ACCOUNTING 27TH EDITION CARL S. WARREN JAMES - TEST BANK

True / False 1. Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis of accounting. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 2. Generally accepted accounting principles require the accrual basis of accounting. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 3. The revenue recognition principle states that revenue should be recorded in the same period as the cash is received. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 4. The system of accounting where revenues are recorded when they are earned and expenses are recorded when they are incurred is called the cash basis of accounting. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 5. The matching principle requires expenses be recorded in the same period that the related revenue is recorded. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 6. For most large businesses, the cash basis of accounting will provide accurate financial statements for user needs. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 7. An example of deferred revenue is Unearned Rent. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 8. Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue has been earned. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   9. If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to a liability account. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 10. The revenue recognition principle requires that the reporting of revenue be included in the period when cash for the service is received. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 11. Revenues and expenses should be recorded in the same period to which they relate. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 12. The matching principle supports matching expenses with the related revenues. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 13. The updating of accounts when financial statements are prepared is called the adjusting process. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 14. Adjusting entries affect balance sheet accounts to the exclusion of income statement accounts. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 15. Adjusting entries affect only expense and asset accounts. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 16. An adjusting entry would adjust revenue so it is reported when earned and not when cash is received. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   17. An adjusting entry would adjust an expense account so the expense is reported when incurred. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 18. An adjusting entry to accrue an incurred expense will affect total liabilities. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 19. The difference between deferred revenue and accrued revenue is that accrued revenue has been recorded and needs adjusting and deferred revenue has never been recorded. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 20. Deferrals are recorded transactions that delay the recognition of an expense or revenue. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   21. Adjustments for accruals are needed to record a revenue that has been earned or an expense that has been incurred but not recorded. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 22. Unearned revenue is a liability. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 23. A company pays an employee $3,000 for a five-day workweek, Monday–Friday. The adjusting entry on December 31, which is a Wednesday, is a debit to Wages Expense of $1,800, and a credit to Wages Payable of $1,800. a. True b. False ANSWER: True RATIONALE: Wages Expense per Day = $3,000/5 = $600 Wages Expense for 3 days = $600 × 3 = $1,800 Debit Credit Dec. 31 Wages Expense 1,800 Wages Payable 1,800 DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   24. A company realizes that the last two days' revenue for the month was billed but not recorded. The adjusting entry on December 31 is a debit to Accounts Receivable and a credit to Fees Earned. a. True b. False ANSWER: True DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 25. If the adjustment for accrued salaries at the end of the period is inadvertently omitted, both liabilities and stockholders' equity will be understated for the period. a. True b. False ANSWER: False DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 26. A company pays $36,000 for 12 months' rent on October 1, recording the prepayment as an asset. The adjusting entry on December 31 is a debit to Rent Expense of $9,000, and a credit to Prepaid Rent of $9,000. a. True b. False ANSWER: True RATIONALE: Rent Expense per Month = $36,000/12 = $3,000 Rent Expense from October 1 to December 31 = $3,000 × 3 = $9,000 Debit Credit Dec. 31 Rent Expense 9,000 Prepaid Rent 9,000 DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   27. A company receives $360 for a 12-month trade magazine subscription on August 1. The adjusting entry on December 31 is a debit to Unearned Subscription Revenue of $150 and a credit to Subscription Revenue of $150. a. True b. False ANSWER: True RATIONALE: Unearned Subscription Revenue per Month = $360/12 = $30 Subscription Revenue from August 1 to December 31 = $30 × 5 = $150 Debit Credit Dec. 31 Unearned Subscription Revenue 150 Subscription Revenue 150 DIFFICULTY: Challenging Bloom’s: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 28. A company receives $6,500 for two season tickets sold on September 1. If $2,500 is earned by December 31, the adjusting entry made at that time is a debit to Cash of $2,500, and a credit to Ticket Revenue of $2,500. a. True b. False ANSWER: False DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 29. At year-end, the balance in the prepaid insurance account, prior to any adjustments, is $6,000. The amount of the journal entry required to record insurance expense will be $4,000 if the amount of unexpired insurance applicable to future periods is $2,000. a. True b. False ANSWER: True RATIONALE: Insurance Expense = Balance in Prepaid Insurance Account (prior to any adjustments) – Amount of Unexpired Insurance (applicable to future periods) = $6,000 – $2,000 = $4,000 DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   30. If the adjustment to recognize expired insurance at the end of the period is inadvertently omitted, the assets at the end of the period will be understated. a. True b. False ANSWER: False DIFFICULTY: Challenging Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 31. If the adjustment of the unearned rent account at the end of the period to recognize the amount of rent earned is inadvertently omitted, the net income for the period will be understated. a. True b. False ANSWER: True DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 32. The systematic allocation of land's cost to expense is called depreciation. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 33. The difference between the balance of a fixed asset account and the balance of its related accumulated depreciation account is termed the book value of the asset. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 34. The balance in the accumulated depreciation account is the sum of the depreciation expense recorded in past periods. a. True b. False ANSWER: True DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 35. Accumulated depreciation accounts are liability accounts. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 36. Accumulated depreciation is reported on the income statement. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 37. A contra asset account for Land will normally appear on the balance sheet. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   38. Depreciation Expense is reported on the balance sheet as an addition to the related asset. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 39. A company depreciates its equipment $500 a year. The adjusting entry on December 31 is a debit to Depreciation Expense of $500 and a credit to Equipment of $500. a. True b. False ANSWER: False DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 40. A fixed asset’s market value is reflected on the balance sheet. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 41. If the adjustment for depreciation for the year is inadvertently omitted, the assets on the balance sheet at the end of the period will be understated. a. True b. False ANSWER: False DIFFICULTY: Challenging Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 42. Adjusting journal entries are dated on the last day of the period. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 43. By ignoring and not posting the adjusting journal entries to the appropriate accounts, net income will always be overstated. a. True b. False ANSWER: False DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 44. The financial statements are prepared from the unadjusted trial balance. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 45. The adjustment for accrued fees was debited to Accounts Payable instead of Accounts Receivable. This error will be detected when the adjusted trial balance is prepared. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   46. The adjusted trial balance verifies that total debits equal total credits before the adjusting entries are prepared. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 47. Vertical analysis compares each item in a financial statement with a total amount from the same statement. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 48. When preparing an income statement vertical analysis, each revenue and expense is expressed as a percent of net income. a. True b. False ANSWER: False DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 49. Vertical analysis is useful for analyzing financial statement changes over time. a. True b. False ANSWER: True DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.23 - Financial Statement Analysis ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic Multiple Choice 50. The revenue recognition principle a. is not in conflict with the cash method of accounting b. determines when revenue is credited to a revenue account c. states that revenue is not recorded until the cash is received d. controls all revenue reporting for the cash basis of accounting ANSWER: b DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 51. The matching principle a. addresses the relationship between the journal and the balance sheet b. determines whether the normal balance of an account is a debit or credit c. requires that the dollar amount of debits equal the dollar amount of credits on a trial balance d. states that the revenues and related expenses should be reported in the same period ANSWER: d DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 52. Using accrual accounting, revenue is recorded and reported only a. when cash is received without regard to when the services are rendered b. when the services are rendered without regard to when cash is received c. when cash is received at the time services are rendered d. if cash is received after the services are rendered ANSWER: b DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   53. 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 ANSWER: a DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 54. The accounting principle upon which deferrals and accruals are based is a. matching b. cost c. price-level adjustment d. conservatism ANSWER: a DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 55. If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account, which of the following describes the effect of the credit portion of the entry? a. decreases the balance of an owner's equity account b. increases the balance of a liability account c. increases the balance of an asset account d. decreases the balance of an expense account ANSWER: b DIFFICULTY: Challenging Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   56. If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry? a. increases the balance of a contra asset account b. increases the balance of an asset account c. decreases the balance of an owner's equity account d. increases the balance of an expense account ANSWER: d DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 57. Prior to the adjusting process, accrued expenses have a. not yet been incurred, paid, or recorded b. been incurred, have not been paid, but have been recorded c. been incurred but not paid and not recorded d. been paid but have not yet been incurred ANSWER: c DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 58. Prior to the adjusting process, accrued revenue has a. been earned and cash received b. been earned and not recorded as revenue c. not been earned but recorded as revenue d. not been recorded as revenue but cash has been received ANSWER: b DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   59. Prepaid expenses have a. not yet been recorded as expenses but have been paid b. been recorded as expenses and paid c. been incurred and paid d. not yet been recorded as expenses ANSWER: d DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 60. Deferred revenue is revenue that is a. earned and the cash has been received b. earned but the cash has not been received c. not earned and the cash has not been received d. not earned but the cash has been received ANSWER: d DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 61. Adjusting entries are a. the same as correcting entries b. needed to bring accounts up to date and match revenue and expense c. optional under generally accepted accounting principles d. rarely needed in large companies ANSWER: b DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   62. Adjusting entries affect at least one a. income statement account and one balance sheet account b. revenue and the dividends account c. asset and one owner’s equity account d. revenue and one owner’s equity account ANSWER: a DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 63. The term used to describe an expense that has not been paid and has not yet been recognized in the accounts by a routine entry is a. prepaid b. deferred c. accrued d. matched ANSWER: c DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 64. Which of the following is not a characteristic of the accrual basis of accounting? a. Revenues and expenses are reported in the period in which cash is received or paid. b. Revenues are reported on the income statement in the period in which they are earned. c. The accrual basis of accounting supports the matching concept. d. Expenses are reported in the same period as the revenues to which they relate. ANSWER: a DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   65. Generally accepted accounting principles require that companies use the ____ of accounting. a. cash basis b. deferral basis c. accrual basis d. account basis ANSWER: c DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.02 - GAAP ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 66. The cash basis of accounting records revenues and expenses when the cash is exchanged, while the accrual basis of accounting a. records revenues when they are earned and expenses when they are paid b. records revenues and expenses when they are incurred c. records revenues when cash is received and expenses when they are incurred d. records revenues and expenses when the company needs to apply for a loan ANSWER: b DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 67. By matching revenue earned during the accounting period to related incurred expenses, a. net income or loss will always be underestimated b. net income or loss will always be overestimated c. net income or loss will be properly reported on the income statement d. net income or loss will not be determined ANSWER: c DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   68. Adjusting entries always include a. only income statement accounts b. only balance sheet accounts c. the cash account d. at least one income statement account and one balance sheet account ANSWER: d DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 69. Prepaid expenses are eventually expected to become a. expenses when their future economic value expires or is used up b. revenues when services are performed c. expenses in the period when they are paid d. revenues when the liability is no longer owed ANSWER: a DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 70. Which of the following is considered to be unearned revenue? a. theater tickets sold last month for yesterday’s performance b. theater tickets sold yesterday on credit for yesterday’s performance c. theater tickets that were not sold for the current performance d. theater tickets sold for next month’s performance ANSWER: d DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   71. Which of the following is an example of accrued revenue? a. snow removal services that have been paid for three months in advance b. snow removal services that have been provided but have not been billed or paid c. an agreement that has been signed for snow removal services for the next three months d. snow removal services that have been provided and paid on the same day ANSWER: b DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 72. Which of the following is considered to be an accrued expense? a. A computer technician installed the latest software updates and was paid on the same day. b. A computer technician has been paid in advance to install software updates as they become available. c. A computer technician has just signed an agreement with you regarding pricing for future work. d. A computer technician has installed the latest software updates, but you have not received an invoice or made payment. ANSWER: d DIFFICULTY: Challenging Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 73. Which of the following accounts would likely be included in an accrual adjusting entry? a. Insurance Expense b. Prepaid Rent c. Interest Expense d. Unearned Rent ANSWER: c DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   74. Which of the following accounts would likely be included in a deferral adjusting entry? a. Interest Revenue b. Unearned Revenue c. Salaries Payable d. Accounts Receivable ANSWER: b DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 75. If there is a balance in the prepaid rent account after adjusting entries are made, it represents a(n) a. deferral b. accrual c. revenue d. liability ANSWER: a DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 76. If there is a balance in the unearned subscriptions account after adjusting entries are made, it represents a(n) a. deferral b. accrual c. dividend d. revenue ANSWER: a DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   77. The unexpired insurance at the end of the fiscal period represents a(n) a. accrued asset b. accrued liability c. accrued expense d. deferred expense ANSWER: d DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 78. The general term used to indicate delaying the recognition of an expense already paid or of a revenue already received is a. depreciation b. deferral c. accrual d. inventory ANSWER: b DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 79. Which account would normally not require an adjusting entry? a. Wages Expense b. Accounts Receivable c. Accumulated Depreciation d. Cash ANSWER: d DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   80. The account type and normal balance of Prepaid Expense would be a. revenue, credit b. expense, debit c. liability, credit d. asset, debit ANSWER: d DIFFICULTY: Bloom's: Understanding Easy LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 81. The account type and normal balance of Unearned Revenue would be a. revenue, credit b. expense, debit c. liability, credit d. asset, debit ANSWER: c DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 82. Buster Industries pays weekly salaries of $30,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on Tuesday is a. debit Salaries Payable, $12,000; credit Cash, $12,000 b. debit Salary Expense, $12,000; credit Dividends, $12,000 c. debit Salary Expense, $12,000; credit Salaries Payable, $12,000 d. debit Dividends, $12,000; credit Cash, $12,000 ANSWER: c RATIONALE: Salary Expense per Day = $30,000/5 = $6,000 Salary Expense for 2 Days = $6,000 × 2 = $12,000 Debit Credit Salary Expense 12,000 Salaries Payable 12,000 DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   83. The entry to adjust the accounts for salaries accrued at the end of the accounting period is a. debit Salaries Payable; credit Cash b. debit Cash; credit Salaries Payable c. debit Salaries Payable; credit Salaries Expense d. debit Salaries Expense; credit Salaries Payable ANSWER: d DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 84. Data for an adjusting entry described as "accrued wages, $2,020" requires a a. debit to Wages Expense and a credit to Wages Payable b. debit to Wages Payable and a credit to Wages Expense c. debit to Accounts Receivable and a credit to Wages Expense d. debit to Dividends and a credit to Wages Payable ANSWER: a DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 85. Accrued revenues would affect _______ on the balance sheet. a. assets b. liabilities c. owner’s capital d. prepaid expenses ANSWER: a DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   86. Accrued expenses affect ________ on the balance sheet. a. assets b. liabilities c. fixed assets d. prepaid expenses ANSWER: b DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 87. Fees payable would appear on the balance sheet as a(n) a. asset b. liability c. fixed asset d. unearned revenue ANSWER: b DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 88. The following adjusting journal entry found in the journal is missing an explanation. Select the best explanation for the entry. Wages Expense 4,500 Wages Payable 4,500 ???????????????? a. Record payment of wages. b. Record wages paid last month. c. Record wages paid in advance. d. Record wages expense incurred and to be paid next month. ANSWER: d DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   89. Which of the following is an example of an accrued expense? a. salary owed but not yet paid b. fees received but not yet earned c. supplies on hand d. a two-year premium paid on a fire insurance policy ANSWER: a DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 90. A business pays biweekly salaries of $20,000 every other Friday for a 10-day period ending on that day. The adjusting entry necessary at the end of the fiscal period ending on the second Wednesday of the pay period includes a a. debit to Salary Expense of $8,000 b. debit to Salaries Payable of $8,000 c. credit to Salary Expense of $16,000 d. credit to Salaries Payable of $16,000 ANSWER: d RATIONALE: Salary Expense per Day = $20,000/10 = $2,000 Salary Expense Accrued (on the second Wednesday of the pay period) = $2,000 × 8 days = $16,000 Debit Credit Salary Expense 16,000 Salaries Payable 16,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   91. A business pays biweekly salaries of $20,000 every other Friday for a 10-day period ending on that day. The last payday of December is Friday, December 27. Assume the next pay period begins on Monday, December 30, and the proper adjusting entry is journalized at the end of the fiscal period (December 31). The entry for the payment of the payroll on Friday, January 10, includes a a. debit to Salary Expense of $16,000 b. debit to Salary Expense of $4,000 c. credit to Salaries Payable of $16,000 d. credit to Salaries Payable of $4,000 ANSWER: a RATIONALE: Salary Expense per Day = $20,000/10 = $2,000 Number of Working Days (till January 10 from the previous pay day, December 27) = 2 days in December + 8 days in January = 10 days Salary Expense on January 10 = $2,000 × 8 days = $16,000 Salaries Payable = $2,000 × 2 days = $4,000 Debit Credit Jan. 10 Salary Expense 16,000 Salaries Payable 4,000 Cash 20,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 92. The balance in the prepaid rent account before adjustment at the end of the year is $32,000, which represents four months' rent paid on December 1. The adjusting entry required on December 31 is a. debit Rent Expense, $8,000; credit Prepaid Rent, $8,000 b. debit Prepaid Rent, $24,000; credit Rent Expense, $8,000 c. debit Rent Expense, $24,000; credit Prepaid Rent, $8,000 d. debit Prepaid Rent, $8,000; credit Rent Expense, $8,000 ANSWER: a RATIONALE: Rent Expense per Month = $32,000/4 = $8,000 Debit Credit Dec. 31 Rent Expense 8,000 Prepaid Rent 8,000 DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   93. The balance in the office supplies account on January 1 was $7,000, supplies purchased during January were $3,000, and the supplies on hand on January 31 were $2,000. The amount to be used for the appropriate adjusting entry is a. $4,300 b. $12,000 c. $5,000 d. $8,000 ANSWER: d RATIONALE: Amount to Be Used for Appropriate Adjusting Entry = Balance in Office Supplies Account on January 1 + Supplies Purchased During January – Supplies on Hand at January 31 = $7,000 + $3,000 – $2,000 = $8,000 DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 94. Which of the following is the proper adjusting entry, based on a prepaid insurance account balance before adjustment of $14,000 and unexpired insurance of $3,000, for the fiscal year ending on April 30? a. debit Insurance Expense, $3,000; credit Prepaid Insurance, $3,000 b. debit Insurance Expense, $14,000; credit Prepaid Insurance, $14,000 c. debit Prepaid Insurance, $11,000; credit Insurance Expense, $11,000 d. debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000 ANSWER: d RATIONALE: Insurance Expense = Prepaid Insurance Account Balance Before Adjustment – Unexpired Insurance = $14,000 – $3,000 = $11,000 Debit Credit Apr. 30 Insurance Expense 11,000 Prepaid Insurance 11,000 DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 95. The entry to adjust for the cost of supplies used during the accounting period is a. debit Supplies Expense; credit Supplies b. debit Owner’s Equity; credit Supplies c. debit Accounts Payable; credit Supplies d. debit Supplies; credit Owner’s Equity ANSWER: a DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 96. The supplies account had a balance of $4,400 at the beginning of the year and was debited during the year for $2,400, representing the total of supplies purchased during the year. If $400 of supplies are on hand at the end of the year, the supplies expense to be reported on the income statement for the year is a. $400 b. $2,000 c. $6,800 d. $6,400 ANSWER: d RATIONALE: Supplies Expense (to be reported on the income statement for the year) = Balance of Supplies Account (at the beginning of the year) + Supplies Purchased (during the year) + Supplies on Hand (at the end of the year) = $4,400 + $2,400 – $400 = $6,400 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 97. Smokey Company purchases a one-year insurance policy on July 1 for $3,600. The adjusting entry on December 31 is a. debit Insurance Expense, $1,800; credit Prepaid Insurance, $1,800 b. debit Insurance Expense, $1,500; credit Prepaid Insurance, $1,500 c. debit Insurance Expense, $2,100; credit Prepaid Insurance, $2,100 d. debit Prepaid Insurance, $1,800; credit Cash, $1,800 ANSWER: a RATIONALE: Insurance Expense (per month) = $3,600/12 = $300 Insurance Expense (from July 1 to December 31) = $300 × 6 = $1,800 Debit Credit Dec.31 Insurance Expense 1,800 Prepaid Insurance 1,800 DIFFICULTY: Challenging Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   98. Gracie Company made a prepaid rent payment of $2,800 on January 1. The company’s monthly rent is $700. The amount of prepaid rent that would appear on the January 31 balance sheet after adjustment is a. $2,100 b. $700 c. $2,800 d. $1,400 ANSWER: a RATIONALE: Amount of Prepaid Rent (that would appear on the January 31 balance sheet after adjustment) = Prepaid Rent Payment (on January 1) – Rent for January = $2,800 – $700 = $2,100 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 99. The type of account and normal balance of Prepaid Insurance would be a. asset, credit b. asset, debit c. contra asset, credit d. contra asset, debit ANSWER: b DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 100. The type of account and normal balance of Unearned Consulting Fees would be a. revenue, credit b. expense, debit c. liability, credit d. liability, debit ANSWER: c DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   101. Supplies are recorded as assets when purchased. Therefore, the credit to Supplies in the adjusting entry is for the amount of supplies a. still on hand b. purchased c. used d. required for the next accounting period ANSWER: c DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 102. The cost of office supplies to be used in future periods is ordinarily shown on the balance sheet as a. stockholders' equity b. an asset c. a contra asset d. a liability ANSWER: b DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 103. Which of the following is an example of a prepaid expense? a. Supplies b. Accounts Receivable c. Unearned Subscription Revenue d. Unearned Fees ANSWER: a DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   104. Prepaid advertising, representing payment for the next quarter, would be reported on the balance sheet as a. an asset b. a liability c. a contra asset d. owner's equity ANSWER: a DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.15 - Current Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 105. Prepaid rent, representing rent for the next six months' occupancy, would be reported on the tenant's balance sheet as a(n) a. asset b. liability c. owner's equity account d. contra liability ANSWER: a DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.ACBSP.APC.16 - Current Liabilities Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 106. The adjusting entry for gym memberships earned that were previously recorded in the unearned gym memberships account is a. debit Unearned Gym Memberships; credit Gym Memberships Revenue b. debit Gym Memberships Revenue; credit Unearned Gym Memberships c. debit Unearned Gym Memberships; credit Prepaid Gym Memberships d. debit Gym Memberships Expense; credit Unearned Gym Memberships ANSWER: a DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   107. Which of the following pairs of accounts could not appear in the same adjusting entry? a. Fees Earned and Unearned Fees b. Interest Income and Interest Expense c. Rent Expense and Prepaid Rent d. Salaries Payable and Salaries Expense ANSWER: b DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 108. The unearned rent account has a balance of $72,000. If $18,000 of the $72,000 is unearned at the end of the accounting period, the amount of the adjusting entry is a. $18,000 b. $90,000 c. $54,000 d. $36,000 ANSWER: c RATIONALE: Amount of Adjusting Entry = Beginning Balance – Ending Balance = $72,000 – $18,000 = $54,000 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 109. The following adjusting journal entry does not include an explanation. Select the best explanation for the entry. Unearned Revenue 7,500 Fees Earned 7,500 ???????????????? a. Record payment of fees earned. b. Record fees earned at the end of the month. c. Record fees that have not been earned at the end of the month. d. Record payment of fees to be earned. ANSWER: b DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   110. The following adjusting journal entry does not include an explanation. Select the best explanation for the entry. Supplies Expense 730 Supplies 730 ???????????????? a. Adjust supplies inventory to actual. b. Record purchase of supplies. c. Reduce supplies expense. d. Record sale of supplies. ANSWER: a DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 111. What effect will this adjustment have on the accounting records? Unearned Fees 6,375 Fees Earned 6,375 a. increase net income b. increase revenues reported for the period c. decrease liabilities d. All of these choices ANSWER: d DIFFICULTY: Easy Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 112. What effect will this adjusting journal entry have on the accounting records? Supplies Expense 760 Supplies 760 a. increase income b. decrease net income c. decrease expenses d. increase assets ANSWER: b DIFFICULTY: Easy Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 113. How will the following adjusting journal entry affect the accounting equation? Unearned Subscription Revenue 11,500 Subscription Revenue 11,500 a. increase assets, increase revenues b. increase liabilities, increase revenues c. decrease liabilities, increase revenues d. decrease liabilities, decrease revenues ANSWER: c DIFFICULTY: Easy Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.06 - Recording Transactions ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 114. The balance in the supplies account before adjustment at the end of the year is $6,250. The proper adjusting entry if the amount of supplies on hand at the end of the year is $1,500 would be a. debit Supplies, $1,500; credit Supplies Expense, $1,500 b. debit Supplies Expense, $4,750; credit Supplies, $4,750 c. debit Supplies Expense, $1,500; credit Supplies, $1,500 d. debit Supplies, $4,750; credit Supplies Expense, $4,750 ANSWER: b RATIONALE: Supplies Expense (for the given year) = Balance in Supplies Account (before adjustment at the end of the year) – Amount of Supplies on Hand (at the end of the year) = $6,250 – $1,500 = $4,750 Debit Credit Supplies Expense 4,750 Supplies 4,750 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   115. For the year ending December 31, Orion, Inc. mistakenly omitted adjusting entries for $1,500 of supplies that were used, (2) unearned revenue of $4,200 that was earned, and (3) insurance of $5,000 that expired. For the year ending December 31, what is the effect of these errors on revenues, expenses, and net income? a. Revenues are overstated by $4,200. b. Net income is overstated by $2,300. c. Expenses are overstated by $6,500. d. Expenses are understated by $3,500. ANSWER: b RATIONALE: Revenues are understated by $4,200. Expenses are understated by $6,500 (insurance of $5,000 and supplies of $1,500). Effect on Net Income = $4,200 – $6,500 = –$2,300 Net income is overstated by $2,300. DIFFICULTY: Moderate Bloom’s: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 116. The net income reported on the income statement is $58,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,200 and accrued salaries of $1,300. Net income, as corrected, is a. $56,700 b. $58,000 c. $55,800 d. $54,500 ANSWER: d RATIONALE: Net Income = Reported Net Income – Supplies Expense – Accrued Salaries Expense = $58,000 – $2,200 – $1,300 = $54,500 DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.04 - Cash vs. Accrual ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   117. At the end of the fiscal year, the usual adjusting entry to prepaid insurance to record expired insurance was omitted. Which of the following statements is true? a. Total assets at the end of the year will be understated. b. Owner's equity at the end of the year will be understated. c. Net income for the year will be overstated. d. Insurance expense will be overstated. ANSWER: c DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 118. The adjusting entry to adjust supplies was omitted at the end of the year. This would affect the income statement by having a. expenses understated and therefore net income overstated b. revenues understated and therefore net income understated c. expenses understated and therefore net income understated d. expenses overstated and therefore net income understated ANSWER: a DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 119. The difference between the balance of a fixed asset account and the related accumulated depreciation account is termed a. historical cost b. contra asset c. book value d. market value ANSWER: c DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   120. The adjusting entry to record the depreciation of a building for the fiscal period is a. debit Depreciation Expense; credit Building b. debit Depreciation Expense; credit Accumulated Depreciation c. debit Accumulated Depreciation; credit Depreciation Expense d. debit Building; credit Depreciation Expense ANSWER: b DIFFICULTY: Moderate Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 121. As time passes, fixed assets other than land lose their capacity to provide useful services. To account for this decrease in usefulness, the cost of fixed assets is systematically allocated to expense through a process called a. equipment allocation b. depreciation c. accumulation d. matching ANSWER: b DIFFICULTY: Easy Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 122. Accumulated Depreciation and Depreciation Expense are classified, respectively, as a. expense, contra asset b. asset, contra liability c. revenue, asset d. contra asset, expense ANSWER: d DIFFICULTY: Easy Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.09 - Financial Statements ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   123. What effect will the following adjusting journal entry have on the accounting records? Depreciation Expense 2,150 Accumulated Depreciation 2,150 a. increase net income b. increase revenues c. decrease expenses d. decrease net book value ANSWER: d DIFFICULTY: Moderate Bloom's: Applying LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.07 - Adjusting Entries ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 124. Which of the following is not true regarding depreciation? a. Depreciation allocates the cost of a fixed asset over its estimated life. b. Depreciation expense reflects the decrease in market value each year. c. Depreciation is an allocation not a valuation method. d. Depreciation expense does not measure changes in market value. ANSWER: b DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic 125. The net book value of a fixed asset is determined by the original cost a. less accumulated depreciation b. less market value c. less accumulated depreciation plus depreciation expense d. plus accumulated depreciation ANSWER: a DIFFICULTY: Moderate Bloom's: Remembering LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.ACBSP.APC.13 - Long-term Assets Reporting ACCT.AICPA.FN.03 - Measurement BUSPROG: Analytic   126. At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following is true? a. Total assets will be understated at the end of the current year. b. The balance sheet and income statement will be misstated, but the statement of owner’s equity will be correct for the current year. c. Net income will be overstated for the current year. d. Total liabilities and total assets will be understated. ANSWER: c DIFFICULTY: Challenging Bloom's: Understanding LEARNING OBJECTIVES: ACCT.WARD.18. ACCREDITING STANDARDS: ACCT.A