Professional Documents
Culture Documents
Obj 1
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Obj 4
QUESTION GRID
True / False
No Objective
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03-01
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03-02
Matching
No Objective
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1
03-01
2
03-01
3
03-01
Difficulty
No.
Objective
Difficulty
No.
Objective
Difficulty
Moderate
Easy
Moderate
Moderate
Moderate
Moderate
Easy
Easy
Moderate
Moderate
Moderate
Moderate
Moderate
Easy
Moderate
Easy
Moderate
18
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03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
Moderate
Moderate
Moderate
Moderate
Moderate
Easy
Moderate
Moderate
Moderate
Moderate
Moderate
Easy
Easy
Moderate
Moderate
Easy
Difficult
35
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49
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03-03
03-03
03-03
03-03
03-03
03-03
03-04
03-04
Difficult
Difficult
Difficult
Difficult
Difficult
Difficult
Easy
Difficult
Difficult
Difficult
Difficult
Easy
Moderate
Easy
Easy
Difficulty
No.
Objective
Difficulty
No.
Objective
Difficulty
Moderate
Moderate
Moderate
4
5
6
03-01
03-01
03-01
Moderate
Moderate
Moderate
7
8
03-01
03-01
Difficult
Difficult
119
Multiple Choice
No Objective
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Exercise/Other
No Objective
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03-02
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03-02
7
03-02
Difficulty
No.
Objective
Difficulty
No.
Objective
Difficulty
Moderate
Moderate
Moderate
Moderate
Moderate
Difficult
Difficult
Difficult
Difficult
Difficult
Difficult
Difficult
Moderate
Moderate
Easy
Difficult
Easy
Moderate
Moderate
Easy
Moderate
Moderate
Difficult
Moderate
Difficult
Difficult
Moderate
Moderate
29
30
31
32
33
34
35
36
37
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56
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
Difficult
Difficult
Difficult
Moderate
Difficult
Difficult
Easy
Moderate
Easy
Moderate
Moderate
Difficult
Moderate
Easy
Easy
Easy
Moderate
Easy
Moderate
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-02
03-03
03-03
03-03
03-03
03-03
03-04
03-04
03-04
03-04
Easy
Moderate
Moderate
Moderate
Moderate
Moderate
Moderate
Easy
Easy
Moderate
Easy
Difficult
Easy
Easy
Difficult
Moderate
Moderate
Moderate
Difficult
Difficult
Difficult
Difficult
Moderate
Moderate
Moderate
Moderate
Difficulty
No.
Objective
Difficulty
No.
Objective
Difficulty
Easy
Easy
Easy
Moderate
Moderate
Easy
Moderate
11
12
13
14
15
16
17
03-02
03-02
03-02
03-02
03-02
03-02
03-02
Easy
Moderate
Moderate
Moderate
Easy
Moderate
Easy
21
22
23
24
25
26
27
03-02
03-02
03-02
03-03
03-03
03-03
03-03
Easy
Easy
Easy
Moderate
Difficult
Moderate
Moderate
8
9
10
03-02
03-02
03-02
Problem
No Objective
.
1
03-01
2
03-02
3
03-02
4
03-02
Moderate
Moderate
Easy
18
19
20
03-02
03-02
03-02
Difficulty
No
.
5
6
7
8
Moderate
Difficult
Difficult
Difficult
Moderate
Easy
Easy
28
29
30
Objective
Difficulty
03-02
03-02
03-02
03-02
Difficult
Moderate
Moderate
Moderate
No
.
9
10
11
12
03-03
03-03
03-04
Difficult
Easy
Easy
Objective
Difficulty
03-02
03-03
03-03
03-02|03-04
Difficult
Difficult
Moderate
Difficult
1.
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.
ANS: F
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
2.
The accrual basis of accounting requires revenue be recorded when cash is received from
customers.
ANS: F
DIF: Easy OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
3. Generally accepted accounting principles require accrual-basis accounting.
ANS: T
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
4.
The revenue recognition concept states that revenue should be recorded in the same period
as the cash is received.
ANS: F
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
5.
The matching concept requires expenses be recorded in the same period that the related
revenue is recorded.
ANS: T
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
6.
The financial statements measure precisely the financial condition and results of operations
of a business.
ANS: F
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
Accruals are needed when an unrecorded expense has been incurred or an unrecorded
revenue has been earned.
ANS: T
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
10. If the debit portion of an adjusting entry is to an asset account, then the credit portion must
be to a liability account.
ANS: F
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
11. Proper reporting of revenues and expenses in a period is due to the accounting period
concept.
ANS: T
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
12. Revenue recognition concept requires that the reporting of revenue be included in the period
when cash for the service is received.
ANS: F
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
13. Revenues and expenses should be recorded in the same period in which they relate.
ANS: T
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
14. The matching concept supports matching expenses with the related revenues.
ANS: T
DIF: Easy OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
15. Even though GAAP requires the accrual basis of accounting, some businesses prefer using
the cash basis of accounting.
ANS: T
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
16. The updating of accounts is called the adjusting process.
ANS: T
DIF: Easy OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
17. Adjusting entries are made at the end of an accounting period to adjust accounts on the
balance sheet.
ANS: F
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
18. Adjusting entries affect only expense and asset accounts.
ANS: F
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
19. An adjusting entry would adjust revenue so it is reported when earned and not when cash is
received.
ANS: T
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
20. An adjusting entry would adjust an expense account so the expense is reported when
incurred.
ANS: T
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
21. An adjusting entry to accrue an incurred expense will affect total liabilities.
ANS: T
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
22. 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.
ANS: F
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
23. Deferrals are recorded transactions that delay the recognition of an expense or revenue.
ANS: T
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
24. Adjustments for accruals are needed to record a revenue that has been earned or an expense
that has been incurred but not recorded.
ANS: T
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
25. An unearned revenue is a liability.
ANS: T
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
26. The systematic allocation of land's cost to expense is called depreciation.
ANS: F
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
27. 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.
ANS: T
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
28. The Accumulated Depreciation's account balance is the sum of depreciation expense
recorded in past periods.
ANS: T
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
29. Accumulated Depreciation accounts are liability accounts.
ANS: F
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
30. Accumulated Depreciation is reported on the income sheet.
ANS: F
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
31. A building was purchased for $75,000. Assuming annual depreciation of $2,500, the book
value of the building one year later is $77,500.
ANS: F
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
32. A contra asset account for Land will normally appear in the balance sheet.
ANS: F
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
33. Depreciation Expense is reported on the balance sheet as an addition to the related asset.
ANS: F
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
34. A company pays $12,000 for twelve month's rent on October 1. The adjusting entry on
December 31 is debit Rent Expense, $4,000 and credit Prepaid Rent, $4,000.
ANS: F
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
35. A company pays $240 for a yearly trade magazine on August 1. The adjusting entry on
December 31 is debit Unearned Subscription Revenue, $100 and credit Subscription
Revenue, $100.
ANS: F
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
36. A company depreciates its equipment $350 a year. The adjusting entry for December 31 is
debit Depreciation Expense, $350 and credit Equipment, $350.
ANS: F
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
37. A company pays an employee $1,000 for a five day work week, Monday - Friday. The
adjusting entry on December 31, which is a Wednesday, is debit Wages Expense, $200 and
credit Wages Payable, $200.
ANS: F
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
38. A company pays $5,600 for two season tickets on September 1. If $1,400 is earned by
December 31, the adjusting entry made at that time is debit Cash, $1,400 and credit Ticket
Revenue, $1,400.
ANS: F
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
39. A company does not realize that the last two day's revenue for the month was not recorded.
The adjusting entry on December 31 is debit Accounts Receivable and credit Fees Earned.
ANS: T
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
40. The balance in the prepaid insurance account before adjustment at the end of the year is
$4,000. The amount of the journal entry required to record insurance expense will be $2,500
if the amount of unexpired insurance applicable to future periods is $1,500.
ANS: T
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
41. The market value of a fixed asset is reflected in the Balance Sheet after the proper
adjustment is made.
ANS: F
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
42. If the adjustment for accrued salaries at the end of the period is inadvertently omitted, both
liabilities and owner's equity will be overstated for the period.
ANS: F
DIF: Difficult
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
43. 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.
ANS: F
DIF: Difficult
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
44. 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
overstated.
ANS: F
DIF: Difficult
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
45. 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.
ANS: F
DIF: Difficult
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
46. Adjusting journal entries are dated on the last day of the period.
ANS: T
DIF: Easy OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
47. By ignoring and not posting the adjusting journal entries to the appropriate accounts, net
income will always be overstated.
ANS: F
DIF: Moderate
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
48. The financial statements are prepared from the unadjusted trial balance.
ANS: F
DIF: Easy OBJ: 03-04
NAT: AACSB Analytic | AICPA FN-Measurement
49. The heading of an adjusted trial balance contains the heading "For the Month Ended
December 31, 2008."
ANS: F
DIF: Easy OBJ: 03-04
NAT: AACSB Analytic | AICPA FN-Measurement
MATCHING
Match these type of accounts with the following business transactions.
a. Prepaid expense
b. Accrued expense
c. Unearned revenue
d. Accrued revenue
1.
2.
3.
4.
5.
6.
7.
8.
1. ANS:
D
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
2. ANS:
A
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
3. ANS:
C
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
4. ANS:
B
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
5. ANS:
B
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
6. ANS:
A
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
7. ANS:
C
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
8. ANS:
D
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
MULTIPLE CHOICE
1.
One of the accounting concepts upon which deferrals and accruals are based is
a. matching
b. cost
c. price-level adjustment
d. conservatism
ANS: A
DIF: Moderate
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
6.
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 stockholders equity account
b. increases the balance of an liability account
c. increases the balance of an asset account
d. decreases the balance of an expense account
ANS: B
DIF: Difficult
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
7.
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 stockholders equity account
d. increases the balance of an expense account
ANS: D
DIF: Difficult
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
8.
The primary difference between deferred and accrued expenses is that deferred expenses
have
a. been incurred and accrued expenses have not
b. not been incurred and accrued expenses have been incurred
c. been recorded and accrued expenses have not been incurred
d. not been recorded and accrued expenses have been incurred
ANS: B
DIF: Difficult
OBJ: 03-01
NAT: AACSB Analytic | AICPA FN-Measurement
9.
31. What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid
insurance account balance before adjustment, $15,500, and unexpired amounts per analysis
of policies, $4,500?
a. debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500
b. debit Insurance Expense, $15,500; credit Prepaid Insurance, $15,500
c. debit Prepaid Insurance, $11,500; credit Insurance Expense, $11,500
d. debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000
ANS: D
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
32. The entry to adjust for the cost of supplies used during the accounting period is
a. Supplies Expense, debit; Supplies, credit
b. Capital Stock, debit; Supplies, credit
c. Accounts Payable, debit; Supplies, credit
d. Supplies, debit; credit Capital Stock
ANS: A
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
33. A business pays weekly salaries of $20,000 on Friday for a five-day week ending on that
day. The adjusting entry necessary at the end of the fiscal period ending on Thursday is
a. debit Salaries Payable, $16,000; credit Cash, $16,000
b. debit Salary Expense, $16,000; credit Dividends, $16,000
c. debit Salary Expense, $16,000; credit Salaries Payable, $16,000
d. debit Drawing, $16,000; credit Cash, $16,000
ANS: C
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
34. The balance in the prepaid insurance account before adjustment at the end of the year is
$10,000. If the additional data for the adjusting entry is (1) "the amount of insurance expired
during the year is $8,500," as compared to additional data stating (2) "the amount of
unexpired insurance applicable to a future period is $1,500," for the adjusting entry:
a. the debit and credit amount for (1) would be the same as (2) but the accounts would be
different
b. the accounts for (1) would be the same as the accounts for (2) but the amounts would be
different
c. the accounts and amounts would be the same for both (1) and (2)
d. there is not enough information given to determine the correct accounts and amounts
ANS: C
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
35. 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
ANS: C
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
36. The adjusting entry to record the depreciation of equipment for the fiscal period is
a. debit Depreciation Expense; credit Equipment
b. debit Depreciation Expense; credit Accumulated Depreciation
c. debit Accumulated Depreciation; credit Depreciation Expense
d. debit Equipment; credit Depreciation Expense
ANS: B
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
37. 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
ANS: B
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
38. The entry to adjust the accounts for wages accrued at the end of the accounting period is
a. Wages Payable, debit; Wages Income, credit
b. Wages Income, debit; Wages Payable, credit
c. Wages Payable, debit; Wages Expense, credit
d. Wages Expense, debit; Wages Payable, credit
ANS: D
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
39. The supplies account has a balance of $1,000 at the beginning of the year and was debited
during the year for $2,800, representing the total of supplies purchased during the year. If
$750 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. $750
b. $3,550
c. $3,800
d. $3,050
ANS: D
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
40. A company purchases a one-year insurance policy on June 1 for $840. The adjusting entry
on December 31 is
a. debit Insurance Expense, $350 and credit Prepaid Insurance, $350
b. debit Insurance Expense, $280 and credit Prepaid Insurance, $280
c. debit Insurance Expense, $490, and credit Prepaid Insurance, $490.
d. debit Prepaid Insurance, $720, and credit Cash, $720
ANS: C
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
41. If the prepaid rent account before adjustment at the end of the month has a debit balance of
$1,600, representing a payment made on the first day of the month, and if the monthly rent
was $800, the amount of prepaid rent that would appear on the balance sheet at the end of
the month, after adjustment, is
a. $800
b. $400
c. $2,400
d. $1,600
ANS: A
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
42. Depreciation Expense and Accumulated Depreciation are classified, respectively, as
a. expense, contra asset
b. asset, contra liability
c. revenue, asset
d. contra asset, expense
ANS: A
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
43. The type of account and normal balance of Accumulated Depreciation is
a. asset, credit
b. asset, debit
c. contra asset, credit
d. contra asset, debit
ANS: C
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
44. The type of account and normal balance of Unearned Rent is
a. revenue, credit
b. expense, debit
c. liability, credit
d. liability, debit
ANS: C
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
45. Data for an adjusting entry described as "accrued wages, $2,020" means to debit
a. Wages Expense and credit Wages Payable
b. Wages Payable and credit Wages Expense
c. Accounts Receivable and credit Wages Expense
d. Drawing and credit Wages Payable
ANS: A
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
46. Supplies are recorded as assets when purchased. Therefore, the credit to supplies in the
adjusting entry is for the amount of supplies
a. that are in the ending balance
b. purchased
c. used
d. either used or remaining
ANS: C
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
47. 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
ANS: A
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
48. If there is a balance in the unearned subscriptions account after adjusting entries are made, it
represents a(n)
a. deferral
b. accrual
c. expense
d. revenue
ANS: A
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
49. The cost of office supplies to be used in future periods is ordinarily shown on the balance
sheet as a(n)
a. stockholders equity
b. asset
c. contra asset
d. liability
ANS: B
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
60. The unearned rent account has a balance of $40,000. If $3,000 of the $40,000 is unearned at
the end of the accounting period, the amount of the adjusting entry is
a. $3,000
b. $40,000
c. $37,000
d. $43,000
ANS: C
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
61. The following adjusting journal entry was found on page 4 of the journal. Select the best
explanation for the entry.
Unearned Revenue
Fees earned
????????????????
a.
b.
c.
d.
ANS:
NAT:
4,500
4,500
62. The following adjusting journal entry was found on page 4 of the journal. Select the best
explanation for the entry.
Supplies Expense
Supplies
????????????????
a.
b.
c.
d.
ANS:
NAT:
360
360
63. The following adjusting journal entry was found on page 4 of the journal. Select the best
explanation for the entry.
Wages Expense
Wages Payable
????????????????
2,555
2,555
a.
b.
c.
d.
ANS:
NAT:
64. What affect will this adjustment have on the accounting records?
Unearned Revenue
Fees earned
a.
b.
c.
d.
ANS:
NAT:
4,500
4,500
65. What affect will this adjusting journal entry have on the accounting records?
Supplies Expense
Supplies
a.
b.
c.
d.
ANS:
NAT:
678
678
Increase income
Decrease net income
Decrease expenses
Increase assets
B
DIF: Easy OBJ: 03-02
AACSB Analytic | AICPA FN-Measurement
66. What affect will the following adjusting journal entry have on the accounting records?
Depreciation Expense
Accumulated Depreciation
a.
b.
c.
d.
ANS:
NAT:
1,500
1,500
67. How will the following adjusting journal entry affect the accounting equation?.
Unearned Subscriptions
Subscriptions earned
a.
b.
c.
d.
ANS:
NAT:
12,000
12,000
76. 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. 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 retained
earnings 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.
ANS: C
DIF: Difficult
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
77. 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. Salary Expense for the year was understated.
b. The total of the liabilities at the end of the year was overstated.
c. Net income for the year was understated.
d. Stockholders equity at the end of the year was understated.
ANS: A
DIF: Difficult
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
78. The adjusting entry to adjust supplies was omitted at the end of the year. This would effect
the income statements 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
ANS: A
DIF: Difficult
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
79. Which of the accounts below would appear on an adjusted trial balance but probably would
not appear on the trial balance?
a. Fees Earned
b. Accounts Receivable
c. Unearned Fees
d. Depreciation Expense
ANS: D
DIF: Moderate
OBJ: 03-04
NAT: AACSB Analytic | AICPA FN-Measurement
80. Which of the accounting steps in the accounting process below would be completed last?
a. preparing the adjusted trial balance
b. posting
c. preparing the financial statements
d. journalizing
ANS: C
DIF: Moderate
OBJ: 03-04
NAT: AACSB Analytic | AICPA FN-Measurement
Indicate with a Yes or No whether or not each of the following accounts normally requires
an adjusting entry.
1.
2.
3.
4.
5.
6.
ANS:
1. No
2. Yes
3. Yes
4. Yes
5. Yes
6. No
DIF:
NAT:
Cash
Prepaid Expenses
Depreciation Expense
Accounts Payable
Accumulated Depreciation
Equipment
3.
Classify the following items as (1) prepaid expense, (2) unearned revenue, (3) accrued
expense, or (4) accrued revenue.
Employees at M-Corp earn $500 per day. They are paid each Friday for a five-day
workweek. The adjusting entry on December 31, 2007 assuming the year ends on Monday
would be:
Date
Description
Post
Debit
Credit
Ref
ANS:
Date
12/31/05
Description
Post
Ref
Wages Expense
Wages Payable
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
Debit
Credit
500.00
500.00
5.
An insurance policy was purchased on April 1, 2007 for $2,400.00. At the end of the year,
$800 was deemed expired. The adjusting entry on December 31, 2007 would be:
Date
Description
Post
Ref
Debit
Credit
ANS:
Date
Description
12/31/05
Post
Ref
Debit
Insurance Expense
Prepaid Insurance
Credit
800.00
800.00
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
6.
Depreciation on Office Equipment is $4,700.00. The adjusting entry on December 31, 2007
would be:
Date
Description
Post
Ref
Debit
Credit
ANS:
Date
12/31/05
Description
Depreciation Expense
Accumulated
DepreciationOffice Equipment
Post
Ref
Debit
Credit
4,700.00
4,700.00
A one-year insurance policy was purchased on April 1, 2007 for $2,400.00. The adjusting
entry on December 31, 2007 would be:
Date
Description
Post
Debit
Credit
Ref
ANS:
Date
12/31/07
Description
Post
Ref
Insurance Expense
Prepaid Insurance
Debit
Credit
1,800.00
1,800.00
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
8.
There was a $1,500 balance in the supplies account at the beginning of the period. During
the period, the supplies account was increased by $3,000 for supplies purchased. At the end
of the period before adjustment, $550 of supplies were on hand. Journalize the necessary
adjusting entry.
ANS:
Supplies Expense
3,950
Supplies
3,950
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
9.
On January 1st NetSolutions purchased two year liability insurance policy for $30,000.00
paying cash at the time of purchase. This value was recorded to Prepaid Insurance. In the
space below write the adjusting entry for January 31st.
ANS:
Jan 31 Insurance Expense
1,250.00
Prepaid Insurance
1,250.00
Adjusting entry - Insurance exp ($30,000.00 / 24
months)
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
10. The company records depreciation to Office Equipment and Production Equipment.
Depreciation for the period ending December 31st are $2,100.00 for Office Equipment and
$3,950.00 for Production Equipment. Record these declarations to separate expense and
accumulated depreciation accounts for maximum detail.
ANS:
Dec 31st Depreciation Expense - Office Equipment
2,100.00
Accumulated Depreciation - Office Equipment
2,100.00
Dec 31st
3,950.00
By utilizing separate expense accounts greater analysis can be accomplished on the cost of
production and the cost of general and administrative issues.
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
11. On May 1 a business paid $4,800 for twelve month liability insurance policy. Then, on June
1 the same business entered into a two year rental contract for equipment for $12,000.
Determine the following amounts:
(a) prepaid insurance as of May 31
(b) insurance expense for the month of June
(c) prepaid equipment rental as of June 30
(d) equipment rent expense for the month of June
ANS:
(a) $4,400
(b) $400
(c) $11,500
(d) $500
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
12. In the year 2007, the company is estimating its property tax to be $3,600 for the year.
(a) How much should the company accrue each month for property taxes?
(b) What is the amount that the Property Tax Accrual account will have at the end
of July 2007?
(c) Prepare the adjusting journal entry for the month of October 2007.
ANS:
(a) $300
(b) $2,100
(c) Property Tax Expense
300
Property Tax Accrual
Record Property Tax Accrual for the month of October
300
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
13. On January 1st NetSolutions prepays the years rent, $18,000.00 to its landlord. In the space
below write the journal entry for the payment of the annual rent utilizing a asset account.
ANS:
Jan 1 Prepaid Rent
18,000.00
Cash
18,000.00
Prepaid annual rent and capitalized the value.
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
14. On December 1, 2007, $7,500 was received for services to be performed from December 1,
2007 until May 31, 2008. Make the December 31, 2007 adjusting journal entry if the
Unearned Fees at the end of December 2007 was $4,200.
ANS:
Unearned Fees
3,300
Fees Earned
3,300
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
15. On December 31st the accounts of NetSolutions show $1,850.00 in the Office Supplies
account. An inspection of the supplies locker shows only $340.00 worth of supplies. Write
the adjusting entry.
ANS:
Dec 31st
Office Supplies Expense
1,510.00
Office Supplies
1,510.00
DIF: Easy OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
200
200
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
17. The company determines that the interest expense on a note payable for period ending
December 31st is $655.00. This amount is payable on January 1st. Write the two journal
entries associated with this information.
ANS:
Dec 31st
Interest Expense
655.00
Interest Payable
655.00
Jan 1st
Interest Payable
Cash
655.00
655.00
24. At January 31, the end of the first month of the year, the usual adjusting entry transferring
expired insurance to an expense account is omitted. Which items will be incorrectly stated,
because of the error, on (a) the income statement for January and (b) the balance sheet as of
January 31? Also indicate whether the items in error will be overstated or understated.
ANS:
(a) Insurance expense (or expenses) will be understated. Net income will be
overstated.
(b) Prepaid insurance (or assets) will be overstated. Stockholders equity will be
overstated.
DIF: Moderate
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
25. At the end of June, the first month of the year, the usual adjusting entry transferring rent
earned to a revenue account from the unearned rent account was omitted. Indicate which
items will be incorrectly stated, because of the error, on (a) the income statement for June
and (b) the balance sheet as of June 30. Also indicate whether the items in error will be
overstated or understated.
ANS:
(a) Rent revenue (or revenues) will be understated. Net income will be understated.
(b) Retained earnings at the end of the period will be understated. Unearned rent (or
liabilities) will be overstated.
DIF: Difficult
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
26. Salaries of $3,500 are paid for a five-day week on Friday. The month ended on Tuesday.
Prepare the adjusting journal entry.
ANS:
Salaries Expense
1,400
Salaries Payable
1,400
DIF: Moderate
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
27. Accrued salaries of $825 owed to employees for December 29, 30, and 31 are not taken into
consideration in preparing the financial statements for the year ended December 31. Indicate
which items will be erroneously stated, because of the error, on (a) the income statement for
the year and (b) the balance sheet as of December 31. Also indicate whether the items in
error will be overstated or understated.
ANS:
(a) Salary expense (or expenses) will be understated. Net income will be
overstated.
(b) Salaries payable (or liabilities) will be understated. Retained earnings will be
overstated.
DIF: Moderate
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
28. On January 1st, NetSolutions had a debit balance of $1,250.00 in the Office Supplies
account. During the month, NetSolutions purchased $245.00 and $610.00 of office supplies
and journalized them to the Office Supplies asset account upon purchasing. On January 31st
an inspection of the office supplies cabinet shows that only $810.00 of Office Supplies
remains in the locker. Write the January 31st adjusting entry for Office Supplies in the space
below.
ANS:
Jan 31
Office Supplies Expense
1,295.00
Office Supplies
1,295.00
Adjusting entry - Office Supplies
Beginning balance
Plus purchases
$1,250.00
$245.00
610.00
Available
Less ending balance
Period expense
855.00
2,105.00
810.00
$1,295.00
DIF: Difficult
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
29. For the year ending December 31, 2008, Medical Co. mistakenly omitted adjusting entries
for (1) $7,800 of unearned revenue that was earned, (2) earned revenue that was not billed of
$9,500, and (3) accrued wages of $5,000. Indicate the combined effect of the errors on (a)
revenues, (b) expenses, and (c) net income for 2008.
ANS:
(a) Revenues were understated by $17,300.
(b) Expenses were understated by $5,000
(c) Net income was understated by $12,300.
DIF: Easy OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement TOP: Example Exercise 3-8
30. For each of the following errors, considered individually, indicate whether the error would
cause the adjusted trial balance totals to be unequal. If the error would cause the adjusted
trial balance total to be unequal, indicate whether the debit or credit total is higher and by
how much.
(a) The adjustment for unearned fees of $2,560 was journalized as a debit to
Accounts Payable for $2,560 and a credit to Fees earned of $2,560.
(b) The adjustment for supplies expense of $476 was journalized as a debit to
Supplies Expense for $746 and a credit to Supplies for $476.
ANS:
(a)
The totals are equal even though the debit should have been made to Unearned
Fees instead of Accounts Payable.
(b) The debit total exceeds the credit total by $270.
DIF: Easy OBJ: 03-04
NAT: AACSB Analytic | AICPA FN-Measurement TOP: Example Exercise 3-9
PROBLEM
1.
2.
(b)
(c)
(d)
ANS:
(a) (1) Salary Expense
Salaries Payable
(2) Salary Expense
Salaries Payable
(b)
(c)
9,000
9,000
12,000
12,000
4,500
12,500
4,500
12,500
3,000
3,000
3,200
3,200
Depreciation Expense
Accumulated Depreciation - Equipment
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
24,000
24,000
3.
ANS:
(a) Nov 1st
Cash
2,250.00
Unearned Service Fees
2,250.00
750.00
750.00
45 hours
15 hours
30 hours
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
4.
For each of the following, journalize the adjusting entry on January 31st.
(a)
The company incurs a Payroll Payable of $450.00 per weekday of operations.
The Mondays of January are the 3rd, the 10th, the 17th, the 24th, and the 31st.
Paydays are every other Friday with paydays of January 7th & 21st and
February 4th for the two weeks ending that date. The Friday, January 21st
payday is complete and paid with no continuing forward payroll liability. Write
the adjusting entry for January 31st in the space below:
(b)
(c)
The company has fixed assets that scheduled depreciation is $45,000 annually.
Write the adjusting entry to recognize the monthly depreciation for January in
the space below:
(d)
ANS:
(a) Jan 31
Payroll Expense
2,700.00
Payroll Payable
2,700.00
Adjusting Entry - Payroll - $450.00 6 days
Monday, January 24th through Friday January 28th - 5 days $450.00 =
$2,250.00
Monday, January 31st - 1 day $450 = $450.00
Payroll Payable for January 24 through January 31 = $2,250.00 + $450.00 =
$2,700.00
(b)
(c)
Feb 4
Jan 31
Payroll Expense
1,800.00
Payroll Payable
2,700.00
Cash
Payroll paid on Feb 4 with Jan
obligations
4,500.00
Depreciation Expense
3,750.00
Accumulated Depreciation
Adjusting Entry - Depreciation
3,750.00
Annual depreciation
Months in a year
Monthly depreciation
(d)
Jan 31
$45,000.00
12
$3,750.00
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
1,660.00
1,660.00
$2,625.00
$965.00
$1,660.00
5.
Accounts Payable
Cash
2,750.00
2,750.00
The first journal entry is required to place the cost or expense of the
independent contractor to the correct period for which the services were
received. This journal entry created an expense in Decembers Income
Statement and a liability on Decembers Balance Sheet. The second was to pay
the contractor when the payment was due. This removed the liability by
resolving it with a cash payment. This journal entry did not affect Januarys
income statement.
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
6.
Advertising Expense
Prepaid Advertising
1,825.00
1,825.00
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
7.
On January 2nd Reading Delight Monthly receives a check for $24 from a subscriber that is
purchasing a 12 month subscription. The January issue will be mailed on January 15th.
Write the two January journal entries and (briefly) justify your use of dates.
ANS:
Jan 2nd Cash
24.00
Unearned Subscriptions
24.00
Jan 15th, date obligation is actually met or Jan 31st as an adjusting entry
Unearned Subscriptions
2.00
Subscriptions Revenues
2.00
The second entry can be accomplished at one of two points - as a recurring, adjusting entry dated
January 31st or on January 15th when the monthly obligation is made. Discipline must be
exercised to preclude making an entry on January 15th and January 31st.
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
8. Journalize in a two column journal the adjusting entries required at December 31, 2008.
Omit explanations.
1. Fees accrued but unbilled are $6,000.
2. The supplies account balance on December 31 is $6,200. The supplies on hand are
$1,150.
3. Wages accrued but not paid are $4,600.
4. Depreciation of office equipment is $3,200.
5. Rent expired during year, $9,300.
Date
Description
Post
Debit
Credit
Ref
ANS:
Date
Dec 31
Dec 31
Dec 31
Dec 31
Dec 31
Description
Post
Ref
Accounts Receivable
Revenues
6,000
Supplies Expense
Supplies
5,050
Wages Expense
Wages Payable
4,600
Depreciation Expense
Accumulated Depreciation
3,200
Rent Expense
Prepaid Rent
DIF: Moderate
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
9.
Debit
Credit
6,000
5,050
4,600
3,200
9,300
9,300
(d)
(e)
The beginning balance of the Supplies account was $315. During the month the
company bought additional supplies in the amount of $830. At the end of the
month a physical inventory showed $568 of unused supplies.
The company has a Note Payable in the amount of $10,000 at an APR of 12%.
The note will be paid at the end of 6 months. The interest expense for the
month needs to be recorded.
There are two employees at the North Park Store. One is a manager that gets
paid on the 15th of every month for his work during the first part of the month
and on the 1st of the following month for the second part of the month. His
monthly salary is $2,500. The other employee is an administrative assistant
who gets a week pay of $450. The last day of the month fell on Thursday.
The unearned revenue account shows a balance of $35,000. According to the
manager 60% of that amount has been earned.
At the end of the month $8,400 of services had been performed but not yet
billed.
ANS:
(a)
Supplies Expense
Supplies
(b)
Interest Expense
Interest Payable
(c)
Wages and Salary Expense
Wages and Salary Payable
(($2,500 /2)+($450/5*4))
(d)
Unearned Revenues
Fees Earned
($35,000 * 60%)
(e)
Accounts Receivable
Fees Earned
577
577
100
100
1,610
1,610
21,000
21,000
8,400
8,400
DIF: Difficult
OBJ: 03-02
NAT: AACSB Analytic | AICPA FN-Measurement
10. At the end of the fiscal year, the following adjusting entries were omitted:
(a)
(b)
Assuming that financial statements are prepared before the errors are discovered, indicate
the effect of each error, considered individually, by inserting the dollar amount in the
appropriate spaces. Insert "0" if the error does not affect the item.
Error (a)
OverUnderstated
stated
(1)
(2)
(3)
(4)
Error (b)
OverUnderstated
stated
Assets at December 31
would be
$
Liabilities at Dec. 31
would be
Retained earnings at
Dec. 31 would be
ANS:
(1)
(2)
(3)
(4)
Error (a)
OverUnderstated
stated
Error (b)
OverUnderstated
stated
Assets at December 31
would be
$2,500
$ -0-
$ -0-
$750
Liabilities at Dec. 31
would be
$ -0-
$ -0-
$ -0-
$ -0-
$2,500
$ -0-
$ -0-
$750
Retained earnings at
Dec. 31 would be
$2,500
$ -0-
$ -0-
$750
DIF: Difficult
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
11. On June 30, a business estimates depreciation on equipment used during the first year of
operations to be $1,500. (a) Journalize the adjusting entry required as of June 30. (b) If the
adjusting entry in (a) were omitted, which items would be erroneously stated on (1) the
income statement for the year and (2) the balance sheet as of June 30?
ANS:
(a) Depreciation Expense
1,500
Accumulated Depreciation - Equipment
1,500
(b)
(1)
(2)
DIF: Moderate
OBJ: 03-03
NAT: AACSB Analytic | AICPA FN-Measurement
12. Journalize the six entries that adjust the accounts at December 31. One of the accounts was
affected by two different adjusting entries.
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Accumulated Depreciation
Wages Payable
Unearned Fees
Capital Stock
Fees Earned
Wages Expense
Supplies Expense
Insurance Expense
Depreciation Expense
Total
Unadjusted
Trial Balance
3,000
30,000
1,700
2,000
9,000
Adjusted
Trial Balance
3,000
30,500
100
400
9,000
1,500
4,000
1,500
20,000
67,000
6,000
20,000
62,000
42,300
88,000
ANS:
Accounts Receivable
Fees Earned
88,000
46,300
1,600
1,600
1,500
94,000
500
500
Supplies Expense
Supplies
1,600
Insurance Expense
Prepaid Insurance
1,600
Depreciation Expense
Accumulated Depreciation
1,500
Unearned Fees
Fees Earned
4,500
Wages Expense
Wages Payable
4,000
DIF: Difficult
OBJ: 03-02 | 03-04
NAT: AACSB Analytic | AICPA FN-Measurement
94,000
1,600
1,600
1,500
4,500
4,000