Question 1

The cost of plant assets less the accumulated depreciation is called the salvage value of the asset.

Accepted Answer

The cost of plant assets less the accumulated depreciation is called the book value or carrying value of the asset, not the salvage value. Salvage value is the estimated amount that an asset is worth at the end of its useful life.

Question 2

The balance sheet reports earnings on a specific date.

Accepted Answer

The balance sheet reports assets, liabilities, and equity on a specific date, but it does not report earnings. Earnings are reported on the income statement.

Question 3

The book value of a plant asset is determined by subtracting the accumulated depreciation from the cost of the plant asset.

Accepted Answer

The book value of a plant asset is calculated by subtracting the accumulated depreciation from the cost of the plant asset. This is known as the asset's net book value.

Question 4

Under the modified cash basis of accounting, cash payments for assets with lives longer than one accounting period (buildings, equipment, insurance, etc.) are recorded as assets and adjustments are made each period.

Accepted Answer

Under the modified cash basis of accounting, payments for long-lived assets are capitalized and recorded as assets, and adjustments are made each period to reflect depreciation and other factors. This approach is a hybrid of cash and accrual accounting, allowing for some recognition of long-term assets while still emphasizing cash flow.

Question 5

Depreciable cost is the amount of depreciation expense recorded for each accounting period.

Accepted Answer

Depreciable cost is not the amount of depreciation expense recorded for each accounting period, but rather the initial cost of the asset that is subject to depreciation.

Question 6

A 12-month fiscal year can end on any month of the calendar year.

Accepted Answer

This is true as an organization can choose any month as the end of their fiscal year depending on their financial cycle and reporting requirements.

Question 7

The original cost of an asset less the trade-in or salvage value of an asset equals the depreciable cost of that asset.

Accepted Answer

This statement is true. The depreciable cost of an asset is the cost basis on which an asset's depreciation is calculated. It is determined by subtracting the trade-in or salvage value of an asset from its original cost.

Question 8

Under the modified cash basis of accounting, adjustments are made only for prepaid items and depreciation on plant and equipment.

Accepted Answer

This statement is true. Under the modified cash basis of accounting, adjustments are made for prepaid items and depreciation on plant and equipment, but not for accruals, which are only recognized when cash is paid or received.

Question 9

A fiscal year is always the same as the calendar year.

Accepted Answer

A fiscal year can start on any date that a company chooses and is typically determined by a company's accounting cycle, rather than the calendar year.

Question 10

The matching principle offers the best measure of net income.

Accepted Answer

The matching principle states that expenses should be recorded in the same accounting period as the revenue they helped to generate. By following this principle, net income is most accurately measured because it reflects the actual profitability of a company during a specific period. Therefore, statement A is true.

Question 11

A contra-asset has a credit balance.

Accepted Answer

A contra-asset is an account that is used to offset the balance of a related asset account. Since it is used to reduce the balance of the asset account, it has a credit balance.

Question 12

"Adjusting" is written in the Item column of the general ledger when posting adjusting entries.

Accepted Answer

When posting adjusting entries, the term "Adjusting" is typically written in the Item column of the general ledger to indicate that the entry is an adjusting entry.

Question 13

A contra-asset appears on the income statement.

Accepted Answer

Contra-assets are reported on the balance sheet, not the income statement. They are deducted from their corresponding asset account to show the net value of the asset on the balance sheet.

Question 14

A contra-asset is deducted from the related asset on the balance sheet.

Accepted Answer

This is true. Contra-assets represent a reduction in the value of the related asset and are deducted from the corresponding asset on the balance sheet. Examples of contra-assets include accumulated depreciation and allowance for doubtful accounts.

Question 15

A manual work sheet is usually prepared in pencil.

Accepted Answer

A manual work sheet is often prepared in pencil so that any mistakes or changes can be easily erased or corrected.

Question 16

Adjusting entries may affect the cash account.

Accepted Answer

Adjusting entries are made to record non-cash items and do not directly affect the cash account. They are used to allocate income and expenses to the appropriate accounting period.

Question 17

If the total credits exceed total debits in the Income Statement columns of the work sheet, the business has had net income.

Accepted Answer

The answer of If the total credits exceed total debits...

Question 18

Accounting for revenue on a cash basis means that no entry of revenue is made in the account until the cash is received for the services performed.

Accepted Answer

Accounting for revenue on a cash basis means that revenue is recognized only when cash is received, therefore no entry is made until the cash is actually received. This is in contrast to accrual accounting, where revenue is recognized when the service is performed or the goods are delivered, regardless of whether payment has been received yet.

Question 19

When an account balance is not affected by an adjusting entry, the amount shown in the Trial Balance columns is extended directly to the Adjusted Trial Balance columns.

Accepted Answer

If an account balance is not affected by an adjusting entry, it means that the balance was already correctly stated in the unadjusted trial balance. Therefore, the amount can simply be transferred directly to the adjusted trial balance columns.

Question 20

The matching of assets and expenses of a business on a periodic basis is referred to as the matching concept.

Accepted Answer

The answer of The matching of assets and expenses of...

Quiz 5: Adjusting Entries and the Work Sheet