462 000 and accrued Salaries and wages in the balance sheet are $12 000.

b. Salaries and wages in the income statement are $450 000 and accrued Salaries and wages in the balance sheet are $12 000.

c. Salaries and wages in the income statement are $438 000 and accrued Salaries and wages in the balance sheet are $12 000.

d. Salaries and wages in the income statement are $462 000 and accrued Salaries and wages in the balance sheet are $0.

Correct answer: a

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. $6 000.

b. $8 400.

c. $2 400.

d. nil.

Correct answer: b

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

44. 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 income statement is $1250 and the carrying value of the scaffolding in the balance sheet is $23 750.

b. Depreciation in the income statement is $5 000 and the carrying value of the scaffolding in the balance sheet is $20 000.

c. Depreciation in the income statement is $2 500 and the carrying value of the scaffolding in the balance sheet is $22 500.

d. Depreciation in the income statement is $0 and the carrying value of the scaffolding in the balance sheet is $25 000.

Correct answer: c

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

45. 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:

(1) an accrual for accrued rent income of $800; and

(2) 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 income statement is:

a. $5 000.

b. $4 600.

c. $3 400.

d. $3 000.

Correct answer: a

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

46. In preparing its 2019 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. 2019 profit is understated, the balance of equity is understated, and assets are understated.

b. 2019 profit is overstated, the balance of equity is correct, and assets are overstated.

c. 2019 profit is overstated, the balance of equity is overstated, and assets are correctly stated.

d. 2019 profit is overstated, the balance of equity is overstated, and assets are overstated.

Correct answer: d

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

47. 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 business earned a profit of $15 000.

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

c. The owner introduced $15 000 new capital.

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

Correct answer: b

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

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

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

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

Correct answer: b

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

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

a. Working capital.

b. Tangible assets.

c. Net assets.

d. Current capital.

Correct answer: a

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

50. The primary basis for classifying assets and liabilities in the balance sheet is:

a. age.

b. profitability.

c. liquidity.

d. cost.

Correct answer: c

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. current assets.

b. tangible assets.

c. intangible assets.

d. cash.

Correct answer: b

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

52. 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. carrying life.

b. useful life.

c. working life.

d. book life.

Correct answer: b

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

53. 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. carrying amount.

b. unused expense.

c. depreciation.

d. residual value.

Correct answer: c

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

54. Which of the following is an intangible asset?

a. Patent

b. Goodwill

c. Brand name

d. All of the options are intangible assets.

Correct answer: d

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

55. Indicate the order that the following current assets should be listed in the balance sheet.

I Accounts receivable

II Cash at Bank

III Prepaid expenses

IV Inventory

a. I, II, III, IV

b. II, III, I, IV

c. II, I, IV, III

d. III, II, I, IV

Correct answer: c

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

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

a. long-term borrowings

b. accounts receivable.

c. accrued utilities expenses.

d. rent expense.

Correct answer: c

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

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

a. temporary and permanent.

b. tangible and intangible.

c. operating and non-operating.

d. current and non-current.

Correct answer: d

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

58. The balance sheet may list current assets in their order of liquidity. Liquidity refers to:

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

a. the entity’s operating cycle.

b. how many buyers there are for the asset.

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

Correct answer: d

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

59. Obligations of the entity that can be paid over a period of more than one year from the balance sheet date are classified as:

a. non-current assets.

b. current liabilities.

c. non-current liabilities.

d. long-standing obligations.

Correct answer: c

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

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

b. Adjusted trial balance, income statement and balance sheet.

c. Unadjusted trial balance, adjustments, income statement, balance sheet and statement of changes in equity.

d. Unadjusted trial balance, adjustments, adjusted trial balance, income statement, balance sheet.

Correct answer: d

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

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

a. in the DR column of the income statement and in the CR column of the balance sheet.

b. as zero.

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

d. in the DR column of the adjustments and in the CR column of the balance sheet.

Correct answer: a

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

62. The income statement columns on the worksheet are not equal because:

a. an error has been made with the adjustments.

c. the unadjusted trial balance was incorrect.

b. the balance sheet has not yet been prepared.

d. the difference is the profit or loss for the period.

Correct answer: d

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

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

a. understatement of assets, profit, and equity.

b. overstatement of assets, profit, and equity.

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

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

Correct answer: a

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

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

a. Assets are understated; profit is understated

b. Assets are understated; profit is overstated

c. Assets are overstated; profit is overstated

d. Assets are overstated; profit is understated

Correct answer: c

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

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

a. Determine profitability using the balance sheet.

b. Determine solvency using the income statement.

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

d. Determine return on investment using both the income statement and balance sheet.

Correct answer: d

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