Pay And Download
Complete Test Bank With Answers
Sample Questions Posted Below
CHAPTER 4
ACCRUAL ACCOUNTING CONCEPTS
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVE AND BLOOM’S TAXONOMY
| ItemLOBTItemLOBTItemLOBTItemLOBTItemLOBTTrue-False Statements |
| 1.1K12.1K23.1K34.3K45.4K2.1K13.1K24.2K35.3K46.4K3.1K14.1K25.2C36.3K47.4K4.1K15.1K26.2K37.4K48.4K5.1K16.1K27.2K38.4K49.4K6.1K17.1K28.2K39.4K50.4K7.1K18.1K29.2K40.4K51.4K8.1K19.1K30.2K41.4K52.4K9.1C20.1K31.2K42.4K*53.5K10.1K21.1K32.2K43.4K11.1K22.1C33.3K44.4KMultiple Choice Questions |
54.1K87.1AP120.2AP153.2C186.3AP55.1K88.1C121.2AP154.2K187.3AP56.1K89.1K122.2AP155.2K188.3C57.1K90.1K123.2K156.2K189.3C58.1K91.1C124.2AP157.2K190.3C59.1K92.1K125.2AP158.2K191.3C60.1K93.1K126.2AP159.2AP192.3AP61.1K94.1K127.2K160.2C193.3AP62.1K95.1K128.2K161.2C194.3AP63.1K96.1K129.2K162.2C195.3AP64.1K97.1C130.2C163.2AN196.3AN65.1K98.1K131.2AP164.2AN197.3AP66.1K99.1K132.2C165.2AP198.3AP67.1K100.1C133.2C166.2AP199.3AP68.1K101.1K134.2K167.2AP200.3AP69.1C102.1K135.2C168.2AP201.3AP70.1C103.1K136.2C169.2AP202.3AP71.1C104.1C137.2K170.2AP203.3AN72.1C105.1K138.2C171.2AN204.3AP73.1C106.1K139.2C172.2AN205.3AP74.1C107.1K140.2C173.2AP206.3AP75.1K108.1C141.2C174.2AP207.3AP76.1K109.1C142.2K175.2AP208.4K77.1C110.1K143.2AP176.2AP209.4K78.1AP111.1K144.2AP177.2AP210.4K79.1AP112.1K145.2AN178.3AP211.4K80.1AP113.1K146.2AP179.3AP212.4K81.1AP114.1K147.2AP180.3AP213.4K82.1AP115.1K148.2K181.3AP214.4K83.1AP116.2K149.3AP182.3AP215.4K84.1AP117.2K150.3AP183.3AP216.4AP85.1AP118.2K151.2K184.3AN217.4AP86.1AP119.2K152.2K185.3AN218.4AP
| 219.4AP225.4K231.4K237.4K*243.5K220.4AP226.4K232.4AP238.4K*244.5K221.4K227.4K233.4AP239.4K*245.5K222.4K228.4K234.4AP240.4K*246.5K223.4C229.4K235.4AP241.4K*247.5K224.4K230.4K236.4AP242.4CBrief Exercises |
| 248.1K2521, 2K256.2AP260.3AP249.1AP253.2, 3AN257.3AP261.4AP250.1AP254.2AP258.2, 3K262.4AP251.2, 3K255.2AP259.2AP263.4KExercises |
| 264.1AN270.2, 3AN276.2AP282.2, 3AP288.2, 3AP265.1AN271.2, 3K277.2, 3AP283.2, 3AN289.2AP266.1AP272.2, 3K278.2, 3AP284.2, 3K290.4AP267.1C273.2, 3AP279.2, 3AP285.2, 3AP291.4AP268.1AP274.2, 3AP280.2, 3AP286.3AP269.2, 3AN275.2C281.2, 3AP287.3APCompletion Statements |
| 292.1K295.1K298.2K301.4K293.1K296.1K299.3K302.4K294.1K297.2K300.4KMatching |
| 303.1-4KShort Answer Essay |
304.1C306.1C308.1K310.1K312.1E305.1C307.1, 2, 3C309.1C311.4C313.1C*This topic is dealt with in an Appendix to the chapter.
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
L.O. 1 L.O. 1 (cont.) L.O. 1 (cont.) L.O. 2 L.O. 2 (cont.)
ItemTypeItemTypeItemTypeItemType ItemType
1.TF77.MC266.Ex24.TF153.MC
2.TF78.MC267.Ex25.TF154.MC
3.TF79.MC268.Ex26.TF155.MC
4.TF80.MC292.C27.TF156.MC
5.TF81.MC293.C28.TF157.MC
6.TF82.MC294.C29.TF158.MC
7.TF83.MC295.C30.TF159.MC
8.TF84.MC296.C31.TF160.MC
9.TF85.MC32.TF161.MC
10.TF86.MC116.MC162.MC
11.TF87.MC117.MC163.MC
12.TF88.MC118.MC164.MC
13.TF89.MC119.MC165.MC
14.TF90.MC120.MC166.MC
15.TF91.MC121.MC167.MC
16.TF92.MC122.MC168.MC
17.TF93.MC123.MC169.MC
18.TF94.MC124.MC170.MC
19.TF95.MC125.MC171.MC
22.TF96.MC126.MC172.MC
23.TF97.MC126.MC173.MC
54.MC98.MC127.MC174.MC
55.MC99.MC128.MC175.MC
56.MC100.MC129.MC176.MC
57.MC101.MC130.MC177.MC
58.MC102.MC131.MC251.Be
59.MC103.MC132.MC252.Be
60.MC104.MC133.MC253.Be
61.MC105.MC134.MC254.Be
62.MC106.MC135.MC255.Be
63.MC107.MC136.MC256.Be
64.MC108.MC137.MC258.Be
65.MC109.MC138.MC259.Be
65.MC110.MC139.MC269.Ex
66.MC111.MC140.MC270.Ex
67.MC112.MC141.MC271.Ex
68.MC113.MC142.MC272.Ex
69.MC114.MC143MC273.Ex
70.MC115.MC144.MC274.Ex
71.MC248.Be145.MC275.Ex
72.MC249.Be146.MC276.Ex
73.MC250.Be147.MC277.Ex
74.MC252.Be 148.MC278.Ex
75.MC264.Ex151.MC279.Ex
76.MC265.Ex152.MC280.Ex
L.O. 2 (cont.) L.O. 3 (cont.) L.O. 4 L.O. 4 (cont.) L.O.*5
Item Type Item Type Item Type Item Type Item Type
281. Ex 197. MC 37. TF 235. MC 53. TF
282. Ex 198. MC 38. TF 236. MC 243. MC
283. Ex 199. MC 39. TF 237. MC 244. MC
284. Ex 200. MC 40. TF 238. MC 245. MC
285. Ex 201. MC 41. TF 239. MC 246. MC
288. Ex 202. MC 42. TF 240. MC 247. MC
289. Ex 203. MC 43. TF 241. MC
297. C 204. MC 44. TF 242. MC
298. C 205. MC 45. TF 261. Be
206.MC46.TF262.Be
207.MC47.TF263.Be
251.Be48.TF290.Ex
253.Be49.TF291.Ex
257.Be50.TF300.C
258.Be51.TF301.C
260.Be52.TF302.C
269.Ex208.MC
L.O. 3 270. Ex 209. MC
33.TF 271.Ex210.MC
34.TF272.Ex211.MC
35.TF273.Ex212.MC
36.TF274.Ex213.MC
149.MC277.Ex214.MC
150. MC 278. Ex 215. MC
178. MC 279. Ex 216. MC
179. MC 280. Ex 217. MC
180. MC 281. Ex 218. MC
181. MC 282. Ex 219. MC
182. MC 283. Ex 220. MC
183. MC 284. Ex 221. MC
184. MC 285. Ex 222. MC
185. MC 286. Ex 223. MC
186. MC 287. Ex 224. MC
187. MC 288. Ex 225. MC
188. MC 299. C 226. MC
189. MC 227. MC
190. MC 228. MC
191. MC 229. MC
192. MC 230. MC
193. MC 231. MC
194. MC 232. MC
195. MC 233. MC
196. MC 234. MC
Note: TF = True-False C = Completion
MC = Multiple Choice Ex = Exercise
The chapter also contains one set of ten Matching questions and ten Short-Answer Essay questions.
CHAPTER LEARNING OBJECTIVES
1.Explain the accrual basis of accounting and the reasons for adjusting entries. The revenue recognition principle dictates that companies recognize revenue when a performance obligation has been satisfied. The expense recognition principle dictates that companies recognize expenses in the period when the company makes efforts to generate those revenues.
Under the cash basis, companies record events only in the periods in which the company receives or pays cash. Accrual-based accounting means that companies record in the periods in which the events occur, events that change a company’s financial statements even if cash has not been exchanged.
Companies make adjusting entries at the end of an accounting period. These entries ensure that companies record revenues in the period in which the performance obligation is satisfied and that companies recognize expenses in the period in which they are incurred. The major types of adjusting entries are prepaid expenses, unearned revenues, accrued revenues, and accrued expenses.
2.Prepare adjusting entries for deferrals. Deferrals are either prepaid expenses or unearned revenues. Companies make adjusting entries for deferrals at the statement date to record the portion of the deferred item that represents the expense incurred or the revenue for services performed in the current accounting period.
3.Prepare adjusting entries for accruals. Accruals are either accrued revenues or accrued expenses. Adjusting entries for accruals record revenues earned and expenses incurred in the current accounting period that have not been recognized through daily entries.
4.Prepare an adjusted trial balance and closing entries. An adjusted trial balance is a trial balance that shows the balances of all accounts, including those that have been adjusted, at the end of an accounting period. The purpose of an adjusted trial balance is to show the effects of all financial events that have occurred during the accounting period.
One purpose of closing entries is to transfer net income or net loss for the period to Retained Earnings. A second purpose is to “zero-out” all temporary accounts (revenue accounts, expense accounts, and Dividends) so that they start each new period with a zero balance. To accomplish this, companies “close” all temporary accounts at the end of an accounting period. They make separate entries to close revenues and expenses to Income Summary, Income Summary to Retained Earnings, and Dividends to Retained Earnings. Only temporary accounts are closed.
The required steps in the accounting cycle are (a) analyze business transactions, (b) journalize the transactions, (c) post to ledger accounts, (d) prepare a trial balance, (e) journalize and post adjusting entries, (f) prepare an adjusted trial balance, (g) prepare financial statements, (h) journalize and post-closing entries, and (i) prepare a post-closing trial balance.
*5. Describe the purpose and the basic form of a worksheet. The worksheet is a device to make it easier to prepare adjusting entries and the financial statements. Companies often prepare a worksheet using a computer spreadsheet. The sets of columns of the worksheet are, from left to right, the unadjusted trial balance, adjustments, adjusted trial balance, income statement, and balance sheet.
TRUE-FALSE STATEMENTS
1.The periodicity assumption states that the economic life of a business entity can be divided into artificial time periods.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
2.The periodicity assumption is often referred to as the expense recognition principle.
Ans: F, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
3.The revenue recognition principle dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
4.Expense recognition is tied to revenue recognition.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
5.The revenue recognition principle and the expense recognition principle are helpful guides used in determining net income or net loss for a period.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
6.The expense recognition principle requires that efforts be related to accomplishments.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
7.Recognizing when an expense contributes to the production of revenue is critical.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
8.The expense recognition principle is frequently referred to as the matching principle.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
9.Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.
Ans: F, LO 1, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
10.The cash basis of accounting is not in accordance with generally accepted accounting principles.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
11.Adjusting entries are often made because some business events are not recorded as they occur.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
12.Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger.
Ans: F, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
13.Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal.
Ans: F, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
14.An adjusting entry would be made to the revenue account only when cash is received.
Ans: F, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
15.An adjusting entry to a prepaid expense is required to recognize expired expenses.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
16.An adjusting entry always involves two balance sheet accounts.
Ans: F, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
17.An adjusting entry always involves a balance sheet account and an income statement account.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
18.Revenue received before it is recognized and expenses paid before being used or consumed are both initially recorded as liabilities.
Ans: F, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
19.Revenue received before it is recognized and expenses used or consumed before being paid are both initially recorded as liabilities.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
20.Accrued revenues are revenues that have been received but not yet recognized.
Ans: F, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
21.Accrued revenues are revenues that have been recognized but not yet recorded.
Ans: T, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
22.The difference between unearned revenue and accrued revenue is that accrued revenue has been recorded and needs adjusting and unearned revenue has never been recorded.
Ans: F, LO 1, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
23.If prepaid costs are initially recorded as an asset, no adjusting entries will be required in the future.
Ans: F, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
24.The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset.
Ans: T, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving
25.The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique.
Ans: F, LO 2, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics
26.Accumulated Depreciation is a liability account and has a credit normal account balance.
Ans: F, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
27.A liability—revenue account relationship exists with an unearned rent revenue adjusting entry.
Ans: T, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
28.The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same.
Ans: F, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
29.Unearned revenue is a prepayment that requires an adjusting entry when services are performed.
Ans: T, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
30.The adjusting entry for unearned revenue results in an increase (a debit) to an asset account and an increase (a credit) to a revenue account.
Ans: F, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
31.Asset prepayments become expenses when they expire.
Ans: T, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
32.A contra asset account is subtracted from a related account in the balance sheet.
Ans: T, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
33.Accrued revenues are revenues that have been recognized but cash has not been received before financial statements have been prepared.
Ans: F, LO 3, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
34.The adjusting entry for accrued salaries requires a debit to Salaries and Wages Payable.
Ans: F, LO 3, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
35.The accrued interest for a three month note payable of $10,000 dated December 1, 2017 at an interest rate of 6% is $150 on December 31, 2017.
Ans: F, LO 3, BT: K, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
36.Without an adjusting entry for accrued interest expense, liabilities and interest expense are understated, and net income and stockholders’ equity are overstated.
Ans: T, LO 3, BT: K, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
37.Financial statements can be prepared from the information provided by an adjusted trial balance.
Ans: T, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
38.An adjusted trial balance must be prepared before the adjusting entries can be recorded.
Ans: F, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
39.Closing entries deal primarily with the balances of permanent accounts.
Ans: F, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
40.The only accounts that are closed are temporary accounts.
Ans: T, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
41.When closing entries are prepared, each income statement account is closed directly to retained earnings.
Ans: F, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
42.Cash is a temporary account.
Ans: F, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
43.The post-closing trial balance will contain only permanent—balance sheet—accounts.
Ans: T, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
44.Accounts receivable is a permanent account.
Ans: T, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
45.The Dividends account is closed to the Income Summary account at the end of each year.
Ans: F, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
46.A revenue account is closed with a credit to the revenue account and a debit to Income Summary.
Ans: F, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving
47.An expense account is closed with a credit to the expense account and a debit to the Income Summary account.
Ans: T, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
48.Financial statements must be prepared before the closing entries are made.
Ans: T, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
49.In the accounting cycle, closing entries are prepared before adjusting entries.
Ans: F, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
50.Closing entries result in the transfer of net income or net loss into the Retained Earnings account.
Ans: T, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
51.The post closing trial balance will have fewer accounts than the adjusted trial balance.
Ans: T, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
52.The accounting cycle begins with the journalizing of the transactions.
Ans: F, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
*53.A 10-column worksheet is a permanent accounting record.
Ans: F, LO 5, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Answers to True-False Statements
1. T 10. T 19. T 28. F 37. T 46. F
2. F 11. T 20. F 29. T 38. F 47. T
3. T 12. F 21. T 30. F 39. F 48. T
4. T 13. F 22. F 31. T 40. T 49. F
5. T 14. F 23. F 32. T 41. F 50. T
6. T 15. T 24. T 33. F 42. F 51. T
7. T 16. F 25. F 34. F 43. T 52. F
8. T 17. T 26. F 35. F 44. T 53. F
9. F 18. F 27. T 36. T 45. F
MULTIPLE CHOICE QUESTIONS
54.The periodicity assumption states that:
a. a transaction can only affect one period of time.
b. estimates should not be made if a transaction affects more than one time period.
c. adjustments to the enterprise’s accounts can only be made in the time period when the business terminates its operations.
d. the economic life of a business can be divided into artificial time periods.
Ans: D, LO 1, BT: K, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
55.One of the accounting concepts upon which adjustments for prepayments and accruals are based is:
a. expense recognition.
b. cost.
c. monetary unit.
d. economic entity.
Ans: A, LO 1, BT: K, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
56.An accounting time period that is one year in length is called:
a. a fiscal year.
b. an interim period.
c. the time period assumption.
d. a reporting period.
Ans: A, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
57.Adjustments would not be necessary if financial statements were prepared to reflect net income from:
a. monthly operations.
b. fiscal year operations.
c. interim operations.
d. lifetime operations.
Ans: D, LO 1, BT: K, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
58.Management usually wants ________ financial statements and the IRS requires all businesses to file _________ tax returns.
a. annual, annual
b. monthly, annual
c. quarterly, monthly
d. monthly, monthly
Ans: B, LO 1, BT: K, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
59.Expenses are recognized when:
a. they contribute to the production of revenue.
b. they are paid.
c. they are billed by the supplier.
d. the invoice is received.
Ans: A, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
60.Which of the following is not generally an accounting time period?
a. A week.
b. A month.
c. A quarter.
d. A year.
Ans: A, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
61.The revenue recognition principle dictates that revenue should be recognized in the accounting records:
a. when cash is received.
b. when the performance obligation is satisfied.
c. at the end of the month.
d. in the period that income taxes are paid.
Ans: B, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
62.In a service-type business, revenue is recognized:
a. at the end of the month.
b. at the end of the year.
c. when the service is performed.
d. when cash is received.
Ans: C, LO 1, BT: K, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
63.The expense recognition principle matches:
a. customers with businesses.
b. expenses with revenues.
c. assets with liabilities.
d. creditors with businesses.
Ans: B, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
64.Otto’s Tune-Up Shop follows the revenue recognition principle. Otto services a car on August 31. The customer picks up the vehicle on September 1 and mails the payment to Otto on September 5. Otto receives the check in the mail on September 6. When should Otto show that the revenue was recognized?
a. August 31
b. August 1
c. September 5
d. September 6
Ans: A, LO 1, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
65.A company spends $20 million dollars for an office building. Over what period should the cost be written off?
a. When the $20 million is expended in cash.
b. All in the first year.
c. After $20 million in revenue is earned.
d. None of these answer choices are correct.
Ans: D, LO 1, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Decision Modeling, AICPA PC: Communication, IMA: Business Economics
66.The expense recognition principle states that expenses should be matched with revenues. Another way of stating the principle is to say that:
a. assets should be matched with liabilities.
b. efforts should be matched with accomplishments.
c. dividends should be matched with stockholder investments.
d. cash payments should be matched with cash receipts.
Ans: B, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
67.Which principle dictates that efforts (expenses) be recorded with accomplishments (revenues)?
a. Historical cost principle.
b. Periodicity principle.
c. Revenue recognition principle.
d. Expense recognition principle.
Ans: D, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
68.A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be recognized?
a. December 5
b. December 10
c. November 30
d. December 1
Ans: C, LO 1, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
69.A furniture factory’s employees work overtime to finish an order that is sold on January 31. The office sends a statement to the customer in early February and payment is received by mid-February. The overtime wages should be expensed in:
a. January.
b. February.
c. the period when the workers receive their checks.
d. either January or February depending on when the pay period ends.
Ans: A, LO 1, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
70.Which is not an application of revenue recognition?
a. Recording revenue as an adjusting entry on the last day of the accounting period.
b. Accepting cash from an established customer for services to be performed over the next three months.
c. Billing customers on June 30 for services completed during June.
d. Receiving cash for services performed.
Ans: B, LO 1, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
71.Why do generally accepted accounting principles require the application of the revenue recognition principle?
a. Failure to apply the revenue recognition principle could lead to a misstatement of revenue.
b. It is easy to apply the revenue recognition principle because revenue issues are always easy to identify and resolve.
c. Recording revenue when cash is received is an objective application of the revenue recognition principle.
d. Accounting software has made the revenue recognition easy to apply.
Ans: A, LO 1, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Risk Analysis, AICPA PC: Communication, IMA: Business Economics
72.On April 1, 2017, nPropel Corporation paid $48,000 cash for equipment that will be used in business operations. The equipment will be used for four years. nPropel records depreciation expense of $48,000 for the calendar year ending December 31, 2017. Which accounting principle has been violated?
a. Depreciation principle.
b. No principle has been violated.
c. Cash principle.
d. Expense recognition principle.
Ans: D, LO 1, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Ethics, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
73.Under the cash basis of accounting:
a. revenue is recognized when services are performed.
b. expenses are matched with the revenue that is produced.
c. cash must be received before revenue is recognized.
d. a promise to pay is sufficient to recognize revenue.
Ans: C, LO 1, BT: C, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
74.Under the accrual basis of accounting:
a. cash must be received before revenue is recognized.
b. net income is calculated by matching cash outflows against cash inflows.
c. events that change a company’s financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.
d. the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.
Ans: C, LO 1, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
75.Using accrual accounting, expenses are recorded and reported only:
a. when they are incurred whether or not cash is paid.
b. when they are incurred and paid at the same time.
c. if they are paid before they are incurred.
d. if they are paid after they are incurred.
Ans: A, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
76.A small company may be able to justify using a cash basis of accounting if they have:
a. sales under $1,000,000.
b. no accountants on staff.
c. few receivables and payables.
d. all sales and purchases on account.
Ans: C, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
77.Which statement is correct?
a. As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use.
b. The use of the cash basis of accounting violates both the revenue recognition and expense recognition principles.
c. The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received.
d. As long as management is ethical, there are no problems with using the cash basis of accounting.
Ans: B, LO 1, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
78.The following is selected information from L Corporation for the fiscal year ending October 31, 2017.
| Cash received from customers | $300,000 |
| Revenue recognized | 440,000 |
| Cash paid for expenses | 170,000 |
| Cash paid for computers on November 1, 2016 that will
be used for 3 years |
48,000 |
| Expenses incurred including any depreciation | 216,000 |
| Proceeds from a bank loan, part of which was used to
pay for the computers |
100,000 |
Based on the accrual basis of accounting, what is L Corporation’s net income for the year ending October 31, 2017?
a. $254,000
b. $224,000
c. $208,000
d. $270,000
Ans: B, LO 1, BT: AP, Difficulty: Hard, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $440,000 − $216,000 = $224,000
(Rev. recog. − exp. incur.)
79.The following is selected information from C Corporation for the fiscal year ending October 31, 2017.
| Cash received from customers | $150,000 |
| Revenue recognized | 225,000 |
| Cash paid for expenses | 85,000 |
| Cash paid for computers on November 1, 2016 that
will be used for 3 years |
24,000 |
| Expenses incurred including any depreciation | 119,000 |
| Proceeds from a bank loan, part of which was used to
pay for the computers |
50,000 |
Based on the accrual basis of accounting, what is C Corporation’s net income for the year ending October 31, 2017?
a. $132,000
b. $116,000
c. $106,000
d. $140,000
Ans: C, LO 1, BT: AP, Difficulty: Hard, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting , AICPA PC: Problem Solving, IMA: Reporting
Solution: $225,000 − $119,000 = $106,000
(Rev. recog. − exp. incur.)
80.La More Company had the following transactions during 2016:
Sales of $9,000 on account
Collected $4,000 for services to be performed in 2017
Paid $3,750 cash in salaries for 2016
Purchased airline tickets for $500 in December for a trip to take place in 2017
What is La More’s 2016 net income using accrual accounting?
a. $5,750
b. $9,750
c. $9,250
d. $5,250
Ans: D, LO 1, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $9,000 − $3,750 = $5,250
(Sales − Salaries)
81.La More Company had the following transactions during 2016.
Sales of $9,000 on account
Collected $4,000 for services to be performed in 2017
Paid $2,650 cash in salaries
Purchased airline tickets for $500 in December for a trip to take place in 2017
What is La More’s 2016 net income using cash basis accounting?
a. $10,350
b. $1,350
c. $9,850
d. $850
Ans: D, LO 1, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $4,000 − $2,650 − $500 = $850
(Collect. − salaries − air. tick.)
82.Wang Company had the following transactions during 2016:
Sales of $10,800 on account
Collected $4,800 for services to be performed in 2017
Paid $2,600 cash in salaries for 2016
Purchased airline tickets for $600 in December for a trip to take place in 2017
What is Wang’s 2016 net income using accrual accounting?
a.$8,800
b.$13,600
c.$13,000
d.$8,200
Ans: D, LO 1, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $10,800 − $2,600 = $8,200
(Sales − Salaries)
83.Wang Company had the following transactions during 2016:
Sales of $10,800 on account
Collected $4,800 for services to be performed in 2017
Paid $2,600 cash in salaries
Purchased airline tickets for $600 in December for a trip to take place in 2017
What is Wang’s 2016 net income using cash basis accounting?
a. $1,600
b. $2,800
c. $13,000
d. $2,200
Ans: A, LO 1, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $4,800 − $2,600 − $600 = $1,600
(Collect. − Salaries − air. tick.)
84.Given the data below for a firm in its first year of operation, determine net income under the cash basis of accounting.
Revenue recognized$19,000
Accounts receivable3,000
Expenses incurred7,250
Accounts payable (related to expenses)750
Supplies purchased with cash1,800
a. $9,500
b. $14,000
c. $7,700
d. $9,950
Ans: C, LO 1, BT: AP, Difficulty: Hard, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: ($19,000 − $3,000) − ($7,250 − $750) − $1,800 = $7,700
[(Rev. recog. − acc. rec.) – (exp. incur. − acc. pay.) − sup.]
85.Given the data below for a firm in its first year of operation, determine net income under the accrual basis of accounting.
Revenue recognized$19,000
Accounts receivable3,000
Expenses incurred7,250
Accounts payable (related to expenses)750
Supplies purchased with cash1,800
a. $11,750
b. $14,000
c. $9,500
d. $12,200
Ans: A, LO 1, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $19,000 − $7,250 = $11,750
(Rev. recog. − exp. incur.)
86.Given the data below for a firm in its first year of operation, determine net income under the cash basis of accounting.
Cash received from customers$45,000
Accounts receivable12,000
Cash paid for expenses26,000
Accounts payable (related to expenses)3,000
Prepaid rent for next period7,000
a. $19,000
b. $28,000
c. $21,000
d. $12,000
Ans: D, LO 1, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $45,000 − $26,000 − $7,000 = $12,000
(Cash rec. − Cash paid − Prep. rent)
87.Given the data below for a firm in its first year of operation, determine net income under the accrual basis of accounting.
Cash received from customers$45,000
Accounts receivable12,000
Cash paid for expenses26,000
Accounts payable (related to expenses)3,000
Prepaid rent for next period7,000
a. $19,000
b. $28,000
c. $21,000
d. $12,000
Ans: B, LO 1, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $45,000 + $12,000 − $26,000 − $3,000 = $28,000
(Cash rec. + acc. rec. − cash paid − acc. pay.)
88.Under the cash basis of accounting, an amount received from a customer in advance of providing the services would be reported as a(n):
a. revenue.
b. liability.
c. expense.
d. prepaid expense.
Ans: A, LO 1, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
89.Which of the following would not be an application of the revenue recognition or expense recognition principle?
a. Recording accrued salaries and wages expense.
b. Recording accrued interest revenue.
c. Recording the collection of an advance customer payment as revenue.
d. Recording prepaid expense adjustments.
Ans: C, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Ethics, AICPA BB: None, AICPA FC: Risk Analysis, AICPA PC: Professional Demeanor
90.Why was Apple required to spread their iPhone revenues over a two year period?
a. Because of its newness, their returns might exceed the normal level of returns.
b. Because they were required to provide software updates over that two year period.
c. Because that was the estimated life of the iPhone.
d. Because they needed to defer revenue recognition since they had a swap program available for future models.
Ans: B, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
91.Which of the following is an example of a deferral adjusting entry?
a. Accrued expense
b. Accrued revenue
c. Prepaid expense
d. All of these choices are correct.
Ans: C, LO 1, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
92.The primary difference between prepaid and accrued expenses is that prepaid expenses have:
a. been incurred and accrued expenses have not.
b. not been paid and accrued expenses have.
c. been recorded and accrued expenses have not.
d. not been recorded and accrued expenses have.
Ans: C, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
93.The primary difference between accrued revenues and unearned revenues is that accrued revenues have:
a. not been recognized and accrued revenues have been.
b. been paid and unearned revenues have not.
c. been recorded and unearned revenues have not.
d. not been recorded and unearned revenues have.
Ans: D, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
94.The general term employed to indicate an expense that has not been paid or revenue that has not been received and has not yet been recognized in the accounts is:
a. contra asset.
b. prepayment.
c. asset.
d. accrued.
Ans: D, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
95.Accounts often need to be adjusted because:
a. there are never enough accounts to record all the transactions.
b. many transactions affect more than one time period.
c. there are always errors made in recording transactions.
d. management can’t decide what they want to report.
Ans: B, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
96.Adjusting entries are made to ensure that:
a. expense are recognized in the period in which they are incurred.
b. revenues are recorded in the period in which the performance obligation is satisfied.
c. balance sheet and income statement accounts have correct balances at the end of an accounting period.
d. All of these answer choices are correct.
Ans: D, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
97.Adjusting entries are:
a. not necessary if the accounting system is operating properly.
b. usually required before financial statements are prepared.
c. made whenever management desires to change an account balance.
d. made to balance sheet accounts only.
Ans: B, LO 1, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
98.Each of the following is a major type (or category) of adjusting entry except:
a. earned expenses.
b. prepaid expenses.
c. accrued expenses.
d. accrued revenues.
Ans: A, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving
99.Adjusting entries are required:
a. because some costs expire with the passage of time and have not yet been journalized.
b. when the company’s profits are below the budget.
c. when expenses are recorded in the period in which they are earned.
d. None of these answer choices are correct.
Ans: A, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
100. Which one of the following is not a justification for adjusting entries?
a. Adjusting entries are necessary to ensure that the revenue recognition principle is followed.
b. Adjusting entries are necessary to ensure that the expense recognition principle is followed.
c. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP.
d. Adjusting entries are necessary to bring the general ledger accounts in line with the budget.
Ans: D, LO 1, BT: C, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
101. An adjusting entry:
a. affects two balance sheet accounts.
b. affects two income statement accounts.
c. affects a balance sheet account and an income statement account.
d. is always a compound entry.
Ans: C, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
102. Adjusting entries are:
a. the same as correcting entries.
b. needed to ensure that the expense recognition principle is followed.
c. optional.
d. rarely needed.
Ans: B, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
103. The preparation of adjusting entries is:
a. straightforward because the accounts that need adjustment will be out of balance.
b. needed to ensure that the expense recognition principle is followed.
c. only required for accounts that do not have a normal balance.
d. optional when financial statements are prepared.
Ans: B, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
104. If a resource has been consumed but a bill has not been received at the end of the accounting period, then:
a. an expense should be recorded when the bill is received.
b. an expense should be recorded when the cash is paid out.
c. an adjusting entry should be made recognizing the expense.
d. it is optional whether to record the expense before the bill is received.
Ans: C, LO 1, BT: C, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
105. An asset–expense relationship exists with:
a. liability accounts.
b. revenue accounts.
c. prepaid expense adjusting entries.
d. accrued expense adjusting entries.
Ans: C, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
106. A liability–revenue relationship exists with:
a. asset accounts.
b. revenue accounts.
c. unearned revenue adjusting entries.
d. accrued expense adjusting entries.
Ans: C, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
107. Adjusting entries can be classified as:
a. postponements and advances.
b. accruals and deferrals.
c. deferrals and postponements.
d. accruals and advances.
Ans: B, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
108. Which of the following items describe the two classifications of adjusting entries?
a. Postponements and advances.
b. Accruals and advances.
c. Deferrals and postponements.
d. Accruals and deferrals.
Ans: D, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
109. Which of the following describes an accrued expense?
a. Incurred but not yet paid or recorded.
b. Paid and recorded in an asset account after they are used or consumed.
c. Paid and recorded in an asset account before they are used or consumed.
d. Incurred and already paid or recorded.
Ans: A, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
110. Accrued revenues are:
a. received and recorded as liabilities before they are recognized.
b. recognized and recorded as liabilities before they are received.
c. recognized but not yet received or recorded.
d. recognized and already received and recorded.
Ans: C, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
111. Prepaid expenses are:
a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded.
Ans: A, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
112. Goods purchased for future use in the business, such as supplies, are called:
a. prepaid expenses.
b. revenues.
c. stockholders’ equity.
d. liabilities.
Ans: A, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
113.Accrued expenses are:
a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded.
Ans: C, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
114. Unearned revenues are:
a. received and recorded as liabilities before they are recognized.
b. recognized and recorded as liabilities before they are received.
c. recognized but not yet received or recorded.
d. recognized and already received and recorded.
Ans: A, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
115. Adjusting entries affect at least:
a. one revenue and one expense account.
b. one asset and one liability account.
c. one revenue and one balance sheet account.
d. one income statement account and one balance sheet account.
Ans: D, LO 1, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
116. An architecture firm earned $2,000 for architecture services provided with the fee to be paid in the future. No entry was made at the time the service was provided. If the fee has not been paid by the end of the accounting period and no adjusting entry is made, this would cause:
a. revenues to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.
Ans: D, LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
117. An adjusting entry can include a:
a. debit to an asset and a credit to a liability.
b. debit to a revenue and a credit to an asset.
c. debit to a liability and a credit to a revenue.
d. debit to an expense and a credit to a revenue.
Ans: C, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
118. A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause:
a. expenses to be overstated.
b. net income to be overstated.
c. liabilities to be understated.
d. revenues to be understated.
Ans: D, LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
119. On January 1, 2017, M. Johanson Company purchased equipment for $54,000. The company is depreciating the equipment at the rate of $750 per month. The book value of the equipment at December 31, 2017 is:
a. $0.
b. $9,000.
c. $45,000.
d. $54,000.
Ans: C, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $54,000 − ($750 × 12) = $45,000
[Cost of equip. − (dep./mon × 12)]
120. The Vintage Laundry Company purchased $8,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $1,500 on hand. The adjusting entry that should be made by the company on June 30 is:
a. debit Supplies Expense, $1,500; credit Supplies, $1,500.
b. debit Supplies, $7,000; credit Supplies Expense, $7,000.
c. debit Supplies, $1,500; credit Supplies Expense, $1,500.
d. debit Supplies Expense, $7,000; credit Supplies, $7,000.
Ans: D, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $8,500 − $1,500 = $7,000
(Sup. purch. − Sup. on hand)
121. Greese Company purchased office supplies costing $7,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $2,500 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be:
a. debit Supplies Expense, $2,500; credit Supplies, $2,500.
b. debit Supplies, $4,500; credit Supplies Expense, $4,500.
c. debit Supplies Expense, $4,500; credit Supplies, $4,500.
d. debit Supplies, $2,500; credit Supplies Expense, $2,500.
Ans: C, LO 2, BT: AP, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $7,000 − $2,500 = $4,500
(Sup. purch. − Sup. on hand)
122. A company purchased office supplies costing $5,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $900 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be:
a. debit Supplies Expense, $5,900; credit Supplies, $5,900.
b. debit Supplies, $900; credit Supplies Expense, $900.
c. debit Supplies Expense, $4,100; credit Supplies, $4,100.
d. debit Supplies, $4,100; credit Supplies Expense, $4,100.
Ans: C, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $5,000 − $900 = $4,100
(Sup. purch. − Sup. on hand)
123. Unearned revenue is classified as a(n):
a. asset account.
b. revenue account.
c. contra revenue account.
d. liability.
Ans: D, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
124. Boyce Company purchased office supplies costing $7,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,800 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be:
a. debit Supplies Expense, $5,200; credit Supplies, $5,200.
b. debit Supplies, $1,800; credit Supplies Expense, $1,800.
c. debit Supplies Expense, $1,800; credit Supplies, $1,800.
d. debit Supplies, $5,200; credit Supplies Expense, $5,200.
Ans: A, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $7,000 − $1,800 = $5,200
(Sup. purch. − Sup. on hand)
125. On July 1 the Fisher Shoe Store paid $24,000 to Acme Realty for 6 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Fisher Shoe Store is:
a. debit Rent Expense, $24,000; credit Prepaid Rent, $4,000.
b. debit Prepaid Rent, $4,000; credit Rent Expense, $4,000.
c. debit Rent Expense, $4,000; credit Prepaid Rent, $4,000.
d. debit Rent Expense, $24,000; credit Prepaid Rent, $20,000.
Ans: C, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $24,000 × 1/6 = $4,000
(Rent paid × 1/6)
126. The balance in the prepaid rent account before adjustment at the end of the year is $12,000 and represents three months rent paid on December 1. The adjusting entry required on December 31 is:
a. debit Prepaid Rent, $4,000; credit Rent Expense $4,000.
b. debit Prepaid Rent, $8,000; credit Rent Expense, $8,000.
c. debit Rent Expense, $12,000; credit Prepaid Rent, $12,000.
d. debit Rent Expense, $4,000; credit Prepaid Rent, $4,000.
Ans: D, LO 2, BT: AP, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $12,000 × 1/3 = $4,000
(Prep. rent bal. × 1/3)
127. If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be:
a. debit Unearned Service Revenue and credit Cash.
b. debit Unearned Service Revenue and credit Service Revenue.
c. debit Unearned Service Revenue and credit Prepaid Expense.
d. debit Unearned Service Revenue and credit Accounts Receivable.
Ans: B, LO 2, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
128.Accumulated Depreciation is a(n):
a. expense account.
b. stockholders’ equity account.
c. liability account.
d. contra asset account.
Ans: D, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
129. The Harris Company purchased equipment for $15,000 on December 1. It is estimated that annual depreciation on the computer will be $3,000. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:
a. debit Depreciation Expense, $3,000; credit Accumulated Depreciation, $3,000.
b. debit Depreciation Expense, $250; credit Accumulated Depreciation, $250.
c. debit Depreciation Expense, $12,000; credit Accumulated Depreciation, $12,000.
d. debit Equipment, $15,000; credit Accumulated Depreciation, $15,000.
Ans: B, LO 2, BT: K, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $3,000 ÷ 12 = $250
(Ann. depr. ÷ 12)
130.Adjustments for unearned revenue:
a. decrease liabilities and increase revenues.
b. increase liabilities and increase revenues.
c. increase assets and increase revenues.
d. decrease revenues and decrease assets.
Ans: A, LO 2, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
131. Leyland Realty Company received a check for $18,000 on July 1, which represents a 6-month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $18,000. Financial statements will be prepared on July 31. Leyland Realty should make the following adjusting entry on July 31:
a. debit Unearned Rent Revenue, $3,000; credit Rent Revenue, $3,000.
b. debit Rent Revenue, $3,000; credit Unearned Rent Revenue, $3,000.
c. debit Unearned Rent Revenue, $18,000; credit Rent Revenue, $18,000.
d. debit Cash, $18,000; credit Rent Revenue, $18,000.
Ans: A, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Reporting
Solution: $18,000 ÷ 6 = $3,000
(Rent pay ÷ 6)
132. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a:
a. debit to an asset account and a credit to an expense account.
b. debit to an expense account and a credit to an asset account.
c. debit to an asset account and a credit to an asset account.
d. debit to an expense account and a credit to an expense account.
Ans: B, LO 2, BT: C, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
133. The adjusting entry to an unearned revenue account will
a. decrease liabilities and increase revenues.
b. increase liabilities and increase revenues.
c. increase assets and increase revenues.
d. decrease revenues and decrease assets.
Ans: A, LO 2, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
134. Payments of expenses that will benefit more than one accounting period are identified as:
a. expenses.
b. revenues.
c. prepaid expenses.
d. liabilities.
Ans: C, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
135. A company usually determines the amount of supplies used during a period by:
a. adding the supplies on hand to the balance of the Supplies account.
b. summing the amount of supplies purchased during the period.
c. taking the difference between the supplies purchased and the supplies paid for during the period.
d. taking the difference between the balance of the Supplies account and the cost of supplies on hand.
Ans: D, LO 2, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
136. If a company fails to make an adjusting entry to record supplies expense, then:
a. stockholders’ equity will be understated.
b. expense will be understated.
c. assets will be understated.
d. net income will be understated.
Ans: B, LO 2, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
137. Supplies are recorded as assets when purchased. Therefore, the credit to supplies in the adjusting entry is for the amount of supplies:
a. remaining.
b. purchased.
c. used.
d. either used or remaining.
Ans: C, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
138. If a company fails to adjust for accrued revenues:
a. liabilities will be understated and revenues will be understated.
b. liabilities will be overstated and revenues will be understated.
c. assets will be overstated and revenues will be understated.
d. assets will be understated and revenues will be understated.
Ans: D, LO 2, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
139. If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect will this have on that month’s financial statements?
a. Failure to make an adjustment does not affect the financial statements.
b. Expenses will be overstated and net income and stockholders’ equity will be under- stated.
c. Assets will be overstated and net income and stockholders’ equity will be understated.
d. Assets will be overstated and net income and stockholders’ equity will be overstated.
Ans: D, LO 2, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
140. If a company fails to adjust an Unearned Rent Revenue account for rent that has been recognized, what effect will this have on that month’s financial statements?
a. Assets will be understated and revenues will be understated.
b. Liabilities will be understated and revenues will be understated.
c. Liabilities will be overstated and revenues will be understated.
d. Assets will be overstated and revenues will be understated.
Ans: C, LO 2, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
141. If a company fails to adjust for accrued expenses, what effect will this have on that month’s financial statements?
a. Failure to make an adjustment does not affect the financial statements.
b. Expenses will be understated and net income and stockholders’ equity will be overstated.
c. Assets will be overstated and net income and stockholders’ equity will be under-stated.
d. Assets will be overstated and net income and stockholders’ equity will be overstated.
Ans: B, LO 2, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
142. On January 1, 2016, Leardon Inc. purchased equipment for $25,000. The company is depreciating the equipment at the rate of $1,000 per month. At January 31, 2017, the balance in Accumulated Depreciation is:
a. $1,000 debit.
b. $12,000 credit.
c. $13,000 credit.
d. $62,000 debit.
Ans: C, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $1,000 × 13 mon. = $13,000
(Depr./mon. × 13)
143. At December 31, 2017, before any year-end adjustments, Dallis Company’s Prepaid Insurance account had a balance of $5,800. It was determined that $2,600 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be:
a. $2,600.
b. $3,200.
c. $5,800.
d. $2,800.
Ans: A, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
144. At December 31, 2017, before any year-end adjustments, Janus Company’s Prepaid Insurance account had a balance of $4,200. It was determined that $1,800 of the Prepaid Insurance had expired. The adjusted balance for Prepaid Insurance for the year would be:
a. $1,800.
b. $2,400.
c. $5,700.
d. $4,200.
Ans: B, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $4,200 − $1,800 = $2,400
(Prep. Ins. bal. − ins. expir.)
145. At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following statements is true?
a. Net income will be overstated for the current year.
b. Total assets will be understated at the end of the current year.
c. The balance sheet and income statement will be misstated but the Retained Earnings statement will be correct for the current year.
d. Total expenses will be overstated at the end of the current year.
Ans: A, LO 2, BT: AN, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
146. The trial balance for Greenway Corporation appears as follows:
Greenway Corporation
Trial Balance
December 31, 2017
Cash $ 300
Accounts Receivable 522
Prepaid Insurance 82
Supplies 180
Equipment 4,000
Accumulated Depreciation, Equipment $ 600
Accounts Payable 384
Common Stock 1,200
Retained Earnings 1,400
Service Revenue 3,000
Salaries and Wages Expense 1,000
Rent Expense 500
$6,584$6,584
If, on December 31, 2017, supplies on hand were $40, the adjusting entry would contain a:
a. debit to Supplies for $40.
b. credit to Supplies for $40.
c. debit to Supplies Expense for $140.
d. credit to Supplies Expense for $140.
Ans: C, LO 2, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $180 − $40 = $140
(Sup. bal. − Sup. on hand)
147. The trial balance for Greenway Corporation appears as follows:
Greenway Corporation
Trial Balance
December 31, 2017
Cash $ 300
Accounts Receivable 522
Prepaid Insurance 82
Supplies 180
Equipment 4,000
Accumulated Depreciation, Equipment $ 600
Accounts Payable 384
Common Stock 1,200
Retained Earnings 1,400
Service Revenue 3,000
Salaries and Wages Expense 1,000
Rent Expense 500
$6,584$6,584
If, on December 31, 2017, the insurance still unexpired amounted to $20, the adjusting entry would contain a:
a. debit to Prepaid Insurance for $62.
b. credit to Prepaid Insurance for $20.
c. debit to Insurance Expense for $62.
d. debit to Prepaid Insurance for $20.
Ans: C, LO 2, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $82 − $20 = $62
(Prep. ins. bal. − unexp. ins.)
148. The trial balance for Greenway Corporation appears as follows:
Greenway Corporation
Trial Balance
December 31, 2017
Cash $ 300
Accounts Receivable 522
Prepaid Insurance 82
Supplies 180
Equipment 4,000
Accumulated Depreciation, Equipment $ 600
Accounts Payable 384
Common Stock 1,200
Retained Earnings 1,400
Service Revenue 3,000
Salaries and Wages Expense 1,000
Rent Expense 500
$6,584$6,584
If the estimated depreciation for equipment were $600, the adjusting entry would contain a:
a. credit to Accumulated Depreciation, Equipment for $600.
b. credit to Depreciation Expense, Equipment for $600.
c. debit to Accumulated Depreciation, Equipment for $600.
d. credit to Equipment for $600.
Ans: A, LO 2, BT: K, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
149. The trial balance for Greenway Corporation appears as follows:
Greenway Corporation
Trial Balance
December 31, 2017
Cash $ 300
Accounts Receivable 522
Prepaid Insurance 82
Supplies 180
Equipment 4,000
Accumulated Depreciation, Equipment $ 600
Accounts Payable 384
Common Stock 1,200
Retained Earnings 1,400
Service Revenue 3,000
Salaries and Wages Expense 1,000
Rent Expense 500
$6,584$6,584
If as of December 31, 2017, rent of $150 for December had not been recorded or paid, the adjusting entry would include a:
a. credit to Accumulated Rent for $150.
b. credit to Cash for $150.
c. debit to Rent Payable for $150
d. debit to Rent Expense for $150
Ans: D, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
150. The trial balance for Greenway Corporation appears as follows:
Greenway Corporation
Trial Balance
December 31, 2017
Cash $ 300
Accounts Receivable 522
Prepaid Insurance 82
Supplies 180
Equipment 4,000
Accumulated Depreciation, Equipment $ 600
Accounts Payable 384
Common Stock 1,200
Retained Earnings 1,400
Service Revenue 3,000
Salaries and Wages Expense 1,000
Rent Expense 500
$6,584$6,584
If service for $175 had been performed but not billed, the adjusting entry to record this would include a:
a. debit to Service Revenue for $175.
b. credit to Unearned Service Revenue for $175.
c. credit to Service Revenue for $175.
d. debit to Unearned Revenue for $175.
Ans: C, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving
151. Depreciation is the process of:
a. valuing an asset at its fair value.
b. increasing the value of an asset over the periods in which it is used.
c. allocating the cost of an asset to the periods in which it is used.
d. writing down an asset to its real value each accounting period.
Ans: C, LO 2, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
152. The difference between the balance of a plant asset account and the related accumulated depreciation account is termed:
a. market value.
b. contra asset.
c. book value.
d. liability.
Ans: C, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
153. A new accountant working for Metcalf Company records $800 Depreciation Expense on store equipment as follows:
Dr. Cr.
Depreciation Expense …………………….. 822
Cash 822
The effect of this entry is to:
a. adjust the accounts to their proper amounts on December 31.
b. understate total assets on the balance sheet as of December 31.
c. overstate the book value of the depreciable assets at December 31.
d. understate the book value of the depreciable assets as of December 31.
Ans: C, LO 2, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving
154. From an accounting standpoint, the acquisition of long-lived assets is essentially a(n):
a. accrual of expense.
b. accrual of revenue.
c. accrual of unearned revenue.
d. prepaid expense.
Ans: D, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
155. If a business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit:
a. cash.
b. prepaid rent.
c. unearned rent revenue.
d. accrued rent revenue.
Ans: C, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
156. An accumulated depreciation account:
a. is a contra liability account.
b. increases on the debit side.
c. is offset against total assets on the balance sheet.
d. has a normal credit balance.
Ans: D, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
157. The difference between the cost of a depreciable asset and its related accumulated depreciation is referred to as the:
a. market value of the asset.
b. blue book value of the asset.
c. book value of the asset.
d. depreciated difference of the asset.
Ans: C, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
158. Which of the following would not result in unearned revenue?
a. Rent collected in advance from tenants.
b. Services performed on account.
c. Sale of season tickets to football games.
d. Sale of two-year magazine subscriptions.
Ans: B, LO 2, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
159. The policy at Adler Corporation is to expense all office supplies at the time of purchase. On the last day of the accounting period, there are $1,100 of unused office supplies on hand and the balance of supplies expense is $3,500. What should the accountant do?
a. Debit Supplies and credit Supplies Expense for $1,100.
b. Nothing, company policy says to expense supplies when purchased.
c. Convince management to change its policy to avoid problems in the future.
d. Debit Supplies Expense for $2,400 and credit Supplies for $2,400.
Ans: A, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
160.Which statement is correct?
a. Accumulated Depreciation should always have a debit balance in the adjusted trial
balance.
b. Accumulated Depreciation is added to the long-term liabilities on the balance sheet.
c. Accumulated Depreciation, Equipment represents the total cost of equipment that has expired up to the date of the balance sheet.
d. Accumulated Depreciation is used to reveal the value of the related asset on the date of the balance sheet.
Ans: C, LO 2, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
161.Walton Company collected $14,400 in May of 2016 for 4 months of service which would take place from October of 2016 through January of 2017. The revenue reported from this transaction during 2016 would be:
a. $0.
b. $10,800.
c. $14,400.
d. $3,600.
Ans: B, LO 2, BT: C, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $14,400 × 3/4 = $10,800
(Collect. × 3/4)
162.Skypress Company collected $11,200 in May of 2016 for 4 months of service which would take place from October of 2016 through January of 2017. The revenue reported from this transaction during 2016 would be:
a. $0.
b. $8,400.
c. $11,200.
d. $2,800.
Ans: B, LO 2, BT: C, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $11,200 × 3/4 = $8,400
(Collect. × 3/4)
163. Masterfalls Corporation purchased a one-year insurance policy in January 2016 for $36,000. The insurance policy is in effect from March 2016 through February 2017. If the company neglects to make the proper year-end adjustment for the expired insurance:
a. net income and assets will be understated by $30,000.
b. net income and assets will be overstated by $30,000.
c. net income and assets will be understated by $6,000.
d. net income and assets will be overstated by $6,000.
Ans: B, LO 2, BT: AN, Difficulty: Hard, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $36,000 × 10/12 = $30,000
(Insur. pol. cost × 10/12)
164. James & Younger Corporation purchased a one-year insurance policy in January 2016 for $42,000. The insurance policy is in effect from March 2016 through February 2017. If the company neglects to make the proper year-end adjustment for the expired insurance:
a. net income and assets will be understated by $35,000.
b. net income and assets will be overstated by $35,000.
c. net income and assets will be understated by $7,000.
d. net income and assets will be overstated by $7,000.
Ans: B, LO 2, BT: AN, Difficulty: Hard, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $42,000 × 10/12 = $35,000
(Insur. pol. cost × 10/12)
165. At March 1, 2017, Candy Inc. had supplies on hand of $2,000. During the month, Candy purchased supplies of $2,900 and used supplies of $2,800. The March 31 balance sheet should report what balance in the supplies account?
a. $2,000
b. $2,100
c. $2,800
d. $2,900
Ans: B, LO 2, BT: AP, Difficulty: Hard, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $2,000 + $2,900 − $2,800 = $2,100
(Beg. sup. + sup. purch. − sup. used)
166. Darting Company purchased equipment for $9,000 on January 1, 2017. The company expects to use the equipment for 3 years. It has no salvage value. Monthly depreciation expense on the asset is:
a. $0.
b. $250.
c. $3,000.
d. $9,000.
Ans: B, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: ($9,000 ÷ 3) ÷ 12 = $250
(Equip. cost ÷ 3) ÷ 12
167. Fleet Services Company purchased equipment for $12,000 on January 1, 2017. The company expects to use the equipment for 5 years. It has no salvage value. What balance would be reported on the December 31, 2017 balance sheet for Accumulated Depreciation?
a. $0 because Accumulated Depreciation is reported on the Income Statement.
b. $2,400
c. $9,600
d. $12,000
Ans: B, LO 2, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $12,000 ÷ 5 = $2,400
(Equip. cost ÷ 5)
168. Green Realty Company received a check for $24,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $24,000. Financial statements will be prepared on July 31. Green Realty should make the following adjusting entry on July 31:
a. debit Unearned Rent Revenue, $4,000; credit Rent Revenue, $4,000.
b. debit Rent Revenue, $4,000; credit Unearned Rent Revenue, $4,000.
c. debit Unearned Rent Revenue, $24,000; credit Rent Revenue, $24,000.
d. debit Cash, $24,000; credit Rent Revenue, $24,000.
Ans: A, LO 2, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $24,000 ÷ 6 = $4,000
(Rent rec. ÷ 6)
169. Oakville Inc. purchased a 12-month insurance policy on March 1, 2017 for $2,400. At March 31, 2017, the adjusting journal entry to record expiration of this asset will include:
a. a debit to Prepaid Insurance and a credit to Cash for $2,400.
b. a debit to Prepaid Insurance and a credit to Insurance Expense for $240.
c. a debit to Insurance Expense and a credit to Prepaid Insurance for $200.
d. a debit to Insurance Expense and a credit to Cash for $200.
Ans: C, LO 2, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $2,400 ÷ 12 = $200
(Insur. pol. cost. ÷ 12)
170. Hoosher Enterprises purchased an 18-month insurance policy on May 31, 2017 for $10,800. The December 31, 2017 balance sheet would report Prepaid Insurance of:
a. $0 because Prepaid Insurance is reported on the Income Statement.
b. $4,200.
c. $6,600.
d. $10,800.
Ans: C, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $10,800 × 11/18 = $6,600
(Insur. pol. cost. × 11/18)
171. At March 1, I. Repo Inc. reported a balance in Supplies of $200. During March, the company purchased supplies for $950 and consumed supplies of $800. If no adjusting entry is made for supplies:
a. stockholders’ equity will be overstated by $800.
b. expenses will be understated by $950.
c. assets will be understated by $350.
d. net income will be understated by $800.
Ans: A, LO 2, BT: AN, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
172. Regions Inc. pays its rent of $60,000 annually on January 1 and makes monthly adjusting entries. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following are true?
a. Failure to make the adjustment does not affect the February financial statements.
b. Expenses will be overstated by $5,000 and net income and stockholders’ equity will be understated by $5,000.
c. Assets will be overstated by $10,000 and net income and stockholders’ equity will be understated by $10,000.
d. Assets will be overstated by $5,000 and net income and stockholders’ equity will be overstated by $5,000.
Ans: D, LO 2, BT: AN, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $60,000 ÷ 12 = $5,000
(Rent pay ÷ 12)
173. Muldoon Advertising has an opening balance in its supplies account of $2,400 and purchases $3,000 of supplies during the year. A year-end physical count shows $2,800 in supplies inventory. Which is the appropriate journal entry at year end?
a. Dr Supplies Expense $2,600
Cr Supplies $2,600
b. Dr Supplies Expense $2,800
Cr Supplies $2,800
c. Dr Supplies $2,600
Cr Supplies Expense $2,600
d. Dr Supplies $3,000
Cr Cash $3,000
Ans: A, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $2,400 + $3,000 – $2,800 = $2,600
(Beg. sup. + sup. purch. – end. sup.)
174. The fiscal year opened for Noland Manufacturing with a $2,700 balance in its prepaid insurance account. They purchased $9,600 in insurance policies during the year. If $1,725 of insurance has expired during the year, what is the year-end balance in the prepaid insurance account?
a. $10,575
b. $12,300
c. $7,875
d. $5,175
Ans: A, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $2,700 + $9,600 – $1,725 = $10,575
(Beg. prep. ins. + ins. purch. – expir. ins.)
175. Equipment was purchased by Noland Manufacturing on January 1, 2017, for $125,000. Noland’s policy is to adjust its accounts at year-end. Which is the appropriate journal entry to record depreciation at year-end if the company expects to use equipment consistently for five years? In the choices below, as per convention, debits are listed first followed by credits.
a. Depreciation Expense – Equipment $25,000
Accumulated Depreciation – Equipment $25,000
b. Accumulated Depreciation – Equipment $25,000
Depreciation Expense – Equipment $25,000
c. Depreciation Expense – Equipment $25,000
Equipment $25,000
d. Accumulated Depreciation – Equipment $25,000
Equipment $25,000
Ans: A, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $125,000 ÷ 5 = $25,000
(Equip. cost/5 years.)
176. Foley Marketing received $60,000 from a customer on January 2nd, 2017 to be on retainer for the next two years. The appropriate journal entry to recognize revenue at Foley’s fiscal year-end on December 31st, 2017 would be ____________.
a. Unearned Revenue $30,000
Service Revenue $30,000
b. Service Revenue $30,000
Unearned Revenue $30,000
c. Service Revenue $30,000
Cash $30,000
d. Unearned Revenue $30,000
Cash $30,000
Ans: A, LO 2, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $60,000 ÷ 2 yrs. = $30,000
(Cash rec. /2 yrs.)
177. A customer paid $60,000 to Foley Marketing on December 30, 2015, to perform services from January 1, 2016 through December 31, 2019. If Foley fails to record the revenue recognized, ________ would be understated by ________ each year.
a. net income, $15,000
b. net income, $12,000
c. liabilities, $15,000
d. assets, $12,000
Ans: A, LO 2, BT: AN, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $60,000 ÷ 4 yrs. = $15,000
(Cash paid/4 yrs.)
178. Merando Industries employs a five-day workweek and a September 30 year-end. Normal weekly wages amount to $36,000. If September 30 ends on a Wednesday, what is the appropriate journal entry at fiscal year-end?
a. Salaries and Wages Expense $21,600
Salaries and Wages Payable $21,600
b. Salaries and Wages Expense $36,000
Salaries and Wages Payable $36,000
c. Salaries and Wages Expense $7,200
Salaries and Wages Payable $7,200
d. Salaries and Wages Expense $21,600
Cash $21,600
Ans: A, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $36,000 × 3/5 = $21,600
(Week. wag. x 3/5)
179. Merando Industries employs a five-day workweek and a September 30 year-end. Normal weekly wages amount to $35,000. If September 30 ends on a Wednesday, what is the appropriate journal entry on October 2, the next payday for Merando?
a. Salaries and Wages Expense $14,000
Salaries and Wages Payable $21,000
Cash $35,000
b. Salaries and Wages Expense $21,000
Salaries and Wages Payable $14,000
Cash $35,000
c. Salaries and Wages Expense $21,000
Cash $21,000
d. Salaries and Wages Payable $14,000
Cash $14,000
Ans: A, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: ($35,000 ÷ 5) × 2 = $14,000 expense
(Week. wag./5) x 2
180. LR Corporation is a cash-basis business. LR signed a six-month, 12% note payable of $10,000 on October 1st, 2017. By recording the interest expense related to the note only when it is paid on April 1st, 2018, LR will understate expenses by ________ on its year-end financial statements on December 31st, 2017.
a. $300
b. $600
c. $0
d. $11,200
Ans: A, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $10,000 × .12 × 3/12 = $300 (Note amount x int. rate x 3/12)
181. Baden Industries borrows $20,000 at 7% annual interest for six months on October 1st, 2017. Which is the appropriate entry to accrue interest if Baden employs a December 31st, 2017, fiscal year?
a. Interest Expense $350
Interest Payable $350
b. Interest Expense $1,400
Interest Payable $1,400
c. Interest Expense $350
Notes Payable $350
d. Notes Payable $1,400
Interest Payable $1,400
Ans: A, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $20,000 × .07 × 3/12 = $350
(Amount bor. x int. rate x 3/12
182. Kingman Consulting uses the cash basis of accounting and a fiscal year ending December 31. Beginning on September 1, 2016, Kingman performs services for Renfro International at a rate of $5,000 per month. On February 12, 2017, Renfro pays Kingman $25,000 in full for all services rendered from September 1, 2016 to January 31, 2017. Kingman understated revenues by ________ on its year-end financial statement.
a. $20,000
b. $5,000
c. $25,000
d. $15,000
Ans: A, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: ($25,000 ÷ 5) × 4 = $20,000
(Cash rec./5 mon.) x 4 mon.
183. Brokaw Industries signs a $40,000, 9%, 6-month note payable on September 1, 2016. How much interest expense will Brokaw report in its 2017 financial statements?
a. $600
b. $1,200
c. $1,800
d. $0
Ans: A, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $40,000 × .09 × 2/12 = $600
(Note amount x int. rate x 2/12)
184. On August 15th, 2017, Kinney Industries signs a $200,000, 8%, twelve-month note payable. Which of the following entries correctly records the accrued interest on December 31st, 2017?
a. Interest Expense $6,000
Interest Payable $6,000
b. Interest Expense $5,333.33
Interest Payable $5,333.33
c. Interest Expense $16,000
Interest Payable $16,000
d. Interest Expense $10,000
Interest Payable $10,000
Ans: A, LO 3, BT: AN, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $200,000 × .08 × 4.5/12 = $6,000
(Note amount x int. rate x 4.5/12)
185. On November 1, 2016, Weller Industries, which uses a calendar year as its fiscal year, signs a $30,000, 7%, six-month note payable. Which of the following entries correctly records the payment of the note and entire interest on May 1, 2017?
a. Notes Payable $30,000
Interest Expense 700
Interest Payable 350
Cash $31,050
b. Notes Payable $32,100
Cash $32,100
c. Notes Payable $31,050
Cash $31,050
d. Notes Payable $30,000
Interest Expense 1,050
Cash $31,050
Ans: A, LO 3, BT: AN, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $30,000 × .07 × 4/12 = $700
(Note amount x int. rate x 4/12)
186. An adjusting entry can include a:
a. debit to an asset and a credit to a revenue.
b. debit to a revenue and a credit to an asset.
c. credit to an expense and a debit to a revenue.
d. debit to an expense and a credit to a revenue.
Ans: A, LO 3, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
187. A revenue–asset relationship exists with:
a. prepaid expense adjusting entries.
b. accrued expense adjusting entries.
c. unearned revenue adjusting entries.
d. accrued revenue adjusting entries.
Ans: D, LO 3, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
188. The accounts of a business, before an adjusting entry is made to record accrued revenue, reflect an:
a. understated liability and an overstated revenue.
b. overstated asset and an understated revenue.
c. understated expense and an overstated revenue.
d. understated asset and an understated revenue.
Ans: D, LO 3, BT: C, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
189. Adjustments for accrued revenues:
a. increase assets and increase revenues.
b. increase assets and increase liabilities.
c. decrease assets and increase revenues.
d. decrease liabilities and increase revenues.
Ans: A, LO 3, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
190. Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause:
a. net income to be understated.
b. an overstatement of assets and an overstatement of liabilities.
c. an understatement of expenses and an understatement of liabilities.
d. an overstatement of expenses and an overstatement of liabilities.
Ans: C, LO 3, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
191. Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause:
a. net income to be overstated.
b. an understatement of assets and an understatement of revenues.
c. an understatement of revenues and an understatement of liabilities.
d. an understatement of revenues and an overstatement of liabilities.
Ans: B, LO 3, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
192. An adjusting entry made to record accrued interest on a note receivable due next year consists of a:
a. debit to Interest Expense and a credit to Interest Payable.
b. debit to Interest Receivable and a credit to Interest Revenue.
c. debit to Interest Expense and a credit to Notes Payable.
d. debit to Interest Expense and a credit to Cash.
Ans: B, LO 3, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
193. Raxon Company borrowed $50,000 from the bank signing a 6%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be:
a. debit Interest Expense, $3,000; credit Interest Payable, $3,000.
b. debit Interest Expense, $250; credit Interest Payable, $250.
c. debit Note Payable, $3,000; credit Cash, $3,000.
d. debit Cash, $750; credit Interest Payable, $750.
Ans: B, LO 3, BT: AP, Difficulty: Hard, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $50,000 × .06 × 1/12 = $250
(Amount borrowed × .06 × 1/12)
194. Nacron Company borrowed $15,000 from the bank signing a 6%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements, the adjusting entry that the company should make for interest on September 30, would be:
a. debit Interest Expense, $75; credit Interest Payable, $75.
b. debit Interest Expense, $900; credit Interest Payable, $900.
c. debit Note Payable, $900; credit Cash, $900.
d. debit Cash, $75; credit Interest Payable, $75.
Ans: A, LO 3, BT: AP, Difficulty: Hard, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $15,000 × .06 × 1/12 = $75
(Amount borrowed × .06 × 1/12)
195. Mary Richardo has performed $500 of CPA services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Mary make?
a. Debit Cash and credit Unearned Service Revenue
b. Debit Accounts Receivable and credit Unearned Service Revenue
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Unearned Service Revenue and credit Service Revenue
Ans: C, LO 3, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
196. Mary Richardo, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will she make upon receipt of the payments?
a. Debit Unearned Service Revenue and credit Service Revenue
b. Debit Cash and credit Accounts Receivable
c. Debit Accounts Receivable and credit Service Revenue
d. Debit Cash and credit Service Revenue
Ans: B, LO 3, BT: AN, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
197. Amos Real Estate signed a four-month note payable in the amount of $20,000 on September 1. The note requires interest at an annual rate of 9%. The amount of interest to be accrued at the end of September is:
a. $600.
b. $150.
c. $1,800.
d. $200.
Ans: B, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $20,000 × .09 × 1/12 = $150
(Note pay. × .09 × 1/12)
198. DeNova Real Estate signed a four-month note payable in the amount of $40,000 on September 1. The note requires interest at an annual rate of 6%. The amount of interest to be accrued at the end of September is:
a. $2,400.
b. $600.
c. $200.
d. $450.
Ans: C, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $40,000 × .06 × 1/12 = $200
(Note pay. × .06 × 1/12)
199. A gift shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $50,000 with annual interest of 6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?
a. Interest Expense 500
Interest Payable 500
b. Interest Expense 750
Interest Payable750
c. Interest Expense 500
Cash500
d. Interest Expense 750
Note Payable750
Ans: A, LO 3, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $50,000 × .06 × 2/12 = $500
(Note pay. × .06 × 2/12)
200. Ye Olde Christmas shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on October 1 in the amount of $30,000 with annual interest of 6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?
a. Interest Expense 150
Interest Payable 150
b. Interest Expense 300
Interest Payable 300
c. Interest Expense 450
Interest Payable450
d. Interest Expense 1,800
Note Payable 1,800
Ans: C, LO 3, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $30,000 × .06 × 3/12 = $450
(Note pay. × .06 × 3/12)
201. Snelling Tables paid employee wages on and through Friday, January 26, and the next payroll will be paid in February. There are three more working days in January (29–31). Employees work 5 days a week and the company pays $1,200 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January?
a. Salaries and Wages Expense 1,200
Salaries and Wages Payable1,200
b. Salaries and Wages Expense 6,000
Salaries and Wages Payable6,000
c. Salaries and Wages Expense 3,600
Salaries and Wages Payable3,600
d. No adjusting entry is required.
Ans: C, LO 5, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $1,200 × 3 = $3,600
(Wages/day × 3)
202. Jill Clown earned a salary of $500 for the last week of October. She will be paid on November 1. The adjusting entry for Jill’s employer October 31 is:
a. No entry is required.
b. Salaries and Wages Expense 500
Salaries and Wages Payable 500
c. Salaries and Wages Expense 500
Cash500
d. Salaries and Wages Payable 500
Cash500
Ans: B, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
203. At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true?
a. Salaries and Wages Expense for the year is overstated.
b. Liabilities at the end of the year are understated.
c. Assets at the end of the year are understated.
d. Stockholders’ equity at the end of the year is understated.
Ans: B, LO 3, BT: AN, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
204. A company shows a balance in Salaries and Wages Payable of $50,000 at the end of the month. The next payroll amounting to $75,000 is to be paid in the following month. What will be the journal entry to record the payment of salaries?
a. Salaries and Wages Expense 75,000
Salaries and Wages Payable75,000
b. Salaries and Wages Expense 75,000
Cash 75,000
c. Salaries and Wages Expense 25,000
Cash 25,000
d. Salaries and Wages Payable 50,000
Salaries and Wages Expense 25,000
Cash 75,000
Ans: D, LO 3, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
205. De Meaning Corporation issued a one-year 6% $400,000 note on April 30, 2017. Interest expense for the year ended December 31, 2017 was:
a. $24,000.
b. $18,000.
c. $16,000.
d. $14,000.
Ans: C, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $400,000 × .06 × 8/12 = $16,000
(Note pay. × .06 × 8/12)
206. Bluing Corporation issued a one-year 9% $400,000 note on April 30, 2017. Interest expense for the year ended December 31, 2017 was:
a. $36,000.
b. $27,000.
c. $24,000.
d. $21,000.
Ans: C, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $400,000 × .09 × 8/12 = $24,000
(Note pay. × .09 × 8/12)
207. Employees at Biquell Corporation are paid $15,000 cash every Friday for working Monday through Friday. The calendar year accounting period ends on Wednesday, December 31. How much salaries and wages expense should be recorded two days later on January 2?
a. $15,000
b. $9,000
c. None, expense recognition requires the weekly salary to be accrued on December 31.
d. $6,000
Ans: D, LO 3, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Solution: $15,000 × 2/5 = $6,000
(Salar./week × 2/5)
208. An adjusted trial balance:
a. is prepared after the financial statements are completed.
b. proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
c. is a required financial statement under generally accepted accounting principles.
d. cannot be used to prepare financial statements.
Ans: B, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
209. Which of the statements below is not true?
a. An adjusted trial balance should show ledger account balances.
b. An adjusted trial balance can be used to prepare financial statements.
c. An adjusted trial balance proves the mathematical equality of debits and credits in the ledger.
d. An adjusted trial balance is prepared before all transactions have been journalized.
Ans: D, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
210. Which statement is incorrect concerning the adjusted trial balance?
a. An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made.
b. The adjusted trial balance provides the primary basis for the preparation of financial statements.
c. The adjusted trial balance lists the account balances in order of their magnitude.
d. The adjusted trial balance is prepared after the adjusting entries have been journalized and posted.
Ans: C, LO 4, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
211. Can financial statements be prepared directly from the adjusted trial balance?
a. They cannot. The general ledger must be used.
b. Yes, adjusting entries have been recorded in the general journal and posted to the ledger accounts.
c. No, the adjusted trial balance merely proves the equality of the total debit and total credit balances in the ledger after adjustments are posted. It has no other purpose.
d. They can because that is the only reason that an adjusted trial balance is prepared.
Ans: B, LO 4, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
212. The primary source used in the preparation of the financial statements is the:
a. trial balance.
b. post-closing trial balance.
c. general trial balance.
d. adjusted trial balance.
Ans: D, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
213. Which of the following accounts will reflect the account’s beginning balance on the adjusted trial balance?
a. Prepaid rent
b. Retained earnings
c. Prepaid insurance
d. Unearned revenue
Ans: B, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
214. The following accounts show balances on the adjusted trial balance. Which of these account balances will not appear the same on the balance sheet?
a. Retained earnings
b. Accounts receivable
c. Common stock
d. Notes payable
Ans: A, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
215. Which trial balance will consist of the greatest number of accounts?
a. Post-closing trial balance
b. Trial balance
c. Adjusted trial balance
d. All of the above will contain the same number of accounts.
Ans: C, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
216. Based on the account balances below, what is the total of the debit and credit columns of the adjusted trial balance?
Service revenue $5,300 Equipment $7,400
Cash 2,525 Prepaid insurance 1,225
Unearned service rev. 5,320 Depreciation expense 640
Salaries and wages expense 1,050 Accum. depreciation 1,280
Common stock 390 Retained earnings 550
a. $11,150
b. $12,840
c. $11,560
d. $12,430
Ans: B, LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $5,300 + $5,320 + $390 + $1,280 + $550 = $12,840
(Ser. rev. + Un. ser. rev. + com. st. + acc. dep. + ret. earn.)
217. Given the following adjusted trial balance:
DebitCredit
Cash $1,662
Accounts receivable 2,098
Inventory 3,124
Prepaid rent 86
Equipment 300
Accumulated depreciation-equipment 52
Accounts payable 82
Unearned service revenue 122
Common stock 206
Retained earnings 6,610
Service revenue 368
Interest revenue 56
Salaries and wages expense 160
Travel expense 66
Total $7,496 $7,496
Net income for the year is:
a. $198.
b. $370.
c. $424.
d. $596.
Ans: A, LO 4, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $368 + $56 − $160 − $66 = $198
(Ser. rev. + int. rev. − sal. exp. − trav. exp.)
218. Given the following adjusted trial balance:
DebitCredit
Cash $1,662
Accounts receivable 2,098
Inventory 3,124
Prepaid rent 86
Equipment 300
Accumulated depreciation-equipment 52
Accounts payable 82
Unearned service revenue 122
Common stock 206
Retained earnings 6,610
Service revenue 368
Interest revenue 56
Salaries and wages expense 160
Travel expense 66
Total $7,496 $7,496
After closing entries have been posted, the balance in retained earnings will be:
a. $6,440.
b. $6,612.
c. $6,980.
d. $6,808.
Ans: D, LO 4, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $6,610 + $368 + $56 − $160 − $66 = $6,808
(Beg. ret. earn. + Ser. rev. + int. rev. − sal. exp. − trav. exp.)
219. Given the following adjusted trial balance:
DebitCredit
Cash $ 831
Accounts receivable 1,049
Inventory 1,562
Prepaid rent 43
Equipment 150
Accumulated depreciation-equipment 26
Accounts payable 41
Unearned service revenue 61
Common stock 103
Retained earnings 3,305
Service revenue 184
Interest revenue 28
Salaries and wages expense 80
Travel expense 33
Total $3,748 $3,748
Net income for the year is:
a. $99.
b. $184.
c. $212.
d. $298.
Ans: A, LO 4, BT: AP, Difficulty: Hard, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $184 + $28 − $80 − $33 = $99
(Ser. rev. + int. rev. − sal. exp. − trav. exp.)
220. Given the following adjusted trial balance:
DebitCredit
Cash $ 831
Accounts receivable 1,049
Inventory 1,562
Prepaid rent 43
Equipment 150
Accumulated depreciation-equipment 26
Accounts payable 41
Unearned service revenue 61
Common stock 103
Retained earnings 3,305
Service revenue 184
Interest revenue 28
Salaries and wages expense 80
Travel expense 33
Total $3,748 $3,748
After closing entries have been posted, the balance in retained earnings will be:
a. $3,306.
b. $3,220.
c. $3,490.
d. $3,404.
Ans: D, LO 4, BT: AP, Difficulty: Hard, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $3,305 + $184 + $28 − $80 − $33 = $3,404
(Beg. ret. earn. + Ser. rev. + int. rev. − sal. exp. − trav. exp.)
221.Which statement is correct concerning the adjusted trial balance?
a. An adjusted trail balance eliminates the need for the preparation of financial statements.
b. The purpose of an adjusted trial balance is to prove the equality of the total debit balances and the total credit balances in the ledger.
c. An adjusted trial balance will contain only permanent—balance sheet—accounts.
d. The adjusted trial balance is prepared after the adjusting entries have been journalized but before they have been posted.
Ans: B, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
222. Which of the following is a true statement about closing the books of a corporation?
a. Expenses are closed to the Expense Summary account.
b. Only revenues are closed to the Income Summary account.
c. Revenues and expenses are closed to the Income Summary account.
d. Revenues, expenses, and the Dividends account are closed to the Income Summary account.
Ans: C, LO 4, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
223. The closing entry process consists of closing:
a. all asset and liability accounts.
b. out the Retained Earnings account.
c. all permanent accounts.
d. all temporary accounts.
Ans: D, LO 4, BT: C, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
224. Which account will have a zero balance after closing entries have been journalized and posted?
a. Service revenue.
b. Supplies.
c. Prepaid Insurance.
d. Accumulated Depreciation.
Ans: A, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
225. A post-closing trial balance will show:
a. zero balances for all accounts.
b. zero balances for balance sheet accounts.
c. only balance sheet accounts.
d. only income statement accounts.
Ans: C, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
226.Which types of accounts will appear in the post-closing trial balance?
a. Permanent accounts.
b. Temporary accounts.
c. Accounts shown in the income statement columns of a work sheet.
d. None of these answer choices are correct.
Ans: A, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
227. The purpose of the post-closing trial balance is to:
a. prove that no mistakes were made.
b. prove the equality of the permanent account balances that are carried forward into the next accounting period.
c. prove the equality of the temporary account balances that are carried forward into the next accounting period.
d. list all the balance sheet accounts in alphabetical order for easy reference.
Ans: B, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
228. Closing entries:
a. are prepared before the financial statements.
b. reduce the number of permanent accounts.
c. cause the revenue and expense accounts to have zero balances.
d. summarize the activity in every account.
Ans: C, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
229. Which of the following account’s balance will change between the adjusted trial balance and the post-closing trial balance?
a. Common stock
b. Prepaid rent
c. Unearned service revenue
d. Retained earnings
Ans: D, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving
230. Which type of accounts will not appear in the post-closing trial balance?
a. Asset accounts
b. Permanent accounts
c. Liability accounts
d. Temporary accounts
Ans: D, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
231. There are usually how many closing journal entries?
a. 5
b. 4
c. 3
d. 2
Ans: B, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
232. Given the following adjusted trial balance, what will be the totals for the debit and credit columns of the post-closing trial balance?
DebitCredit
Cash $1,662
Accounts receivable 2,098
Inventory 3,124
Prepaid rent 86
Equipment 300
Accumulated depreciation-equipment $ 52
Accounts payable 82
Unearned service revenue 172
Common stock 206
Retained earnings 6,610
Service revenue 318
Interest revenue 56
Salaries and wages expense 160
Travel expense 66
Totals $7,496 $7,496
a. $7,496
b. $7,218
c. $7,444
d. $7,270
Ans: D, LO 4, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $1,662 + $2,098 + $3,124 + $86 + $300 = $7,270
(Cash + acc. rec. + inven. + prep. rent. + equip.)
233. Given the following adjusted trial balance, what will be the totals for the debit and credit columns of the post-closing trial balance?
DebitCredit
Cash $ 831
Accounts receivable 1,049
Inventory 1,562
Prepaid rent 43
Equipment 150
Accumulated depreciation-equipment $ 26
Accounts payable 41
Unearned service revenue 86
Common stock 103
Retained earnings 3,305
Service revenue 159
Interest revenue 28
Salaries and wages expense 80
Travel expense 33
Totals $3,748 $3,748
a. $3,635
b. $3,609
c. $3,748
d. $3,722
Ans: A, LO 4, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: $831 + $1,049 + $1,562 + $43 + $150 = $3,635
(Cash + acc. rec. + inven. + prep. rent. + equip.)
234. The following information is from the Income Statement of the Dirt Poor Laundry Service:
Revenues
Service Revenue$6,500
Expenses
Salaries and wages expense$ 2,450
Advertising expense 500
Rent expense 300
Supplies expense 200
Insurance expense 100
Total expenses 3,550
Net Income $2,950
The entry to close the Service Revenue account includes a:
a. debit to Service Revenue for $6,500.
b. credit to Service Revenue for $6,500.
c. debit to Income Summary for $6,500.
d. debit to Retained Earnings for $6,500.
Ans: A, LO 4, BT: AP, Difficulty: Medium, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
235. The following information is from the Income Statement of the Dirt Poor Laundry Service:
Revenues
Service Revenue$6,500
Expenses
Salaries and Wages expense$ 2,450
Advertising expense 500
Rent expense 300
Supplies expense 200
Insurance expense 100
Total expenses 3,550
Net Income $2,950
The entry to close the expense accounts includes a:
a. credit to Income Summary for $3,550.
b. debit to Income Summary for $3,550.
c. debit to Salaries and Wages Expense for $2,450.
d. credit to Retained Earnings for $3,550.
Ans: B, LO 4, BT: AP, Difficulty: Medium, TOT: 3 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
236. The following information is from the Income Statement of the Dirt Poor Laundry Service:
Revenues
Service Revenue$6,500
Expenses
Salaries and Wages expense$ 2,450
Advertising expense 500
Rent expense 300
Supplies expense 200
Insurance expense 100
Total expenses 3,550
Net Income $2,950
The entry to close the Income Summary includes a:
a. credit to Income Summary for $2,950.
b. debit to Income Summary for $2,950.
c. debit to Retained Earnings for $2,950.
d. credit to Common Stock for $2,950.
Ans: B, LO 4, BT: AP, Difficulty: Hard, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
237. The final step in the accounting cycle is to prepare:
a. closing entries.
b. financial statements.
c. a post-closing trial balance.
d. adjusting entries.
Ans: C, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
238. All of the following are required steps in the accounting cycle except:
a. journalizing and posting closing entries.
b. preparing an adjusted trial balance.
c. preparing a post-closing trial balance.
d. preparing a work sheet.
Ans: D, LO 4, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
239. The first required step in the accounting cycle is:
a. adjusting entries.
b. journalizing transactions.
c. analyzing transactions.
d. posting transactions.
Ans: C, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
240. How many required steps are there in the accounting cycle?
a. 11
b. 9
c. 7
d. 5
Ans: B, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
241. Which of the following steps in the accounting cycle usually occurs only at the end of a company’s annual accounting period?
a. Step 3: Post to the ledger accounts.
b. Step 7: Prepare financial statements.
c. Step 6: Prepare adjusting trial balance.
d. Step 9: Prepare a post-closing trial balance.
Ans: D, LO 4, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
242. The Accounts Receivable account has a beginning balance of $52,000 and an ending balance of $74,000. If $42,000 was sold on account during the year, what were the total collections on account?
a. $20,000
b. $64,000
c. $74,000
d. $84,000
Ans: A, LO 4, BT: C, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution: [($52,000 + $42,000) − $74,000] = $20,000
(Beg. acc. rec. + Sales − end. acc. rec.)
*243. The worksheet is:
a. part of the journal.
b. a financial statement.
c. part of the ledger.
d. none of these answer choices are correct.
Ans: D, LO 5, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
*244. The worksheet starts with two columns for the:
a. adjustments.
b. financial statements.
c. trial balance.
d. adjusted trial balance.
Ans: C, LO 5, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
*245. The worksheet does not contain columns for the:
a. income statement.
b. statement of retained earnings.
c. balance sheet.
d. adjusted trial balance.
Ans: B, LO 5, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
*246. The worksheet contains columns for the:
a. statement of retained earnings.
b. statement of cash flows.
c. post-closing trial balance.
d. balance sheet.
Ans: D, LO 5, BT: K, Difficulty: Easy, TOT: 1 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
*247. Net income is recorded on the worksheet under the:
a. debit column of the adjusted trial balance and the credit column of retained earnings.
b. debit column of the income statement and the credit column of the balance sheet.
c. credit column of the adjusted trial balance and the debit column of retained earnings.
d. credit column of the income statement and the debit column of the balance sheet.
Ans: B, LO 5, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Answers to Multiple Choice Questions
54. d 82. d 110. c 138. d 166. b 194. a 222. c
55. a 83. a 111. a 139. d 167 b 195. c 223. d
56. a 84. c 112. a 140. c 168. a 196. b 224. a
57. d 85. a 113. c 141. b 169. c 197. b 225. c
58. b 86. d 114. a 142. c 170. c 198. c 226. a
59. a 87. b 115. d 143. a 171. a 199. a 227. b
60. a 88. a 116. d 144. b 172. d 200. c 228. c
61. b 89. c 117 c 145. a 173. a 201. c 229. d
62. c 90. b 118. d 146. c 174. a 202. b 230. d
63. b 91. c 119. c 147. c 175. a 203. b 231. b
64. a 92. c 120. d 148. a 176. a 204. d 232. d
65. d 93. d 121. c 149. d 177. a 205. c 233. a
66. b 94. d 122. c 150. c 178. a 206. c 234. a
67. d 95. b 123. d 151. c 179. a 207. d 235. b
68. c 96. d 124. a 152. c 180. a 208. b 236. b
69. a 97. b 125. c 153. c 181. a 209. d 237. c
70. b 98. a 126. d 154. d 182. a 210. c 238. d
71. a 99. a 127. b 155. c 183. a 211. b 239. c
72. d 100. d 128. d 156. d 184. a 212. d 240. b
73. c 101. c 129. b 157. c 185. a 213. b 241. d
74. c 102. b 130. a 158. b 186. a 214. a 242. a
75. a 103. b 131. a 159. a 187. d 215. c 243. d
76. c 104. c 132. b 160. c 188. d 216. b 244. c
77. b 105. c 133. a 161. b 189. a 217. a 245. b
78. b 106. c 134. c 162. b 190. c 218. d 246. d
79. c 107. b 135. d 163. b 191. b 219. a 247. b
80. d 108. d 136. b 164. b 192. b 220. d
81. d 109. a 137. c 165. b 193. b 221. b
BRIEF EXERCISES
Be. 248
Identify the effect, if any, that each of the following transactions would have upon cash and retained earnings. Show the dollar amount and the effect (+, –, N).
Retained
_Cash__ Earnings
1. Purchases equipment for $3,000 _______ _______
2. Purchased $200 of supplies for cash _______ _______
3. Recorded an adjusting entry to record use of
$110 of the above supplies.______________
4. Received $600 from customers in payment of
their accounts______________
5. Recorded depreciation of equipment for period
used, $900.______________
Solution 248 (5 min.)
Retained
_Cash__ Earnings
1. Purchases equipment for $3,000 $-3,000_ __ N__
2. Purchased $200 of supplies for cash $ -_200 __ N _
3. Recorded an adjusting entry to record use of
$110 of the above supplies.___N__$ -110_
4. Received $600 from customers in payment of
their accounts$ + 600__N__
5. Recorded depreciation of equipment for period
used, $900. _ N _ $ – 900_
Ans: N/A, LO 1, BT: K, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Be. 249
Before month-end adjustments are made, the February 28 trial balance of Cole’s Enterprise contains revenue of $11,000 and expenses of $8,900. Adjustments are necessary for the following items:
• Depreciation for February is $1,200.
• Revenue recognized but not yet billed is $2,800.
• Accrued interest expense is $900.
• Revenue collected in advance that is now recognized is $2,500.
• Portion of prepaid insurance expired during February is $500.
Instructions:
Calculate the correct net income for Cole’s Enterprise for February 3.
Solution 249 (5 min.)
Net Income before Adjustments ($11,000 – 8,900) $ 2,100
Add: Unearned Revenues $2,500
Accrued Revenues 2,800 5,300
7,400
Subtract: Depreciation Expense 1,200
Interest Expense900
Insurance Expense 500 2,600
Net Income after Adjustments $ 4,800
(Rev. − exp.) + (unearn. and acc. rev. ) − (dep. exp. + int. exp. + ins. exp.)
Ans: N/A, LO 1, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Be. 250
Before month-end adjustments are made, the September 30 trial balance of Horton Enterprise contains revenue of $9,200 and expenses of $6,500. Adjustments are necessary for the following items:
• Depreciation for September is $300.
• Revenue recognized but not yet billed is $2,100.
• Accrued interest expense is $800.
• Revenue collected in advance that is now recognized is $3,400.
• Portion of prepaid insurance expired during September is $300.
Instructions:
Calculate the correct net income for Horton’s Enterprise for September.
Solution 250 (5 min.)
Net Income before Adjustments ($9,200 – 6,500) $ 2,700
Add: Unearned Revenues $3,400
Accrued Revenues 2,100 5,500
8,200
Subtract: Depreciation Expense 300
Interest Expense800
Insurance Expense 300 1,400
Net Income after Adjustments $ 6,800
(Rev. − exp.) + (unearn. and acc. rev. ) − (dep. exp. + int. exp. + ins. exp.)
Ans: N/A, LO 1, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
Be. 251
For each of the following oversights, state whether total assets will be understated (U), overstated (O), or no affect (NA).
_____ 1. Failure to record revenue recognized but not yet received.
_____ 2. Failure to record expired prepaid rent.
_____ 3. Failure to record accrued interest on the bank savings account.
_____ 4. Failure to record depreciation.
_____ 5. Failure to record accrued wages.
_____ 6. Failure to record the recognized portion of unearned revenues.
Solution 251 (5 min.)
1. U
2. O
3. U
4. O
5. NA
6. NA
Ans: N/A, LO 2 & 3, BT: K, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Be. 252
State whether each situation is a prepaid expense (PE), unearned revenue (UR), accrued revenue (AR) or an accrued expense (AE).
1.Unrecorded interest on savings bonds is $245.
2.Property taxes that have been incurred but that have not yet been paid or recorded amount to $300.
3.Legal fees of $1,000 were collected in advance. By year end 60 percent were still unearned.
4.Prepaid insurance had a $500 balance prior to adjustment. By year end, 40 percent was still unexpired.
5.Unpaid salaries earned by year end but not yet paid or recorded amounted to $1,200.
Solution 252 (5 min.)
1. AR
2. AE
3. UR
4. PE
5. AE
Ans: N/A, LO 1, BT: K, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Be. 253
Identify the impact on the balance sheet for that month if the following information is not used to adjust the accounts.
1. Supplies consumed during the month totalled $3,000.
2. Interest accrues on notes payable at the rate of $200 per month.
3. Insurance of $450 expired during the month.
4. Plant and equipment are depreciated at the rate of $1,200 per month.
Solution 253
1. Assets overstated and Stockholders’ Equity overstated by $3,000.
2. Liabilities understated and Stockholders’ Equity overstated by $200.
3. Assets overstated and Stockholders’ Equity overstated by $450.
4. Assets overstated and Stockholders’ Equity overstated by $1,200.
Ans: N/A, LO 2 & 3, BT: AN, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Be. 254
On January 1, the Biddle & Biddle, CPAs received a $7,500 cash retainer for accounting services to be provided rateably over the next 3 months. The full amount was credited to the liability account Unearned Service Revenue. Assuming that the revenue is recognized rateably over the 3 month period, what adjusting journal entry should be made at January 31?
Solution 254
Unearned Service Revenue 2,500
Service Revenue 2,500
Ans: N/A, LO 2, BT: AP, Difficulty: Easy, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving , IMA: Business Economics
Be. 255
On February 1, the Acts Tax Service received a $3,600 cash retainer for tax preparation services to be provided rateably over the next 4 months. The full amount was credited to the liability account Unearned Service Revenue. Assuming that the revenue is recognized rateably over the 4 month period, what balance would be reported on the February 28 balance sheet for Unearned Service Revenue?
Solution 255
Revenue recognized monthly = $3,600/ 4 months = $900 per month
(Cash rec. ÷ 4)
Feb 28 balance in Unearned Service Revenue = $3,600 – $900 revenue recognized in February = $2,700
[Cash rec. – (Cash rec. ÷ 4)]
Ans: N/A, LO 2, BT: AP, Difficulty: Easy, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Be. 256
Better Publications, sold annual subscriptions to their magazine for $42,000 in December, 2016. The magazine is published monthly. The new subscribers received their first magazine in January, 2017.
1. What adjusting entry should be made in January if the subscriptions were originally recorded as a liability?
2. What amount will be reported on the January 2017 balance sheet for Unearned Subscription Revenue?
Solution 256
1. Unearned Subscription Revenue 3,500
Subscription Revenue 3,500
2. Unearned Subscription Revenue at January 31: $42,000 – $3,500 = $38,500
[Ann. sub. – (ann. sub. ÷ 12)]
Ans: N/A, LO 2, BT: AP, Difficulty: Easy, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Be. 257
River Ridge Music School borrowed $30,000 from the bank signing a 6%, 6-month note on November 1. Principal and interest are payable to the bank on May 1. If the company prepares monthly financial statements, what adjusting entry should the company make at November 30 with regard to the note (round answer to the nearest dollar)?
Solution 257
Interest Expense ($30,000 × 6% × 1/12) 150
Interest Payable 150
(Borrowing × 6% × 1/12)
Ans: N/A, LO 3, BT: AP, Difficulty: Easy, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Be. 258
Match the statements below with the appropriate terms by entering the appropriate letter code in the spaces provided.
TERMS:
A.Prepaid Expenses
B.Unearned Revenues
C.Accrued Revenues
D.Accrued Expenses
STATEMENTS:
1.A revenue not yet recognized; collected in advance.
2.An expense incurred; not yet paid or recorded.
3.A revenue recognized; not yet collected or recorded.
4.An expense not yet incurred; paid in advance.
Solution 258 (5 min.)
1. B
2. D
3. C
4. A
Ans: N/A, LO 2, BT: K, Difficulty: Easy, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Be. 259
Prepare adjusting entries for the following transactions. Omit explanations.
1. Depreciation on equipment is $800 for the accounting period.
2. There was no beginning balance of supplies and $600 of supplies were purchased during the period. At the end of the period $120 of supplies were on hand.
3. Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $300 was unexpired.
Solution 259 (5 min.)
1. Depreciation Expense 800
Accumulated Depreciation—Equipment 800
2. Supplies Expense 480
Supplies 480
($600 – $120)
(Sup. pur. – Sup. on hand)
3. Rent Expense 700
Prepaid Rent 700
($1,000 – $300)
(Prep. rent. bal. – Unexp. rent)
Ans: N/A, LO 2, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Be. 260
Prepare adjusting entries for the following transactions. Omit explanations.
1. Unrecorded interest accrued on savings bonds is $200.
2. Property taxes incurred but not paid or recorded amount to $900.
3. Salaries incurred by year end but not yet paid or recorded amounted to $600.
Solution 260 (5 min.)
1. Interest Receivable 200
Interest Revenue200
2. Property Tax Expense 900
Property Taxes Payable 900
3. Salaries and Wages Expense 600
Salaries and Wages Payable 600
Ans: N/A, LO 3, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Be. 261
The adjusted trial balance of Warbocks Corporation at December 31, 2017 includes the following accounts: Retained Earnings $12,600; Dividends $5,000; Service Revenue $30,000; Salaries and Wages Expense $15,000; Insurance Expense $2,000; Rent Expense $4,500; Supplies Expense $500; and Depreciation Expense $1,000. Prepare an income statement for the year ended December 31, 2017.
Solution 261 (5 min.)
WARBOCKS CORPORATION
Income Statement
For the Year Ended December 31, 2017
Revenues
Service Revenue $ 30,000
Expenses
Salaries and Wages Expense$15,000
Rent Expense 4,500
Insurance Expense 2,000
Depreciation Expense 1,000
Supplies Expense 500
Total Expenses 23,000
Net Income $ 7,000
(Ser. rev. – sal. exp. – rent exp. – ins. exp. – dep. exp. – sup. exp.)
Ans: N/A, LO 4, BT: AP, Difficulty: Hard, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Be. 262
The adjusted trial balance of Warbocks Corporation at December 31, 2017 includes the following accounts: Retained Earnings $12,600; Dividends $5,000; Service Revenue $30,000; Salaries and Wages Expense $15,000; Insurance Expense $2,000; Rent Expense $4,500; Supplies Expense $500; and Depreciation Expense $1,000. Prepare a retained earnings statement for the year.
Solution 262 (5 min.)
WARBOCKS CORPORATION
Retained Earnings Statement
For the Year Ended December 31, 2017
Retained Earnings, January 1 $12,600
Plus:Net Income 7,000
19,600
Less:Dividends 5,000
Retained Earnings, December 31 $14,600
(Beg. ret. earn. + net inc. – div.)
Ans: N/A, LO 4, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Be. 263
The following selected accounts appear in the adjusted trial balance for Blender Company. Identify the accounts that would be included in the post-closing trial balance.
1.Accumulated Depreciation5.Supplies
2.Depreciation Expense6.Accounts Payable
3.Retained Earnings7.Service Revenue
4.Dividends
Solution 263 (5 min.)
The following are accounts that would be included in the post-closing trial balance.
1. Accumulated Depreciation
3. Retained Earnings
5. Supplies
6. Accounts Payable
Ans: N/A, LO 4, BT: K, Difficulty: Easy, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
EXERCISES
Ex. 264
The balance sheets of Palle’ Company include the following:
12/31/1712/31/16
Interest Receivable$4,300$ -0-
Supplies5,0003,900
Salaries and Wages Payable3,7003,800
Unearned Service Revenue-0-4,000
The income statement for 2017 shows the following:
Interest Revenue$17,500
Service Revenue78,700
Supplies Expense10,700
Salaries and Wages Expense48,000
Instructions:
Calculate the following for 2017:
1. Cash received for interest.
2. Cash paid for supplies.
3. Cash paid for salaries and wages.
4. Cash received for service revenue.
Solution 264 (15 min.)
1. Cash received for interest = $13,200
Interest Revenue$17,500
Less: Interest Receivable 4,300
Cash Received$13,200
(Int. rev. – end. int. rec.)
2. Cash paid for supplies = $11,800
Supplies Expense$10,700
Less: Supplies (2016) 3,900
6,800
Add: Supplies (2017) 5,000
Cash Paid$11,800
(Sup. exp. – beg. sup. + end. sup.)
3. Cash paid for salaries and wages = $48,100
Salaries and Wages Expense$48,000
Add: Salaries and Wages Payable (2016) 3,800
51,800
Less: Salaries and Wages Payable (2017) 3,700
Cash Paid$48,100
(Sal./Wag. exp. + beg. sal./wag. pay. – end. sal./wag. pay.)
4. Cash received for service revenue = $74,700
Service Revenue$78,700
Less: Unearned Service Revenue (2016) 4,000
Cash Received$74,700
(Ser. rev. – beg. unear. ser. rev.)
Ans: N/A, LO 1, BT: AN, Difficulty: Hard, TOT: 15 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 265
The 2017 income statement for Moring Company showed rent expense of $9,500 and wages expense of $8,600. The related balance sheet account balance at year-end last year and this year were as follows:
2017 2016
Prepaid Rent $900 $300
Salaries and Wages Payable500400
Calculate the following for 2017:
1. Cash paid for rent.
2. Cash paid for wages.
Solution 265 (10 min.)
1. Cash paid for rent = $10,100
Rent Expense $9,500
Less: Prepaid rent (2016) 300
9,200
Add: Prepaid rent (2017) 900
Cash Paid $10,100
(Rent exp. – beg. prep. rent + end. prep. rent)
2. Cash paid for wages = $8,500
Salaries and Wages Expense $8,600
Add: Salaries and Wages Payable (2016) 400
9,000
Less: Salaries and Wages Payable (2017) 500
Cash Paid $8,500
(Sal. exp. + beg. sal. pay. – end. sal. pay.)
Ans: N/A, LO 1, BT: AN, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 266
A company using the cash basis of accounting reports net income for 2017 of $45,460. If the company had used the accrual basis of accounting it would have reported the following year-end balances:
2017 2016
Accounts receivable$3,850$5,100
Supplies 1,740 1,950
Salaries and wages payable 3,600 2,250
Other unpaid amounts 2,400 2,100
Instructions:
Determine the company’s net income under the accrual basis of accounting. Show your calculations. Use the column headings shown below.
ExplanationAmount
Solution 266 (10 min.)
ExplanationAmount
Cash basis net income$45,460
The decrease in accounts receivable would be
included in cash basis net income, but not
accrual basis net income (1,250)
The decrease in supplies would not be included
in cash basis net income ( 210)
The increase in salaries payable would be
deducted in accrual basis net income (1,350)
The increase in other unpaid amounts would
be deducted in accrual basis net income ( 300)
Accrual basis net income$42,350
(Cash bas. NI – dec. in acc. rec. and sup. – inc. sal. pay. and oth. unpaid amounts)
Ans: N/A, LO 1, BT: AP, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 267
Double-entry Accounting Services begin operations on July 1. It allows its clients 90 days to pay for services received. On the other hand, the company’s suppliers require payment for their goods and services within 30 days. Double-entry prepaid its office rent for 12 months on July 1. At the end of the year, December 31, the company had yet to pay its last month’s utility bill.
Instructions:
Explain how cash and accrual basis accounting would handle each of the events described above. Use the column headings shown below.
EventCash BasisAccrual Basis
Solution 267 (10 min.)
Event Cash Basis Accrual Basis
90 days for customersRevenue would beRevenue would be recorded
to payrecorded when the cashwhen the service was
was received.performed.
30 days to payExpenses would beUntil the item purchased
suppliersrecorded when the cashwas used it would be
was paid.recorded as an asset. When
used, it would then be
expensed.
Prepaid rent ofIt would expensed whenIt would be recorded as an
12 monthspaid.asset when paid and then
expensed as time passes.
Unpaid utilitiesIt would not be expensedIt would be expensed in
until paid.the month incurred.
Ans: N/A, LO 1, BT: C, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 268
Hooper Company prepared the following income statement using the cash basis of accounting:
HOOPER COMPANY
Income Statement, Cash Basis
For the Year Ended December 31, 2016
Service revenue (does not include $40,000 of services rendered on account
because the collection will not be until 2017)$380,000
Expenses (does not include $20,000 of expenses on account because
payment will not be made until 2017) 220,000
Net income $160,000
Additional data:
1. Depreciation on a company automobile for the year amounted to $7,000. This amount is not included in the expenses above.
2. On January 1, 2016, paid for a two-year insurance policy on the automobile amounting to $1,600. This amount is included in the expenses above.
Instructions:
(a) Recast the above income statement on the accrual basis in conformity with generally accepted accounting principles. Show computations and explain each change.
(b) Explain which basis (cash or accrual) provides a better measure of income.
Solution 268 (15 min.)
(a) HOOPER COMPANY
Income Statement
For the Year Ended December 31, 2016
Service revenue $420,000
Expenses 246,200
Net income $173,800
(ser. rev. + acc. rev.) – [Exp. + acc. exp. – (ins. pay. ÷ 2) + depr.]
Service revenue should include the $40,000 for services performed on account. The accrual basis states that revenue is reflected in the period when the service is performed. ($380,000 + $40,000 = $420,000). Expenses should include the $20,000 for expenses incurred but not yet paid. The accrual basis states that expenses should be reflected in the period when incurred. Expenses also should only include half of the $1,600 insurance premium since $800 applies to 2016. The other $800 is an asset and should be reflected on the balance sheet as prepaid insurance. The $7,000 of depreciation for the automobile is included as an expense in 2016. ($220,000 + $20,000 – $800 + $7,000 = $246,200).
(b) The accrual basis of accounting provides a better measure of income than the cash basis. The accrual basis is required under generally accepted accounting principles and recognizes revenues when the performance obligation is satisfied and expenses when incurred. Revenues and expenses recognized under the accrual basis are related to the economic environment in which they occur and thus allow trends to be more meaningfully interpreted.
The cash basis often fails to recognize revenue in the period when the performance obligation is satisfied and expenses when incurred. Additionally, expenses are not matched with revenues when recognized; therefore, the expense recognition principle is violated.
Ans: N/A, LO 1, BT: AP, Difficulty: Medium, TOT: 15 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 269
On December 31, 2017, Çolski Company prepared an income statement and balance sheet and failed to take into account three adjusting entries. The incorrect income statement showed net income of $40,000. The balance sheet showed total assets, $130,000; total liabilities, $60,000; and stockholders’ equity, $70,000.
The data for the three adjusting entries were:
(1) Depreciation of $9,000 was not recorded on equipment.
(2) Salaries and Wages amounting to $10,000 for the last two days in December were not paid and not recorded. The next payroll will be in January.
(3) Rent of $8,000 was paid for two months in advance on December 1. The entire amount was debited to Prepaid Rent when paid.
Instructions:
Complete the following tabulation to correct the financial statement amounts shown (indicate deductions with parentheses):
Item Net Income Total Assets Total Liabilities Stockholders’ Equity
Incorrect balances $ 40,000 $130,000 $ 60,000 $ 70,000
Effects of:
Depreciation
Salaries and Wages
Rent
Correct Balances
Solution 269 (10 min.)
Item Net Income Total Assets Total Liabilities Stockholders’ Equity
Incorrect balances $40,000 $130,000 $60,000 $70,000
Effects of:
Depreciation (9,000) (9,000) (9,000)
Salaries and Wages (10,000) 10,000 (10,000)
Rent (4,000) (4,000) (4,000)
Correct Balances $17,000 $117,000 $70,000 $47,000
[Net inc. – depr. – sal./wag. – (rent pay ÷ 2)] [St. equity – depr. – sal./wag. – (rent pay ÷ 2)]
Ans: N/A, LO 2 & 3, BT: AN, Difficulty: Hard, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 270
The Downtown Company accumulates the following adjustment data at December 31.
1. Revenue of $1,100 collected in advance has been recognized.
2. Salaries of $600 are unpaid.
3. Prepaid rent totaling $400 has expired.
4. Supplies of $550 have been used.
5. Revenue recognized but unbilled totals $750.
6. Utility expenses of $300 are unpaid.
7. Interest of $250 has accrued on a note payable.
Instructions:
(a) For each of the above items indicate:
1. The type of adjustment (prepaid expense, unearned revenue, accrued revenue, or accrued expense).
2.The account relationship (asset/liability, liability/revenue, etc.).
3.The status of account balances before adjustment (understatement or overstatement).
4.The adjusting entry.
(b) Assume net income before the adjustments listed above was $22,500. What is the adjusted net income?
Prepare your answer in the tabular form presented below.
Account Balances
Before AdjustmentIncome Effect
Type ofAccount(Understatement Increase
AdjustmentRelationshipor Overstatement)Adjusting Entry (Decrease)
Solution 270 (20 min.)
(a)Account Balances
Before AdjustmentIncome Effect
Type ofAccount(UnderstatementIncrease
AdjustmentRelationshipor Overstatement)Adjusting Entry(Decrease)
1. Unearned revenue L/R Liab. O Unearned Ser Rev.
Rev. UService Revenue 1,100
2. Accrued expense E/L Exp. U Salaries and Wages Expense
Liab. USalaries and Wages Payable (600)
3. Prepaid expense E/A Exp. U Rent Expense
Asset OPrepaid Rent(400)
4. Prepaid expense E/A Exp. U Supplies Expense
Asset OSupplies(550)
5. Accrued revenue A/R Asset U Accounts Receivable
Rev. UService Revenue750
6. Accrued expense E/L Exp. U Utilities Expense
Liab. UAccounts Payable(300)
7. Accrued expense E/L Exp. U Interest Expense
Liab. UInterest Payable(250)
Codes: A = Asset R = Revenue
L=LiabilityO=Overstatement
E=ExpenseU=Understatement
(b) Net income before adjustments $22,500
Add:Unearned service revenue (1) $1,100
Accrued revenue (5) 750 1,850
24,350
Less:Accrued salaries (2) 600
Prepaid rent expired (3) 400
Supplies used (4) 550
Accrued utilities (6) 300
Accrued interest (7) 250 2,100
Adjusted net income $22,250
[Net inc. + Unear. and acc. rev. – (acc. sal. + prep. rent exp. + sup. used + acc. util and int.)]
Ans: N/A, LO 2 & 3, BT: AN, Difficulty: Hard, TOT: 20 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 271
The adjusted trial balance of Masters Company includes the following balance sheet accounts that frequently require adjustment. For each account, indicate (a) the type of adjusting entry (prepaid expenses, unearned revenues, accrued revenues, or accrued expenses) and (b) the related account in the adjusting entry.
(a)(b)
Balance Sheet AccountType of Adjusting EntryRelated Account
1. Supplies
2. Accounts Receivable
3. Prepaid Insurance
4. Accumulated Depreciation—
Equipment
5. Interest Payable
6. Salaries and Wages Payable
7. Unearned Service Revenue
Solution 271 (10 min)(cont.)
(a)(b)
Balance Sheet Account Type of Adjusting Entry Related Account
1. Supplies Prepaid Expense Supplies Expense
2. Accounts Receivable Accrued Revenue Service Revenue
3. Prepaid Insurance Prepaid Expense Insurance Expense
4. Accumulated Depreciation—
EquipmentPrepaid ExpenseDepreciation Expense
5. Interest Payable Accrued Expense Interest Expense
6. Salaries and Wages Payable Accrued Expense Salaries and Wages Exp.
7. Unearned Service Revenue Unearned Revenue Service Revenue
Ans: N/A, LO 2 & 3, BT: K, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 272
Match the statements below with the appropriate terms by entering the appropriate letter code in the spaces provided.
TERMS:
A.Prepaid Expenses
B.Unearned Revenues
C.Accrued Revenues
D.Accrued Expenses
STATEMENTS:
1.A revenue not yet recognized; collected in advance.
2.Office supplies on hand that will be used in the next period.
3.Subscription revenue collected; not yet recognized.
4.Rent not yet collected; already recognized.
5.An expense incurred; not yet paid or recorded.
6.A revenue recognized; not yet collected or recorded.
7.An expense not yet incurred; paid in advance.
8.Interest expense incurred; not yet paid.
Solution 272 (5 min.)
1. B
2. A
3. B
4. C
5. D
6. C
7. A
8. D
Ans: N/A, LO 2 & 3, BT: K, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 273
A review of the ledger of Wilde Co. at December 31, 2017, produces the following data pertaining to the preparation of annual adjusting entries:
(a) Salaries and Wages Payable $0: Salaries are paid every Friday for the current week. Five employees receive a weekly salary of $800, and three employees earn a weekly salary of $700. December 31 is a Tuesday. Employees do not work weekends. All employees worked the last 2 days of December.
(b) Unearned Rent Revenue $60,000: The company had several lease contracts during the year as shown below:
Rent
TermperNumber of
Date(in months)leaseleases
Oct. 1 12 $ 8,000 3
Dec. 1 12 18,000 2
(c) Notes Receivable $90,000: This is a 6-month note, dated November 1, 2017, with a 6% interest rate.
Instructions:
Prepare the adjusting entries at December 31, 2017. Show all computations.
Solution 273
(a) Dec. 31 Salaries and Wages Expense 2,440
Salaries and Wages Payable2,440
(5 X $800 X 2/5 = $1,600)
(3 X $700 X 2/5 = $ 840)
[(1st sal./wk. × 5 × 2/5) + (2nd sal./wk. × 3 × 2/5)]
(b) 31 Unearned Rent Revenue 9,000
Rent Revenue9,000
(3/12 X $8,000 X 3 = $6,000)
(1/12 X $18,000 X 2 = $3,000)
[(1st rent/lease × 3 × 3/12) + (2nd rent/lease × 2 × 1/12)]
(c) 31 Interest Receivable 900
Interest Revenue 900
($90,000 X .06 X 2/12 = $900)
(Note amount × .06 × 2/12)
Ans: N/A, LO 2 & 3, BT: AP, Difficulty: Hard, TOT: 15 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 274
A review of the ledger of Weakly Service Co. at December 31, 2017, produces the following data pertaining to the preparation of annual adjusting entries:
(a)Notes Payable $80,000: This is a 9-month note, dated September 1, 2017, with a 9% interest rate.
(b)Prepaid Rent $648,000. The company rents offices throughout the Midwest. During 2017 it signed 10 leases as shown below:
TermMonthlyNumber of
Date(in months) Rent Leases
Sept. 1 8 $ 4,500 4
Nov. 1 12 7,000 6
(c)Unearned Service Revenue $175,800. During 2017 the company entered into 13 monthly service contracts with clients. The clients prepaid for the services to be provided over the contract period in an even manner.
Service Period Amount Number of
Date(in months)Per ContractContracts
Aug. 1 9 $12,600 8
Oct. 1 6 15,000 5
Instructions:
Prepare the adjusting entries at December 31, 2017. Show all computations.
Solution 274
(a) Dec. 31 Interest Expense 2,400
Interest Payable2,400
($80,000 X .09 X 4/12 = $2,400)
(Note amount × .09 × 4/12)
(b) 31 Rent Expense 156,000
Prepaid Rent156,000
(4 X $4,500 X 4 = $72,000)
(2 X $7,000 X 6 = $84,000)
(1st mon. rent × 4 × 4 mon.) + (2nd mon. rent × 6 × 2 mon.)
(c) 31 Unearned Service Revenue 93,500
Service Revenue93,500
(5/9 X $12,600 X 8 = $56,000)
(3/6 X $15,000 X 5 = $37,500)
(1st cont. amount × 8 × 5/9) + (2nd cont. amount × 5 × 3/6)
Ans: N/A, LO 2 & 3, BT: AP, Difficulty: Medium, TOT: 20 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 275
The Scarlet Pages, a semi-professional hockey team, prepare financial statements on a monthly basis. Their season begins in October, but in September the team engaged in the following transactions:
(a) Paid $150,000 to Oklahoma City as advance rent for use of Oklahoma City Arena for the six-month period October 1 through March 31.
(b) Collected $450,000 cash from sales of season tickets for the team’s 30 home games. This amount was credited to Unearned Ticket Revenue.
(c) During the month of October, the Scarlet Pages played five home games.
Instructions:
Prepare the adjusting entries required at October 31 for the transactions above.
Solution 275 (5 min.)
(a) Rent Expense 25,000
Prepaid Rent 25,000
($150,000 ÷ 6 = $25,000)
(b)
&
(c) Unearned Ticket Revenue 75,000
Ticket Revenue 75,000
($450,000 ÷ 30 = $15,000; $15,000 × 5 = $75,000)
[(Cash coll. ÷ 30) × 5]
Ans: N/A, LO 2, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving
Ex. 276
The Jacquers, a semi-professional baseball team, prepare financial statements on a monthly basis. Their season begins in April, but in March the team engaged in the following transactions:
(a) Paid $120,000 to Lawrence City as advance rent for use of Lawrence City Stadium for the six-month period April 1 through September 30.
(b) Collected $600,000 cash from sales of season tickets for the team’s 20 home games. This amount was credited to Unearned Ticket Revenue.
(c) During the month of April, the Jacquers played four home games and five road games.
Instructions:
Prepare the adjusting entries required at April 30 for the transactions above.
Solution 276 (5 min.)
(a) Rent Expense 20,000
Prepaid Rent 20,000
($120,000 ÷ 6 = $20,000)
(Rent paid ÷ 6)
(b)
&
(c) Unearned Ticket Revenue 120,000
Ticket Revenue 120,000
($600,000 ÷ 20 = $30,000; $30,000 × 4 = $120,000)
[(Cash collect. ÷ 20) × 4]
Ans: N/A, LO 2, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 277
Prepare adjusting entries for the following transactions. Omit explanations.
1. Depreciation on equipment is $1,340 for the accounting period.
2. Interest owed on a loan but not paid or recorded is $275.
3. There was no beginning balance of supplies and $550 of office supplies were purchased during the period. At the end of the period $100 of supplies were on hand.
4. Prepaid rent had a $1,000 normal balance prior to adjustment. By year end $700 had expired.
5. Accrued salaries at the end of the period amounted to $900.
Solution 277 (10 min.)
1. Depreciation Expense 1,340
Accumulated Depreciation—Equipment 1,340
2. Interest Expense 275
Interest Payable 275
3. Supplies Expense 450
Supplies 450
($550 – $100)
(Beg. sup. – sup. on hand)
4. Rent Expense 700
Prepaid Rent 700
5. Salaries and Wages Expense 900
Salaries and Wages Payable 900
Ans: N/A, LO 2 & 3, BT: AP, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 278
Prepare adjusting entries for the following transactions. Omit explanations.
1. Unrecorded interest accrued on savings bonds is $410.
2. Property taxes incurred but not paid or recorded amount to $800.
3. Unearned service revenue of $4,000 was collected in advance. By year end $700 was still unearned.
4. Prepaid insurance had a $750 debit balance prior to adjustment. By year end, 60 percent was still unexpired.
5. Salaries incurred by year end but not yet paid or recorded amounted to $650.
Solution 278 (10 min.)
1. Interest Receivable 410
Interest Revenue410
2. Property Tax Expense 800
Property Taxes Payable 800
3. Unearned Service Revenue 3,300
Service Revenue 3,300
($4,000 – $700)
(Amount coll. in adv. – unear. amount)
4. Insurance Expense 300
Prepaid Insurance300
($750 x .40)
[Prep. ins. bal. x (1 – .60)]
5. Salaries and Wages Expense 650
Salaries and Wages Payable 650
Ans: N/A, LO 2 & 3, BT: AP, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 279
Prepare year-end adjustments for the following transactions. Omit explanations.
1. Accrued interest on notes receivable is $30.
2. $1,000 of unearned service revenue has been recognized.
3. Three years’ rent, totaling $45,000, was paid in advance at the beginning of the year.
4. Services totaling $2,900 had been performed but not yet billed at the end of the year.
5. Depreciation on equipment totaled $6,500 for the year.
6. Supplies purchased totaled $850. By year end, only $250 of supplies remained.
7. Salaries owed to employees at the end of the year total $960
Solution 279 (10 min.)
1. Interest Receivable 30
Interest Revenue 30
2. Unearned Service Revenue 1,000
Service Revenue 1,000
3. Rent Expense 15,000
Prepaid Rent 15,000
($45,000 ÷ 3 = $15,000)
(Rent paid ÷ 3)
4. Accounts Receivable 2,900
Service Revenue2,900
5. Depreciation Expense 6,500
Accumulated Depreciation—Equipment 6,500
6. Supplies Expense 600
Supplies 600
($850 – $250)
(sup. purch. – end. sup.)
7. Salaries and Wages Expense 960
Salaries and Wages Payable 960
Ans: N/A, LO 2 & 3, BT: AP, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 280
Janus Coat Company purchased a delivery truck on June 1 for $30,000, paying $10,000 cash and signing a 6%, 2-month note for the remaining balance. The truck is expected to depreciate $6,000 each year. Janus Coat Company prepares monthly financial statements.
Instructions:
(a) Prepare the general journal entry to record the acquisition of the delivery truck on June 1st.
(b) Prepare any adjusting journal entries that should be made on June 30th.
(c) Show how the delivery truck will be reflected on Janus Coat Company’s balance sheet on June 30th.
Solution 280 (10 min.)
(a) June 1 Equipment 30,000
Notes Payable 20,000
Cash 10,000
(To record acquisition of delivery truck and
signing of a 2-month, 6% note)
(b) June 30 Depreciation Expense 500
Accumulated Depreciation—Equipment500
(To record monthly depreciation)
($6,000 ÷ 12 = $500/month)
(Depr./yr. ÷ 12)
30Interest Expense 100
Interest Payable 100
(To accrue interest on notes payable)
($20,000 × 6% × 1/12 = $100)
(Note pay. amount × 6% × 1/12)
(c) Assets
Equipment$30,000
Less: Accumulated Depreciation—Equipment 500 $29,500
Ans: N/A, LO 2 & 3, BT: AP, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 281
Sunkan Company prepares monthly financial statements. Below are listed some selected accounts and their balances on the September 30 trial balance before any adjustments have been made for the month of September.
SUNKAN COMPANY
Trial Balance (Selected Accounts)
September 30, 2017
Debit Credit
Supplies $ 2,700
Prepaid Insurance 4,800
Equipment 16,200
Accumulated Depreciation—Equipment $ 1,000
Unearned Rent Revenue 1,200
(Note: Debit column does not equal credit column because this is a partial listing of selected account balances.)
An analysis of the account balances by the company’s accountant provided the following additional information:
1. A physical count of office supplies revealed $1,000 on hand on September 30.
2. A two-year life insurance policy was purchased on September 1 for $4,800.
3. Office equipment depreciates $3,000 per year.
4. The amount of rent received in advance that remains unearned at September 30 is $300.
Instructions:
Using the information given, prepare the adjusting entries that should be made by Sunkan Company on September 30.
Solution 281 (10 min.)
1. Supplies Expense 1,700
Supplies 1,700
(To record the amount of office supplies used $2,700 – 1,000)
(Sup. bal. – end. sup.)
2. Insurance Expense 200
Prepaid Insurance 200
(To record insurance expired $4,800 ÷ 24)
(Prep. ins. bal. ÷ 24)
3. Depreciation Expense 250
Accumulated Depreciation—Equipment 250
(To record monthly depreciation $3,000 ÷ 12)
(Depr./yr. ÷ 12)
4. Unearned Rent Revenue 900
Rent Revenue 900
(To record rent revenue recognized $1,200 – $300)
(Unear. rent rev. bal. – end. unear. rent)
Ans: N/A, LO 2 & 3, BT: AP, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving
Ex. 282
Prepare the required end-of-period adjusting entries for each independent case listed below.
Case 1
The Thoma Company began the year with a $3,000 balance in the Supplies account. During the year, $8,500 of additional supplies were purchased. A physical count of supplies on hand at the end of the year revealed that $8,300 worth of supplies had been used during the year. No adjusting entry has been made until year end.
Case 2
The Leno Company has a calendar year-end accounting period. On July 1, the company purchased office equipment for $30,000. It is estimated that the office equipment will depreciate $200 each month. No adjusting entry has been made until year end.
Case 3
Yeats Realty is in the business of renting several apartment buildings and prepares monthly financial statements. It has been determined that 2 tenants in $900 per month apartments and one tenant in the $1,000 per month apartment had not paid their December rent as of December 31st.
Solution 282 (10 min.)
Case 1—December 31
Supplies Expense 8,300
Supplies 8,300
(To record supplies used during the year)
Case 2—December 31
Depreciation Expense1,200
Accumulated Depreciation—Equipment1,200
(To record depreciation expense for six months)
$200 × 6 months = $1,200 Depreciation
(Depr./mon. × 6)
Case 3—December 31
Accounts Receivable 2,800
Rent Revenue 2,800
(To accrue rent recognized but not yet received)
[(2 x $900) + $1,000)]
[(2 x 1st rent/mon.) + 2nd rent/mon.]
Ans: N/A, LO 2 & 3, BT: AP, Difficulty: Hard, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 283
Greenstream Insurance Agency prepares monthly financial statements. Presented below is an income statement for the month of June that is correct on the basis of information considered.
GREENSTREAM INSURANCE AGENCY
Income Statement
For the Month Ended June 30
Revenues
Service Revenue $40,000
Expenses
Salaries and Wages Expense $12,000
Advertising Expense 800
Rent Expense 4,200
Depreciation Expense 2,800
Total Expenses 19,800
Net Income $20,200
Additional Data: When the income statement was prepared, the company accountant neglected to take into consideration the following information:
1. A utility bill for $1,200 was received on the last day of the month for electric and gas service for the month of June.
2. A company insurance salesman sold a life insurance policy to a client for a premium of $10,000. The agency billed the client for the policy and is entitled to a commission of 20%.
3. Supplies on hand at the beginning of the month were $2,500. The agency purchased additional supplies during the month for $1,500 in cash and $1,200 of supplies were on hand at June 30.
4. The agency purchased a new car at the beginning of the month for $24,000 cash. The car will depreciate $6,000 per year.
5. Salaries owed to employees at the end of the month total $5,300. The salaries will be paid on July 5.
Instructions:
Prepare a corrected income statement.
Solution 283 (15 min.)
GREENSTREAM INSURANCE AGENCY
Income Statement
For the Month Ended June 30
Revenues
Service Revenue ($40,000 + $2,000)$42,000
Expenses
Salaries and Wages Expense ($12,000 + $5,300) $17,300
Rent Expense 4,200
Depreciation Expense ($2,800 + $500) 3,300
Supplies Expense ($0 + $2,800) 2,800
Utilities Expense ($0 + $1,200) 1,200
Advertising Expense 800
Total expenses 29,600
Net Income $12,400
[Ser. rev. + (ins. prem. × 20%)] – (sal. exp. + acc. sal.) – rent exp. – [(dep./yr. ÷ 12) + dep. exp.] – (beg. sup. + sup. pur. – end. sup.) – util. bill exp – adver. exp
Ans: N/A, LO 2 & 3, BT: AN, Difficulty: Hard, TOT: 15 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 284
One part of an adjusting entry is given below.
Instructions:
Indicate the account title for the other part of the entry.
1. Unearned Service Revenue is debited.
2. Prepaid Rent is credited.
3. Accounts Receivable is debited.
4. Depreciation Expense on equipment is debited.
5. Utilities Expense is debited.
6. Interest Payable is credited.
7. Service Revenue is credited (give two possible debit accounts).
8. Interest Receivable is debited.
Solution 284 (5 min.)
1. Service Revenue 5. Utilities Payable
2. Rent Expense 6. Interest Expense
3. Service Revenue 7. Accounts Receivable or Unearned Service Revenue
4. Accumulated Depreciation—Equipment 8. Interest Revenue
Ans: N/A, LO 2 & 3, BT: K, Difficulty: Easy, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 285
The following ledger accounts are used by the Heartland Race Track:
Accounts Receivable
Prepaid Advertising
Prepaid Rent
Unearned Sales Revenue
Sales Revenue
Advertising Expense
Rent Expense
Instructions:
For each of the following transactions below, prepare the journal entry (if one is required) to record the initial transaction and then prepare the adjusting entry, if any, required on November 30, the end of the fiscal year.
(a) On November 1, paid rent on the track facility for three months, $150,000.
(b) On November 1, sold season tickets for admission to the racetrack. The racing season is year-round with 25 racing days each month. Season ticket sales totaled $960,000.
(c) On November 1, borrowed $250,000 from First National Bank by issuing a 6% note payable due in three months.
(d) On November 5, programs for 20 racing days in November, 25 racing days in December and 15 racing days in January were printed for $3,000.
(e) The accountant for the concessions company reported that gross receipts for November were $140,000. Ten percent is due to Heartland and will be remitted by December 10.
Solution 285 (15 min.)
(a) Journal Entry
Prepaid Rent 150,000
Cash 150,000
Adjusting Entry
Rent Expense 50,000
Prepaid Rent 50,000
($150,000 ÷ 3 = $50,000)
(Rent paid ÷ 3)
(b) Journal Entry
Cash 960,000
Unearned Sales Revenue960,000
Adjusting Entry
Unearned Sales Revenue 80,000
Sales Revenue 80,000
($960,000 ÷ 12 = $80,000)
(Ticket sales amount ÷ 12)
Solution 285 (cont.)
(c) Journal Entry
Cash 250,000
Notes Payable 250,000
Adjusting Entry
Interest Expense 1,250
Interest Payable 1,250
([$250,000 × 6%] × 1/12 = $1,250)
(Amount borrow. × 6% × 1/12)
(d) Journal Entry
Prepaid Advertising 3,000
Cash 3,000
Adjusting Entry
Advertising Expense 1,000
Prepaid Advertising 1,000
(($3,000 × 20) ÷ 60 = $1,000)
((Print. cost) × 20 ÷ 60)
(e) Journal Entry
None
Adjusting Entry
Accounts Receivable 14,000
Sales Revenue 14,000
Ans: N/A, LO 2 & 3, BT: AP, Difficulty: Medium, TOT: 15 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 286
Dallison Company has an accounting fiscal year, which ends on June 30. The company also has a policy of paying the weekly payroll on Friday. Payroll records indicate the following salary costs were incurred.
Date Amount
MondayJune 28$3,200
TuesdayJune 292,800
WednesdayJune 302,900
ThursdayJuly 13,000
FridayJuly 22,600
Instructions:
(a) Prepare any necessary adjusting journal entries that should be made at year end on June 30.
(b) Prepare the journal entry to record the payment of the weekly payroll on July 2.
Solution 286 (10 min.)
(a) June 30 Salaries and Wages Expense 8,900
Salaries and Wages Payable 8,900
(To accrue salaries incurred but not yet paid)
(June 28, 29 and 30 amounts)
(b) July 2 Salaries and Wages Payable 8,900
Salaries and Wages Expense 5,600*
Cash 14,500
(To record payment of July 2 payroll)
*(July 1 and 2 amounts)
Ans: N/A, LO 5, BT: AP, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 287
On Friday of each week, Prawn Company pays its personnel weekly wages amounting to $45,000 for a five-day work week.
Instructions:
(a) Prepare the necessary adjusting entry at year end, assuming December 31 falls on Wednesday.
(b) Prepare the journal entry for payment of the week’s wages on the payday which is Friday, January 2 of the next year.
Solution 287 (5 min.)
(a) Dec. 31 Salaries and Wages Expense 27,000
Salaries and Wages Payable27,000
([$45,000 ÷ 5] × 3 = $27,000)
(Weekly wages ÷ 5) × 3
(b) Jan. 2 Salaries and Wages Payable 27,000
Salaries and Wages Expense18,000*
Cash 45,000
*(Weekly wages – [(Weekly wag. ÷ 5) × 2])
Ans: N/A, LO 3, BT: AP, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 288
Presented below is the Trial Balance and Adjusted Trial Balance for Stabler Company on December 31.
STABLER COMPANY
Trial Balance
December 31
Before AdjustmentAfter Adjustment
Dr. Cr. Dr. Cr.
Cash $ 3,000 $ 3,000
Accounts Receivable 2,800 3,700
Prepaid Rent 2,100 1,500
Supplies 1,200 700
Equipment 18,000 18,000
Accumulated Depreciation—
Equipment$ 1,300$ 1,500
Accounts Payable 2,700 3,000
Notes Payable 10,000 10,000
Interest Payable 120
Salaries and Wages Payable 800
Unearned Service Revenue 4,460 4,060
Common Stock 8,200 8,200
Dividends 3,200 3,200
Service Revenue 8,000 9,300
Salaries and Wages Expense 2,060 2,860
Utilities Expense 1,800 2,100
Rent Expense 500 1,100
Supplies Expense 500
Depreciation Expense 200
Interest Expense120
Totals$34,660$34,660$36,980$36,980
Instructions:
Prepare in journal form, with explanations, the adjusting entries that explain the changes in the
balances from the trial balance to the adjusted trial balance.
Solution 288 (20 min.)
Accounts Receivable 900
Service Revenue 900
(To record revenue recognized but not yet collected)
Rent Expense 600
Prepaid Rent 600
(To record expiration of prepaid rent)
Supplies Expense 500
Supplies 500
(To record supplies used)
Depreciation Expense 200
Accumulated Depreciation—Equipment 200
(To record depreciation expense)
Salaries and Wages Expense 800
Salaries and Wages Payable 800
(To record salaries owed, not yet paid)
Interest Expense 120
Interest Payable 120
(To record accrued interest payable)
Unearned Service Revenue 400
Service Revenue 400
(To record revenue recognized)
Utilities Expense 300
Accounts Payable 300
(To record receipt of utility bill)
Ans: N/A, LO 2 & 3, BT: AP, Difficulty: Medium, TOT: 20 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 289
The Golden Petting Zoo operates a drive-through tourist attraction in Colorado. The company adjusts its accounts at the end of each month. The selected accounts appearing below reflect balances after adjusting entries were prepared on April 30. The adjusted trial balance shows the following:
Prepaid Rent$ 18,000
Buildings42,000
Accumulated Depreciation—Buildings5,500
Unearned Ticket Revenue600
Other data:
1. Three months’ rent had been prepaid on April 1.
2. The buildings are being depreciated at $6,000 per year.
3. The unearned ticket revenue represents tickets sold for future zoo visits. The tickets were sold at $4.00 each on April 1. During April, twenty of the tickets were used by customers.
Instructions:
(a) Calculate the following:
1.Monthly rent expense.
2.The age of the buildings in months.
3.The number of tickets sold on April 1.
(b) Prepare the adjusting entries that were made by the Golden Petting Zoo on April 30.
Solution 289 (15 min.)
(a) 1. $9,000. The $18,000 balance on the adjusted trial balance reflects two months remaining on the prepaid rent. This indicates that the monthly rent is $9,000.
2.The buildings are 11 months old. By dividing annual depreciation ($6,000) by 12, the monthly depreciation expense is $500. The accumulated depreciation account shows $5,500 which means that depreciation has been taken for 11 months.
[Acc. Dep. bal. ÷ (depr./yr ÷ 12)
3.170 tickets were originally sold. Twenty tickets were used in April at $4.00 each. The adjusted trial balance shows a balance of $600 indicating that 150 tickets are still outstanding. By adding the 20 used in April to the 150 still remaining to be used, 170 tickets must have been sold on April 1.
[(Unear. Tick. Rev. bal. ÷ sell. price/ticket) + tickets used]
(b) 1. Rent Expense 9,000
Prepaid Rent 9,000
2.Depreciation Expense 500
Accumulated Depreciation—Buildings 500
3.Unearned Ticket Revenue 80
Ticket Revenue 80
(20 × $4 = $80)
(Tickets used × sell. pr./ticket)
Ans: N/A, LO 2, BT: AP, Difficulty: Hard, TOT: 15 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Ex. 290
The adjusted trial balance of Nicks Financial Planners appears below and using the information from the adjusted trial balance, you are to prepare for the month ending December 31:
1.an income statement;
2.a retained earnings statement; and
3.a balance sheet.
NICKS FINANCIAL PLANNERS
Adjusted Trial Balance
December 31, 2017
Debit Credit
Cash $ 15,400
Accounts Receivable 2,200
Supplies 1,800
Equipment 15,500
Accumulated Depreciation—Equipment $ 4,000
Accounts Payable 3,000
Unearned Service Revenue 5,000
Common Stock 15,000
Retained Earnings 7,400
Dividends 3,500
Service Revenue 9,500
Supplies Expense 1,100
Depreciation Expense 2,500
Rent Expense 1,900
$43,900$43,900
Solution 290 (20 min.)
1. NICKS FINANCIAL PLANNERS
Income Statement
For the Month Ended December 31, 2017
Revenues
Service Revenue $ 9,500
Expenses
Depreciation Expense $2,500
Rent Expense 1,900
Supplies Expense 1,100
Total Expenses 5,500
Net Income $ 4,000
(Ser. rev. – (dep. exp. + rent exp. + sup. exp.)
Solution 290 (cont.)
2. NICKS FINANCIAL PLANNERS
Retained Earnings Statement
For the Month Ended December 31, 2017
Retained Earnings, December 1 $7,400
Plus: Net Income 4,000
11,400
Less: Dividends 3,500
Retained Earnings, December 31 $7,900
(Beg. ret. earn. + net inc. – div.)
3. NICKS FINANCIAL PLANNERS
Balance Sheet
December 31, 2017
Assets
Cash $15,400
Accounts Receivable 2,200
Supplies 1,800
Equipment $15,500
Less: Accumulated Depreciation—Equipment 4,000 11,500
Total Assets $30,900
(Cash + acc. rec. + sup. + equip. – acc. dep.)
Liabilities and Stockholders’ Equity
Liabilities
Accounts Payable $3,000
Unearned Service Revenue 5,000
Total Liabilities $ 8,000
Stockholders’ Equity
Common Stock15,000
Retained Earnings 7,900 22,900
Total Liabilities and Stockholders’ Equity $30,900
(Acc. pay. + unear. ser. rev. + com. st. + end. ret. earn.)
Ans: N/A, LO 4, BT: AP, Difficulty: Hard, TOT: 20 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Ex. 291
The adjusted trial balance shown below is for Rich Company at the end of its fiscal year:
RICH COMPANY
Trial Balance
March 31, 2017
Debit Credit
Cash $ 12,900
Accounts Receivable 9,400
Supplies 700
Prepaid Insurance 2,500
Equipment 16,000
Accumulated Depreciation—Equipment $ 4,800
Accounts Payable 5,800
Salaries and Wages Payable 1,100
Unearned Rent Revenue 600
Common Stock 15,000
Retained Earnings 5,600
Dividends 5,800
Service Revenue 34,600
Rent Revenue 14,400
Salaries and Wages Expense 18,100
Supplies Expense 1,800
Rent Expense 12,000
Insurance Expense 1,500
Depreciation Expense 1,200
$81,900$81,900
Instructions:
Prepare the closing entries for the temporary accounts at March 31.
Solution 291
March 31 Service Revenue 34,600
Rent Revenue 14,400
Income Summary49,000
31Income Summary 34,600
Salaries and Wages Expense18,100
Rent Expense12,000
Supplies Expense1,800
Insurance Expense1,500
Depreciation Expense1,200
31Income Summary 14,400
Retained Earnings14,400
31 Retained Earnings 5,800
Dividends5,800
Ans: N/A, LO 4, BT: AP, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
COMPLETION STATEMENTS
292.The ______________ assumption states that the economic life of a business can be divided into artificial time periods.
Ans: time period, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
293.The ______________ principle gives accountants guidance as to when revenue is to be
recorded.
Ans: revenue recognition, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving
294.In a service company, revenue is earned when the service is _______________.
Ans: performed, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
295.The expense recognition principle attempts to match ______________ with ______________.
Ans: expenses, revenues, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
296. Expenses paid and recorded in an asset account before they are used or consumed are called _______________. Revenue received and recorded as a liability before it is earned is referred to as _________________.
Ans: prepaid expenses, unearned revenue, LO 1, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
297.Failure to adjust a prepaid expense account for the amount expired will cause _______________ to be understated and ________________ to be overstated.
Ans: expenses, assets, LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
298.Depreciation is an __________________ concept, not a ________________ concept.
Ans: allocation, valuation, LO 2, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
299.An adjusting entry recording accrued salaries for a period indicates that Salaries and Wages Expense has been ________________ but has not yet been ________________ or recorded.
Ans: incurred, paid, LO 3, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
300. An adjusted trial balance proves the ______________ of the total debit and credit balances after all ______________ entries have been made.
Ans: equality, adjusting, LO 4, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
301. In addition to updating Retained Earnings, ______________ entries produce a zero balance in each ______________ account.
Ans: closing, temporary, LO 4, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem Solving, IMA: Reporting
302.After all closing entries are journalized and posted, a _________________ trial balance is prepared from the ledger.
Ans: post-closing, LO 4, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
Answers to Completion Statements
292.periodicity298.allocation, valuation
293.revenue recognition299.incurred, paid
294.performed300.equality, adjusting
295.expenses, revenues301.closing, temporary
296.prepaid expenses, unearned revenue302.post-closing
297. expenses, assets
MATCHING
303. Match the items below by entering the appropriate code letter in the space provided.
A.Periodicity assumptionF.Accrued revenues
B.Cash basisG.Depreciation
C.Revenue recognition principleH.Post-closing trial balance
D.Prepaid expensesI.Accrued expenses
E.Expense recognition principleJ.Book value
1.Events recorded only in periods the company receives or pays cash
2.Expenses paid before they are incurred
3.Cost less accumulated depreciation
4.The economic life of a business can be divided into artificial time periods
5.Efforts are related to accomplishments
6.Includes only permanent—balance sheet—accounts
7.Revenue is recognized when the performance obligation is satisfied.
8.Revenues earned but not yet received
9.Expenses incurred but not yet paid
10.A cost allocation process
Answers to Matching
1. B 6. H
2. D 7. C
3. J 8. F
4. A 9. I
5. E 10. G
Ans: N/A, LO 1, 2, 3, 4 BT: K, Difficulty: Medium, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem Solving, IMA: Business Economics
SHORT-ANSWER ESSAY QUESTIONS
S-A E 304
You are part of a group of individuals (incorporators) who want to form a new corporation. During discussions on forming the business, Mark Adams makes this statement:
Our business will have accounts receivable and accounts payable. It will also acquire a substantial amount of computers and equipment. Will it be acceptable to use the cash basis of accounting?
Prepare a response for Mark and the other incorporators.
Solution 304
Considering the proper basis of accounting to use is an important decision that should be addressed before the business is started. Thus, this is an excellent time to look at the differences between the cash and accrual basis of accounting.
When the cash basis is used, revenue is recorded when cash is received and expenses are recorded when cash is paid. This is not an objective approach in determining net income because the receipt and payment of cash does not reflect the efforts and accomplishments of the business. Also, accounts receivable, accounts payable and depreciation are not recognized in the accounting records.
The use of the accrual basis of accounting overcomes these problems. Revenue is recorded when the performance obligation is satisfied and expenses are recorded when they are incurred. This represents an objective way of matching efforts and accomplishments of the accounting period. In addition, accounts receivable and accounts payable are recorded and their balances are shown on the balance sheet. The business has access to these balances during the accounting period and can make important decisions about them.
Since the business has computers, it is important to record a portion of their costs each accounting period. This process is called depreciation. Instead of showing the cost as an expense when the computers are purchased (cash basis), the cost is allocated to the accounting periods in which the computers are used (accrual basis). This makes net income more meaningful because it reflects a matching of the expense to the period in which revenues were recognized. The cost of the computers, less the accumulation of depreciation that has been taken, is shown as an asset on the balance sheet. Thus, the user can see that these assets are available for future use.
Also, generally accepted accounting principles require the use of the accrual basis of accounting. It will be better to use the accrual basis of accounting.
Ans: N/A, LO 1, BT: C, Difficulty: Medium, TOT: 20 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
S-A E 305
The income statement is an important financial statement used by individuals who are interested in the operations of a business enterprise. Explain how the periodicity assumption and the revenue recognition and expense recognition principles provide guidance to accountants in preparing an income statement.
Solution 305
The periodicity assumption assumes that the financial and operating life of an accounting entity, such as a business enterprise, can be broken up into arbitrary time periods. The revenue recognition and expense recognition principles are the basic rules for allocating revenues and expenses to these arbitrary time periods under the accrual basis of accounting. The revenue recognition principle dictates the time period to which revenue is to be allocated and recognized, that is, on which income statement the revenue is to be reported. The expense recognition principle dictates the time period to which costs are allocated and recognized as expenses, that is, on which income statement the expenses are to be reported and matched against revenues in the determination of net income.
Ans: N/A, LO 1, BT: C, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
S-A E 306
As a recent graduate in accounting, and the financial director of a political candidate in a current election, you have been asked to explain many questions concerning how governmental accounting differs from corporate accounting.
Required:
(a) Discuss the differences between cash basis and accrual−basis accounting.
(b) Prepare a memo to your candidate explaining why governmental entities favor the cash basis of accounting.
Solution 306
(a) The cash basis of accounting recognizes revenues and expenses when cash is received and paid. This can lead to misleading financial statements by simply speeding up or delaying the cash from sales and expense transactions. The accrual basis of accounting recognizes revenues and expenses when those items occur. Information presented on an accrual basis reveals relationships that are useful in predicting future results.
(b) TO: Candidate
FROM: Financial director
SUBJECT: Governmental Accounting Practice
Governments favor the cash basis of accounting because expenses are only recognized when paid. This results in a large number of unrecorded liabilities that if recorded, would make the government’s deficits even larger than currently reported.
No elected official or governmental bureaucrat wants to be held accountable for increasing the deficit because of changing to the accrual basis of accounting.
Ans: N/A, LO 1, BT: C, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
S-A E 307
The long-term liability section of Alpha Corporation’s Balance Sheet includes the following accounts
| Notes Payable | $100,000 |
| Mortgage Payable | 250,000 |
| Salaries and Wages Payable | 75,000 |
| Accumulated Depreciation | 125,000 |
| Total Long-Term Liabilities | $550,000 |
Alpha Corporation is an established company and does not experience any financial difficulties or have any cash flow problems. Discuss at least two items that are questionable as long-term liabilities.
Solution 307
Salaries and Wages Payable should not be reported as a long-term liability. This represents the amounts owed to employees. If the corporation does not have any financial difficulties or cash flow problems, the salaries should be paid within one year.
Accumulated Depreciation is a contra asset account. The balance is subtracted from the cost of the related asset in the Property, Plant, and Equipment section of the balance sheet.
Are all of the notes payable, including the mortgage, actually long-term (due after one year)? If not, the portion due within one year should be reported as a current liability instead.
Ans: N/A, LO 1, 2, & 3, BT: C, Difficulty: Medium, TOT: 10 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
S-A E 308
What is the purpose of the preparation of adjusting entries?
Solution S-A E 308
Adjusting entries are needed to ensure that the revenue recognition and expense recognition principles are followed. The use of adjusting entries makes it possible to produce accurate financial statements at the end of the period. Their purpose is to bring all accounts up to date.
Ans: N/A, LO 1, BT: K, Difficulty: Easy, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Communication, IMA: Business Economics
S-A E 309
Briefly distinguish between a deferral and an accrual.
Solution 309
A deferral is the postponement of the recognition of an expense already paid or of a revenue already received. An accrual is the recognition of an expense or revenue that has arisen but that has not yet been recorded, and cash has not been paid or received.
Ans: N/A, LO 1, BT: C, Difficulty: Easy, TOT: 5 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Communication, IMA: Business Economics
S-A E 310
In developing an accounting information system, it is important to establish procedures whereby all transactions that affect the components of the accounting equation are recorded. Why then, is it often necessary to adjust the accounts before financial statements are prepared even in a properly designed accounting system? Identify the major types of adjustments that are frequently made and give a specific example of each.
Solution 310
Account balances must be adjusted before financial statements are prepared, even in a properly designed accounting system, because (1) some of the recorded transactions have been recognized prematurely and (2) some effects on components of the accounting equation have not been recorded. Deferrals are types of adjustments of recorded transactions that must be allocated to future periods as well as the current period. Examples of deferral-type adjustments are prepaid rent, prepaid insurance, and unearned revenue. Accruals are adjustments of unrecorded transactions that must be recognized in the current period. Examples of accrual-type adjustments are salaries and wages payable, interest payable, and interest receivable.
Ans: N/A, LO 1, BT: K, Difficulty: Medium, TOT: 7 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Medium, AICPA PC: Problem Solving, IMA: Business Economics
S-A E 311
Companies are continually under pressure to “Make the Numbers” – to have earnings that are in line with expectations. Explain the terms earnings management and quality of earnings.
Solution 311
Earnings management is the planned timing of revenues, expenses, gains, and losses to smooth out bumps in net income. Such action is undertaken to help a company meet target financial numbers.
Quality of earnings indicates the level of full and transparent information that a company provides to users of financial statements.
Ans: N/A, LO 4, BT: C, Difficulty: Easy, TOT: 5 min., AACSB: Ethics, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
S-A E 312 (Ethics)
Benson and Jencks is a manufacturing company that specializes in writing instruments. The past year was a difficult one for the company, as it sought to retain its share in a market in which the largest competitors were also rapid innovators. Benson and Jencks introduced a new product late in the year, even though testing was not complete. It was a pen designed with two cartridges: one supplying ink and the other correction fluid. A person could then switch easily between writing and correcting errors. It was priced fairly high, and was never heavily advertised. Even so, the Correct-O-Pen, as the product was named, was an overwhelming success.
The success of the product has Fern Donald, the manager of the New Products division, worried, however. She was concerned that quality problems would begin occurring, since the longevity of the pen and stability of the correction fluid formulation had not been tested. She did not want sales personnel to get the bonuses that appeared to be indicated, since they might aggressively promote a product that would fail in use. She preferred to complete testing of the pen first, so that more confidence could be placed in the results.
Top management, however, declined the tests. Ms. Donald then instructed you, the accountant, not to prorate payroll taxes or rent expense for the rest of the year, but to show them as current expenses in total. In this way, the new product would appear to be only slightly profitable.
Required:
1. Describe the alternatives that you as an accountant would have in this situation.
2. Indicate which alternative is best.
Solution 312
1. The choices include:
1.Follow the manager’s instructions.
2.Explain to the manager why you cannot follow her instructions.
3.Report the manager’s actions to her superior.
4.Resign.
There are probably other alternatives as well. Students should be able to come up with at least #1 and #2.
2. Of the choices, #1 is unethical because it will cause the financial statements to be misleading. #3 and #4 are rather drastic measures that do not seem to be indicated, at least not yet. #2, therefore, is the best choice.
Ans: N/A, LO 1, BT: E, Difficulty: Medium, TOT: 10 min., AACSB: Ethics, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
S-A E 313 (Communication)
A new sales representative, Eddy Wherli, has just received his copy of the month-end financial reports. He is puzzled by the term “unearned revenue.” He left the following e-mail message for you on the company’s bulletin board system:
What is this??? Creative Accounting, or what??? Line item 12 on year-to-date financials shows over $25Gs in Unearned Revenue!!! Come on, guys! Either we earned it, or we didn’t . . . Right??! Is this how you guys lower our commissions? Reply to e.wherli@sbd
Required:
Write a response to send to Eddy. (Since the answer is being prepared for a “bulletin board” type system, it can be in informal language and can respond in kind to the humor. However, proper grammar and spelling are essential, as is the message about what unearned revenue really is.)
Solution 313
Since the answer is being prepared for a “bulletin board” type system, it can be in informal language and can respond in kind to the humor. However, proper grammar and spelling are essential, as is the message about what unearned revenue really is. A proposed message follows:
Eddy—What a pleasant surprise to hear from you! Maybe you can teach those other guys in your department something about living in the present! Do you know some of them still write me notes on paper??? Unbelievable, right??!
Now to your question. Your unearned revenue is the sales you made that us smart guys in accounting didn’t figure you had earned, so we just took it away from you! Might as well save the company some dough for our own bonuses, right??
Seriously, Eddy—unearned revenue is the result of your getting customers of the kind we like—they pay in advance! When they pay before we can even get their products made or shipped, we can’t count the money they pay us as revenue. What we actually have is a liability—an obligation to make and ship products. So that’s how us (smart guys) in accounting count it—as a liability. You happened to have about 25% of your sales that fit in that category. When production can catch up with orders, you’ll get credit for the sales. (Take heart—It’ll seem like Christmas all over again)
Thanks again for actually using the system. Talk to me again sometime . . . Reply to
Ans: N/A, LO 1, BT: C, Difficulty: Medium, TOT: 20 min., AACSB: Communication, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
International Financial Reporting Standards
True-False Statements
1.The cash basis of accounting is not in accordance with IFRS.
Ans: T, LO 6, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem solving, IMA: Reporting
2.The expense recognition principle requires that efforts be matched with accomplishments.
Ans: T, LO 6, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem solving, IMA: Reporting
3.Adjusting entries are needed to enable financial statements to conform to International Financial Reporting Standards (IFRS).
Ans: T, LO 6, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem solving, IMA: Reporting
Multiple Choice Questions
4.Which of the following are in accordance with IFRS?
a. Accrual basis accounting
b. Cash basis accounting
c. Both accrual basis and cash basis accounting
d. Neither accrual basis nor cash basis accounting
Ans: a, LO 6, BT: K, Difficulty: Easy, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication, IMA: Reporting
5.Wong Ho Company had the following transactions during 2016:
Sales of ¥11,000 on account
Collected ¥4,000 for services to be performed in 2017
Paid ¥1,250 cash in salaries
Purchased airline tickets for ¥500 in December for a trip to take place in 2017
What is Wong Ho’s 2016 net income using accrual accounting?
a. ¥9,750.
b. ¥13,750.
c. ¥13,250.
d. ¥9,250.
Ans: a, LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem solving, IMA: Business Economics
6. Under International Financial Reporting Standards (IFRS)
a. The cash-basis method of accounting is accepted.
b. Events are recorded in the period in which the event occurs.
c. Interim period financial statements are either a calendar year or a fiscal year.
d. A fiscal year is an accounting time period encompassing less than 12 months.
Ans: b, LO 6, BT: K, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Measurement, AICPA PC: Problem solving, IMA: Business Economics
7. What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, € 20,500, and unexpired amounts per analysis of policies of €4,000?
a. Debit Insurance Expense, € 4,000; Credit Prepaid Insurance, € 4,000.
b. Debit Insurance Expense, € 20,500; Credit Prepaid Insurance, € 20,500.
c. Debit Prepaid Insurance, € 16,500; Credit Insurance Expense, € 16,500.
d. Debit Insurance Expense, € 16,500; Credit Prepaid Insurance, € 16,500.
Ans: d, LO 6, BT: AP, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem solving, IMA: Reporting
Solution: (€20,500 − €4,000 €16,500)
8. Karcan, Inc. purchased supplies costing ₤2,500 on January 1, 2017 and recorded the transaction by increasing assets. At the end of the year ₤1,100 of the supplies are still on hand. How will the adjusting entry impact Karcan, Inc.’s statement of financial position at December 31, 2017?
a. Decreased assets ₤ 1,100.
b. Increased equity ₤ 1,100.
c. Increased liabilities ₤ 1,400.
d. Decreased assets ₤ 1,400.
Ans: d, LO 6, BT: AP, Difficulty: Medium, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem solving, IMA: Reporting
Solution: (₤2,500 − ₤1,100 ₤1,400)
9.Karcan, Inc. purchased supplies costing ₤2,500 on January 1, 2017 and recorded the transaction by increasing assets. At the end of the year ₤1,100 of the supplies are still on hand. If Karcan, Inc. does not make the appropriate adjusting entry, what is the impact on its statement of financial position at December 31, 2017?
a. Assets overstated by ₤ 1,400.
b. Equity understated by ₤ 1,400.
c. Equity overstated by ₤ 1,100.
d. Assets overstated by ₤ 1,100.
Ans: a, LO 6, BT: AP, Difficulty: Hard, TOT: 4 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem solving, IMA: Reporting
Solution: (₤2,500 − ₤1,100 ₤1,400)
10.Similarities between International Financial Reporting Standards (IFRS) and U.S. GAAP include all of the following except
a. Cash-basis accounting is not in accordance with either IFRS or U.S. GAAP.
b. Both IFRS and U.S. GAAP allow revaluation of items such as land and buildings to fair value.
c. Both IFRS and U.S. GAAP divide the economic life of companies into artificial time periods.
d. The revenue recognition principle is very similar under IFRS and U.S. GAAP.
Ans: b, LO 6, BT: K, Difficulty: Medium, TOT: 2 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem solving, IMA: Reporting
Brief Exercises
11.The statements of financial position of Rocky Acre Spread Ltd. include the following:
12/31/1712/31/16
Interest Receivable €4,300 € -0-
Supplies 5,000 3,000
Salaries and Wages Payable 3,600 3,800
Unearned Service Revenue -0- 4,000
The income statement for 2017 shows the following:
Interest Revenue €14,400
Service Revenue 75,700
Supplies Expense 8,700
Salaries and Wages Expense 36,000
Instructions
Calculate the following for 2017:
1. Cash received for interest.
2. Cash paid for supplies.
3. Cash paid for salaries and wages.
4. Cash received for service revenue.
Solution 11 (15 min.)
1. Cash received for interest = €10,100
Interest Revenue€14,400
Less: Interest Receivable 4,300
Cash Received€10,100
2. Cash paid for supplies = €10,700
Supplies Expense€8,700
Less: Supplies (2016) 3,000
5,700
Add: Supplies (2017) 5,000
Cash Paid€10,700
3. Cash paid for salaries and wages = €36,200
Salaries and Wages Expense€36,000
Add: Salaries and Wages Payable (2016) 3,800
39,800
Less: Salaries and Wages Payable (2017) 3,600
Cash Paid€36,200
4. Cash received for revenue = €71,700
Service Revenue€75,700
Less: Unearned Service Revenue (2016) 4,000
Cash Received€71,700
LO 6, BT: AP Difficulty: Hard, TOT: 15 min., AACSB: Analytic, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Problem solving, IMA: Reporting
Add a review
Be the first to review “Financial Accounting Tools for Business Decision Making 8th edition By Paul D. Kimmel – Test Bank”
Related products
-
Advanced Pediatric Assessment 3rd Edition Chiocca 3rd Edition By Ellen M. Chiocca – Test Bank
Original price was: $35.00.$25.00Current price is: $25.00. -
Alexander’s Care of the Patient in Surgery 16 Th Edition By Jane Rothrock – Test Bank
Original price was: $35.00.$25.00Current price is: $25.00. -
Bates’ Guide to Physical Examination and History Taking 12th Edition – Test Bank
Original price was: $35.00.$25.00Current price is: $25.00. -
Advanced Health Assessment and Diagnostic Reasoning 4th Edition Rhoads – Test Bank
Original price was: $35.00.$25.00Current price is: $25.00.
There are no reviews yet.