Question 1

Revenue earned in one fiscal period but not received until a later fiscal period is called accrued revenue.

Accepted Answer

Accrued revenue refers to revenue that has been earned during a fiscal period through the delivery of goods or services, but has not yet been received by the end of that period.

Question 2

Annual straight-line depreciation expense of a plant asset is calculated as the original cost of the plant asset divided by the years of estimated useful life.

Accepted Answer

Annual straight-line depreciation expense is calculated as the original cost of the plant asset minus its salvage value, divided by the years of estimated useful life.

Question 3

Estimated federal income tax must be paid in monthly installments.

Accepted Answer

Estimated federal income tax is typically paid in quarterly installments, not monthly.

Question 4

All accounts are listed on the unadjusted trial balance regardless of whether there is a balance or not.

Accepted Answer

All accounts, regardless of whether they have a balance or not, must be listed on the unadjusted trial balance to ensure that all transactions have been recorded and that the total debits equal the total credits.

Question 5

Functional depreciation should be considered in estimating the useful life of computer equipment.

Accepted Answer

Functional depreciation refers to the decline in the utility or performance of equipment due to technological advancements or changes in market preferences, which is particularly relevant for computer equipment given its rapid pace of obsolescence.

Question 6

For a business using the periodic inventory method, purchases are recorded in the Merchandise Inventory account.

Accepted Answer

In the periodic inventory system, purchases are recorded in a separate Purchases account, not directly in the Merchandise Inventory account. The Merchandise Inventory account is updated at the end of the accounting period based on a physical inventory count.

Question 7

The Income Summary account is one of the accounts used to adjust the Merchandise Inventory account at the end of the fiscal period.

Accepted Answer

The answer of The Income Summary account is one of...

Question 8

The annual straight-line depreciation of equipment costing $7,000.00 with a salvage value of $1,000.00 and a useful life of 5 years would be $1,400.00.

Accepted Answer

The answer of The annual straight-line depreciation of equipment costing...

Question 9

The value of the insurance coverage used is recorded as a debit to Insurance Expense.

Accepted Answer

When insurance coverage is used, the value of the coverage is recorded as a debit to Insurance Expense to reflect the cost of the insurance being utilized during the period.

Question 10

The book value of a plant asset is its original cost minus accumulated depreciation.

Accepted Answer

The book value of a plant asset is calculated by subtracting its accumulated depreciation from its original cost, reflecting its current value on the balance sheet.

Question 11

For a business using the periodic inventory method, the balance of Merchandise Inventory in the unadjusted trial balance represents the beginning balance plus all purchases of merchandise made in the fiscal period.

Accepted Answer

In the periodic inventory method, the balance of Merchandise Inventory in the unadjusted trial balance represents only the beginning balance of the inventory. Purchases made during the period are recorded in a separate Purchases account and are not added to the Merchandise Inventory account until the end of the period, after a physical count.

Question 12

The difference between an asset's account balance and its related contra account is called book value.

Accepted Answer

Book value is calculated by subtracting the balance of related contra accounts (like accumulated depreciation) from the original cost of the asset in the account balance.

Question 13

The tax rate associated with an income tax bracket is called the effective tax rate.

Accepted Answer

The tax rate associated with an income tax bracket is called the marginal tax rate, not the effective tax rate. The effective tax rate is the average rate at which an individual or corporation is taxed, calculated as the total tax paid divided by the total income.

Question 14

The Prepaid Insurance account must be adjusted at the end of a fiscal period because the account balance does not reflect the value of the insurance premiums that expired during the period.

Accepted Answer

The Prepaid Insurance account represents the amount paid for insurance premiums in advance. As time passes and the insurance coverage is used, an adjustment is necessary to reflect the expired portion of the insurance, transferring it from an asset (Prepaid Insurance) to an expense (Insurance Expense) to accurately represent the period's expenses.

Question 15

A business can use any 12-month period for reporting its financial performance.

Accepted Answer

Businesses can choose any 12-month period, such as a fiscal year, for reporting their financial performance, which does not necessarily have to align with the calendar year.

Question 16

Cash and other assets expected to be exchanged for cash or consumed within a year are called liquid assets.

Accepted Answer

Liquid assets are those that can be quickly converted into cash without losing value, but the term for assets expected to be exchanged for cash or consumed within a year is "current assets."

Question 17

Depreciation expense is recorded on all plant assets.

Accepted Answer

Depreciation expense is recorded on tangible plant assets with a finite useful life, excluding land, which does not depreciate.

Question 18

The marginal tax rate increases as the net income before federal income tax increases.

Accepted Answer

The marginal tax rate refers to the rate at which the last dollar of income is taxed, and in a progressive tax system, this rate increases as the taxpayer's income before federal income tax increases.

Question 19

The Internal Revenue Service sets the amounts and rates of the tax brackets used to calculate federal income tax expense.

Accepted Answer

The Internal Revenue Service (IRS) administers tax laws, but it is Congress that sets the tax brackets and rates through legislation.

Question 20

The total amount of depreciation expense that has been recorded since the purchase of a plant asset is called accumulated depreciation.

Accepted Answer

Accumulated depreciation is the total amount of depreciation expense that has been recorded for a plant asset since it was acquired, reflecting the total value that has been allocated as an expense over the asset's useful life up to the reporting date.

Quiz 15: Adjusting Entries and a Trial Balance