Deck 3: The Adjusting Process

Question 1

Revenue is said to be earned when the business has ________.

A)entered into an agreement with the customer about the goods or services to be delivered
B)prepared a journal entry to record revenue
C)received cash from the customer before goods or services are delivered
D)delivered a good or service to the customer

Answer 1

D

Question 2

Generally Accepted Accounting Principles (GAAP)require the use of accrual accounting.

Answer 2

True

Question 3

Under cash basis accounting,an expense is recorded only when cash is paid.

Answer 3

True

Question 4

The revenue recognition principle is the basis for recording revenues―both when to record revenue and the amount of revenue to record.

Question 5

Which of the following statements is true of accrual basis accounting?

A)Accrual basis accounting is required by Generally Accepted Accounting Principles (GAAP).
B)Accrual basis accounting records expenses only when cash has been paid for them.
C)Accrual basis accounting records revenue only when cash is received.
D)Accrual basis accounting always results in greater net income than cash basis accounting.

Question 6

A company receives payment on August 5 for services rendered,two weeks earlier,to one of its customers on account.Which of the following entries would be recorded if the company uses accrual basis accounting?

A)
B)
C)
D)

Question 7

Under cash basis accounting,revenue is recorded when it is earned,regardless of when cash is received.

Question 8

In cash basis accounting,revenue is recognized when cash is received and expenses are recognized when they are paid.

Question 9

Under accrual basis accounting,revenue is recorded only when cash is received.

Question 10

Under accrual basis accounting,an expense is recorded only when cash is paid.

Question 11

In accounting terms,the calendar year is always called the fiscal year.

Question 12

Recipes.Inc.purchased $2,000 of supplies on account.Under the accrual basis of accounting,no entry is made until the amount is paid.

Question 13

Which of the following accounts would be used under the accrual method of accounting,but not under cash basis accounting?

A)Cash
B)Unearned Revenue
C)Service Revenue
D)Salary Expense

Question 14

Which of the following accounts does cash basis accounting ignore?

A)Payables
B)Revenue
C)Cash
D)Expenses

Question 15

Which of the following would result in an increase in income under the accrual method of accounting,but would not result in an increase in income under cash basis accounting?

A)purchase of supplies for cash
B)performance of services on account
C)use of supplies purchased earlier
D)receipt of cash for services that were performed earlier on account

Question 16

If a company is using the accrual basis accounting method,when should it record its earned revenue?

A)when cash is received,even though services may be rendered at a later date
B)when services are rendered,even though cash may be received at a later date
C)when services are completely rendered and cash is received
D)when cash is received,30 days after the completion of the services

Question 17

When does a company account for earned revenue if it follows cash basis accounting?

A)when services are rendered,even though cash may be received at a later date
B)when cash is received after the service is completely rendered
C)when the services are being rendered
D)when cash is received,either prior to the services being rendered or at a time after the services are rendered

Question 18

Which of the following is considered a fiscal year?

A)six months
B)three months
C)twelve months
D)four months

Question 19

Under accrual accounting,transactions are recorded only when cash is received or paid.

Question 20

Which of the following entries would be recorded if a company uses the cash basis method of accounting?

A)
B)
C)
D)

Question 21

The matching principle states that ________.

A)financial statements can be prepared for specific periods
B)a business's activities can be sliced into small time segments
C)all expenses should be recorded when they are incurred during the period
D)companies should record revenue when it has been earned

Question 22

To match expenses against revenues means to ________.

A)add expenses incurred during one period from revenues earned during that same period
B)subtract expenses incurred during one period from revenues earned during the previous period
C)add expenses incurred during one period from revenues earned during the previous period
D)subtract expenses incurred during one period from revenues earned during that same period

Question 23

The accounting principle that ensures all expenses are recorded when they are incurred during the period and offsets those expenses against the revenues of the period,is called the ________ principle.

A)comparison
B)accrual
C)matching
D)revenue recognition

Question 24

Which of the following entries would be made because of the matching principle?

A)
B)
C)
D)

Question 25

Prepaid rent is an expense account and hence it appears on the income statement.

Question 26

Prepaid insurance is an asset account and hence it appears on the balance sheet.

Question 27

Which of the following accounting terms assumes that a business's activities can be divided into small segments and financial statements can be prepared for specific periods,such as a month,quarter,or year?

A)adjusting entry concept
B)revenue recognition principle
C)matching principle
D)time period concept

Question 28

A contra account's normal balance (debit or credit)is the opposite of the normal balance of the related account.

Question 29

The sum of all the depreciation expense recorded to date for a depreciable asset is called residual value.

Question 30

Accrued revenue is the income that has been received but not earned.

Question 31

The depreciation method that allocates an equal amount of depreciation each year is called the straight-line method.

Question 32

Which of the following accounting elements does the matching principle help to match?

A)revenues and liabilities
B)expenses and assets
C)expenses and revenues
D)expenses and liabilities

Question 33

The matching principle is also called the ________.

A)adjusting entry concept
B)revenue recognition principle
C)expense recognition principle
D)time period concept

Question 34

In the case of a prepaid expense,the adjusting entry required at the end of a period will consist of a credit to the Prepaid Expense account.Assume the prepaid expense was initially recorded as an asset.

Question 35

Which of the following assumes that financial statements of a business can be prepared for specific periods?

A)matching principle
B)revenue recognition principle
C)time period concept
D)adjusting entry principle

Question 36

The revenue recognition principle guides accountants in ________.

A)ensuring only revenues received in cash are recorded
B)determining when to record expenses
C)determining when to record revenues
D)ensuring expenses are deducted from revenues

Question 37

In the case of a prepaid expense,the adjusting entry required at the end of a period will consist of a debit to the Prepaid Expense account.Assume the prepaid expense was initially recorded as an asset.

Question 38

In the case of unearned revenue,the cash is received first,and the revenue is earned later.

Question 39

The time period concept states that ________.

A)financial statements can be prepared for specific periods
B)all expenses should be recorded when they are incurred during the period
C)companies should record revenue when it has been earned
D)expenses incurred during a period should be matched against the revenues of the period

Question 40

Which of the following entries would be made as the result of the revenue recognition principle?

A)
B)
C)
D)

Question 41

Healthy Living,a diet magazine,collected $480,000 in subscription revenue on May 31.Each subscriber will receive an issue of the magazine for each of the next 12 months,beginning with the June issue.The company uses the accrual method of accounting.What is the balance in the Unearned Revenue account as of December 31?

A)$200,000
B)$280,000
C)$480,000
D)$351,000

Question 42

The employees of Kostner Financial Services Inc.worked the last two weeks of December.They received their paychecks on January 2.Which of the following accounts should appear on the balance sheet as of December 31 according to the matching principle?

A)Accounts Payable
B)Salaries Payable
C)Salary Expense
D)Prepaid Expense

Question 43

Kostner Financial Services Inc.performed accounting services for a client in December.A bill was mailed to the client on December 30.The company received a check by mail on January 5.As per the revenue recognition principle,the related account that should appear on the balance sheet as of December 31 is ________.

A)Prepaid Expense
B)Accounts Receivable
C)Unearned Revenue
D)Accounts Payable

Question 44

Healthy Living,a diet magazine,collected $480,000 in subscription revenue on May 31st.Each subscriber will receive an issue of the magazine for each of the next 12 months,beginning with the June issue.The company uses the accrual method of accounting.What is the amount of Subscription Revenue that has been earned by the end of December?

A)$204,750
B)$351,000
C)$480,000
D)$280,000

Question 45

The following information is available for Able Inc.Office Supplies account. From the above information,calculate the amount of office supplies purchased.

A)$9,000
B)$8,000
C)$2,000
D)$3,000

Question 46

In the case of unearned revenue,the adjusting entry at the end of the period includes a credit to Service Revenue.Assume the unearned revenue is initially recorded as a liability.

Question 47

In the case of unearned revenue,the adjusting entry at the end of the period includes a debit to Service Revenue.Assume the unearned revenue is initially recorded as a liability.

Question 48

Kostner Financial Services Inc.purchased computers that are to be used in its consultancy services.As per the matching principle,the related account that should appear on the income statement for the year ended December 31,2014 is ________.

A)Depreciation Expense
B)Service Revenue
C)Accumulated Depreciation
D)Equipment Expense

Question 49

The contra asset accounts,like Accumulated Depreciation,always have normal debit balances.

Question 50

Argyle Designs Inc.has entered into a contract to design 20 new dresses for a customer.It will collect a total of $40,000 after the design services are complete.Argyle started design work on June 1.As of June 30,it finished 4 of the 20 designs.The company will make an adjusting entry at the end of June to accrue $10,000 of service revenue.

Question 51

Kostner Financial Services Inc.purchased computers that are to be used in its consultancy services.As per the matching principle,the related account that should appear on the balance sheet as of December 31,2014 is ________.

A)Depreciation Expense
B)Service Revenue
C)Accumulated Depreciation
D)Equipment Expense

Question 52

On January 1,2014,Prepaid Insurance of Maywood Inc.had a beginning balance of $1,200.On February 1,2014,the company paid an annual insurance premium in the amount of $4,800 for the period beginning April 1.On February 28,2014,the balance in Prepaid Insurance is $2,000.The prepaid expense was initially recorded as an asset.

Question 53

Kostner Financial Services Inc.performed accounting services for a client in December.A bill was mailed to the client on December 30.The company received the client's check by mail on January 5.Which of the following accounts should appear on the income statement for the year ended December 31 as per the revenue recognition principle?

A)Service Revenue
B)Unearned Revenue
C)Accounts Payable
D)Prepaid Expense

Question 54

The employees of Kostner Financial Services Inc.worked the last two weeks of December,2014.They received their paychecks on January 2.Which of the following accounts should appear on the income statement for the year ended December 31,2014,as per the matching principle?

A)Salary Expense
B)Prepaid Expense
C)Salaries Payable
D)Unearned Revenue

Question 55

Laramie Inc.signed a contract with a service provider for security services at a rate of $250 per month for the period of January through June.Laramie Inc.will pay the service provider the entire amount at the end of June.The company makes adjusting entries each month.During the month of June,it should record total security expense of $500.

Question 56

Elsdon Inc.borrowed $21,000 on a one-year Note Payable with an interest rate of 10% per year on June 1.It will repay the principal and interest at the end of the one-year period.The company makes accrual adjustments at the end of each month.The company should record interest expense of $2,100 on June 30.

Question 57

On January 1,Unearned Revenue of Maywood Inc.had a beginning balance of $2,000.During January,the company earned $1,000 of the unearned revenue.The company also collected $6,000 from a new customer for services to be rendered the following month.At the end of January,the Unearned Revenue account had a balance of $6,000.

Question 58

Maywood Inc.purchased manufacturing equipment for $12,600.It has an estimated useful life of 7 years.The company should record depreciation expense of $100 per month.(Assume that the company uses the straight-line method.)

Question 59

Unearned Revenue is classified as a(n)________ account.

A)liability
B)asset
C)revenue
D)equity

Question 60

On January 1,Ogden Inc.had $2,000 of supplies on hand.During January,Ogden purchased $4,000 worth of new supplies.At the end of the month,a count revealed $1,000 worth of supplies remaining on the shelves.The adjustment entry needed will include a debit to Supplies Expense of $5,000.The supplies were initially recorded as an asset.

Question 61

Unearned revenue is revenue that ________.

A)will be collected and earned in the future
B)the business has collected in cash,but not yet earned
C)has been collected and earned
D)the business has earned,but not collected in cash

Question 62

The entry to record depreciation includes a credit to the ________.

A)the Depreciation Payable account
B)the Cash account
C)the Accumulated Depreciation account
D)the Depreciation Expense account

Question 63

The advance cash payments of future expenses are called ________.

A)accrued revenues
B)prepaid expenses
C)unearned revenues
D)accrued expenses

Question 64

The allocation of a plant asset's cost over its useful life is called ________.

A)residual value
B)book value
C)accrued revenue
D)depreciation

Question 65

Accrued revenue is revenue that ________.

A)has been collected and earned
B)the business has collected in cash,but not yet earned
C)the business has earned,but not yet collected in cash
D)will be collected and earned in the future

Question 66

The advance cash receipts of future revenues are called ________.

A)accrued revenues
B)prepaid expenses
C)unearned revenues
D)accrued expenses

Question 67

An adjusting entry is completed ________.

A)at the beginning of the accounting period
B)at the end of the accounting period
C)when the balance sheet is prepared
D)when accounts need to be balanced in the ledger

Question 68

An adjusting entry that credits Salaries Payable is an example of a(n)________.

A)accrued expense
B)unearned revenue
C)accrued revenue
D)prepaid expense

Question 69

Which of the following is the correct formula for calculating depreciation under the straight-line method?

A)Straight-line depreciation = (Cost + Residual value)÷ Useful life
B)Straight-line depreciation = (Cost - Residual value)÷ Useful life
C)Straight-line depreciation = (Cost + Residual value)× Useful life
D)Straight-line depreciation = (Cost - Residual value)× Useful life

Question 70

Revenue that has been earned but not yet collected in cash is called a(n)________.

A)accrued revenue
B)prepaid expense
C)unearned revenue
D)accrued expense

Question 71

Adjusting entries are needed to correctly measure the ________.

A)ending balance in the Cash account
B)net income (loss)on the balance sheet
C)net income (loss)on the income statement
D)beginning balance in the Cash account

Question 72

The value of a depreciable asset at the end of its useful life is called ________.

A)book value
B)residual value
C)accrued revenue
D)accrued expense

Question 73

The entry to record depreciation includes a debit to the ________.

A)Equipment account
B)Cash account
C)Accumulated Depreciation account
D)Depreciation Expense account

Question 74

An adjusting entry that debits Accounts Receivable is an example of a(n)________.

A)prepaid expense
B)accrued revenue
C)accrued expense
D)unearned revenue

Question 75

If an adjusting entry includes a debit to Rent Expense,that would indicate that the payment of rent had been previously recorded as a(n)________.

A)prepaid expense
B)depreciation expense
C)accrued expense
D)accrued revenue

Question 76

The sum of all the depreciation expense recorded to date for a depreciable asset is called ________.

A)book value
B)residual value
C)depreciation expense
D)accumulated depreciation

Question 77

Which of the following is a contra account?

A)Depreciation Expense
B)Accumulated Depreciation
C)Unearned Revenue
D)Earned Revenue

Question 78

The liability created when a business collects cash from its customers before completing a service or delivering a product is called ________.

A)accrued revenue
B)accrued expense
C)deferred revenue
D)prepaid expense

Question 79

A depreciable asset's cost minus accumulated depreciation is called ________.

A)book value
B)residual value
C)accrued revenue
D)accrued expense

Question 80

An expense that has been incurred but not yet paid is called a(n)________.

A)accrued revenue
B)prepaid expense
C)unearned revenue
D)accrued expense