Full Test Bank | Chapter 3 Adjusting Accounts for Financial Statements 24th

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Fundamental Accounting Principles, 24e (Wild)

Chapter 3 Adjusting Accounts for Financial Statements

1) A company's fiscal year must correspond with the calendar year.

2) The time period assumption assumes that an organization's activities can be divided into specific time periods such as months, quarters, or years.

3) Interim financial statements report a company's business activities for a one-year period.

4) A fiscal year refers to an organization's accounting period that spans twelve consecutive months or 52 weeks.

5) Adjusting entries are made after the preparation of financial statements.

6) Adjusting entries result in a better matching of revenues and expenses for the period.

7) Two main accounting principles used in accrual accounting are expense recognition and full closure.

8) Adjusting entries are necessary so that asset, liability, revenue, and expense account balances are correctly recorded.

9) The expense recognition (matching) principle does not aim to record expenses in the same accounting period as the revenue earned as a result of these expenses.

10) The revenue recognition principle requires that revenue be recorded when goods or services are provided, and at an amount expected to be received.

11) The cash basis of accounting commonly increases the comparability of financial statements from period to period.

12) Under the cash basis of accounting, no adjustments are made for prepaid, unearned, and accrued items.

13) Since the revenue recognition principle requires that revenues be recorded when earned, there are no unearned revenues in accrual accounting.

14) The expense recognition (matching) principle requires that expenses get recorded in the same accounting period as the revenues that are earned as a result of the expenses, not when cash is paid. 

15) The cash basis of accounting is a system in which revenues are recorded when earned and expenses are recorded when incurred. 

16) The cash basis of accounting recognizes revenues when cash payments from customers are received.

17) The accrual basis of accounting recognizes revenues when cash is received from customers.

18) The accrual basis of accounting recognizes expenses when cash is paid.

19) Recording revenues early overstates current-period income; recording revenues late understates current period income.

20) Recording expenses early overstates current-period income; recording expenses late understates current period income.

21) Prior to recording adjusting entries at the end of an accounting period, some accounts may not show correct balances even though all transactions were properly recorded.

22) A company paid $9,000 for a twelve-month insurance policy on February 1. The policy coverage began on February 1. On February 28, $750 of insurance expense must be recorded.

23) On October 15, a company received $15,000 cash as a down payment on a consulting contract. The amount was credited to Unearned Consulting Revenue. By October 31, 10% of the services required by the contract were completed. The company will record consulting revenue of $1,500 from this contract for October.

24) The accrual basis of accounting reflects the principle that revenue is recorded when it is earned, not when cash is received.

25) The accrual basis of accounting requires adjustments to recognize revenues in the periods they are earned and to match expenses with revenues.

26) Adjusting entries are designed primarily to correct accounting errors.

27) Adjustments are necessary to bring an asset or liability account to its proper amount and also update a related expense or revenue account.

28) Each adjusting entry will affect a balance sheet account.

29) Adjusting entries always affect the cash account.

30) Accrued expenses at the end of one accounting period are expected to result in cash payments in a future period.

31) Accrued revenues at the end of one accounting period are expected to result in cash collections in a future period.

32) Each adjusting entry affects one or more income statement account, one or more balance sheet account, and never cash.

33) Accrued expenses reflect transactions where cash is paid before a related expense is recognized.

34) Under the accrual basis of accounting, adjustments are often made for prepaid expenses and unearned revenues.

35) The entry to record a cash receipt from a customer when the service is to be provided in a future period involves a debit to an unearned revenue account.

36) Costs incurred during an accounting period but unpaid and unrecorded are accrued expenses.

37) An adjusting entry often includes an entry to Cash.

38) Before an adjusting entry is made to recognize the cost of expired insurance for the period, Prepaid Insurance and Insurance Expense are both overstated.

39) Before an adjusting entry is made to accrue employee salaries, Salaries Expense and Salaries Payable are both understated.

40) Failure to record depreciation expense will overstate assets and understate expenses.

41) A company's month-end adjusting entry for Insurance Expense is $1,000. If this entry is not made then expenses are understated by $1,000 and net income is overstated by $1,000.

42) Profit margin can also be called return on sales.

43) Profit margin measures the relation of debt to assets.

44) Profit margin reflects the percent of profit in each dollar of revenue.

45) Profit margin is calculated by dividing net sales by net income.

46) Torsten had total assets of $149,501,000, net income of $6,242,000, and net sales of $209,203,000. Its profit margin was 2.98%.

47) A contra account is an account linked with another account; it is added to that account to show the proper amount for the item recorded in the associated account.

48) If a company reporting on a calendar year basis, paid $18,000 cash on January 1 for one year of rent in advance (lease beginning January 1), and adjusting entries are made at the end of each month, the balance remaining in Prepaid Rent on December 1 should be $1,500. 

49) Accumulated depreciation is shown on the balance sheet as a subtraction from the cost of its related asset.

50) A salary owed to employees is an example of an accrued expense.

51) In accrual accounting, accrued revenues are recorded as liabilities.

52) Depreciation expense is an example of an accrued expense.

53) Earned but uncollected revenues are recorded during the adjusting process with a credit to a revenue account and a debit to an expense account.

54) Depreciation expense is the portion of a plant asset's cost that is allocated to that period.

55) All plant assets, including land, are depreciated.

56) Net income for a period will be understated if accrued revenues are not recorded at the end of the accounting period.

57) Depreciation measures the decline in market value of an asset.

58) A company owes its employees $5,000 for the year ended December 31. It will pay employees on January 6 for the previous two weeks' salaries. The year-end adjusting entry on December 31 will include a debit to Salaries Expense and a credit to Cash.

59) A company purchased $6,000 worth of supplies in August and recorded the purchase in the Supplies account. On August 31, the fiscal year-end, the physical count of supplies indicates the cost of unused supplies is $3,200. The adjusting entry would include a $2,800 debit to Supplies.

60) A company performs 20 days of work on a 30-day contract before the end of the year. The total contract is valued at $6,000 and payment is not due until the contract is fully completed. The required adjusting entry includes a $4,000 credit to Unearned Revenue.

61)  A company performs 20 days of work on a 30-day contract before the end of the year. The total contract is valued at $6,000, with payment received in advance. The $6,000 cash receipt was initially recorded as Unearned Revenue. The required adjusting entry includes a $4,000 debit to Unearned Revenue. 

62) A company entered into a 2-month contract for $50,000 on April 1. It earned $25,000 of the contract services in April and billed the customer. The company should recognize the revenue when it receives the customer's check.

63) The adjusted trial balance must be prepared before the adjusting entries are made.

64) An unadjusted trial balance is a list of accounts and balances prepared before adjustments are recorded.

65) Financial statements can be prepared directly from the information in the adjusted trial balance.

66) Asset and liability balances are transferred from the adjusted trial balance to the income statement.

67) Asset and liability balances are transferred from the adjusted trial balance to the balance sheet.

68) Revenue and expense balances are transferred from the adjusted trial balance to the income statement.

69) In preparing statements from the adjusted trial balance, the balance sheet must be prepared first.

70) It is acceptable to record prepayment of expenses as debits to expense accounts if an adjusting entry is made at the end of the period to bring the asset account balance to the correct unused or unexpired amount.

71) It is acceptable to record cash received in advance of providing products or services to revenue accounts if an adjusting entry is made at the end of the period to bring the liability account balance to the correct unearned amount.

72) The time period assumption assumes that an organization's activities may be divided into specific reporting time periods including all of the following except:

A) Months.

B) Quarters.

C) Fiscal years.

D) Calendar years.

E) Days.

73) A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the:

A) Operating cycle of a business.

B) Time period assumption.

C) Going-concern assumption.

D) Expense recognition (matching) principle.

E) Accrual basis of accounting.

74) Interim financial statements refer to financial reports:

A) That cover less than one year, usually spanning one, three, or six-month periods.

B) That are prepared before any adjustments have been recorded.

C) That show the assets above the liabilities and the liabilities above the equity.

D) Where revenues are reported on the income statement when cash is received and expenses are reported when cash is paid.

E) Where the adjustment process is used to assign revenues to the periods in which they are earned and to match expenses with revenues.

75) The 12-month period that ends when a company's sales activities are at their lowest level is called the:

A) Fiscal year.

B) Calendar year.

C) Natural business year.

D) Accounting period.

E) Interim period.

76) The length of time covered by a set of periodic financial statements, primarily a year for most companies, is referred to as the:

A) Fiscal year.

B) Natural business year.

C) Accounting period.

D) Business cycle.

E) Calendar year.

77) The accounting principle that requires revenue to be recorded when earned is the:

A) Expense recognition (matching) principle.

B) Revenue recognition principle.

C) Time period assumption.

D) Accrual reporting principle.

E) Going-concern assumption.

78) Adjusting entries:

A) Affect only income statement accounts.

B) Affect only balance sheet accounts.

C) Affect both income statement and balance sheet accounts.

D) Affect cash accounts.

E) Affect only equity accounts.

79) The main purpose of adjusting entries is to:

A) Record external transactions and events.

B) Record internal transactions and events.

C) Recognize assets purchased during the period.

D) Recognize debts paid during the period.

E) Correct errors in the accounting records.

80) The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:

A) Recognition principle.

B) Cost principle.

C) Cash basis of accounting.

D) Expense recognition (Matching) principle.

E) Time period principle.

81) The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

A) Accrual basis accounting.

B) Operating cycle accounting.

C) Cash basis accounting.

D) Revenue recognition accounting.

E) Current basis accounting.

82) Adjusting entries made at the end of an accounting period accomplish all of the following except:

A) Updating liability and asset accounts to their proper balances.

B) Assigning revenues to the periods in which they are earned.

C) Assigning expenses to the periods in which they are incurred.

D) Assuring that financial statements reflect the revenues earned and the expenses incurred.

E) Assuring that external transaction amounts remain unchanged.

83) The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

A) Cash basis accounting.

B) The expense recognition (matching) principle.

C) The time period assumption.

D) Accrual basis accounting.

E) Revenue basis accounting.

84) Prepaid expenses, depreciation expense, accrued expenses, unearned revenues, and accrued revenues are all examples of:

A) Items that require contra accounts.

B) Items that require adjusting entries.

C)  Asset and equity accounts.

D) Asset accounts.

E) Income statement accounts.

85) The accrual basis of accounting:

A) Is generally accepted for external reporting because it is more useful than cash basis for most business decisions.

B) Is flawed because it gives complete information about cash flows.

C) Recognizes revenues when received in cash.

D) Recognizes expenses when paid in cash.

E) Eliminates the need for adjusting entries at the end of each period.

86) In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); incurred expenses of $35,000 ($31,000 cash paid toward them); prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the accrual basis of accounting is:

A) $17,000.

B) $21,000.

C) $13,000.

D) $25,000.

E) None of these choices are correct.

87) In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); incurred expenses of $35,000 ($31,000 cash paid toward them); prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the cash basis of accounting is:

A) $17,000.

B) $21,000.

C) $13,000.

D) $25,000.

E) None of these choices are correct.

88) Which of the following statements is incorrect?

A) Adjustments to prepaid expenses and unearned revenues involve previously recorded assets and liabilities.

B) Accrued expenses and accrued revenues involve assets and liabilities that had not previously been recorded.

C) Adjusting entries can be used to record both accrued expenses and accrued revenues.

D) Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time.

E) Adjusting entries affect only balance sheet accounts.

89) An adjusting entry could be made for each of the following except:

A) Prepaid expenses.

B) Depreciation.

C) Owner investments.

D) Unearned revenues.

E) Accrued expenses.

90) A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would:

A) Understate net income by $28,000.

B) Overstate net income by $28,000.

C) Have no effect on net income.

D) Overstate assets by $28,000.

E) Understate assets by $28,000.

91) If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show:

A) Assets overstated and equity understated.

B) Assets and equity both understated.

C) Assets overstated, net income understated, and equity overstated.

D) Assets, net income, and equity understated.

E) Assets, net income, and equity overstated.

92) If a company failed to make the end-of-period adjustment to move the amount of management fees that were earned from the Unearned Management Fees account to the Management Fees Revenue account, this omission would cause:

A) An overstatement of net income.

B) An overstatement of assets.

C) An overstatement of liabilities.

D) An overstatement of equity.

E) An understatement of liabilities.

93) A company records the fees for legal services paid in advance by its clients in an account called Unearned Legal Fees. If the company fails to make the end-of-period adjusting entry to move the portion of these fees that has been earned to a revenue account, one effect will be:

A) An overstatement of equity.

B) An understatement of equity.

C) An understatement of assets.

D) An understatement of liabilities.

E) An overstatement of assets.

94) Profit margin is defined as:

A) Revenues divided by net sales.

B) Net sales divided by assets.

C) Net income divided by net sales.

D) Net income divided by assets.

E) Net sales divided by net income.

95) A company earned $3,000 in net income for October. Its net sales for October were $10,000. Its profit margin is:

A) 3%.

B) 30%.

C) 33%.

D) 333%.

E) 33.3%

96) Which of the following statements regarding profit margin is not true?

A) Profit margin reflects the percent of profit in each dollar of revenue.

B) Profit margin is also called return on sales.

C) Profit margin can be used to compare a firm's performance to its competitors.

D) Profit margin is calculated by dividing net income by net sales.

E) Profit margin is not a useful measure of a company's operating results.

97) A company had $7,000,000 in net income for the year. Its net sales were $15,200,000 for the same period. Calculate its profit margin.

A) 85.4%.

B) 117.1%.

C) 53.9%.

D) 217.1%.

E) 46.1%.

98) On July 1 Plum Co. paid $7,500 cash for management services to be performed over a two-year period. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Plum should record:

A) A debit to an expense and credit to a prepaid expense for $7,500.

B) A debit to an expense and credit to Cash for $7,500.

C) A debit to a prepaid expense and a credit to Cash for $7,500.

D) A credit to a prepaid expense and a debit to Cash for $7,500.

E) A debit to Cash for $7,500 and a credit to an expense for $7,500.

99) On July 1 of the current calendar year, Plum Co. paid $7,500 cash for management services to be performed over a two-year period beginning July 1. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31 of the current year for Plum would include:

A) A debit to an expense and a credit to a prepaid expense for $5,625.

B) A debit to a prepaid expense and a credit to Cash for $5,625.

C) A debit to an expense and a credit to a prepaid expense for $1,875.

D) A debit to a prepaid expense and a credit to an expense for $1,875.

E) A credit to a liability and a debit to a prepaid expense for $1,875.

100) Accrued revenues:

A) At the end of one accounting period result in cash receipts in a future period.

B) At the end of one accounting period often result in cash payments in the next period.

C) Are also called unearned revenues.

D) Are listed on the balance sheet as liabilities.

E) Are recorded at the end of an accounting period because cash has already been received for revenues earned.

101) An account linked with another account that has an opposite normal balance and is subtracted from the balance of the related account is a(n):

A) Accrued expense.

B) Contra account.

C) Accrued revenue.

D) Intangible asset.

E) Adjunct account.

102) The total amount of depreciation recorded for an asset for all periods for which an asset has been used:

A) Is referred to as depreciation expense.

B) Is referred to as accumulated depreciation.

C) Is shown on the income statement of the final period.

D) Is only recorded when the asset is disposed of.

E) Is referred to as an accrued asset.

103) The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called:

A) Accumulated depreciation.

B) A contra account.

C) The expense recognition (matching) principle.

D) Depreciation expense.

E) An accrued account.

104) Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:

A) Debit Office Supplies $105 and credit Office Supplies Expense $105.

B) Debit Office Supplies Expense $105 and credit Office Supplies $105.

C) Debit Office Supplies Expense $254 and credit Office Supplies $254.

D) Debit Office Supplies $254 and credit Office Supplies Expense $254.

E) Debit Office Supplies $105 and credit Supplies Expense $254.

105) If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

A) Debit Cash and credit Legal Fees Earned.

B) Debit Cash and credit Unearned Legal Fees.

C) Debit Unearned Legal Fees and credit Legal Fees Earned.

D) Debit Legal Fees Earned and credit Unearned Legal Fees.

E) Debit Unearned Legal Fees and credit Accounts Receivable.

106) On April 1, a company paid the $1,350 premium on a three-year insurance policy with benefits beginning on that date. What amount of the insurance expense will be reported on the annual income statement for the year ended December 31?

A) $1,350.00.

B) $450.00.

C) $1,012.50.

D) $337.50.

E) $37.50.

107) On July 1, a company paid the $2,400 premium on a one-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the first year ended December 31?

A) $1,200.

B) $2,400.

C) $1,000.

D) $400.

E) $1,400.

108) A company had no office supplies available at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year?

A) $75.

B) $125.

C) $175.

D) $250.

E) $325.

109) On January 1, a company purchased a five-year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is:

A) Debit Prepaid Insurance, $1,800; credit Cash, $1,800.

B) Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.

C) Debit Prepaid Insurance, $360; credit Insurance Expense, $360.

D) Debit Insurance Expense, $360; credit Prepaid Insurance, $360.

E) Debit Insurance Expense, $1,440; credit Prepaid Insurance, $1,440.

110) Unearned revenue is reported in the financial statements as:

A) A revenue on the balance sheet.

B) A liability on the balance sheet.

C) An unearned revenue on the income statement.

D) An asset on the balance sheet.

E) A financing activity on the statement of cash flows.

111) Which of the following assets is not depreciated?

A) Store fixtures.

B) Computers.

C) Land.

D) Buildings.

E) Equipment.

112) Which of the following does not require an adjusting entry at year-end?

A) Accrued interest on notes payable.

B) Supplies used during the period.

C) Cash invested by owner.

D) Accrued wages.

E) Expired portion of prepaid insurance.

113) On May 1, a two-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the first year ended December 31?

A) $750.

B) $5,270.

C) $6,000.

D) $6,750.

E) $18,000.

114) Fragmental Co. leased a portion of its store to another company for eight months beginning on October 1, at a monthly rate of $800. Fragmental collected the entire $6,400 cash on October 1 and recorded it as unearned revenue. Assuming adjusting entries are only made at year-end, the adjusting entry made by Fragmental Co. on December 31 would be:

A) A debit to Rent Revenue and a credit to Cash for $2,400.

B) A debit to Rent Revenue and a credit to Unearned Rent for $2,400.

C) A debit to Cash and a credit to Rent Revenue for $6,400.

D) A debit to Unearned Rent and a credit to Rent Revenue for $2,400.

E) A debit to Unearned Rent and a credit to Rent Revenue for $4,000.

115) On May 1, Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 this year to April 30 of the following year. The Cash receipt was recorded as unearned fees and at year-end on December 31, $1,000 of the fees had been earned. Assuming adjustments are only made at year-end, the adjusting entry on December 31 would be:

A) A debit to Unearned Fees and a credit to Cash for $500.

B) A debit to Fees Earned and a credit to Unearned Fees for $500.

C) A debit to Unearned Fees and a credit to Fees Earned for $1,000.

D) A debit to Fees Earned and a credit to Cash for $1,000.

E) A debit to Fees Earned and a credit to Cash for $500.

116) Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are:

A) Intangible expenses.

B) Prepaid expenses.

C) Unearned expenses.

D) Net expenses.

E) Accrued expenses.

117) The adjusting entry at the end of an accounting period to record the unpaid salaries of employees for work provided is:

A) Debit Unpaid Salaries and credit Salaries Payable.

B) Debit Salaries Payable and credit Salaries Expense.

C) Debit Salaries Expense and credit Cash.

D) Debit Salaries Expense and credit Salaries Payable.

E) Debit Cash and credit Salaries Expense.

118) A company pays each of its two office employees each Friday at the rate of $100 per day for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is:

A) Debit Unpaid Salaries $600 and credit Salaries Payable $600.

B) Debit Salaries Expense $400 and credit Salaries Payable $400.

C) Debit Salaries Expense $600 and credit Salaries Payable $600.

D) Debit Salaries Payable $400 and credit Salaries Expense $400.

E) Debit Salaries Expense $400 and credit Cash $400.

119) A company pays its employees $4,000 each Friday, which amounts to $800 per day for the five-day workweek that begins on Monday. If the monthly accounting period ends on Thursday and the employees worked through Thursday, the amount of salaries earned but unpaid at the end of the accounting period is:

A) $4,000.

B) $800.

C) $1,600.

D) $2,400.

E) $3,200.

120) The adjusting entry to record the salaries earned due to employees for services provided but unpaid at the end of the accounting period affects the accounts in which of the following ways?

A) Debit Salaries Payable and credit Salaries Expense.

B) Debit Salaries Expense and credit Cash.

C) Debit Accrued Salaries and credit Salaries Payable.

D) Debit Cash and credit Salaries Expense.

E) Debit Salaries Expense and credit Salaries Payable.

121) On January 1, Eastern College received $1,200,000 from its students for the spring semester that it recorded in Unearned Tuition and Fees. The term spans four months beginning on January 2 and the college spreads the revenue evenly over the months of the term. Assuming the college prepares adjustments monthly, what amount of tuition revenue should the college recognize on  February 28? 

A) $300,000.

B) $600,000.

C) $800,000.

D) $900,000.

E) $1,200,000.

122) On January 1, Fashion Forward Magazine received $15,000 from subscribers for the annual subscriptions that it recorded in Unearned Subscription Revenue. The issues of the magazine are mailed to subscribers quarterly. What amount of subscription revenue should the magazine recognize on March 31 when the first issue is sent in March?

A) $15,000.

B) $1,250.

C) $7,500.

D) $3,750.

E) $0.

123) An adjusting entry was made on year-end December 31 to accrue salary expense of $1,200. Assuming the company does not prepare reversing entries, which of the following entries would be prepared to record the $3,000 payment of salaries in January of the following year?

A)

B)

C)

D)

E)

124) The difference between the cost of an asset and the accumulated depreciation for that asset is called:

A) Depreciation Expense.

B) Unearned Depreciation.

C) Prepaid Depreciation.

D) Depreciation Value.

E) Book Value.

125) A company purchased a new delivery van at a cost of $45,000 on July 1. The delivery van is estimated to have a useful life of 6 years and a salvage value of $3,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the van during the first year ended December 31?

A) $3,250.

B) $3,500.

C) $4,000.

D) $6,500.

E) $7,000.

126) A company's Office Supplies account shows a beginning balance of $600 and an ending balance of $400. If office supplies expense for the year is $3,100, what amount of office supplies was purchased during the period?

A) $2,700.

B) $2,900.

C) $3,300.

D) $3,500.

E) $3,700.

127) If a company records prepayment of expenses in an asset account, the adjusting entry when all or part of the prepaid asset is used or expired would:

A) Result in a debit to an expense and a credit to an asset account.

B) Cause an adjustment to prior expense to be overstated and assets to be understated.

C) Cause an accrued liability account to exist.

D) Result in a debit to a liability and a credit to an asset account.

E) Decrease cash.

128) A company recorded 2 days of accrued salaries of $1,400 for its employees on January 31. On February 9, it paid its employees $7,000 for these accrued salaries and for other salaries earned through February 9. Assuming the company does not prepare reversing entries, the January 31 and February 9 journal entries are:

A)

B)

C)

D)

E)

129) If accrued salaries were recorded on December 31 with a debit to Salaries Expense and a credit to Salaries Payable, and no reversing entries were made on January 1, the entry to record payment of these wages on the following January 5 would include:

A) A debit to Cash and a credit to Salaries Payable.

B) A debit to Cash and a credit to Prepaid Salaries.

C) A debit to Salaries Payable and a credit to Cash.

D) A debit to Salaries Payable and a credit to Salaries Expense.

E) No entry would be necessary on January 5.

130) On December 1, Simpson Marketing Company received $3,600 from a customer for a 2-month marketing plan to be completed January 31 of the following year. The cash receipt was recorded as unearned fees. The adjusting entry for the year ended December 31 would include:

A) a debit to Earned Fees for $3,600.

B) a debit to Unearned Fees for $1,800.

C) a credit to Unearned Fees for $1,800.

D) a debit to Earned Fees for $1,800.

E) a credit to Earned Fees for $3,600.

131) Wilson Company paid $4,800 for a 4-month insurance premium in advance on November 1, with coverage beginning on that date. The balance in the prepaid insurance account before adjustment at the end of the year is $4,800 and no adjustments had been made previously. The adjusting entry required on December 31 is:

A) Debit Insurance Expense, $2,400; credit Prepaid Insurance, $2,400.

B) Debit Prepaid Insurance, $2,400; credit Insurance Expense, $2,400.

C) Debit Insurance Expense, $1,200; credit Prepaid Insurance, $1,200.

D) Debit Prepaid Insurance, $1,200; credit Insurance Expense, $1,200.

E) Debit Cash, $4,800; Credit Prepaid Insurance, $4,800.

132) What is the proper adjusting entry at December 31, the end of the accounting period, if the balance in the prepaid insurance account is $7,750 before adjustment, and the unexpired amount per analysis of policies is $3,250?

A) Debit Insurance Expense, $3,250; credit Prepaid Insurance, $3,250.

B) Debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500.

C) Debit Prepaid Insurance, $4,500; credit Insurance Expense, $4,500.

D) Debit Insurance Expense, $7,750; credit Prepaid Insurance, $7,750.

E) Debit Cash, $7,750; Credit Prepaid Insurance, $7,750.

133) On April 1, Griffith Publishing Company received $1,548 from Santa Fe, Inc. for 36-month subscriptions to several different magazines. The subscriptions started immediately. What is the amount of revenue that should be recorded by Griffith Publishing Company for the first year of the subscription assuming the company uses a calendar-year reporting period?

A) $0.

B) $516.

C) $387.

D) $129.

E) $430.

134) On April 1, Griffith Publishing Company received $1,548 from Santa Fe, Inc. for 36-month subscriptions to several different magazines. The subscriptions started immediately. What is the amount of revenue that should be recorded by Griffith Publishing Company for the second year of the subscription assuming the company uses a calendar-year reporting period?

A) $0.

B) $516.

C) $387.

D) $129.

E) $430.

135) On April 1, Griffith Publishing Company received $1,548 from Santa Fe, Inc. for 36-month subscriptions to several different magazines. The company credited Unearned Fees for the amount received and the subscriptions started immediately. Assuming adjustments are only made at year-end, What is the adjusting entry that should be recorded by Griffith Publishing Company on December 31 of the first year?

A) debit Unearned Fees, $1,548; credit Fees Earned, $1,548.

B) debit Unearned Fees, $516; credit Fees Earned, $516.

C) debit Unearned Fees, $1,161; credit Fees Earned, $1,161.

D) debit Unearned Fees, $129; credit Fees Earned, $129.

E) debit Unearned Fees, $387; credit Fees Earned, $387.

136) On April 1, Griffith Publishing Company received $1,548 from Santa Fe, Inc. for 36-month subscriptions to several different magazines. The company credited Unearned Fees for the amount received and the subscriptions started immediately. Assuming adjustments are only made at year-end, What is the adjusting entry that should be recorded by Griffith Publishing Company on December 31 of the second year?

A) debit Unearned Fees, $1,548; credit Fees Earned, $1,548.

B) debit Unearned Fees, $516; credit Fees Earned, $516.

C) debit Unearned Fees, $1,161; credit Fees Earned, $1,161.

D) debit Unearned Fees, $129; credit Fees Earned, $129.

E) debit Unearned Fees, $387; credit Fees Earned, $387.

137) On April 1, Santa Fe, Inc. paid Griffith Publishing Company $1,548 for 36-month subscriptions to several different magazines. Santa Fe debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Santa Fe, Inc. after adjustments on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustment has been made?

A) $1,548.

B) $387.

C) $516.

D) $1,161.

E) $0.

138) On April 1, Santa Fe, Inc. paid Griffith Publishing Company $1,548 for 36-month subscriptions to several different magazines. Santa Fe debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. What amount should appear in the Prepaid Subscription account for Santa Fe, Inc. after adjustments on December 31 of the second year assuming the company is using a calendar-year reporting period and the previous year adjustment had been made?

A) $1,548.

B) $387.

C) $516.

D) $645.

E) $0.

139) On April 1, Santa Fe, Inc. paid Griffith Publishing Company $1,548 for 36-month subscriptions to several different magazines. Santa Fe debited the prepayment to a Prepaid Subscriptions account, and the subscriptions started immediately. What adjusting entry should be made by Santa Fe, Inc. for the adjustment on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustments had been made?

A) Debit Subscription Expense $516 and credit Prepaid Subscriptions $516.

B) Debit Prepaid Subscriptions $516 and credit Subscription Expense $516.

C) Debit Subscription Expense $387 and credit Cash $387.

D) Debit Unearned Subscriptions $387 and credit Subscription Expense $387.

E) Debit Subscription Expense $387 and credit Prepaid Subscriptions $387.

140) A company made no adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31. Which of the following statements is true?

A) It will have no effect on income.

B) It will overstate assets and liabilities by $9,000.

C) It will understate net income by $9,000.

D) It will understate assets by $9,000.

E) It will understate expenses and overstate net income by $9,000.

141) The correct adjusting entry for accrued and unpaid employee salaries of $9,000 on December 31 is:

A) Debit Salary Expense, $9,000; credit Cash, $9,000.

B) Debit Salary Expense, $9,000; credit Fees Earned, $9,000.

C) Debit Salary Expense, $9,000; credit Prepaid Salary, $9,000.

D) Debit Salary Expense, $9,000; credit Salaries Payable, $9,000.

E) Debit Salaries Payable, $9,000; credit Salary Expense $9,000.

142) A company purchased new furniture at a cost of $14,000 on September 30. The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. How much depreciation expense will be recorded for the furniture for the first year ended December 31?

A) $437.50

B) $375.00

C) $1,500.00

D) $500.00

E) $1,750.00

143) A company purchased new furniture at a cost of $14,000 on September 30. The furniture is estimated to have a useful life of 8 years and a salvage value of $2,000. The company uses the straight-line method of depreciation. What is the book value of the furniture on December 31 of the first year?

A) $13,562.50

B) $12,250.00

C) $12,500.00

D) $13,500.00

E) $13,625.00

144) A company purchased new furniture at a cost of $16,000 on January 1. The furniture is estimated to have a useful life of 6 years and a $1,000 salvage value. The company uses the straight-line method of depreciation. What is the book value of the furniture on December 31 of the first year?

A) $16,000

B) $15,000

C) $2,500

D) $13,500

E) $13,333

145) The balances in Sanchez Accounting Services' office supplies account on February 1 and February 28 were $1,200 and $375, respectively. If the office supplies expense for the month is $1,900, what amount of office supplies was purchased during February?

A) $1,075

B) $1,500

C) $1,525

D) $2,325

E) $3,100

146) If Regent Tax Services' office supplies account balance on March 1 was $1,400, the company purchased $675 of supplies during the month, and a physical count of supplies on hand at the end of March indicated $1,250 unused, what is the amount of the adjusting entry for office supplies on March 31?

A) $675

B) $825

C) $1,250

D) $1,975

E) $525

147) A physical count of supplies on hand at the end of May for Masters, Inc. indicated $1,250 of supplies on hand. The general ledger balance before any adjustment is $2,100. What is the adjusting entry for office supplies that should be recorded on May 31?

A) Debit Supplies Expense $1,250 and credit Supplies $1,250.

B) Debit Prepaid Supplies $850 and credit Supplies Expense $850.

C) Debit Supplies Expense $1,250 and credit Supplies $2,100.

D) Debit Supplies $1,250 and credit Cash $1,250.

E) Debit Supplies Expense $850 and credit Supplies $850.

148) Which of the following statements is not true?

A) An income statement reports revenues earned less expenses incurred.

B) An unadjusted trial balance shows the account balances after they have been revised to reflect the effects of end-of-period adjustments.

C) Interim financial reports can be based on one-month or three-month accounting periods.

D) The fiscal year is any 12 consecutive months (or 52 weeks) used by a business as its annual accounting period.

E) Property, plant, and equipment are referred to as plant assets.

149) A trial balance prepared after adjustments have been recorded is called a(n):

A) Balance sheet.

B) Adjusted trial balance.

C) Unadjusted trial balance.

D) Classified balance sheet.

E) Unclassified balance sheet.

150) A trial balance prepared before any adjustments have been recorded is:

A) An adjusted trial balance.

B) Used to prepare financial statements.

C) An unadjusted trial balance.

D) Correct with respect to proper balance sheet and income statement amounts.

E) Only prepared once a year.

151) The adjusted trial balance contains information pertaining to:

A) Asset accounts only.

B) Balance sheet accounts only.

C) Income statement accounts only.

D) All general ledger accounts.

E) Revenue accounts only.

152) Financial statements are typically prepared in the following order:

A) Balance sheet, statement of owner's equity, income statement.

B) Statement of owner's equity, balance sheet, income statement.

C) Income statement, balance sheet, statement of owner's equity.

D) Income statement, statement of owner's equity, balance sheet.

E) Balance sheet, income statement, statement of owner's equity.

153) A balance sheet that places the assets above the liabilities and equity is called a(n):

A) Report form balance sheet.

B) Account form balance sheet.

C) Classified balance sheet.

D) Unadjusted balance sheet.

E) Unclassified balance sheet.

154) A balance sheet that places the liabilities and equity to the right of the assets is a(n):

A) Account form balance sheet.

B) Report form balance sheet.

C) Interim balance sheet.

D) Classified balance sheet.

E) Unclassified balance sheet.

155) Under the alternative method for accounting for unearned revenue, which of the following pairs of journal entry formats is correct?

A)

B)

C)

D)

E)

156) Under the alternative method for recording prepaid expenses, which is the correct set of journal entries?

A)

B)

C)

D)

E)

157) Which of the following statements related to U.S. GAAP and IFRS is not true?

A) Both U.S. GAAP and IFRS include guidance for adjusting entries.

B) Both U.S. GAAP and IFRS prepare the same four financial statements.

C) U.S. GAAP does not require items to be separated by current and noncurrent classifications on the balance sheet.

D) U.S. GAAP balance sheets report current items first.

E) IFRS balance sheets normally present noncurrent items first.

158) On December 1, Milton Company borrowed $300,000, at 8% annual interest, from the Tennessee National Bank. Interest is paid when the loan matures one year from the issue date. What is the adjusting entry for accruing interest that Milton would need to make on December 31, the calendar year-end?

A) Debit Interest Payable, $2,000; credit Interest Expense, $2,000.

B) Debit Interest Expense, $2,000; credit Interest Payable, $2,000.

C) Debit Interest Expense, $2,000; credit Cash, $2,000.

D) Debit Interest Expense, $4,000; credit Interest Payable, $4,000.

E) Debit Interest Expense, $24,000; credit Interest Payable, $24,000.

159) On September 1, Kennedy Company loaned $100,000, at 12% annual interest, to a customer. Interest and principal will be collected when the loan matures one year from the issue date. Assuming adjustments are only made at year-end, what is the adjusting entry for accruing interest that Kennedy would need to make on December 31, the calendar year-end?

A) Debit Interest Expense, $12,000; credit Interest Payable, $12,000.

B) Debit Interest Expense, $4,000; credit Interest Payable, $4,000.

C) Debit Interest Receivable, $12,000; credit Cash, $12,000.

D) Debit Interest Receivable, $4,000; credit Interest Revenue, $4,000.

E) Debit Cash, $4,000; credit Interest Revenue, $4,000.

160) A roofing company collects fees when jobs are complete.  The work for one customer, whose job was bid at $3,000, has been completed as of December 31, but the customer has not yet been billed.  Assuming adjustments are only made at year-end, what is the adjusting entry the company would need to make on December 31, the calendar year-end?

A) Debit Cash, $3,000; credit Roofing Fees Revenue, $3,000.

B) Debit Roofing Fees Revenue, $3,000; credit Accounts Receivable, $3,000.

C) Debit Accounts Receivable, $3,000; credit Roofing Fees Revenue, $3,000.

D) Debit Roofing Fees Revenue, $3,000; credit Cash, $3,000.

E) No adjustment is required.

161) Which of the following is not true regarding prepaid expenses?

A) They are paid for in advance of receiving their benefits.

B) They are assets.

C) When they are used, their costs become expenses.

D) The adjusting entry for prepaid expenses increases expenses and decreases liabilities.

E) The adjusting entry for prepaid expenses increases expenses and decreases assets.

162) An annual reporting period consisting of any twelve consecutive months is known as:

A) Fiscal year.

B) Calendar year.

C) Interim financial period.

D) Natural business year.

E) Seasonal year.

163) Two accounting principles central to accrual accounting basis that are relied on in the adjusting process are:

A) Revenue recognition and monetary unit.

B) Revenue recognition and going-concern.

C) Expense recognition (matching) and cost.

D) Expense recognition (matching) and business entity.

E) Revenue recognition and Expense recognition (matching).

164) Which of the following is not true regarding unearned revenues?

A) They are payments received in advance of services performed.

B) The adjusting entry for unearned revenues increases assets and increases revenues.

C) The adjusting entry for unearned revenues increases revenues and decreases liabilities.

D) They are liabilities.

E) As they are earned, they become revenues.

165) Assuming prepaid expenses are originally recorded in balance sheet accounts, the adjusting entry to record use of a prepaid expense is:

A) Increase an expense; increase a liability.

B) Increase an asset; increase revenue.

C) Decrease a liability; increase revenue.

D) Increase an expense; decrease an asset.

E) Increase an expense; decrease a liability.

166) Assuming unearned revenues are originally recorded in balance sheet accounts, the adjusting entry to record earning of unearned revenue is:

A) Increase an expense; increase a liability.

B) Increase an asset; increase revenue.

C) Decrease a liability; increase revenue.

D) Increase an expense; decrease an asset.

E) Increase an expense; decrease a liability.

167) The adjusting entry to record an accrued expense is:

A) Increase an expense; increase a liability.

B) Increase an asset; increase revenue.

C) Decrease a liability; increase revenue.

D) Increase an expense; decrease an asset.

E) Increase an expense; decrease a liability.

168) The adjusting entry to record an accrued revenue is:

A) Increase an expense; increase a liability.

B) Increase an asset; increase revenue.

C) Decrease a liability; increase revenue.

D) Increase an expense; decrease an asset.

E) Increase an expense; decrease a liability.

169) On October 1, Goodwell Company rented warehouse space to a tenant for $2,500 per month. The tenant paid five months' rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Rent account. The company's annual accounting period ends on December 31. Assuming adjustments are only made at year-end, the adjusting entry needed on December 31 is:

A) Debit Rent Receivable, $12,500; credit Rent Earned, $12,500.

B) Debit Rent Receivable, $7,500; credit Rent Earned, $7,500.

C) Debit Unearned Rent, $7,500; credit Rent Earned, $7,500.

D) Debit Unearned Rent, $5,000; credit Rent Earned, $5,000.

E) Debit Unearned Rent, $12,500; credit Rent Earned, $12,500.

170) On October 1, Goodwell Company rented warehouse space to a tenant for $2,500 per month and received $12,500 for five months' rent in advance on that date, with the lease beginning immediately. The cash receipt was credited to the Unearned Rent account. The company's annual accounting period ends on December 31. The Unearned Rent account balance at the end of December, after adjustment, should be:

A) $5,000.

B) $7,500.

C) $12,500.

D) $2,500.

E) $10,000.

171) Sanborn Company rents space to a tenant for $2,200 per month. The tenant currently owes rent for November and December. The tenant has agreed to pay the November, December, and January rents in full on January 15 and has agreed not to fall behind again. Assuming adjustments are only made at year-end, the adjusting entry needed on December 31 is:

A) Debit Rent Receivable, $6,600; credit Rent Earned, $6,600.

B) Debit Unearned Rent, $4,400; credit Rent Earned, $4,400.

C) Debit Unearned Rent, $2,200; credit Rent Earned, $2,200.

D) Debit Rent Receivable, $4,400; credit Rent Earned, $4,400.

E) Debit Rent Receivable, $2,200; credit Rent Earned, $2,200.

172) Sanborn Company has 10 employees, who earn a total of $1,800 in salaries each working day. They are paid on Monday for the five-day workweek ending on the previous Friday. Assume that year ended December 31, is a Wednesday and all employees will be paid salaries for five full days on the following Monday. The adjusting entry needed on December 31 is:

A) Debit Salaries Expense, $5,400; credit Salaries Payable, $5,400.

B) Debit Salaries Expense, $3,600; credit Salaries Payable, $3,600.

C) Debit Salaries Expense, $9,000; credit Salaries Payable, $9,000.

D) Debit Salaries Payable, $5,400; credit Salaries Expense, $5,400.

E) Debit Salaries Expense, $5,400; credit Cash, $5,400.

173) On January 1, Imlay Company purchases manufacturing equipment costing $95,000 that is expected to have a five-year life and an estimated salvage value of $5,000. Imlay uses the straight-line depreciation method to allocate costs, and only prepares adjustments at year-end. The adjusting entry needed on December 31 of the first year is:

A) Debit Depreciation Expense, $9,000; credit Accumulated Depreciation, $9,000.

B) Debit Depreciation Expense, $18,000; credit Accumulated Depreciation, $18,000.

C) Debit Depreciation Expense, $90,000; credit Accumulated Depreciation, $90,000.

D) Debit Depreciation Expense, $18,000; credit Equipment, $18,000.

E) Debit Depreciation Expense, $9,000; credit Equipment, $9,000.

174) Holman Company owns equipment with an original cost of $95,000 and an estimated salvage value of $5,000 that is being depreciated at $15,000 per year using the straight-line depreciation method, and only prepares adjustments at year-end. The adjusting entry needed to record annual depreciation is:

A) Debit Depreciation Expense, $15,000; credit Equipment, $15,000.

B) Debit Equipment, $15,000; credit Accumulated Depreciation, $15,000.

C) Debit Depreciation Expense, $10,000; credit Accumulated Depreciation, $10,000.

D) Debit Depreciation Expense, $10,000; credit Equipment, $10,000.

E) Debit Depreciation Expense, $15,000; credit Accumulated Depreciation, $15,000.

175) On November 1, Jovel Company loaned another company $100,000 at a 6.0% interest rate. The note receivable plus interest will not be collected until March 1 of the following year. The company's annual accounting period ends on December 31. The amount of interest revenue that should be reported in the first year is:

A) $0.

B) $6,000.

C) $5,000.

D) $16,667.

E) $1,000.

176) On November 1, Jovel Company loaned another company $100,000 at a 6.0% interest rate. The note receivable plus interest will not be collected until March 1 of the following year. The company's annual accounting period ends on December 31, and adjustments are only made at year-end. The adjusting entry needed on December 31 is:

A) No entry required.

B) Debit Interest Expense, $5,000; credit Interest Payable, $5,000.

C) Debit Interest Expense, $1,000; credit Note Payable, $1,000.

D) Debit Interest Receivable, $500; credit Interest Revenue, $500.

E) Debit Interest Receivable, $1,000; credit Interest Revenue, $1,000.

177) On December 1, Casualty Insurance Company borrowed $50,000 at a 6.0% interest rate from One Mutual Bank. The note payable plus interest will not be paid until April 1 of the following year. The company's annual accounting period ends on December 31, and adjustments are only made at year-end. The adjusting entry needed on December 31 is:

A) No entry required.

B) Debit Interest Expense, $250; credit Interest Payable, $250.

C) Debit Interest Expense, $250; credit Note Payable, $250.

D) Debit Interest Payable, $1,000; credit Interest Expense, $1,000.

E) Debit Interest Expense, $1,000; credit Interest Payable, $1,000.

178) Which of the following statements is not true?

A) An unadjusted trial balance is a list of accounts and balances prepared before adjustments are recorded.

B) An adjusted trial balance is a list of accounts and balances prepared after adjusting entries have been recorded and posted to the ledger.

C) Each adjusted trial balance amount is used in preparing the financial statements.

D) Financial statements should be prepared directly from information in the unadjusted trial balance.

E) Financial statements can be prepared directly from information in the adjusted trial balance.

179) On December 31, Carmack Company received a $215 utility bill for December that it will not pay until January 15. The adjusting entry needed on December 31 to accrue this expense is:

A) Debit Utilities Expense $215; credit Accounts Payable $215.

B) Debit Accounts Payable $215; credit Utilities Expense $215.

C) Debit Prepaid Utilities $215; credit Cash $215.

D) Debit Utilities Expense $215; credit Prepaid Utilities $215.

E) Debit Prepaid Utilities $215; credit Accounts Payable $215.

180) On December 31, Winters Company received a $385 bill for the purchase of supplies in December that it will not pay for until January 15. Winters follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry needed on December 31 to accrue this cost is:

A) Debit Supplies $385; credit Accounts Payable $385.

B) Debit Accounts Payable $385; credit Supplies $385.

C) Debit Accounts Payable $385; credit Cash $385.

D) Debit Supplies Expense $385; credit Cash $385.

E) Debit Supplies Expense $385; credit Supplies $385.

181) On December 31, Carmack Company's Prepaid Insurance account had a balance before adjustment of $6,000. The insurance was purchased on July 1 of the same year for one year of insurance coverage, with coverage beginning on that date. Assuming adjustments are only made at year-end, the adjusting entry needed on December 31 is:

A) Debit Prepaid Insurance $6,000; credit Cash $6,000.

B) Debit Insurance Expense $3,000; credit Accounts Payable $3,000.

C) Debit Insurance Expense $3,000; credit Prepaid Insurance $3,000.

D) Debit Cash $6,000; credit Prepaid Insurance $6,000.

E) Debit Insurance Expense $6,000; credit Accounts Payable $6,000.

182) On December 31, Winters Company's Prepaid Rent account had a balance before adjustment of $6,000. Three months' rent was paid in advance on December 1, the first day of the lease term. The adjusting entry needed on December 31 is:

A) Debit Prepaid Rent $6,000; credit Cash $6,000.

B) Debit Rent Expense $2,000; credit Accounts Payable $2,000.

C) Debit Rent Expense $2,000; credit Prepaid Rent $2,000.

D) Debit Cash $2,000; credit Prepaid Rent $2,000.

E) Debit Rent Expense $6,000; credit Accounts Payable $6,000.

183) Match the following terms with the appropriate definition.

A. Accrual basis accounting

B. Cash basis accounting

C. Fiscal year

D. Interim financial statements

E. Depreciation

F. Straight-line depreciation

G. Time period assumption

H. Expense recognition (matching) principle

I. Accrued revenues

____ 1. Any 12 consecutive months or 52-week period that a company adopts for its annual reporting period.

____ 2. A method that allocates equal amounts of an asset's cost (less any salvage value) to depreciation expense during its useful life.

____ 3. Assumes that an organization's activities can be divided into specific time periods such as months, quarters, or years.

____ 4. Aims to record expenses in the same accounting period as the revenues that are earned as a result of those expenses.

____ 5. The accounting system that uses the adjusting process to recognize revenues when earned and expenses when incurred.

____ 6. The process of allocating the costs of long-term assets to the income statement over their expected useful lives.

____ 7. Revenues earned in a period that are both unrecorded and not yet received in cash or other assets.

____ 8. The accounting system that recognizes revenue when cash is received and records expenses when cash is paid.

____ 9. A set of financial statements that covers less than one year, typically one, three, or six months of activity.

184) Match the following terms with the appropriate definition.

A. Accrued expenses

B. Adjusting entry

C. Adjusted trial balance

D. Prepaid expenses

E. Report form balance sheet

F. Accounting period

G. Contra account

H. Profit margin

I. Unadjusted trial balance

J. Natural business year

____ 1. A 12-month period, used by companies with seasonal variation, that ends when a company's sales activities are at their lowest point.

____ 2. A journal entry made at the end of an accounting period to reflect a transaction or event that is not yet recorded; affects one or more income statement account and one or more balance sheet account, but never cash.

____ 3. An account linked with another account and having an opposite normal balance.

____ 4. Items paid for in advance of receiving their benefits; recorded as an asset when purchased and expensed when used.

____ 5. Any length of time that an organization's activities are divided into and reported by financial statements.

____ 6. A listing of accounts and balances prepared after adjustments are recorded and posted to the ledger.

____ 7. A balance sheet that lists items vertically in the order of assets, liabilities, and equity.

____ 8. Costs incurred in a period but are both unpaid and unrecorded, requiring an adjustment at the end of the period.

____ 9. A listing of accounts and balances prepared after external transactions are recorded but before adjustments are recorded.

____ 10. A useful measure of a company's operating results determined by dividing net income by net sales.

185) Match the following types of adjustments (a though d) with the transactions (1 through 4).

1. Prepaid expense

2. Unearned revenue

3. Accrued expense

4. Accrued revenue

a. Used to record revenue earned for which cash was received in advance.

b. Used to record expiration or use of prepaid insurance.

c. Used to record revenue earned for which cash has not been received.

d. Used to record wages owed, but not yet paid.

186) Discuss the importance of periodic reporting and the time period assumption.

187) Discuss how accrual accounting enhances the usefulness of financial statements.

188) Identify the primary differences between accrual accounting and cash basis accounting.

189) Explain the purpose of adjusting entries at the end of a period and provide an example of an adjusting entry.

190) List the three-steps of the adjusting process.

191) Identify the types of adjusting entries and explain the purpose of each type.

192) Explain how accounting adjustments affect financial statements and provide an example of an adjustment that would impact the statements if not recorded.

193) How is profit margin calculated? Discuss its use in analyzing a company's performance.

194) Describe the types of entries required in later periods that result from accruals.

195) Describe the adjusting entries, including the accounts used, for 1) prepaid expenses, 2) depreciation and 3) unearned revenues.

196) Describe the adjusting entries, including the accounts used, for 1) accrued expenses and 2) accrued revenues.

197) Describe the two alternate methods used to account for prepaid expenses.

198) What is an adjusted trial balance? Why is it prepared?

199) Why are financial statements prepared in a specific order? What is the usual order in which financial statements are prepared from the adjusted trial balance?

200) Explain how the owner of a company uses the accrual basis of accounting.

201) On December 31, the year end, a company forgot to record $6,000 of depreciation on machinery. In the current year financial statements, what is the effect of this error on assets, net income, and equity?

202) Given the table below, indicate the impact of the following errors made during the adjusting entry process. Use a "+" followed by the amount for overstatements, a "-" followed by the amount for understatements, and a "0" for no effect. The first one is done as an example.

Ex. Failed to recognize that $600 of unearned revenues, previously recorded as liabilities, had been earned by year-end.

1. Failed to accrue interest expense of $200.

2. Forgot to record $7,700 of depreciation on machinery.

3. Failed to accrue $1,300 of revenue earned but not collected.

Error Revenues Expenses Assets Liabilities Equity

EX -$600 0 0 +$600 -$600

1. _________ _________ _________ _________ _________

2. _________ _________ _________ _________ _________

3. _________ _________ _________ _________ _________

203) A company issued financial statements for the year ended December 31, but failed to include the following adjusting entries:

A. Accrued interest revenue earned of $1,200.

B. Depreciation expense of $4,000.

C. Portion of prepaid insurance expired (an asset) used $1,100.

D. Accrued taxes of $3,200.

E. Revenues of $5,200, originally recorded as unearned, have been earned by the end of the year.

Determine the correct amounts for the December 31 financial statements by completing the following table:

204) Using the table below, indicate the impact of the following errors made during the adjusting entry process. Use a "+" for overstatements, a "-" for understatements, and a "0" for no effect. The first one is provided as an example.

205) Andrew's net income was $280,000; its total assets were $1,050,000; and its net sales were $3,500,000. Calculate the company's profit margin ratio.

206) Farmers' net income was $740,000 and its net sales were $8,000,000. Calculate its profit margin ratio.

207) From the information provided, calculate Giuseppe's profit margin ratio for each of the three years. Comment on the results, assuming that the industry average for the profit margin ratio is 6% for each of the three years.

2017 2016 2015

Net income $ 2,630 $ 2,100 $ 1,850

Net Sales 36,500 32,850 31,200

Total Assets 400,000 385,000 350,000

208) On December 15, Branch Company received $3,000 cash for 30 days of consulting services that will be completed on January 13. Branch records all such prepayments by customers in a liability account. Prepare the December 31 adjusting entry.

209) On December 31, Chu Company had performed $3,000 of management services for clients that had not yet been billed. Prepare Chu's adjusting entry to record these fees earned.

210) A company's employees earn a total of $10,000 per week for a 5-day week that begins on Monday. The employees are paid each Friday. December 31 of Year 1 is a Monday, and all employees worked that day.

a) Prepare the required adjusting journal entry to record accrued salaries on December 31, Year 1.

b) Prepare the journal entry to record the payment of salaries on January 4, Year 2. (Assume no reversing entries were made).

211) Glisten Co. leases an office to a tenant at the rate of $3,000 per month. The tenant contacted Glisten and arranged to pay the rent for December on January 8 of the following year. Glisten agrees to this arrangement.

a.) Prepare the journal entry that Glisten must make at year ended December 31 to record the accrued rent revenue.

b.) Prepare the journal entry to record the receipt of the rent on January 8 of the following year (Assume no reversing entries were made).

212) Prior to recording adjusting entries on December 31, a company's Office Supplies account had a $780 debit balance. A physical count of the supplies showed $425 of unused supplies available as of December 31. Prepare the required adjusting entry.

213) Complete the following by filling in the blanks:

(1) The Prepaid Insurance account had a $545 debit balance at the beginning of the current year; $650 of insurance premiums were paid during the year; and the year-end balance sheet showed $420 of prepaid insurance; consequently, the income statement for the year must have shown $________ of insurance expense.

(2) The Office Supplies account began the current year with a $235 debit balance; the income statement for the year showed $475 of office supplies expense; and the year-end balance sheet showed the current asset, office supplies, at $275; consequently, if all supplies were accounted for, $________ of office supplies must have been purchased during the year.

214) Werner Company had $1,300 of store supplies at the beginning of the current year. During this year, Werner purchased $6,250 worth of store supplies. On December 31, $1,125 worth of store supplies remained. Calculate the amount of Werner Company's store supplies expense for the current year.

215) Prepare general journal entries on December 31 to record the following unrelated year-end adjustments.

a. Estimated depreciation on equipment for the year, $4,500.

b. The Prepaid Insurance account has a $3,680 debit balance before adjustment. An examination of insurance policies shows $600 of insurance expired.

c. The Prepaid Insurance account has a $2,400 debit balance before adjustment. An examination of insurance policies shows $950 of unexpired insurance.

d. The company has three office employees who each earn $100 per day for a five-day workweek that ends on Friday. The employees were paid on Friday, December 26, and have worked full days on Monday, Tuesday, and Wednesday, December 29, 30, and 31.

e. On November 1, the company received 6 months' rent in advance from a tenant whose rent is $700 per month. The $4,200 was credited to the Unearned Rent account.

f. The company collects rent monthly from its tenants. One tenant whose rent is $1,000 per month has not paid his rent for December.

216) Rogers Company's employees are paid a total of $1,600 per day for a 5-day workweek. The employees are paid each Friday. This year the accounting period ends on Tuesday. Prepare the December 31 year-end adjusting journal entry Rogers Company should make to accrue salaries.

217) Show the December 31 adjusting entry to record $750 of earned but unpaid salaries of employees at the end of the current accounting period.

218) Juno Company had $500 of office supplies available at the beginning of the current year. During the year Juno Company purchased $2,750 worth of office supplies, which were debited to the office supplies account. On December 31 of this year, $375 worth of office supplies remained.

a. Calculate the amount of Juno Company's office supplies expense for the current year. (Show your calculations.)

b. Prepare the journal entry to adjust the supplies account.

219) During the current year ended December 31, clients paid fees in advance for accounting services amounting to $15,000. These fees were recorded in an account called Unearned Accounting Fees. If $3,500 of these fees remains unearned on December 31 of this year, prepare the required December 31 adjusting entry to bring the accounts up to date.

220) The following unadjusted and adjusted trial balances are from the current year's accounting system for Excelsior.

Excelsior

Trial Balances

For Year Ended December 31

Present the six adjusting entries in general journal form that explain the changes in the account balances from the unadjusted to the adjusted trial balance.

221) Trapper Company's unadjusted and adjusted trial balances on December 31 of the current year are as follows:

Present the four adjusting journal entries that were recorded by Trapper Company.

222) Record the December 31 adjusting entries for the following transactions and events in general journal form. Assume that December 31 is the end of the annual accounting period.

a. The Prepaid Insurance account shows a debit balance of $2,340, representing the cost of a two-year fire insurance policy that was purchased on October 1 of the current year and has not been adjusted to-date.

b. The Store Supplies account has a debit balance of $400; a year-end inventory count reveals $80 of supplies still on hand.

c. On November 1 of the current year, Rent Earned was incorrectly credited for $1,500. This amount represented the rent earned for a three-month period beginning November 1.

d. Estimated depreciation on store equipment is $600.e. Accrued salaries amount to $1,400.

223) Based on the unadjusted trial balance for Highlight Styling and the adjusting information given below, prepare the adjusting journal entries for Highlight Styling.

Highlight Stylings' unadjusted trial balance for the current year follows:

Additional information:

a. An insurance policy examination showed $1,040 of expired insurance.

b. An inventory count showed $210 of unused shop supplies still available.

c. Depreciation expense on shop equipment, $350.

d. Depreciation expense on the building, $2,020.

e. A beautician is behind on space rental payments, and this $200 of accrued revenues was unrecorded at the time the trial balance was prepared.

f. $800 of the Unearned Rent account balance was still unearned by year-end.

g. The one employee, a receptionist, works a five-day workweek at $50 per day. The employee was paid last week but has worked four days this week for which she has not been paid.

h. Three months' property taxes, totaling $450, have accrued. This additional amount of property taxes expense has not been recorded.

i. One month's interest on the note payable, $600, has accrued but is unrecorded.

224) Based on the unadjusted trial balance for Glow Styling and the adjusting information given below, prepare the adjusting journal entries for Glow Styling. After completing the adjusting entries, prepare the adjusted trial balance for Glow Styling.Glow Styling unadjusted trial balance for the current year follows:

Additional information:

a. An insurance policy examination showed $1,240 of expired insurance.

b. An inventory count showed $210 of unused shop supplies still available.

c. Depreciation expense on shop equipment, $350.

d. Depreciation expense on the building, $2,220.

e. A beautician is behind on space rental payments, and this $200 of accrued revenues was unrecorded at the time the trial balance was prepared.

f. $800 of the Unearned Rent account balance was earned by year-end.

g. The one employee, a receptionist, works a five-day workweek at $50 per day. The employee was paid last week but has worked four days this week for which she has not been paid.

h. Three months' property taxes, totaling $450, have accrued. This additional amount of property taxes expense has not been recorded.

i. One month's interest on the note payable, $600, has accrued but is unrecorded.

Use the above information to prepare the adjusted trial balance for Glow Styling.

225) Using the information presented below, prepare an income statement from the adjusted trial balance of Dodson Containers.

226) Using the information presented below, prepare a statement of owner's equity and balance sheet from the adjusted trial balance of Dodson Containers. Mr. Dodson's capital account balance of $40,340 consists of a $30,340 beginning-year balance plus a $10,000 investment during the current year.

DODSON CONTAINERS

Adjusted Trial Balance

December 31

227) Using the information given below, prepare an income statement and owner's equity statement for Rapid Car Services from the adjusted trial balance. Owner Stella Grafton did not make any additional investments in the company during the year.

228) Using the information given below, prepare a balance sheet for Rapid Car Services from the adjusted trial balance. Owner Stella Grafton did not make any additional investments in the company during the year.

229) Abdulla, Co. collected 6-months' rent in advance from a tenant on October 1 of the current year. When it collected the cash, it recorded the following entry:

Oct. 01 Cash ……………………………………….. 15,000

Rent Revenue Earned ……………... 15,000

Assuming Abdulla only prepares adjustments at year-end, prepare the required adjusting entry at December 31 of the current year.

230) Abdulla, Co. collected 6-months' rent in advance from a tenant on October 1 of the current year. When it collected the cash, it recorded the following entry:

Oct. 01 Cash ……………………………………….. 15,000

Rent Revenue Earned ……………... 15,000

Assuming Abdulla only prepares adjustments at year-end, prepare the required adjusting entry at December 31 of the current year.

231) Carroll Co. is a multi-million dollar business. The business results for the year have been impacted significantly by a slowing economy. The company wants to increase its net income. It has incurred $2,900,000 in unpaid salaries at the end of the year and wants to leave those amounts unrecorded at the end of the year. (a) How would this omission affect the financial statements of Carroll? (b) Which accrual basis of accounting principles does this omission violate? (c) Would this be considered an ethical problem?

232) The following information is available for Hatter Co.

From the information provided, calculate Hatter's profit margin ratio for each of the three years. In 2016, economic conditions and a slowing economy impacted the results of operations. Comment on the results, assuming that the industry average for the profit margin ratio is 7% for each of the three years.

233) The unadjusted trial balance and the adjustment data for Porter Business Institute are given below along with adjusting entry information. What is the impact on net income if these adjustments are not recorded? Show the calculation for net income without the adjustments and net income with the adjustments. Which one gives the most accurate net income? Which accounting principles are being violated if the adjustments are not made?

Additional information items:

a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis of the insurance invoice indicates that one half of the policy has expired by the end of the December 31 year-end.

b. A cash payment for space sublet for 8 months was received on July 1 and was credited to Unearned Rent.

c. Accrued interest expense on the note payable of $1,000 has been incurred but not paid.

234) The unadjusted trial balance and the adjustment data for Porter Business Institute are shown below along with adjusting entry information. What is the impact of the adjusting entries on the balance sheet? Show the calculation for total assets, total liabilities, and owner's equity without the adjustments; show the calculation for total assets, total liabilities, and owner's equity with the adjustments. Which one provides the most accurate presentation of the balance sheet?

Additional information items:

a. The Prepaid Insurance account consists of a payment for a 1 year policy. An analysis of the insurance invoice indicates that one half of the policy has expired by the end of the December 31 year-end.

b. A cash payment for space sublet for 8 months was received on July 1 and was credited to Unearned Rent.

c. Accrued interest expense on the note payable of $1,000 has been incurred but not paid.

235) Using the selected information given below for Luk Company, calculate the return on assets, debt ratio, and profit margin. Comment on the results of operations and the financial position of the company for the year.

236) Prepare adjusting entries for the year ended December 31, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts and that fees collected in advance are initially recorded as liabilities.

a. The Prepaid Rent account has a debit balance of $8,000 before adjustment, representing a prepayment for four months' rent made on December 1 of the current year.

b. One-third of the work related to $18,000 of cash received in advance was performed during this period.

c. Unpaid accrued salaries at December 31 amounts to $15,000.

d. Work was completed for a client on December 31 in the amount of $21,000, but was not previously billed or recorded.

e. Estimated depreciation on office equipment is $27,000.

237) Gracio Co. had the following transactions in the last two months of its year ended December 31. Prepare entries for these transactions under the method that records prepaid expenses as expenses and records unearned revenues as revenues. Also prepare adjusting entries at the end of the year.

238) For each of the following two separate situations, present both the April 30 adjusting entry and the subsequent entry during May to record the payment of the accrued expenses or receipt of the accrued revenue. Assume the company does not prepare reversing entries.

a. Nicolas Company has 5 employees, who earn a total of $2,900 in salaries each working day. They are paid on Monday for the five-day workweek ending on the previous Friday. Assume that fiscal year ended April 30, is a Thursday and all employees worked each day and will be paid salaries for five full days on the following Monday.

b. Services of $3,000 have been performed for Clevenger Company through April 30. The client will pay the entire amount of the contract when services are completed on May 23.

c. Paid the employees' salaries on May 4.

d. Received payment from Clevenger Company for services that are now completed on May 23.

239) Companies experiencing seasonal variations in sales often choose a fiscal year corresponding to their ________ year.

240) ________ are required at the end of the accounting period because certain internal transactions and events remain unrecorded.

241) Accrual accounting and the adjusting process rely on two principles: the ________ principle and the ________ principle.

242) ________ basis accounting means that revenues are recognized when cash is received and that expenses are recorded when cash is paid. ________ basis accounting means that the financial effects of revenues and expenses are recorded when earned or incurred.

243) Adjusting is a three-step process (1) ________, (2) ________, and (3) ________.

244) ________ refer to costs incurred in a period that are both unpaid and unrecorded. ________ refer to revenues earned in a period that are both unrecorded and not yet received in cash (or other assets).

245) Accrued revenues at the end of one accounting period often result in cash ________ in the next period.

246) ________ revenues are liabilities requiring delivery of products and for services.

247) If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be ________ and equity would be ________.

248) Profit margin = ________ divided by net sales.

249) The ________ depreciation method allocates equal amounts of an asset's cost to depreciation during its useful life.

250) ________ is the process of allocating the cost of plant assets to the income statement over their expected useful lives.

251) A ________ account is an account linked with another account, having an opposite normal balance, and reported as a subtraction from that other account's balance.

252) ________ expenses are those costs that are incurred in a period but are both unpaid and unrecorded.

253) An ________ is a listing of all of the accounts in the ledger with their account balances before adjustments are made.

254) An ________ is a listing of all of the accounts in the ledger with their account balances after adjustments are made.