Question 1

Which of the following is true of accrued revenues?
A) Accrued revenues at the end of one accounting period often result in cash receipts from customers in the next period.
B) Accrued revenues at the end of one accounting period often result in cash payments in the next period.
C) Accrued revenues are also called unearned revenues.
D) Accrued revenues are listed on the balance sheet as liabilities.
E) Accrued revenues are recorded at the end of an accounting period because cash has already been received for revenues earned.

Accepted Answer

Accrued revenues are revenues that have been earned but not yet received in cash, so they are recorded as a current asset on the balance sheet. At the end of an accounting period, if the revenue has been earned but not yet received, it is accrued and recorded as an adjusting entry. This means that while the cash has not yet been received, the revenue has already been earned and should be recognized in the current period's income statement. Accrued revenues often result in cash receipts from customers in the next period as the company collects on outstanding invoices.

Question 2

Which of the following assets is not depreciated?
A) Store fixtures
B) Computers
C) Land
D) Buildings
E) Vehicles

Accepted Answer

Land is not depreciated because it is considered a non-depreciable asset, as its value does not diminish over time.

Question 3

A publishing company records the subscriptions paid in advance by its customers in an account called Unearned Subscription Revenue.If the company fails to make the end-of-period adjusting entry to record the portion of the subscriptions that have been earned,one effect will be:
A) An overstatement of equity.
B) An overstatement of liabilities.
C) An understatement of assets.
D) An understatement of liabilities.
E) An overstatement of assets.

Accepted Answer

The answer of A publishing company records the subscriptions paid...

Question 4

The current ratio:
A) Is used to measure a company's profitability.
B) Is used to measure the relation between assets and long-term debt.
C) Measures the effect of operating income on profit.
D) Is used to help evaluate a company's ability to pay its short-term obligations.
E) Is calculated by dividing current assets by equity.

Accepted Answer

The current ratio is used to evaluate a company's ability to pay off its short-term obligations with its current assets. It is calculated by dividing current assets by current liabilities.

Question 5

Unearned revenue is reported on the financial statements as:
A) A revenue on the balance sheet.
B) A liability on the balance sheet.
C) An unearned revenue on the income statement.
D) An asset on the balance sheet.
E) An operating activity on the statement of cash flows.

Accepted Answer

Unearned revenue represents a liability because it is money paid by customers for goods or services that have not yet been delivered. Therefore, it is recorded as a liability on the balance sheet until the earnings process is complete and the revenue can be recognized.

Question 6

On April 1,2014,a company paid $1,350 premium on a three-year insurance policy with benefits beginning on that date.What will be the insurance expense on the annual income statement for the year ended December 31,2014?
A) $1,350
B) $450
C) $1,012.50
D) $337.50
E) $37.50

Accepted Answer

$1,350 x 9/36 = $337.50

Question 7

On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately.If the purchase was recorded in the Prepaid Insurance account and the company records adjustments only at year-end,the adjusting entry at the end of the first year is:
A) Debit Prepaid Insurance, $1,800; credit Cash, $1,800.
B) Debit Prepaid Insurance, $1,440; credit Insurance Expense, $1,440.
C) Debit Prepaid Insurance, $360; credit Insurance Expense, $360.
D) Debit Insurance Expense, $360; credit Prepaid Insurance, $360.
E) Debit Insurance Expense, $360; credit Prepaid Insurance, $1,440.

Accepted Answer

$1,800/5 years = $360, the amount of prepaid that has expired

Question 8

The total amount of depreciation recorded against an asset or group of assets during the entire time the asset or assets have been used in the day-to-day operations of the business:
A) Is referred to as depreciation expense.
B) Is referred to as accumulated depreciation.
C) Is shown on the income statement of the final period.
D) Is only recorded when the asset is disposed of.
E) Is referred to as an accrued asset.

Accepted Answer

Accumulated depreciation is the total amount of depreciation recorded against an asset or group of assets during the entire time the asset or assets have been used in the day-to-day operations of the business. It is a contra-asset account that is shown on the balance sheet, and it is used to reduce the book value of the asset. Depreciation expense, on the other hand, is the amount of depreciation that is recorded in a particular accounting period and is shown on the income statement. Accrued assets are assets that have been earned but not yet received, and they are not related to depreciation. The amount of depreciation expense is not only recorded when the asset is disposed of, but it is recorded over the useful life of the asset.

Question 9

Prior to recording adjusting entries,the Office Supplies account had a $359 debit balance.A physical count of the supplies showed $105 of unused supplies available.The required adjusting entry is:
A) Debit Office Supplies $105 and credit Office Supplies Expense $105.
B) Debit Office Supplies Expense $105 and credit Office Supplies $105.
C) Debit Office Supplies Expense $254 and credit Office Supplies $254.
D) Debit Office Supplies $254 and credit Office Supplies Expense $254.
E) Debit Office Supplies $105 and credit Supplies Expense $254.

Accepted Answer

$359 - $105 = $254, the amount that has been consumed.

Question 10

Which of the following accounts would be closed at the end of the accounting period?
A) Accounts Receivable
B) Unearned Consulting Fees
C) Fees Earned
D) Retained Earnings
E) Land

Accepted Answer

The answer of Which of the following accounts would be...

Question 11

Throughout an accounting period,the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees.What is the end-of-period adjusting entry to record the portion of those fees that have been earned?
A) Debit Cash and credit Legal Fees Earned.
B) Debit Cash and credit Unearned Legal Fees.
C) Debit Unearned Legal Fees and credit Legal Fees Earned.
D) Debit Legal Fees Earned and credit Unearned Legal Fees.
E) Debit Unearned Legal Fees and credit Accounts Receivable.

Accepted Answer

The adjusting entry to record the portion of unearned legal fees that have been earned involves debiting the liability account Unearned Legal Fees (to decrease it) and crediting the revenue account Legal Fees Earned (to increase it). Therefore, choice C is the correct answer. Choices A, B, D, and E do not properly reflect the nature of the transaction or the accounts involved.

Question 12

Which of the following accounts would not be on the post- closing trial balance?
A) Accounts Payable
B) Accounts Receivable
C) Common Stock
D) Dividends
E) Retained Earnings

Accepted Answer

Dividends are closed out at the end of each period and do not appear on the post-closing trial balance. The rest of the accounts listed (Accounts Payable, Accounts Receivable, Common Stock, Retained Earnings) would all appear on the post-closing trial balance.

Question 13

A company had no office supplies at the beginning of the year.During the year,the company purchased $250 worth of office supplies.On December 31,$75 worth of office supplies remained.How much should the company report as office supplies expense for the year?
A) $75
B) $125
C) $175
D) $250
E) $325

Accepted Answer

$250 - $75 = $175

Question 14

An account linked with another account that has an opposite normal balance and that is subtracted from the balance of the related account is a(n):
A) Accrued expense
B) Contra account
C) Accrued revenue
D) Intangible asset
E) Adjunct account

Accepted Answer

A contra account is linked with another account that has an opposite normal balance and is subtracted from the balance of the related account. This is used to provide a clearer picture of the related account's true balance.

Question 15

Compute profit margin ratio given the following information.
Cost of goods sold: $28,000
Net income: $21,400
Gross profit: $400,000
A) 5%
B) 7%
C) 1.65%
D) 6.64%
E) 76.42%

Accepted Answer

Net sales = Gross profit + Cost of goods sold
Net sales = $400,000 + $28,000 = $428,000
Profit margin ratio = $21,400/$428,000 = 5%

Question 16

On June 30,2014,Apricot Co.paid $5,000 cash for management services to be performed over a two-year period.Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment.
The adjusting entry on December 31,2014,for Apricot would include:
A) A debit to Management Services Expense for $1,250.
B) A debit to Prepaid Management Services Expense for $1,250.
C) A credit to Management Services Expense for $3,750.
D) A debit to Prepaid Management Services Expense for $3,750.
E) A credit to Management Services Payable for $1,250.

Accepted Answer

$5,000 x 6/24 = $1,250

Question 17

A company earned $2,000 in net income for October.Its net sales for October were $10,000.Its profit margin is:
A) 2%
B) 20%
C) 200%
D) 500%
E) $8,000

Accepted Answer

$2,000/$10,000 = 20%

Question 18

Profit margin is defined as:
A) Revenues divided by net sales.
B) Net sales divided by assets.
C) Net income divided by net sales.
D) Net income divided by assets.
E) Assets divided by net sales.

Accepted Answer

Profit margin is calculated by dividing the net income by net sales, as it shows the percentage of each dollar of sales that is profit.

Question 19

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used,representing the expense of using the assets,is called:
A) Accumulated depreciation
B) A contra account
C) The matching principle
D) Depreciation
E) An accrued account

Accepted Answer

Depreciation is the periodic expense created by allocating the cost of plant and equipment to the periods in which they are used. It represents the expense of using the assets over their useful lives.

Question 20

On June 30,2014,Apricot Co.paid $5,000 cash for management services to be performed over a two-year period.Apricot follows a policy of recording all prepaid expenses in asset accounts at the time of cash payment.
On June 30,2014 Apricot should record:
A) A credit to an expense for $5,000.
B) A debit to an expense for $5,000.
C) A credit to a prepaid expense for $5,000.
D) A debit to a prepaid expense for $5,000.
E) A debit to Cash for $5,000.

Accepted Answer

The transaction involves the payment of cash for future management services. Since Apricot follows a policy of recording all prepaid expenses in asset accounts at the time of cash payment, it should debit the prepaid expense asset account for $5,000. Therefore, the correct answer is D) A debit to a prepaid expense for $5,000.

Quiz 3: Adjusting Accounts and Preparing Financial Statements

Which of the following is true of accrued revenues?

Which of the following assets is not depreciated?

A publishing company records the subscriptions paid in advance by its customers in an account called Unearned Subscription Revenue.If the company fails to make the end-of-period adjusting entry to record the portion of the subscriptions that have been earned,one effect will be:

The current ratio:

Unearned revenue is reported on the financial statements as:

On April 1,2014,a company paid $1,350 premium on a three-year insurance policy with benefits beginning on that date.What will be the insurance expense on the annual income statement for the year ended December 31,2014?

On January 1 a company purchased a five-year insurance policy for $1,800 with coverage starting immediately.If the purchase was recorded in the Prepaid Insurance account and the company records adjustments only at year-end,the adjusting entry at the end of the first year is:

The total amount of depreciation recorded against an asset or group of assets during the entire time the asset or assets have been used in the day-to-day operations of the business:

Prior to recording adjusting entries,the Office Supplies account had a $359 debit balance.A physical count of the supplies showed $105 of unused supplies available.The required adjusting entry is:

Which of the following accounts would be closed at the end of the accounting period?

Throughout an accounting period,the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees.What is the end-of-period adjusting entry to record the portion of those fees that have been earned?

Which of the following accounts would not be on the post- closing trial balance?

A company had no office supplies at the beginning of the year.During the year,the company purchased $250 worth of office supplies.On December 31,$75 worth of office supplies remained.How much should the company report as office supplies expense for the year?

An account linked with another account that has an opposite normal balance and that is subtracted from the balance of the related account is a(n) :

Compute profit margin ratio given the following information. Cost of goods sold: $28,000 Net income: $21,400 Gross profit: $400,000

On June 30,2014,Apricot Co.paid $5,000 cash for management services to be performed over a two-year period.Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31,2014,for Apricot would include:

A company earned $2,000 in net income for October.Its net sales for October were $10,000.Its profit margin is:

Profit margin is defined as:

The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used,representing the expense of using the assets,is called:

On June 30,2014,Apricot Co.paid $5,000 cash for management services to be performed over a two-year period.Apricot follows a policy of recording all prepaid expenses in asset accounts at the time of cash payment. On June 30,2014 Apricot should record: