Chapter 4 Accounting Adjustments PDF

ch4 Student: ___________________________________________________________________________ 1. As a company uses supplies, an adjustment should be made to decrease an asset account and increase an expense account. True 2. Adjusting entries are not needed when assets are used up gradually over several a...

ch4 Student: ___________________________________________________________________________ 1. As a company uses supplies, an adjustment should be made to decrease an asset account and increase an expense account. True 2. Adjusting entries are not needed when assets are used up gradually over several accounting periods after being purchased. True 3. False Revenue and expense accounts are permanent accounts because they always appear on the income statement. True 9. False Corporate income taxes cannot be calculated until all other adjustments are made. True 8. False You mistakenly include a contra account of $20,000 in the same column of your trial balance as the account it offsets. All other things equal, your debit and credit column totals will differ by $40,000. True 7. False The carrying value of an asset is an approximation of the asset's market value. True 6. False The amount charged for a good or service provided to a customer on account is posted to a revenue account only after the payment is received. True 5. False A contra account is added to the account it offsets. True 4. False False The amounts of all the accounts reported on the balance sheet can be taken from the adjusted trial balance. True False 10. One of the purposes of closing entries is to bring the balances in all asset, liability, revenue, and expense accounts down to zero to start the next accounting period. True False 11. Accumulated depreciation is reported on the balance sheet as a deduction from the cost of an asset. True False 12. Depreciation is a measure of the decline in market value of an asset. True False 13. After posting the closing entries, all the revenue accounts and all the expense accounts are zero and the Retained Earnings account has been debited for $4,000. This implies that the company had a net income of $4,000. True False 14. The closing process includes a transfer of the Dividends Declared account balance to the Retained Earnings account. True False 15. If a company failed to record depreciation expense on equipment for a period, the financial statements would show total assets overstated and total stockholders' equity understated on the balance sheet. True False 16. A post-closing trial balance should include only permanent accounts. True False 17. Asset, Liability, contributed capital and retained earnings accounts are called permanent accounts. True False 18. A company forgot to make an adjusting entry to record incurred wages that were unpaid at the end of the period. This would understate Total Liabilities and overstate Retained Earnings on the Balance Sheet. True False 19. Prepaid expense accounts are reported as assets on the balance sheet. True False 20. Adjusting journal entries often involve cash. True False 21. Which of the following statements regarding types of adjusting entries is true? A. B. C. D. An accrual adjustment that increases an asset will include an increase in an expense. A deferral adjustment that decreases an asset will include an increase in an expense. An accrual adjustment that increases an expense will include an increase in assets. A deferral adjustment that increases a contra account will include an increase in an asset 22. Which of the following statements regarding adjusting entries is not true? A. Adjustments are needed to ensure that the accounting system includes all of the revenues and expenses of the period. B. Adjustments help to ensure the related accounts on the balance sheet and income statement are up to date and complete. C. Adjusting entries often affect the cash account D. Adjusting entries always include one balance sheet and one income statement account 23. Which of the following statements regarding the role of cash in adjusting entries is true? A. B. C. D. Adjustments are only made if cash has been received or paid during the period. Adjusting journal entries do not affect the cash account. Adjusting entries for expenses include a debit to cash. Adjusting entries for revenues include a credit to cash. 24. Which of the following statements regarding the adjusted financial results is not true? A. Without adjustments, the financial statements present an incomplete and misleading picture of the company. B. Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance. C Adjustments help the financial statements to present the best picture of whether the company's activities. were profitable for the period. D.Adjustments help the financial statements to present the economic resources the company owns and owes at the end of the period. 25. Which of the following statements regarding the trial balance is correct? A. Trial balances are prepared after the financial statements to verify that the numbers are accurate. B. The primary purpose of the adjusted trial balance is to see whether revenues are greater than expenses. C. A trial balance is a check that the accounting records are still in balance after posting all entries to the accounts. D. The trial balance debit column total is the amount to be shown as Total Assets on the Balance Sheet. 26. Which of the following statements regarding the presentation of a trial balance is correct? A. The adjusted trial balance shows the end-of-year balance for Retained Earnings. B. An adjusted trial balance presents account balances in the same level of detail as in the presentation of the financial statements. C. The order of accounts is assets, liabilities, stockholders' equity, dividends, revenues and expenses. D. The adjusted trial balance provides a check on the accuracy of the postings for the period. 27. Which of the following statements regarding financial statements and the trial balance is correct? A. Financial statements are prepared only after the trial balance has shown that debits equal credits. B. A post-closing trial balance should be prepared before temporary accounts are closed. C. An adjusted trial balance reflects the amount of retained earnings to be shown on the Balance Sheet. D. A post-closing trial balance lists all the accounts that are shown on the Income Statement. 28. Which of the following statements regarding timing issues associated with closing entries is true? A. Closing journal entries are recorded at the end of each reporting period which could be monthly, quarterly or annually. B. After closing entries are posted, the balances of the income statement accounts will be zero. C. Closing entries are made to zero out the balances of the permanent accounts on the balance sheet. D. After closing entries are posted, the only temporary account with a balance is the Dividends Declared account. 29. Which of the following statements regarding the effect of a net loss on the closing process is true? A If a company has a net loss during the current accounting period, then the post-closing retained earnings. will be smaller than the pre-closing retained earnings. B. When closing journal entries are prepared, contributed capital is debited if a company has a net loss. C If a company has a net loss, the closing entry will include debits to the revenue accounts, credits to the. expense accounts, and a credit to Retained earnings. D If a company has a net loss, the amount of revenues being closed will be greater than the amount of. expenses to be closed in the closing process. 30. If an expense has been incurred but will be paid later, then: A. B. C. D. nothing is recorded on the financial statements. a liability account is created or increased and an expense is recorded. an asset account is decreased or eliminated and an expense is recorded. a revenue and an expense are recorded. 31. If certain assets are partially used up during the accounting period, then: A. B. C. D. nothing is recorded on the financial statements until they are completely used up. a liability account is decreased or eliminated and an expense is recorded. an asset account is decreased or eliminated and an expense is recorded. nothing is recorded on the financial statements until they are replaced or replenished. 32. A company makes a deferral adjustment that reduces a liability. This must mean: A. B. C. D. an asset account is decreasing by the same amount. an expense account is increasing by the same amount. a revenue account is increasing by the same amount. a different liability account is decreasing by the same amount. 33. One major difference between deferral and accrual adjustments is: A. deferral adjustments involve previously recorded transactions and accruals involve previously unrecorded events. B. deferral adjustments are made after taxes and accrual adjustments are made before taxes. C. deferral adjustments are made annually and accrual adjustments are made monthly. D. deferral adjustments are influenced by estimates of future events and accrual adjustments are not. 34. One major difference between deferral and accrual adjustments is: A. accrual adjustments are influenced by estimates of future events and deferral adjustments are not. B. deferral adjustments are made before taxes and accrual adjustments are made after taxes. C. deferral adjustments are made monthly and accrual adjustments are made annually. Daccounts affected by an accrual adjustment always go in the same direction (i.e., both accounts are. increased or both accounts are decreased) and accounts affected by a deferral adjustment always go in opposite directions. 35. The company uses up $5,000 of the book value of an existing asset. The company adjusts its accounts accordingly. Which of the following is a true statement? A. B. C. D. This is an accrual adjustment. This is a closing adjustment. This is a deferral adjustment. The adjustment should not have been made. 36. Accrual adjustments link: A. assets and revenues moving in the same direction or liabilities and expenses moving in the same direction. B. assets and expenses moving in the same direction or liabilities and revenues moving in the same direction. C. assets and revenues moving in the opposite direction or liabilities and expenses moving in the opposite direction. D. assets and expenses moving in the opposite direction or liabilities and revenues moving in the opposite direction. 37. At the end of the month, the adjusting journal entry to record the use of supplies would include: A. B. C. D. A debit to supplies and a credit to expenses. A credit to supplies and a debit to expenses. A debit to supplies and a credit to revenue. A credit to supplies and a debit to cash. 38. A company owes rent at a rate of $6,000 per month. The company pays the rent owed on the tenth of each month for the previous month. At the end of each month, what kind of adjustment is required? A. B. C. D. An accrual adjustment. A comparative adjustment. A deferral adjustment. A matching adjustment. 39. Which of the following is not a term for the value at which an asset is reported on a financial statement? A. B. C. D. Carrying value. Book value. Net book value. Accrual value 40. When the future benefits of existing assets are used up in the ordinary course of business: A. B. C. D. an expense is recorded. a loss is recorded. a credit to a liability is recorded. a debit to assets is recorded. 41. During the month, a company uses up $4,000 of supplies. At the end of the month, the related adjusting journal entry would result in: A. B. C. D. a decrease in an asset and an equal increase in liabilities. an increase in liabilities and an equal decrease in stockholders' equity. a decrease in an asset and an equal increase in expenses. an increase in liabilities and a loss of equal value. 42. On December 31, a decision is made to accrue an expense and report a current liability. How many accounts will be included in this journal entry? A. B. C. D. None. One. Two. Three. 43. An adjusting journal entry that includes an increase to an asset contra-account would include an increase in a(n): A. B. C. D. related asset account. liability account. revenue account. expense account. 44. To calculate the company's income tax expense for the current period, it is necessary to know: A. B. C. D. the company's operating revenue and tax bill from prior periods. the company's income before income taxes and the company's tax rate. the company's operating expenses and revenue. the company's net income from the previous period and the current tax rate. 45. Declared dividends: A. B. C. D. are an expense of doing business. are not a legal obligation that a company must pay. are a way to distribute the company's profits to its stockholders. are not recorded as a liability because they are not an expense of doing business. 46. Which of these accounts would normally not be affected by an adjustment? A. B. C. D. Supplies. Revenues. Expenses. Cash. 47. Purrfect Pets had income before income tax of $164,000 last quarter and a 34% tax rate. Its net income should be reported as: A. B. C. D. $55,760. $108,240. $(55,760). $248,485. 48. Purrfect Pets had $6,000 of supplies at the end of October. During November, the company bought $2,000 of supplies. At the end of November, the company had $1,000 of supplies remaining. Which of the following statements is not true? A. B. C. D. During November, the company used $7,000 of supplies. The carrying value of supplies on November 30 should be $1,000. An expense should be debited for $7,000 in November. An asset should be debited for $1,000 in November. 49. A company has an asset account, Prepaid Insurance, with a balance of $3,750 at the beginning of the month. The company used $980 of insurance during the month. Which of the following statements is true? A. The company should credit Insurance Expenses for $980 and debit Prepaid Insurance for $980. B. Retained earnings and stockholders' equity should decrease because of this transaction. C. The company should credit Accrued Liabilities for $980 and debit Insurance Expenses for $980. D. Retained earnings and stockholders' equity should be unchanged by this transaction. 50. A company has a loan that accrues interest at a rate of $20 a day. The company pays the interest once a quarter. Which of these would be an accurate adjustment for a month in which no payments are made? A. B. C. D. Debit Interest Payable and credit Interest Expense. Debit Loans Payable and credit Cash. Debit Interest Expense and credit Interest Payable. Debit Cash and credit Loans Payable. 51. Accumulated depreciation: A. B. C. D. is an expense account. is a liability account. is a regular asset account. is an asset contra-account. 52. A company pays wages every two weeks. Wages amount to $100 a day. On March 31, the company pays wages for the two weeks ending March 24. At the end of the month, the related adjusting journal entry will include a A. B. C. D. debit to Wages Payable for $700 and a credit to Cash for $700. debit to Wage Expense for $700 and a credit to Wages Payable for $700. debit to Wages Payable for $700 and a credit to Wages Expense for $700. debit to Retained Earnings for $700 and a credit to Wages Payable for $700. 53. Contra-accounts: A. B. C. D. are used to increase the original value of the account they offset. always appear in the same column of the trial balance as the account they offset. always reduce the account they offset. are not allowed according to GAAP. 54. Recording an adjusting journal entry to recognize depreciation would cause which of the following? A. B. C. D. An increase in liabilities and expenses, and a decrease in stockholders' equity. A decrease in assets and stockholders' equity, and an increase in expenses. A decrease in assets, an increase in liabilities, and an increase in expenses. An increase in assets, an increase in liabilities, and a decrease in expenses 55. When a dividend has been declared but not yet paid, A. B. C. D. assets will increase and stockholders' equity will decrease. assets will decrease and stockholders' equity will increase. the balance sheet will not change until the dividend is paid. liabilities will increase and stockholders' equity will decrease. 56. At the end of the year, accrual adjusting journal entries could include a: A. B. C. D. debit to an expense and a credit to an asset. credit to a revenue and a debit to an expense. debit to cash and a credit to contributed capital. debit to an expense and a credit to a liability. 57. Your business purchased a certificate of deposit on April 1 that will pay $90 interest three months from that date. On April 30, which of the following adjusting journal entries would be made? A. B. C. D. Debit Interest Receivable for $90; credit Interest Revenue for $90. Debit Interest Revenue for $60; credit Interest Receivable for $60. Debit Interest Receivable for $30; credit Interest Revenue for $30. Debit Interest Revenue for $30; credit Interest Receivable for $60. 58. Your business declared a $200 dividend on August 31, payable in September. On August 31, which of the following journal entries would be made? A. B. C. D. Debit Dividends Receivable for $200; credit Dividends Declared for $200. Debit Dividends Declared for $200; credit Dividends Payable for $200. Debit Dividends Payable for $200; credit Dividends Declared for $200. Debit Dividends Declared for $200; credit Dividends Receivable for $200. Presented below are selected accounts from the unadjusted trial balance of Sneetch Star Makers Inc., a talent agency, at 12/31/10 (year-end) (debit and credit labels have been omitted; assume all balances are normal). 59. A count of supplies revealed $400 worth on hand at 12/31/10. The adjusting entry would include A. B. C. D. a debit to supplies expense for $400. a debit to supplies expense for $600. a debit to supplies for $400. a debit to supplies for $600. 60. The insurance policy covers four years and was purchased by Sneetch on 1/1/10. The adjusting entry on December 31 would include A. B. C. D. a debit to prepaid insurance for $1,200. a credit to prepaid insurance for $1,200. a debit to insurance expense for $3,600. a credit to prepaid insurance for $3,600. 61. The office equipment depreciates at a rate of $1,000 per year. The adjusting entry would include A. B. C. D. a debit to accumulated depreciation for $1,000. a credit to office equipment for $1,000. a credit to depreciation expense for $1,000. a credit to accumulated depreciation for $1,000. 62. Two-fifths (40%) of the amount recorded as unearned revenue was earned as of 12/31/10. The adjusting entry would include A. B. C. D. a credit to service revenue for $3,000. a credit to unearned revenue for $3,000. a credit to service revenue for $2,000. a credit to unearned revenue for $2,000. 63. Accrued salaries at 12/31/10 are $2,000. The adjusting entry would include A. B. C. D. a debit to salaries payable for $2,000. a debit to salaries expense for $28,000. a credit to salaries payable for $2,000. a credit to salaries expense for $28,000. 64. The new CEO of the company takes over on December 10, 2010. He is promised a significant bonus for every percent he can raise net income in 2011 over 2010 results. Which of the following adjustments would aid him in making 2011 results look the most impressive? A. B. C. D. Allocating more of the cost of machinery to depreciation expense in 2011 than in 2010. Prepaying 2012 expenses in 2011. Deferring 2011 expenses to 2012 and accruing revenues in 2011 that don't exist. Recording 2011 revenue as unearned revenue. 65. One of the major advantages of making adjustments in order to improve the quality of financial statements is that they: A. ensure that revenues and expenses are recognized during the period they are earned and incurred. B. ensure that all estimates of future activities are eliminated from consideration. C. ensure that revenues and expenses are recognized conservatively during the period they are paid. D. provide an opportunity to manipulate the numbers to the best effect. 66. Studies have found that companies that make adjusting entries: A. B. C. D. generally report "higher quality" earnings. make themselves immune to fraud by doing so. never violate generally accepted accounting principles. generally do so with the intent of misleading investors. 67. Which of the following is done first at the end of each accounting period? A. B. C. D. Prepare adjusting journal entries. Prepare a post closing trial balance. Prepare closing journal entries. Prepare the statement of retained earnings. 68. Which of the following is done last at the end of the year? A. B. C. D. Prepare adjusting journal entries. Prepare an adjusted trial balance. Prepare closing journal entries. Prepare a post-closing trial balance. 69. After preparing adjusting entries, the equality of recorded debits and credits is checked by preparing a(n): A. B. C. D. adjusting journal entry analysis. adjusted trial balance. adjusted income statement. statement of cash flows. 70. If total debits are not equal to total credits in an adjusted trial balance, which of the following errors may have occurred? A. B. C. D. Posting Wage Expense to Administrative Expenses. Debiting Interest Payable instead of debiting Interest Expense. Debiting Notes Payable instead of debiting Interest Expense. Posting a credit to Wages Payable as a debit. 71. An adjusted trial balance should be prepared immediately: A. B. C. D. after posting normal journal entries. before analyzing transactions. after posting adjusting journal entries. after posting closing journal entries. 72. Which of the following statements about an adjusted trial balance is true? A. B. C. D. Debits should equal credits both before and after adjustments are made. Debits will equal credits after adjustments are made but not necessarily before. Debits will equal credits before adjustments are made but not necessarily after. Debits do not have to equal credits in the trial balance but they will in the income statement. 73. In a trial balance a contra-account appears: A. B. C. D. just before the account it offsets but in the opposite column. just after the account it offsets and in the same column. just after the account it offsets but in the opposite column. just before the account it offsets and in the same column. 74. Which of the following would appear in the debit column of an adjusted trial balance? A. B. C. D. Service revenue. Prepaid rent. Accumulated depreciation. Contributed capital. 75. Which of the following would appear in the credit column of an adjusted trial balance? A. B. C. D. Income tax payable. Cost of goods sold. Prepaid insurance. Interest receivable. 76. After adjusting journal entries are prepared and posted, but before closing journal entries are prepared and posted, the balance in retained earnings is equal to A. B. C. D. zero. the difference between total assets and total liabilities. the amount that is to be reported in the current year's balance sheet. the amount that was reported on the previous year's balance sheet. 77. Which of the following accounts does not normally have a credit balance on an adjusted trial balance? A. B. C. D. Accumulated depreciation. Dividends declared. Accounts payable. Contributed capital. 78. Which of the following trial balances are used as a source for preparing the income statement? A. B. C. D. Unadjusted trial balance. Pre-adjusted trial balance. Adjusted trial balance. Post-closing trial balance. 79. The first financial statement prepared after the adjusted trial balance is: A. B. C. D. the balance sheet. the income statement. the statement of cash flows. the statement of retained earnings. 80. After net income has been determined, it is then transferred to: A. B. C. D. the balance sheet. the income statement. the statement of cash flows. the statement of retained earnings. 81. Before closing entries are prepared, the retained earnings balance in the adjusted trial balance is equal to: A. the balance of retained earnings at the beginning of the year. B. the balance of retained earnings after adding revenues and subtracting expenses but before subtracting dividends. C. the balance of retained earnings at the end of the year. D. the balance of retained earnings at the beginning of the next year. 82. Which of the following accounts would be classified as a current liability? A. B. C. D. Dividends declared. Unearned revenue. Wages expense. Accounts receivable 83. Which of the following is a true statement about the nature of equipment? A. B. C. D. While equipment is an asset, its use (depreciation) is an expense. While equipment is an asset, its use (depreciation) is a liability. While equipment is an asset, its use (depreciation) affects contributed capital. Equipment and its use (depreciation) are both liabilities. 84. Which of the following accounts would be classified as a current liability? A. B. C. D. Service revenue. Wages expense. Accumulated depreciation. Dividends payable 85. On the balance sheet, accumulated depreciation is: A. B. C. D. added to property and equipment. subtracted from property and equipment. added to total liabilities. subtracted from total liabilities. 86. Assuming no errors have been made, when a company prepares its adjusted trial balance: A. B. C. D. assets will equal liabilities plus retained earnings. stockholders' equity will be adjusted to include the current period's net income. the debit column and the credit column will be equal. income statement accounts will have been closed. 87. Which of the following statements is not true? A. B. C. D. When net income is positive, revenue is greater than expenses. When net income is negative, retained earnings decreases, all other things equal. When net income is positive, stockholders' equity increases, all other things equal. When net income is negative there can be no dividends declared. 88. Which of the following statements is true? A. B. C. D. Expenses are listed before revenues on the income statement. Operating income is listed before net income on the income statement. The income statement is prepared after the balance sheet. Dividends declared are listed on the income statement 89. On the statement of retained earnings: A. dividends declared increase net income and are added to calculate the end-of-year balance of retained earnings. B. dividends declared are subtracted to calculate the end-of-year balance of retained earnings. C. dividends declared are not used to calculate the end-of-year balance of retained earnings. D. dividends declared are never reported. 90. The Don't Tread on Me Tire Company had retained earnings at December 31, 2010 of $200,000. During 2011, the company had revenues of $400,000 and expenses of $350,000, and the company declared and paid dividends of $11,000. Retained earnings on the balance sheet as of December 31, 2011 will be: A. B. C. D. $39,000. $239,000. $250,000. $289,000. 91. Purrfect Pets had a beginning balance in its retained earnings account of $385,600. During the year, the company declared and paid a $4,700 dividend, and at the end of the year, it reported retained earnings of $399,860. The company's net income for the year was: A. B. C. D. $14,260. $18,960. $9,560. $0 92. The Treasury Bank Corporation had retained earnings at the end of December 31, 2010 of $450,000. During 2011, the company had net income of $170,000 and declared dividends of $20,000. Retained earnings on the balance sheet as of December 31, 2011 will be: A. B. C. D. $430,000. $600,000. $620,000. $640,000. 93. At the end of the accounting period: A. B. C. D. all accounts are closed. temporary accounts are closed; permanent accounts are not. permanent accounts are closed; temporary accounts are not. only accounts with a credit balance are closed. 94. Income statement accounts are closed at what stage of the accounting process? A. At the time that adjustments are made. B. After adjustments are made and before the income statement is prepared. C. After the income statement and the statement of retained earnings are prepared, but before the balance sheet is prepared. D. As the last journal entries at the end of each accounting year. 95. Which of the following statements is true? A. If revenues are less than expenses, the company has a net loss and retained earnings falls. B. If revenues are greater than expenses, the company has net income and contributed capital rises. C. If revenues are less than expenses, the company has a net loss and contributed capital rises to balance off the loss. D. If revenues are greater than expenses, the company has net income and retained earnings falls. 96. Closing entries: A. B. C. D. are prepared before financial statements are prepared. reduce the number of permanent accounts. cause the revenue and expense accounts to have zero balances. summarize the activity in every account. 97. Permanent accounts: A. B. C. D. are not permitted under GAAP. have their balances zeroed-out at the end of each accounting year. do not have their year-end balance carried into the next year. are Balance Sheet accounts. 98. Purrfect Pets has made all the year-end adjustments. Its expense accounts total $130,000, and its revenue accounts total $190,000. The closing journal entry to close the income statement accounts for the year will: A debit its various expense accounts for a total of $130,000, debit retained earnings for $60,000, and credit. its various revenue accounts for a total of $190,000. B debit its various revenue accounts for a total of $190,000, credit retained earnings for $60,000, and credit. its various expense accounts for a total of $130,000. C debit its various expense accounts for a total of $130,000, credit its various revenue accounts for a total of. $190,000, and credit retained earnings for $60,000. D debit its various revenue accounts for a total of $190,000, debit retained earnings for $60,000, and credit. its various expense accounts for a total of $130,000. 99. Two types of closing journal entries are posted to retained earnings at year-end. These are entries to: A. B. C. D. transfer revenues and expenses to retained earnings. transfer assets and liabilities to retained earnings. transfer net income (or loss) and dividends declared to retained earnings. close permanent and temporary accounts. 100.The sales revenue account has a credit balance of $367,200 at year end. After closing entries are made, the account will: A. B. C. D. have a debit balance of $367,200. have a zero balance. still have a credit balance of $367,200. be removed entirely from the general ledger. 101.Which of the following statements is true? A. B. C. D. Retained earnings is a permanent account, while income statement accounts are temporary. Retained earnings and income statement accounts are all temporary accounts. Retained earnings and income statement accounts are all permanent accounts. Retained earnings is a temporary account, while income statement accounts are permanent accounts. 102.At the beginning of the year, net income should be equal to: A. B. C. D. the ending net income from the previous year. the ending net income from the previous year before income tax expense. the ending retained earnings from the previous year. zero. 103.Which of the following will happen if the accrual adjusting entry is not made for revenue earned but unrecorded? A. B. C. D. Assets will be understated and revenues will be overstated. Revenues will be understated and assets will be overstated. Both revenues and assets will be overstated. Both revenues and assets will be understated. 104.Which of the following will happen if the accrual adjustment entry is not made to record expenses incurred but unrecorded? A. B. C. D. Both expenses and liabilities will be overstated. Both expenses and liabilities will be understated. Expenses will be understated and liabilities will be overstated. Expenses will be overstated and liabilities will be understated. 105.On December 31, 2010, interest of $500 is owed on a bank loan that will not be paid until June 30, 2011. What is the necessary adjusting journal entry on December 31, 2010? A. B. C. D. Option A Option B Option C Option D 106.A company pays its workforce on Fridays for a five day workweek. The payroll for a week is $100,000. If the accounting year-end falls on a Tuesday, the adjusting journal entry to record this will include a A. B. C. D. debit to Salaries Expense $100,000. debit to Salaries Expense $40,000. credit to Salaries Payable $60,000. credit to Salaries Payable $100,000 107.A company originally recorded Prepaid Rent. As of the end of the accounting year, part of this is no longer prepaid. If no adjustment is made to record this expiration, which of the following will occur? A. B. C. D. Assets will be understated and expenses will be overstated. Assets will be overstated and expenses will be understated. Assets and expenses will be overstated. Assets and expenses will be understated. 108.On June, 30, 2010, a company purchased a two-year insurance policy for $18,000, paying cash and debiting Prepaid Insurance for the entire two-year premium amount. The adjusting entry on December 31, 2010 includes a A. B. C. D. credit to Prepaid Insurance $4,500. credit to Insurance Expense $4,500. credit to Prepaid Insurance $9,000. debit to Insurance expense $9,000. 109.A company reported the following amounts of wages payable at the beginning and the end of the year 2010: Wages payable, January 1, 2010 $750 Wages payable, December 31, 2010 $2,500 The income statement for 2010 reported Wages Expense of $56,200. How much cash was paid for wages during 2010? A. B. C. D. $52,950 $56,200 $54,450 $53,700 110.A company started the year with $1,500 of supplies on hand. During the year the company purchased additional supplies of $800 and recorded them as increase to the supplies asset. At the end of the year the company determined that only $300 of supplies are still on hand. What is the adjusting journal entry to be made at the end of the period? A. B. C. D. Option A Option B Option C Option D 111.On December 16, 2010, B. Darin Company received $3,600 from S. Dee Company for rent of an office owned by B. Darin Company. The $3,600 is for the period from December 16, 2010 through February 15, 2011. B. Darin Company recorded this as unearned rent when it was received on December 16. The adjusting entry on December 31 would include A. B. C. D. A credit to Rent Revenue of $900. A credit to Unearned Rent Revenue of $900. A debit to Rent Revenue of $1,800. A debit to Unearned Rent Revenue of $1,800. 112.A company had calculated net income to be $77,550 based on the unadjusted trial balance. The following adjusting journal entries were then made: Salaries payable of $790 was recorded; Interest earned but not received from investments $750; Prepaid insurance decreased by $550 for insurance used up during the period; $750 of unearned revenue that has now been earned. After recording these adjustments, net income would be: A. B. C. D. $77,710 $74,710 $77,310 $79,600 113.Which of the following is not a true statement? A. B. C. D. Expenses are closed with a credit. Revenues are closed with a debit. Dividends are closed with a credit. Retained earnings are closed with a debit. 114.The December 31, 2010, adjusted trial balance of a company, where all accounts have normal balances is: Given this information, after all closing entries are made, the balance in the retained earnings account is: A. B. C. D. $2,000 $4,000 $0 $1,500 115.On December 31, 2010, the balance in retained earnings is $20,000. On December 31, 2011, the balance in retained earnings is $19,100. During 2011, dividends of $4,000 were declared and paid. What is the amount of net income for 2011? A. B. C. D. $4,900 $3,100 $900 $(900) On April 30, 2011, a three-year insurance policy was purchased with a cash payment of $18,000. Coverage began immediately. 116.What is the amount of insurance expense that would be reported on the income statement for the year ended December 31, 2011? A. B. C. D. $4,000 $18,000 $6,000 $2,000 117.What is the amount to be reported on the balance sheet as Prepaid Insurance at December 31, 2011? A. B. C. D. $0 $2,000 $6,000 $18,000 118.If Salaries payable were recorded on December 31, and these salaries were paid on the following January 5, the entry on January 5 would be: A. B. C. D. Debit to Salaries Expense and Credit to Cash. Debit to Salaries payable and Credit to Cash. Debit to Cash and Credit to Salaries Payable. Debit to Cash and Credit to Salaries Expense. 119.The asset account Office Supplies has a balance of $800 at the beginning of the year. The amount on hand at the end of the year is $500. The company has calculated the Office Supplies Expense for the year to be $3,500. Based on this information, what amount of office supplies was purchased during the year? A. B. C. D. $0 $4,000 $3,200 $3,000 The following items are taken from the adjusted trial balance prepared as of December 31, 2010. All accounts have normal balances. 120.What is the total of the credit column of the adjusted trial balance? A. B. C. D. $24,700 $37050 $74,900 $37,450 121.What is the amount of net income (net loss) for the year? A. B. C. D. ($2,000) ($3,800) ($1,600) ($3,300) 122.What is the amount of Total Assets to be reported on the Balance Sheet at December 31, 2010? A. B. C. D. $26,950 $27,100 $27,350 $29,550 123.Total Liabilities on the Balance Sheet at December 31, 2010 are: A. B. C. D. $19,550 $14,950 $15,350 $19,850 124.What is the amount of Retained Earnings on the Balance Sheet at December 31, 2010? A. B. C. D. $100 $2,300 $3,900 $1,700 125.An error is indicated if the following account appears on the post-closing trial balance with a positive balance. A. B. C. D. Office equipment Contributed capital Accumulated depreciation Depreciation expense 126.A company declared and paid a dividend of $8,000 this year. The entry to close the dividend account at the end of the year is: A. B. C. D. Option A Option B Option C Option D 127.The periodic expense that is used for the allocation of the cost of equipment to the periods in which it is used, representing the expense of using the asset, is called A. B. C. D. Accumulated depreciation A contra account Depreciation expense Investment expense 128.Accrued revenues recorded at the end of the current year: A. B. C. D. often result in cash receipts from customers in the next period often result in cash payments in the next period are also called Unearned Revenues are recorded in the current year when cash is received. 129.Which of the following is the usual last step in the accounting process? A. B. C. D. Preparing the adjusted trial balance. Preparing the financial statements. Preparing a post-closing trial balance. Preparing an unadjusted trial balance. 130.Which of the following statements is not true? A. Adjusting entries affect the cash account. B. Adjustments to prepaid expenses and unearned revenues are deferral adjustments. C. Adjustments for accrued expenses and accrued revenues involve assets and liabilities that had not been previously recorded. D. Adjusting entries for depreciation of a recorded asset is a deferral adjustment. 131.Adjusting journal entries: A. B. C. D. affect only balance sheet accounts. affect only income statement accounts. affect only cash flow accounts. affect both income statement and balance sheet accounts. 132.If the total amount that should have been debited to insurance expense is mistakenly debited to prepaid insurance, what will be the effect on the financial statements for the year? A. B. C. D. Revenues will be overstated. Assets will be overstated. Stockholders' equity will be understated. Expenses will be overstated. 133.Which of the following errors cause net income to be understated? A. B. C. D. Employee wages that have not been paid are not recorded. Depreciation expense is not recorded. Collection of accounts receivable is not recorded. Revenue that has been earned but not yet collected has not been recorded. 134.Which of the following errors cause net income to be overstated? A. B. C. D. Collection of accounts receivable is not recorded. Depreciation expense is not recorded. Revenue that has been earned but not yet collected has not been recorded. Unearned revenue that is now earned has not been recorded. 135.Which of the following is not a true statement? A. When making an adjustment to recognize supplies used in a period, total assets will not change. B Accrued wages are wages owed but not paid to employees and will need to be recorded with an adjusting. entry that will increase expenses. C. Deferrals are created by recording a transaction so that it delays or defers the recognition of an expense or a revenue. D. Depreciation is an example of a deferred expense. 136.A company billed a client for services rendered in January. The payment was received, partially in January and the balance in February. When should the entry be made to record the service revenue? A. B. C. D. January February Split between January and February. An entry to record revenue should never be made. 137.Deferred expenses (prepaid expenses) are initially recorded as assets, but over time are expected to become A. B. C. D. liabilities. other assets. revenues. expenses. 138.An example of an accrued revenue is A. B. C. D. interest accrued on a note receivable. interest accrued on a note payable. unearned revenue. accounts receivable. 139.An example of an accrued expense is A. B. C. D. Interest accrued on a note receivable Interest accrued on a note payable Unearned revenue Accounts receivable 140.Brandon Company's annual accounting year ends on September 30. All journal entries have been made for the period ended September 30, 2011, except for the following two items. Prepare the adjusting journal entries that are needed. A. Cash of $4,200 was collected on August 1, 2011, for services to be provided evenly over the following 12 months beginning on August 1. Unearned Service Revenue was credited for $4,200 when the cash was received. B. The company earned service revenue of $2,000 on a special job that was completed on September 29, 2011. Collection will be made during October 2011. No entry has been recorded yet. 141.The company's unadjusted trial balance includes the following account balances: The following data are available to determine adjusting entries: A) $4,350 of prepaid insurance expired during the period. B) The company estimates depreciation expense of $8,150 for the period. C) A count showed $85,700 of supplies on hand. D) Interest earned and receivable on the outstanding notes receivable is $260 for the period. Prepare the adjusting journal entries that should be recorded. Then, prepare an adjusted trial balance using the blank columns to the right of the unadjusted trial balance. The following data are for the Grass is Greener Company at the end of 2011, after adjustments, except for the calculation of income tax expense. 142.Required: A) Calculate the income before income tax. B) Calculate the income tax owed by the company if its tax rate is 40%. C) Calculate the net income. D) Prepare an adjusted trial balance. E) Prepare an income statement. 143.Prepare a statement of retained earnings and demonstrate that the accounting equation holds after the retained earnings account has been updated. (Assume that the company pays no dividends. 144.Below is an alphabetical listing of all of the accounts for T.O.'s Dance Studio on 12/31/11. Assume all adjustments have been made and all balances are "normal." A) Prepare an Income Statement in good form for T.O.'s Dance Studio. B) Prepare Closing Entries for T.O.'s Dance Studio C) Prepare the Statement of Retained Earnings for T.O.'s Dance Studio D) Prepare the Classified Balance Sheet for T.O.'s Dance Studio 145.Starbellies Tattoo Parlor LLC is completing the accounting process for its year ended 12/31/11. The transactions for the year have been journalized and posted. Information for adjusting entries appears below. a. The supplies account shows a balance of $900. A count of supplies revealed $400 worth on hand at 12/ 31/11. b. A one-year insurance policy was purchased for $1,200 on 12/1/11. It was recorded as Prepaid Insurance at that time. c. Office equipment depreciates at a rate of $1,000 per year. The equipment has been owned all year. d. A client paid $10,000 in advance for services to be rendered later. Three-tenths (30%) of the amount recorded as Unearned Revenue was earned as of 12/31/11. e. Accrued salaries at 12/31/11 are $2,000. f. Starbellies has completed $500 of work for which it has neither received cash nor billed the client. For each of the adjusting items (a-f) prepare the adjusting journal entry that would be required at 12/31/11 For each of the adjusting items (a-f) indicate the amount and the direction of effects of the adjusting journal entry on the elements of the balance sheet and income statement. Using the following format, indicate + for increase, - for decrease, and NE for no effect. 146.On December 31, 2011, Purrfect Pets had retained earnings of $267,800 before making its closing entries. During 2011, the company had service revenue of $168,100 and other revenue of $81,300. The company used supplies (mainly cat food and litter) during the year which cost $87,900. Administrative expenses were $16,400 and wages (paid in cash) were $18,300. Taxes were $13,700 and dividends declared and paid totaled $6,000. Prepare T-accounts for the income statement accounts, dividends declared and retained earnings at the end of the year before closing. Then, enter the closing journal entries in the T-accounts and compute the ending balances of the T-accounts. 147.Insert the appropriate letter into the correct blank to describe the type of adjustment required at the end of April and the effect it has on expenses or revenues and assets or liabilities. 148.Match the term and the definition. There are more definitions than terms. 1. The amount at which an asset or liability is reported in the financial statements __ Contra-account__ 2. An account that must have a zero balance after closing entries have been made __ Carrying value__ 3. The level of profit before considering income tax 4. A journal entry that transfers net income or loss to the retained earnings account 5. Lists the balances of all accounts to check that debits equal credits Deferral__ adjustment__ Closing__ journal entry__ __ Net loss__ 6. Converts some of an asset's or liability's book value into an expense or revenue __ Trial balance__ 7. When revenue minus expenses is a negative number Temporary__ account__ 8. Adds new values into the balance sheet and income statement accounts Accrual__ adjustment__ 9. An account that is paired with another account whose book value it reduces Income before__ income taxes__ 149.For each of the following transactions, match the action (Debit or Credit) and the account type (Asset, Liability, Revenue, or Expense) to each account for the appropriate adjustment that needs to be made at the end of June. Also, show the effect on Retained Earnings. (D) Debit or (C) Credit (A) Asset, (L) Liability, (R) Revenue or (E) Expense Account a. The company has insurance costs of $620 a day for the month of June. On June 1 the company had $26,000 of prepaid insurance. b. The company provides services in June for which it had received payment of $18,300 in May. c. The company had $12,500 worth of labor performed by workers who will be paid in July. d. The company had income before income taxes of $287,400 for June and will pay taxes at the rate of 36%. The tax will be paid in July. e. The company had interest of $1,000 due for June on a Certificate of Deposit (CD). The interest will be received in August. 150.Match each of the following accounts to the term that identifies its nature - temporary or permanent. If temporary, indicate whether the account would be closed with a debit or a credit. P - permanent account T - temporary account D - close account with a debit C - close account with a credit ch4 Key 1. As a company uses supplies, an adjustment should be made to decrease an asset account and increase an expense account. TRUE Supplies should be reported on the balance sheet at the cost of the amount on hand and the amount of supplies used up should be reported on the Income Statement as an expense. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 1 Phillips - Chapter 04 #1 Topic Area: Why adjusting journal entries are needed 2. Adjusting entries are not needed when assets are used up gradually over several accounting periods after being purchased. FALSE Adjusting entries would be required to move a portion of the asset into an expense account. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 1 Phillips - Chapter 04 #2 Topic Area: Why adjusting journal entries are needed 3. A contra account is added to the account it offsets. FALSE A contra account is an offset to, or reduction of, another account. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Easy Learning Objective: 2 Phillips - Chapter 04 #3 Topic Area: Adjusting journal entries 4. The amount charged for a good or service provided to a customer on account is posted to a revenue account only after the payment is received. FALSE The amount charged for a good or service provided to a customer on account is debited to accounts receivable and credited to revenue at the time the good or service is provided. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #4 Topic Area: Adjusting journal entries 5. The carrying value of an asset is an approximation of the asset's market value. FALSE Carrying value simply means the amount an asset is reported at ("carried at") in the financial statements. Carrying value may or may not correspond to its market value. AACSB: analytic AICPA BB: resource management AICPA FN: reporting Blooms: knowledge Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #5 Topic Area: Adjusting journal entries 6. You mistakenly include a contra account of $20,000 in the same column of your trial balance as the account it offsets. All other things equal, your debit and credit column totals will differ by $40,000. TRUE Posting a debit (or credit) instead of a credit (or debit) will make the columns differ by twice the amount of the debit (credit). AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 3 Phillips - Chapter 04 #6 Topic Area: Adjusted trial balance 7. Corporate income taxes cannot be calculated until all other adjustments are made. TRUE The amount of income taxes can only be estimated when the final amounts of revenues and expenses are determined. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #7 Topic Area: Adjusting journal entries 8. Revenue and expense accounts are permanent accounts because they always appear on the income statement. FALSE Revenue and expense accounts are temporary accounts because they are used to track only the current year's results. AACSB: analytic AICPA BB: resource management AICPA FN: reporting Blooms: knowledge Difficulty: Medium Learning Objective: 5 Phillips - Chapter 04 #8 Topic Area: Closing Process 9. The amounts of all the accounts reported on the balance sheet can be taken from the adjusted trial balance. FALSE The adjusted trial balance includes the beginning-of-year balance for Retained Earnings; the balance sheet reports the end-of-year balance. As such, the balance of the retained earnings account comes from the statement of retained earnings. AACSB: analytic AICPA BB: resource management AICPA FN: reporting Blooms: knowledge Difficulty: Medium Learning Objective: 4 Phillips - Chapter 04 #9 Topic Area: Adjusted Trial Balance and Financial Statements 10. One of the purposes of closing entries is to bring the balances in all asset, liability, revenue, and expense accounts down to zero to start the next accounting period. FALSE Asset and liability accounts should remain unaffected by the closing process. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 5 Phillips - Chapter 04 #10 Topic Area: Closing Entries 11. Accumulated depreciation is reported on the balance sheet as a deduction from the cost of an asset. TRUE Accumulated depreciation is a contra account to the asset and has an opposite balance so it is subtracted from the asset in the Asset section of the Balance Sheet. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Easy Learning Objective: 2 Phillips - Chapter 04 #11 Topic Area: Adjusting entries 12. Depreciation is a measure of the decline in market value of an asset. FALSE Depreciation is a systematic and rational method of spreading the depreciable cost of an asset that is used in the business to depreciation expense each period that the asset is being used. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #12 Topic Area: Adjusting entries 13. After posting the closing entries, all the revenue accounts and all the expense accounts are zero and the Retained Earnings account has been debited for $4,000. This implies that the company had a net income of $4,000. FALSE All the temporary accounts are closed when the closing entries are posted. This means that revenues and expenses will be zero and their amounts will have been transferred to retained earnings. If that account has been debited it is being decreased which means that there was a net loss. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 5 Phillips - Chapter 04 #13 Topic Area: Closing Entries 14. The closing process includes a transfer of the Dividends Declared account balance to the Retained Earnings account. TRUE The Dividends account is prepared for use for the next period by being closed at the end of the period to the retained earnings account. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Easy Learning Objective: 5 Phillips - Chapter 04 #14 Topic Area: Closing Entries 15. If a company failed to record depreciation expense on equipment for a period, the financial statements would show total assets overstated and total stockholders' equity understated on the balance sheet. FALSE If the adjusting entry to record depreciation for the period is not made, the accumulated depreciation account will be understated which means that total assets on the balance sheet will be overstated. Depreciation expense will be understated which means that net income will be overstated and this will cause stockholders' equity on the balance sheet to be overstated. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #15 Topic Area: Adjusting entries 16. A post-closing trial balance should include only permanent accounts. TRUE All temporary accounts are reduced to zero in the closing process so they are not included in the postclosing trial balance. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 5 Phillips - Chapter 04 #16 Topic Area: Closing Process 17. Asset, Liability, contributed capital and retained earnings accounts are called permanent accounts. TRUE The Balance sheet accounts of Assets, Liabilities and Stockholders' equity are not closed in the closing process and are called permanent accounts. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 5 Phillips - Chapter 04 #17 Topic Area: Closing Process 18. A company forgot to make an adjusting entry to record incurred wages that were unpaid at the end of the period. This would understate Total Liabilities and overstate Retained Earnings on the Balance Sheet. TRUE The adjusting entry would have increased wages expense and increased wages payable which means that expenses would be understated, so net income would be overstated. On the balance sheet, retained earnings would be overstated and the liabilities would be understated. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #18 Topic Area: Adjusting entries 19. Prepaid expense accounts are reported as assets on the balance sheet. TRUE Prepaid expenses are amounts paid in advance that provide future benefits. AACSB: analytic AICPA BB: resource management AICPA FN: reporting Blooms: knowledge Difficulty: Easy Learning Objective: 4 Phillips - Chapter 04 #19 Topic Area: Balance Sheet 20. Adjusting journal entries often involve cash. FALSE Adjusting journal entries never involve cash. AACSB: analytic AICPA BB: critical thinking AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #20 Topic Area: Adjusting journal entries 21. Which of the following statements regarding types of adjusting entries is true? A. B. C. D. An accrual adjustment that increases an asset will include an increase in an expense. A deferral adjustment that decreases an asset will include an increase in an expense. An accrual adjustment that increases an expense will include an increase in assets. A deferral adjustment that increases a contra account will include an increase in an asset An accrual adjustment that increases an asset will include an increase in revenue and an accrual adjustment that increases expense will include an increase in liabilities. A deferral adjustment that increases expenses will decrease an asset (or increase the contra-asset). AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 1 Phillips - Chapter 04 #21 Topic Area: Adjusting journal entries 22. Which of the following statements regarding adjusting entries is not true? A. Adjustments are needed to ensure that the accounting system includes all of the revenues and expenses of the period. B. Adjustments help to ensure the related accounts on the balance sheet and income statement are up to date and complete. C. Adjusting entries often affect the cash account D. Adjusting entries always include one balance sheet and one income statement account Adjustments are necessary to ensure assets, liabilities, revenues and expenses are reported at their proper amounts. Adjusting entries do not affect the cash account. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Easy Learning Objective: 2 Phillips - Chapter 04 #22 Topic Area: Adjusting journal entries 23. Which of the following statements regarding the role of cash in adjusting entries is true? A. B. C. D. Adjustments are only made if cash has been received or paid during the period. Adjusting journal entries do not affect the cash account. Adjusting entries for expenses include a debit to cash. Adjusting entries for revenues include a credit to cash. Adjusting entries do not affect the cash account. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #23 Topic Area: Adjusting journal entries 24. Which of the following statements regarding the adjusted financial results is not true? A. Without adjustments, the financial statements present an incomplete and misleading picture of the company. B. Adjusting entries are intended to change the operating results to reflect management's objectives for operating performance. C. Adjustments help the financial statements to present the best picture of whether the company's activities were profitable for the period. D. Adjustments help the financial statements to present the economic resources the company owns and owes at the end of the period. Adjusting entries are necessary to ensure that revenues, expenses, assets and liabilities are reported at their proper amounts. Adjusting entries are not intended to be used to perpetuate fraud. AACSB: analytic AICPA BB: critical thinking AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 6 Phillips - Chapter 04 #24 Topic Area: Financial Statements 25. Which of the following statements regarding the trial balance is correct? A. Trial balances are prepared after the financial statements to verify that the numbers are accurate. B. The primary purpose of the adjusted trial balance is to see whether revenues are greater than expenses. C. A trial balance is a check that the accounting records are still in balance after posting all entries to the accounts. D. The trial balance debit column total is the amount to be shown as Total Assets on the Balance Sheet. A trial balance is a check that the accounting equation is still in balance, that debits = credits. The trial balance debit column is the total of all the ledger accounts with a debit balance and this is not equal to the Total Assets to be reported on the Balance Sheet. The adjusted trial balance is prepared before the financial statements. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 3 Phillips - Chapter 04 #25 Topic Area: Adjusted trial balance 26. Which of the following statements regarding the presentation of a trial balance is correct? A. The adjusted trial balance shows the end-of-year balance for Retained Earnings. B. An adjusted trial balance presents account balances in the same level of detail as in the presentation of the financial statements. C. The order of accounts is assets, liabilities, stockholders' equity, dividends, revenues and expenses. D. The adjusted trial balance provides a check on the accuracy of the postings for the period. The trial balance is a check on the equality of debits and credits but does not assure no errors were made in the accounts or amounts used. The adjusted trial balance shows the beginning of the period balance in retained earnings and all the other ledger accounts with balances. The trial balance lists the balance sheet permanent accounts first in the order of assets, liabilities and stockholders' equity and then the temporary accounts, dividends, revenues and expenses. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 3 Phillips - Chapter 04 #26 Topic Area: Adjusted trial balance 27. Which of the following statements regarding financial statements and the trial balance is correct? A. B. C. D. Financial statements are prepared only after the trial balance has shown that debits equal credits. A post-closing trial balance should be prepared before temporary accounts are closed. An adjusted trial balance reflects the amount of retained earnings to be shown on the Balance Sheet. A post-closing trial balance lists all the accounts that are shown on the Income Statement. Financial Statements cannot be prepared if the accounting records do not balance. The adjusted trial balance lists the retained earnings account balance as of the beginning of the period while a postclosing trial balance is prepared after the temporary accounts have been closed to retained earnings. The temporary accounts are the dividend account and the accounts on the Income Statement, the revenues and expenses. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 3 Learning Objective: 5 Phillips - Chapter 04 #27 Topic Area: Adjusted and post-closing trial balances 28. Which of the following statements regarding timing issues associated with closing entries is true? A. Closing journal entries are recorded at the end of each reporting period which could be monthly, quarterly or annually. B. After closing entries are posted, the balances of the income statement accounts will be zero. C. Closing entries are made to zero out the balances of the permanent accounts on the balance sheet. D. After closing entries are posted, the only temporary account with a balance is the Dividends Declared account. Closing entries are recorded at the end of the year. All of the temporary accounts, dividends, revenues and expenses, are closed to zero by the closing entries. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 5 Phillips - Chapter 04 #28 Topic Area: Closing entries and post-closing trial balance 29. Which of the following statements regarding the effect of a net loss on the closing process is true? A If a company has a net loss during the current accounting period, then the post-closing retained. earnings will be smaller than the pre-closing retained earnings. B. When closing journal entries are prepared, contributed capital is debited if a company has a net loss. C If a company has a net loss, the closing entry will include debits to the revenue accounts, credits to the. expense accounts, and a credit to Retained earnings. D If a company has a net loss, the amount of revenues being closed will be greater than the amount of. expenses to be closed in the closing process. A is correct. A net loss, which means that the amount of expenses exceed the amount of revenues, will be closed to retained earnings and will be recorded with a debit to retained earnings, which will decrease the account. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 5 Phillips - Chapter 04 #29 Topic Area: Closing Process 30. If an expense has been incurred but will be paid later, then: A. B. C. D. nothing is recorded on the financial statements. a liability account is created or increased and an expense is recorded. an asset account is decreased or eliminated and an expense is recorded. a revenue and an expense are recorded. The proper adjusting entry is to record the expense and liability. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Phillips - Chapter 04 #30 Topic Area: Adjusting journal entries 31. If certain assets are partially used up during the accounting period, then: A. B. C. D. nothing is recorded on the financial statements until they are completely used up. a liability account is decreased or eliminated and an expense is recorded. an asset account is decreased or eliminated and an expense is recorded. nothing is recorded on the financial statements until they are replaced or replenished. Assets that are being used up must be adjusted while this is happening and not wait until the asset is all used up. The proper adjusting entry is to record the expense (increase) and reduce the asset account. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Phillips - Chapter 04 #31 Topic Area: Adjusting journal entries 32. A company makes a deferral adjustment that reduces a liability. This must mean: A. B. C. D. an asset account is decreasing by the same amount. an expense account is increasing by the same amount. a revenue account is increasing by the same amount. a different liability account is decreasing by the same amount. A deferral adjustment to reduce a liability will also increase a revenue because it records the effect of a liability that has been earned and is now revenue. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Hard Learning Objective: 1 Learning Objective: 2 Phillips - Chapter 04 #32 Topic Area: Adjusting journal entries 33. One major difference between deferral and accrual adjustments is: A. deferral adjustments involve previously recorded transactions and accruals involve previously unrecorded events. B. deferral adjustments are made after taxes and accrual adjustments are made before taxes. C. deferral adjustments are made annually and accrual adjustments are made monthly. D. deferral adjustments are influenced by estimates of future events and accrual adjustments are not. Accrual adjustments recognize expenses or revenues that were not recorded and deferral adjustments make changes to previously recorded activities because their amounts/accounts have changed. All adjustments may be influenced by estimates of future events, are made before taxes and are made before financial statements are prepared. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 1 Phillips - Chapter 04 #33 Topic Area: Why adjustments are needed 34. One major difference between deferral and accrual adjustments is: A. accrual adjustments are influenced by estimates of future events and deferral adjustments are not. B. deferral adjustments are made before taxes and accrual adjustments are made after taxes. C. deferral adjustments are made monthly and accrual adjustments are made annually. Daccounts affected by an accrual adjustment always go in the same direction (i.e., both accounts are. increased or both accounts are decreased) and accounts affected by a deferral adjustment always go in opposite directions. All adjustments may be influenced by estimates of future events, are made before taxes, and are made before financial statements are prepared. Accrual adjustments increase expenses and liabilities or they increase assets and revenues. Deferral adjustments decrease liabilities and increase revenues or they decrease assets and increase expenses. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Phillips - Chapter 04 #34 Topic Area: Adjusting journal entries 35. The company uses up $5,000 of the book value of an existing asset. The company adjusts its accounts accordingly. Which of the following is a true statement? A. B. C. D. This is an accrual adjustment. This is a closing adjustment. This is a deferral adjustment. The adjustment should not have been made. Accrual adjustments are adjusting entries necessary to record previously unrecorded activities. Deferral adjustments are adjusting entries to change the balances of either asset or liability accounts. This is a deferral adjustment to record depreciation which is necessary because the asset is being used up. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Phillips - Chapter 04 #35 Topic Area: Adjusting journal entries 36. Accrual adjustments link: A. assets and revenues moving in the same direction or liabilities and expenses moving in the same direction. B. assets and expenses moving in the same direction or liabilities and revenues moving in the same direction. C. assets and revenues moving in the opposite direction or liabilities and expenses moving in the opposite direction. D. assets and expenses moving in the opposite direction or liabilities and revenues moving in the opposite direction. Accrual adjustments record assets and revenues (increase asset and increase revenue) or expenses and liabilities (increase expense and increase liability) which have not previously been recorded. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 1 Learning Objective: 2 Phillips - Chapter 04 #36 Topic Area: Adjusting journal entries 37. At the end of the month, the adjusting journal entry to record the use of supplies would include: A. B. C. D. A debit to supplies and a credit to expenses. A credit to supplies and a debit to expenses. A debit to supplies and a credit to revenue. A credit to supplies and a debit to cash. Supplies is an asset account so the adjustment is to reduce the asset (credit) by the amount of the supplies which have been used up and have become an expense (debit). AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #37 Topic Area: Adjusting journal entries 38. A company owes rent at a rate of $6,000 per month. The company pays the rent owed on the tenth of each month for the previous month. At the end of each month, what kind of adjustment is required? A. B. C. D. An accrual adjustment. A comparative adjustment. A deferral adjustment. A matching adjustment. Accrual adjustments record previously unrecorded activity. Rent owed at the end of the month is an example of this. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #38 Topic Area: Adjusting journal entries 39. Which of the following is not a term for the value at which an asset is reported on a financial statement? A. B. C. D. Carrying value. Book value. Net book value. Accrual value Carrying value, book value and net book value are all possible terms used to describe the amount reported on the financial statements for an asset that is being depreciated. Cost minus accumulated depreciation equals ‘net' carrying value or book value. AACSB: analytic AICPA BB: resource management AICPA FN: reporting Blooms: knowledge Difficulty: Medium Learning Objective: 2 Learning Objective: 4 Phillips - Chapter 04 #39 Topic Area: Financial Statements 40. When the future benefits of existing assets are used up in the ordinary course of business: A. B. C. D. an expense is recorded. a loss is recorded. a credit to a liability is recorded. a debit to assets is recorded. When assets are used up (assets decrease) in generating revenue they become expenses expenses increase). AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #40 Topic Area: Adjusting journal entries 41. During the month, a company uses up $4,000 of supplies. At the end of the month, the related adjusting journal entry would result in: A. B. C. D. a decrease in an asset and an equal increase in liabilities. an increase in liabilities and an equal decrease in stockholders' equity. a decrease in an asset and an equal increase in expenses. an increase in liabilities and a loss of equal value. The adjusting journal entry is a deferral adjustment to increase an expense and decrease an asset. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #41 Topic Area: Adjusting journal entries 42. On December 31, a decision is made to accrue an expense and report a current liability. How many accounts will be included in this journal entry? A. B. C. D. None. One. Two. Three. An adjusting journal entry must involve at least 2 accounts. This is an accrual adjusting journal entry to increase an expense (debit) and increase a liability (credit). AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Easy Learning Objective: 2 Phillips - Chapter 04 #42 Topic Area: Adjusting journal entries 43. An adjusting journal entry that includes an increase to an asset contra-account would include an increase in a(n): A. B. C. D. related asset account. liability account. revenue account. expense account. The adjusting entry to increase the contra-account also increases expenses. For example, the adjusting entry to record depreciation increases Depreciation Expense with a debit and increases the contraaccount, Accumulated Depreciation, with a credit. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #43 Topic Area: Adjusting journal entries 44. To calculate the company's income tax expense for the current period, it is necessary to know: A. B. C. D. the company's operating revenue and tax bill from prior periods. the company's income before income taxes and the company's tax rate. the company's operating expenses and revenue. the company's net income from the previous period and the current tax rate. The previous year's net income or operating revenue is not required to determine the current year tax expense. It is necessary to know the current amount of income subject to tax and the current tax rate for the company. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Easy Learning Objective: 2 Phillips - Chapter 04 #44 Topic Area: Adjusting journal entries 45. Declared dividends: A. B. C. D. are an expense of doing business. are not a legal obligation that a company must pay. are a way to distribute the company's profits to its stockholders. are not recorded as a liability because they are not an expense of doing business. Dividends are not an expense on the income statement; they are a distribution of profit or net income of the company. There is no legal obligation to declare dividends, but once dividends are declared they are legal obligations and are recorded as a liability. AACSB: analytic AICPA BB: resource management AICPA FN: reporting Blooms: knowledge Difficulty: Medium Learning Objective: 3 Learning Objective: 4 Phillips - Chapter 04 #45 Topic Area: Financial Statements 46. Which of these accounts would normally not be affected by an adjustment? A. B. C. D. Supplies. Revenues. Expenses. Cash. Supplies, revenues or expenses could be affected by adjustments. Cash is not normally affected by an adjustment. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #46 Topic Area: Adjusting journal entries 47. Purrfect Pets had income before income tax of $164,000 last quarter and a 34% tax rate. Its net income should be reported as: A. B. C. D. $55,760. $108,240. $(55,760). $248,485. B is correct. Net Income is the bottom line on the Income Statement. $164,000 - ($164,000 *.34) = $108,240 AACSB: analytic AICPA BB: legal AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 4 Phillips - Chapter 04 #47 Topic Area: Financial Statements 48. Purrfect Pets had $6,000 of supplies at the end of October. During November, the company bought $2,000 of supplies. At the end of November, the company had $1,000 of supplies remaining. Which of the following statements is not true? A. B. C. D. During November, the company used $7,000 of supplies. The carrying value of supplies on November 30 should be $1,000. An expense should be debited for $7,000 in November. An asset should be debited for $1,000 in November. $1,000 should not be debited to Supplies. $1,000 is the ending balance in Supplies after making the correct adjusting entry for the amount of supplies used up in November. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #48 Topic Area: Adjusting journal entries 49. A company has an asset account, Prepaid Insurance, with a balance of $3,750 at the beginning of the month. The company used $980 of insurance during the month. Which of the following statements is true? A. B. C. D. The company should credit Insurance Expenses for $980 and debit Prepaid Insurance for $980. Retained earnings and stockholders' equity should decrease because of this transaction. The company should credit Accrued Liabilities for $980 and debit Insurance Expenses for $980. Retained earnings and stockholders' equity should be unchanged by this transaction. The adjusting entry should be a debit to Insurance Expense and a credit to Prepaid Insurance. Insurance Expense will increase as a result of this adjusting entry which means that net income will decrease and as a result retained earnings will decrease. Retained earnings is a component of stockholders' equity, so stockholders' equity will decrease. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #49 Topic Area: Adjusting journal entries 50. A company has a loan that accrues interest at a rate of $20 a day. The company pays the interest once a quarter. Which of these would be an accurate adjustment for a month in which no payments are made? A. B. C. D. Debit Interest Payable and credit Interest Expense. Debit Loans Payable and credit Cash. Debit Interest Expense and credit Interest Payable. Debit Cash and credit Loans Payable. Cash is never a part of an adjusting entry. The adjustment to record the accrued interest increases the Interest expense with a debit and increases the liability account Interest payable with a credit. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #50 Topic Area: Adjusting journal entries 51. Accumulated depreciation: A. B. C. D. is an expense account. is a liability account. is a regular asset account. is an asset contra-account. The expense account is Depreciation Expense. Accumulated depreciation is a contra-account or opposite to the debit balance asset which is being depreciated. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #51 Topic Area: Adjusting journal entries 52. A company pays wages every two weeks. Wages amount to $100 a day. On March 31, the company pays wages for the two weeks ending March 24. At the end of the month, the related adjusting journal entry will include a A. B. C. D. debit to Wages Payable for $700 and a credit to Cash for $700. debit to Wage Expense for $700 and a credit to Wages Payable for $700. debit to Wages Payable for $700 and a credit to Wages Expense for $700. debit to Retained Earnings for $700 and a credit to Wages Payable for $700. B is correct. 7 days have passed since wages were paid (March 25 - March 31) and an accrual adjustment to debit Wages Expense and credit Wages Payable is needed to record this. Solution: $100/day * 7 days = $700 unpaid wages AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #52 Topic Area: Adjusting journal entries 53. Contra-accounts: A. B. C. D. are used to increase the original value of the account they offset. always appear in the same column of the trial balance as the account they offset. always reduce the account they offset. are not allowed according to GAAP. A and B are incorrect. Contra-accounts are opposite or offset accounts so they must have opposite balance so they always reduce the accounts they offset. GAAP does not prohibit the use of contra-accounts. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 2 Learning Objective: 4 Phillips - Chapter 04 #53 Topic Area: Financial Statements 54. Recording an adjusting journal entry to recognize depreciation would cause which of the following? A. B. C. D. An increase in liabilities and expenses, and a decrease in stockholders' equity. A decrease in assets and stockholders' equity, and an increase in expenses. A decrease in assets, an increase in liabilities, and an increase in expenses. An increase in assets, an increase in liabilities, and a decrease in expenses The adjusting entry would have no effect on liabilities. The adjusting entry would increase depreciation expense (which would decrease stockholders' equity) and increase accumulated depreciation, a contraasset account, which would decrease assets. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #54 Topic Area: Adjusting journal entries 55. When a dividend has been declared but not yet paid, A. B. C. D. assets will increase and stockholders' equity will decrease. assets will decrease and stockholders' equity will increase. the balance sheet will not change until the dividend is paid. liabilities will increase and stockholders' equity will decrease. The dividends declared must be recorded which means the accounting equation will be affected. The entry to record the dividends is a debit to Dividends Declared which will be closed to Retained earnings (part of stockholders' equity) and a credit to Dividends payable, a liability account. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 4 Learning Objective: 5 Phillips - Chapter 04 #55 Topic Area: Financial Statements 56. At the end of the year, accrual adjusting journal entries could include a: A. B. C. D. debit to an expense and a credit to an asset. credit to a revenue and a debit to an expense. debit to cash and a credit to contributed capital. debit to an expense and a credit to a liability. A possible deferral adjusting entry is a debit to expense and a credit to an asset. A possible accrual adjusting entry is a debit to expense and a credit to a liability. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Easy Learning Objective: 2 Phillips - Chapter 04 #56 Topic Area: Adjusting journal entry 57. Your business purchased a certificate of deposit on April 1 that will pay $90 interest three months from that date. On April 30, which of the following adjusting journal entries would be made? A. B. C. D. Debit Interest Receivable for $90; credit Interest Revenue for $90. Debit Interest Revenue for $60; credit Interest Receivable for $60. Debit Interest Receivable for $30; credit Interest Revenue for $30. Debit Interest Revenue for $30; credit Interest Receivable for $60. An accrual adjustment is needed to record an asset (debit Interest Receivable $30) and revenue (credit Interest Revenue $30) previously unrecorded. Solution: 1/3 * $90 = $30 Interest earned in one month AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #57 Topic Area: Adjusting journal entries 58. Your business declared a $200 dividend on August 31, payable in September. On August 31, which of the following journal entries would be made? A. B. C. D. Debit Dividends Receivable for $200; credit Dividends Declared for $200. Debit Dividends Declared for $200; credit Dividends Payable for $200. Debit Dividends Payable for $200; credit Dividends Declared for $200. Debit Dividends Declared for $200; credit Dividends Receivable for $200. Dividends Declared is recorded with a debit, and since it is unpaid, the liability account Dividends Payable is recorded with a credit. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Easy Learning Objective: 2 Phillips - Chapter 04 #58 Topic Area: Adjusting journal entries Presented below are selected accounts from the unadjusted trial balance of Sneetch Star Makers Inc., a talent agency, at 12/31/10 (year-end) (debit and credit labels have been omitted; assume all balances are normal). Phillips - Chapter 04 59. A count of supplies revealed $400 worth on hand at 12/31/10. The adjusting entry would include A. B. C. D. a debit to supplies expense for $400. a debit to supplies expense for $600. a debit to supplies for $400. a debit to supplies for $600. The correct entry is to debit Supplies expense and credit Supplies for $600. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #59 Topic Area: Adjusting journal entries 60. The insurance policy covers four years and was purchased by Sneetch on 1/1/10. The adjusting entry on December 31 would include A. B. C. D. a debit to prepaid insurance for $1,200. a credit to prepaid insurance for $1,200. a debit to insurance expense for $3,600. a credit to prepaid insurance for $3,600. Insurance Expense should be debited and Prepaid Insurance should be credited for ¼ of the insurance cost. One of four years used up è $4,800 * ¼ = $1,200 AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #60 Topic Area: Adjusting journal entries 61. The office equipment depreciates at a rate of $1,000 per year. The adjusting entry would include A. B. C. D. a debit to accumulated depreciation for $1,000. a credit to office equipment for $1,000. a credit to depreciation expense for $1,000. a credit to accumulated depreciation for $1,000. The adjusting entry is a debit, increase, to depreciation expense and a credit, increase, to the contra-asset account Accumulated Depreciation. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #61 Topic Area: Adjusting journal entries 62. Two-fifths (40%) of the amount recorded as unearned revenue was earned as of 12/31/10. The adjusting entry would include A. B. C. D. a credit to service revenue for $3,000. a credit to unearned revenue for $3,000. a credit to service revenue for $2,000. a credit to unearned revenue for $2,000. The adjusting entry should include an increase, credit, to service revenue for 2/5 of the amount. $5000 * 2/5 = $2,000 earned AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #62 Topic Area: Adjusting journal entries 63. Accrued salaries at 12/31/10 are $2,000. The adjusting entry would include A. B. C. D. a debit to salaries payable for $2,000. a debit to salaries expense for $28,000. a credit to salaries payable for $2,000. a credit to salaries expense for $28,000. The accrual adjusting entry should be a debit to salaries expense and a credit to a liability, salaries payable, of $2,000. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 2 Phillips - Chapter 04 #63 Topic Area: Adjusting journal entries 64. The new CEO of the company takes over on December 10, 2010. He is promised a significant bonus for every percent he can raise net income in 2011 over 2010 results. Which of the following adjustments would aid him in making 2011 results look the most impressive? A. B. C. D. Allocating more of the cost of machinery to depreciation expense in 2011 than in 2010. Prepaying 2012 expenses in 2011. Deferring 2011 expenses to 2012 and accruing revenues in 2011 that don't exist. Recording 2011 revenue as unearned revenue. Increasing expenses in 2011 or reducing revenue in 2011 would not make the results look more impressive but reducing expenses and increasing revenues in the year would raise net income and would make the results more impressive. AACSB: analytic AICPA BB: critical thinking AICPA FN: measurement Blooms: comprehension Difficulty: Hard Learning Objective: 4 Learning Objective: 6 Phillips - Chapter 04 #64 Topic Area: Financial Statements 65. One of the major advantages of making adjustments in order to improve the quality of financial statements is that they: A. B. C. D. ensure that revenues and expenses are recognized during the period they are earned and incurred. ensure that all estimates of future activities are eliminated from consideration. ensure that revenues and expenses are recognized conservatively during the period they are paid. provide an opportunity to manipulate the numbers to the best effect. The main purpose of adjustments is to ensure that revenues and expenses are recognized in the proper period. Estimates are an inherent part of the accounting process and adjustments do not ensure conservatism. Manipulation or fraud is not the purpose of adjustments AACSB: analytic AICPA BB: critical thinking AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 1 Learning Objective: 6 Phillips - Chapter 04 #65 Topic Area: Financial Statement evaluation 66. Studies have found that companies that make adjusting entries: A. B. C. D. generally report "higher quality" earnings. make themselves immune to fraud by doing so. never violate generally accepted accounting principles. generally do so with the intent of misleading investors. Accrual and deferral adjusting entries help ensure that revenues and expenses are recorded in the proper periods. Fraud, the intention of misleading investors, or violation of GAAP is still possible. AACSB: analytic AICPA BB: critical thinking AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 1 Learning Objective: 6 Phillips - Chapter 04 #66 Topic Area: Financial Statement evaluation 67. Which of the following is done first at the end of each accounting period? A. B. C. D. Prepare adjusting journal entries. Prepare a post closing trial balance. Prepare closing journal entries. Prepare the statement of retained earnings. Before financial statements can be prepared, and before closing journal entries can be recorded, the unadjusted trial balance must be adjusted by adjusting journal entries. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 3 Learning Objective: 4 Learning Objective: 5 Phillips - Chapter 04 #67 Topic Area: Accounting process 68. Which of the following is done last at the end of the year? A. B. C. D. Prepare adjusting journal entries. Prepare an adjusted trial balance. Prepare closing journal entries. Prepare a post-closing trial balance. The post-closing trial balance is the final step in the accounting process. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 3 Learning Objective: 4 Learning Objective: 5 Phillips - Chapter 04 #68 Topic Area: Accounting process 69. After preparing adjusting entries, the equality of recorded debits and credits is checked by preparing a(n): A. B. C. D. adjusting journal entry analysis. adjusted trial balance. adjusted income statement. statement of cash flows. The adjusted trial balance is a check on the equality of the debits and credits that have been recorded. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Easy Learning Objective: 3 Phillips - Chapter 04 #69 Topic Area: Adjusted trial balance 70. If total debits are not equal to total credits in an adjusted trial balance, which of the following errors may have occurred? A. B. C. D. Posting Wage Expense to Administrative Expenses. Debiting Interest Payable instead of debiting Interest Expense. Debiting Notes Payable instead of debiting Interest Expense. Posting a credit to Wages Payable as a debit. As long as debits equal credits, the trial balance will balance but this is no guarantee that the correct accounts were used. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: comprehension Difficulty: Medium Learning Objective: 3 Phillips - Chapter 04 #70 Topic Area: Adjusted trial balance 71. An adjusted trial balance should be prepared immediately: A. B. C. D. after posting normal journal entries. before analyzing transactions. after posting adjusting journal entries. after posting closing journal entries. After posting normal journal entries based on having analyzed transactions, the unadjusted trial balance is prepared. After posting adjusting entries, the accounts have been ‘adjusted' and are now listed on the adjusted trial balance. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Medium Learning Objective: 3 Phillips - Chapter 04 #71 Topic Area: Adjusted trial balance 72. Which of the following statements about an adjusted trial balance is true? A. B. C. D. Debits should equal credits both before and after adjustments are made. Debits will equal credits after adjustments are made but not necessarily before. Debits will equal credits before adjustments are made but not necessarily after. Debits do not have to equal credits in the trial balance but they will in the income statement. The recording process of any transaction or adjustment should involve a journal entry with debits equal to credits. A trial balance, unadjusted or adjusted, is a check that total debits equal total credits. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Easy Learning Objective: 3 Phillips - Chapter 04 #72 Topic Area: Adjusted trial balance 73. In a trial balance a contra-account appears: A. B. C. D. just before the account it offsets but in the opposite column. just after the account it offsets and in the same column. just after the account it offsets but in the opposite column. just before the account it offsets and in the same column. A contra-account is shown on the trial balance after the account it offsets and in the opposite column. AACSB: analytic AICPA BB: resource management AICPA FN: reporting Blooms: knowledge Difficulty: Medium Learning Objective: 3 Phillips - Chapter 04 #73 Topic Area: Adjusted trial balance 74. Which of the following would appear in the debit column of an adjusted trial balance? A. B. C. D. Service revenue. Prepaid rent. Accumulated depreciation. Contributed capital. Service revenue, Accumulated depreciation and Contributed capital are credit balance accounts and would appear in the credit column of an adjusted trial balance. Prepaid rent has a debit balance and would appear in the debit column. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Easy Learning Objective: 3 Phillips - Chapter 04 #74 Topic Area: Adjusted trial balance 75. Which of the following would appear in the credit column of an adjusted trial balance? A. B. C. D. Income tax payable. Cost of goods sold. Prepaid insurance. Interest receivable. Cost of goods sold, Prepaid insurance and Interest receivable are debit balance accounts and would appear in the debit column of an adjusted trial balance. Income tax payable is a credit balance account and would appear in the credit column. AACSB: analytic AICPA BB: resource management AICPA FN: measurement Blooms: knowledge Difficulty: Easy Learning Objective: 3 Phillips - Chapter 04 #75 Topic Area: Adjusted trial balance 76. After adjusting journal entries are prepared and posted, but before closing journal entries are prepared and posted, the balance in retained earnings is equal to A. B. C. D. zero. the difference between total assets and total liabilities. the amount that is to be reported in the current year's balance sheet. the amount that was reported on the previous year's balance sheet. The balance in Retained earnings on the adjusted trial balance will be equal to the beginning of the year amount which is the amount that was reported on the previous year's balance sheet and it may or may not be zero. The difference between total assets and total liabilities is the amount of total stockholders' equity which is both contributed capital and retained ear