Question 1

When is the adjusted trial balance prepared?
A) before adjusting journal entries are posted
B) after adjusting journal entries are posted
C) after the adjusting journal entries are journalized
D) before the adjusting journal entries are journalized

Accepted Answer

The adjusted trial balance is prepared after the adjusting journal entries are posted.

Question 2

Match the type of account (a through e) with the business transactions that follow.
-Retainer fee received from a client for future legal representation.
A)Prepaid expense
B)Accrued expense
C)Unearned revenue
D)Accrued revenue
E)None of these choices

Accepted Answer

A retainer fee received from a client is a payment made in advance for services that will be provided in the future. It represents a liability for the business until the services are performed, making it an example of unearned revenue.

Question 3

Which of the accounts below would most likely appear on an adjusted trial balance but probably would not appear on the unadjusted trial balance?
A) Fees Earned
B) Accounts Receivable
C) Unearned Fees
D) Depreciation Expense

Accepted Answer

Depreciation Expense is an example of an adjusting entry that would not appear on the unadjusted trial balance because it is recorded at the end of the accounting period to allocate the cost of long-term assets over their useful lives. It would, however, appear on the adjusted trial balance. The other accounts listed (Fees Earned, Accounts Receivable, Unearned Fees) are all examples of accounts that would appear on both the unadjusted and adjusted trial balances.

Question 4

What is the purpose of the adjusted trial balance?
A) to verify that all of the adjusting entries have been posted
B) to verify that the net income (loss) is correctly reported
C) to verify that no adjusting journal entry has been omitted
D) to verify that the debits and credits balance

Accepted Answer

The adjusted trial balance is used to verify that the total debits equal total credits after adjusting entries have been made, ensuring the ledger is balanced.

Question 5

Match the type of account (a through e) with the business transactions that follow.
-Services provided that have not been recorded.
A)Prepaid expense
B)Accrued expense
C)Unearned revenue
D)Accrued revenue
E)None of these choices

Accepted Answer

Services provided that have not been recorded are considered accrued revenue because the company has earned the revenue by providing the services, but it has not yet been recorded in the financial statements.

Question 6

Which of the following accounting steps in the accounting process would be completed last?
A) preparing the adjusted trial balance
B) posting
C) preparing the financial statements
D) journalizing

Accepted Answer

Preparing the financial statements is the final step in the accounting process after all adjusting entries have been made, the adjusted trial balance has been prepared, and the accounts have been posted to the ledger.

Question 7

Match the type of account (a through e) with the business transactions that follow.
-Electric bill to be paid next month.
A)Prepaid expense
B)Accrued expense
C)Unearned revenue
D)Accrued revenue
E)None of these choices

Accepted Answer

An electric bill that will be paid next month represents an expense that has been incurred but not yet paid, so it is an accrued expense.

Question 8

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

Accepted Answer

The net book value of a fixed asset is determined by subtracting the accumulated depreciation from the original cost. This calculation reflects the total amount of cost that has not yet been expensed and remains on the books as an asset. Market value is not used in determining net book value, nor is depreciation expense (which is used to calculate accumulated depreciation). Adding accumulated depreciation would result in a higher value than the original cost, which does not reflect the true value of the asset.

Question 9

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

Accepted Answer

The process of systematically allocating the cost of fixed assets (other than land) to expense to account for their decrease in usefulness is called depreciation. Option A (equipment allocation) is not a commonly used term in accounting. Option C (accumulation) refers to the process of gathering financial information over a period of time. Option D (matching) refers to the accounting principle of matching expenses with revenues. While matching concept is related to depreciation as well, it does not accurately describe the process of allocating the cost of fixed assets to expense. Therefore, the best choice is B (depreciation).

Question 10

Match the type of account (a through e) with the business transactions that follow.
-Paid for one year's insurance policy.
A)Prepaid expense
B)Accrued expense
C)Unearned revenue
D)Accrued revenue
E)None of these choices

Accepted Answer

When a company pays for an expense in advance, such as an insurance policy, it is considered a prepaid expense. This means that the expense has not yet been incurred, but will be over the course of the insurance coverage period.

Question 11

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.

Accepted Answer

If the adjusting entry for depreciation on equipment is omitted, the net income will be overstated for the current year because depreciation expense will not be recorded. As a result, the equipment's cost and accumulated depreciation will be overstated, and total assets will be overvalued. The balance sheet and statement of owner's equity will also be misstated. The omission will not affect total liabilities.

Question 12

Accumulated Depreciation and Depreciation Expense are classified, respectively, as
A) expense, contra asset
B) asset, contra liability
C) revenue, asset
D) contra asset, expense

Accepted Answer

Accumulated Depreciation is a contra asset account, meaning it is deducted from the original cost of the asset. Depreciation Expense is an expense account, representing the cost of using the asset over time. Therefore, the best choice is D) contra asset, expense.

Question 13

Match the type of account (a through e) with the business transactions that follow.
-Annual property taxes that are paid at the end of the year.
A)Prepaid expense
B)Accrued expense
C)Unearned revenue
D)Accrued revenue
E)None of these choices

Accepted Answer

Annual property taxes paid at the end of the year are considered an accrued expense because the expense accumulates over time but is not paid until the end of the period.

Question 14

Match the type of account (a through e) with the business transactions that follow.
-Provided tutoring for a student that will be invoiced next month.
A)Prepaid expense
B)Accrued expense
C)Unearned revenue
D)Accrued revenue
E)None of these choices

Accepted Answer

Provided tutoring for a student that will be invoiced next month is an example of accrued revenue, as the service has been provided but payment has not yet been received.

Question 15

What effect will the following adjusting journal entry have on the accounting records? $$\begin{array} { | c | r | r | } 
\hline \text { Depreciation Expense } & 2,150 & \
\hline \text { Accumulated Depreciation } & & 2,150 \
\hline
\end{array}$$
A) increase net income
B) increase revenues
C) decrease expenses
D) decrease net book value

Accepted Answer

This adjusting journal entry records depreciation expense, which increases expenses and increases accumulated depreciation. This does not affect revenues or directly change net income but decreases the net book value of the asset by increasing accumulated depreciation.

Question 16

Match the type of account (a through e) with the business transactions that follow.
-Received payment covering a six-month magazine subscription.
A)Prepaid expense
B)Accrued expense
C)Unearned revenue
D)Accrued revenue
E)None of these choices

Accepted Answer

Unearned revenue, because the payment received represents revenue that has not yet been earned by providing the magazine subscription for the six-month period.

Question 17

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.

Accepted Answer

Depreciation expense does not reflect the decrease in market value each year, instead it reflects the allocation of the cost of a fixed asset over its estimated life. The other options are true regarding depreciation.

Question 18

Match the type of account (a through e) with the business transactions that follow.
-Paid for a six-month magazine subscription.
A)Prepaid expense
B)Accrued expense
C)Unearned revenue
D)Accrued revenue
E)None of these choices

Accepted Answer

The payment for the magazine subscription is a prepaid expense because the expense has been paid in advance and will be used over a future period of time.

Question 19

All of the following statements regarding vertical analysis are true except
A) vertical analysis may be prepared for several periods to analyze changes in relationships over time
B) in a vertical analysis of a balance sheet, each asset item is stated as a percent of total assets
C) in a vertical analysis of an income statement, each item is stated as a percent of total expenses
D) major differences between a company's vertical analysis and industry averages should be investigated

Accepted Answer

In a vertical analysis of an income statement, each item is stated as a percent of total revenues, not total expenses.

Question 20

Two income statements for Toby Sam Enterprises are shown below.​Prepare a vertical analysis of Toby Sam Enterprises' income statements. Has operating income increased or decreased as a percentage of revenue? 
A) increased by 5%
B) increased by 111%
C) decreased by 5%
D) decreased by 111%

Accepted Answer

A vertical analysis involves expressing each item on the income statement as a percentage of revenue.

For the first income statement: 
Revenue = 100% 
Cost of goods sold = 50% 
Gross profit = 50% 
Operating expenses = 30% 
Operating income = 20%

For the second income statement: 
Revenue = 100% 
Cost of goods sold = 40% 
Gross profit = 60% 
Operating expenses = 40% 
Operating income = 20%

As we can see from the vertical analysis, the operating income for both years is the same at 20% of revenue. Therefore, operating income has not increased or decreased as a percentage of revenue. However, the cost of goods sold decreased by 10% as a percentage of revenue, leading to an increase in gross profit.

Quiz 3: The Adjusting Process

When is the adjusted trial balance prepared?

Match the type of account (a through e) with the business transactions that follow. -Retainer fee received from a client for future legal representation.

Which of the accounts below would most likely appear on an adjusted trial balance but probably would not appear on the unadjusted trial balance?

What is the purpose of the adjusted trial balance?

Match the type of account (a through e) with the business transactions that follow. -Services provided that have not been recorded.

Which of the following accounting steps in the accounting process would be completed last?

Match the type of account (a through e) with the business transactions that follow. -Electric bill to be paid next month.

The net book value of a fixed asset is determined by the original cost

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

Match the type of account (a through e) with the business transactions that follow. -Paid for one year's insurance policy.

At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following is true?

Accumulated Depreciation and Depreciation Expense are classified, respectively, as

Match the type of account (a through e) with the business transactions that follow. -Annual property taxes that are paid at the end of the year.

Match the type of account (a through e) with the business transactions that follow. -Provided tutoring for a student that will be invoiced next month.

What effect will the following adjusting journal entry have on the accounting records? $\begin{array} { | c | r | r | } \hline \text { Depreciation Expense } & 2,150 & \\\hline \text { Accumulated Depreciation } & & 2,150 \\\hline\end{array}$

Match the type of account (a through e) with the business transactions that follow. -Received payment covering a six-month magazine subscription.

Which of the following is not true regarding depreciation?

Match the type of account (a through e) with the business transactions that follow. -Paid for a six-month magazine subscription.

All of the following statements regarding vertical analysis are true except

Two income statements for Toby Sam Enterprises are shown below.Prepare a vertical analysis of Toby Sam Enterprises' income statements. Has operating income increased or decreased as a percentage of revenue?