Accounting 201 - Chapter 3

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Accounting 201 Chapter 3

  
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  • 1. 
    Under accrual accounting, revenue is recorded
    • A. 

      When the cash is collected, regardless of when the services are performed

    • B. 

      When the services are performed, regardless of when the cash is received

    • C. 

      Either when the cash is received or the sale is made


  • 2. 
    A company using the accrual basis of accounting pays $15,000 for a television advertising campaign.  Commercials will run evenly in December, January, and February. How much expense will be reported on an income statement prepared for the month of December?
    • A. 

      $0

    • B. 

      $5,000

    • C. 

      $10,000

    • D. 

      $15,000


  • 3. 
    To obtain a new customer, a business sells merchandise to the customer for $65. Normally, the merchandise sells for $85. For this sale, the business should record revenue of
    • A. 

      $85

    • B. 

      $65

    • C. 

      Neither amount


  • 4. 
    Adjusting entries are:
    • A. 

      Not needed under the accrual basis of accounting

    • B. 

      Prepared at the option of the accountant

    • C. 

      Prepared at the beginning of the accounting period to update all accounts.

    • D. 

      Prepared at the end of the accounting period to update certain accounts.


  • 5. 
    Prepaid insurance is reported on the balance sheet as a(n):
    • A. 

      Expense

    • B. 

      Liability

    • C. 

      Asset

    • D. 

      Contra asset


  • 6. 
    The book value of a plant asset is the
    • A. 

      Accumulated depreciation less the cost of the asset

    • B. 

      Cost of the asset

    • C. 

      Balance in the accumulated depreciation account

    • D. 

      Cost of the asset less the accumulated depreciation


  • 7. 
    A liability that arises from an expense that has not yet been paid is a(n):
    • A. 

      Unearned expense

    • B. 

      Prepaid expense

    • C. 

      Accrued expense

    • D. 

      Accrued revenue


  • 8. 
    Unearned revenue is a(n):
    • A. 

      Asset account

    • B. 

      Liability account

    • C. 

      Revenue account

    • D. 

      Expense account


  • 9. 
    Which account is debited in the adjusting entry to record salaries owed to employees, but not paid until next accounting period?
    • A. 

      Salary Expense

    • B. 

      Unearned Salaries

    • C. 

      Salary Payable

    • D. 

      Deferred Salary


  • 10. 
    The book value of an asset that cost $20,000 and has accumulated depreciation of $6,000 is
    • A. 

      $20,000

    • B. 

      $ 6,000

    • C. 

      $26,000

    • D. 

      $14,000


  • 11. 
    A company has $800 in beginning supplies and $150 of supplies on hand at the end of the month.  The adjusting entry for this company is:
    • A. 

      Debit supplies of $150 and a credit of $150 to Supplies Expense

    • B. 

      Debit supplies Expense of $150 and a credit of $150 to Supplies

    • C. 

      Debit supplies Expense of $650 and a credit of $650 to Supplies

    • D. 

      There is not enough information given to prepare the entry


  • 12. 
    An accrual refers to an event where the
    • A. 

      Expense or revenue is not recorded after the cash settlement

    • B. 

      Liability is recorded after the cash settlement

    • C. 

      Expense or revenue is recorded before the cash settlement

    • D. 

      Asset is recorded only after the cash settlement


  • 13. 
    The financial statements are prepared from the
    • A. 

      Adjustments

    • B. 

      Unadjusted trial balance

    • C. 

      Ledger

    • D. 

      Adjusted trial balance


  • 14. 
    How does an accrued expense adjustment affect the financial statements?  The adjustment
    • A. 

      Increases expenses and decreases assets

    • B. 

      Increases expenses and increases liabilities

    • C. 

      Decreases expenses and increases liabilities

    • D. 

      Decreases expenses and increases assets


  • 15. 
    What effect does an accrued revenue adjustment have on a company’s net income?
    • A. 

      The adjustment has no effect on net income

    • B. 

      The adjustment increases net income for the period

    • C. 

      The adjustment decreases net income for the period

    • D. 

      The effect of the adjustment cannot be determined with the information given


  • 16. 
    Which of the following is NOT true regarding the adjusting process?
    • A. 

      The adjusting process updates the balance sheet.

    • B. 

      Every adjusting entry affects the balance sheet and the income statement.

    • C. 

      Adjustments are made during the month.

    • D. 

      The main adjusting entries are deferrals, depreciation and accruals.


  • 17. 
    After the adjustments are journalized and posted, a(n) _____________ can be prepared to aid in the preparation of the financial statements:
    • A. 

      Balance sheet

    • B. 

      Adjusted trial balance

    • C. 

      Post-close trial balance

    • D. 

      Income statement


  • 18. 
    Accounts that relate to a limited period are called:
    • A. 

      Asset and liability accounts

    • B. 

      Permanent accounts

    • C. 

      Real accounts

    • D. 

      Temporary accounts


  • 19. 
    Which of the following accounts is considered a "temporary" account?
    • A. 

      Inventory

    • B. 

      Rent Expense

    • C. 

      Accounts Payable

    • D. 

      Common Stock


  • 20. 
    Closing entries transfer the revenue, expense, and dividends balances to:
    • A. 

      Retained earnings

    • B. 

      Permanent accounts

    • C. 

      Temporary accounts

    • D. 

      None of the above


  • 21. 
    On September 1, Boz sold to Skaggs prepaid maintenance for $6,000 for six months.  As of December 31, what is the amount that has been earned?
    • A. 

      $0

    • B. 

      $2000

    • C. 

      $4000

    • D. 

      $6000


  • 22. 
    Which of the following financial statements is prepared using the adjusted trial balance?
    • A. 

      Both the balance sheet and the income statement

    • B. 

      Neither the balance sheet nor the income statement

    • C. 

      The balance sheet only

    • D. 

      The income statement only


  • 23. 
    Which account is debited in the adjusting entry to record insurance expired during the current period?
    • A. 

      Prepaid Insurance

    • B. 

      Insurance Expense

    • C. 

      Accrued Insurance

    • D. 

      Insurance Payable


  • 24. 
    An expense incurred in 2010 is not paid until 2011. Using the accrual basis of accounting, the expense should appear on:
    • A. 

      ) the 2010 income statement

    • B. 

      The 2011 income statement

    • C. 

      Neither the 2010 nor the 2011 income statement

    • D. 

      Both the 2010 and 2011 income statements


  • 25. 
    According to the revenue principle, revenue should be recorded
    • A. 

      Before it has been earned

    • B. 

      When the cash is received

    • C. 

      When it has been earned

    • D. 

      Whenever the company needs to record the revenue


  • 26. 
    In most cases, revenue is earned
    • A. 

      When the cash is received

    • B. 

      When the order is placed

    • C. 

      When the customer mails the check

    • D. 

      When the goods or services have been delivered to the customer


  • 27. 
    Thompson Company executives are planning a $5 million advertising campaign. The expense of this advertising campaign should be recognized when
    • A. 

      Planning for the campaign is complete

    • B. 

      Cash is paid to the television stations which will run the commercials

    • C. 

      Commercials are filmed

    • D. 

      Commercials are broadcast


  • 28. 
    An expense that is paid in advance is a(n):
    • A. 

      Unearned expense

    • B. 

      Prepaid expense

    • C. 

      Liability

    • D. 

      Unearned asset


  • 29. 
    Prepaid expenses will:
    • A. 

      Become expenses when their future benefits expire

    • B. 

      Become revenues when their future benefits expire

    • C. 

      Become liabilities when their future benefits expire

    • D. 

      Become none of the above


  • 30. 
    Current assets include
    • A. 

      Cash and receivables

    • B. 

      Cash and payables

    • C. 

      Land and Building

    • D. 

      Retained earnings


  • 31. 
    A company has $900 in beginning supplies and $700 of supplies used during the month.  The adjusting entry for this company is:
    • A. 

      Debit supplies $700 and a credit supplies expense $700

    • B. 

      Debit supplies expense $200 and a credit supplies $200

    • C. 

      Debit supplies expense $700 and a credit supplies $700

    • D. 

      There is not enough information given to prepare the entry


  • 32. 
    Which account is debited in the adjusting entry to record depreciation expense during the current period?
    • A. 

      Accumulated Depreciation

    • B. 

      Equipment

    • C. 

      Depreciation Expense

    • D. 

      Depreciation Payable


  • 33. 
    Which of the following accurately describes the account type of the Accumulated Depreciation account?
    • A. 

      Contra-expense account

    • B. 

      Liability account

    • C. 

      Contra-asset account

    • D. 

      Expense account


  • 34. 
    Which of the following accurately describes the normal balance of the Accumulated Depreciation account?
    • A. 

      Credit balance

    • B. 

      Debit balance


  • 35. 
    On November 1, Phillips Tool and Die Company paid six months’ insurance in advance totaling $9,000.  An adjusted trial balance prepared on December 31 would include a balance in the Prepaid Insurance account of:
    • A. 

      $9000

    • B. 

      $6000

    • C. 

      $3000

    • D. 

      $0


  • 36. 
    To close the expense accounts
    • A. 

      Debit retained earnings

    • B. 

      Debit expenses

    • C. 

      Credit retained earnings


  • 37. 
    On November 1 of the current year, Prepaid Rent was debited $5,400 for three months of rent, paid in advance. The amount of the adjusting entry on December 31 is (2 months):
    • A. 

      $1800

    • B. 

      $3600

    • C. 

      $5400

    • D. 

      $0


  • 38. 
    On August 1 of the current year, Jamie Simmons received $5,400 for legal services to be performed  evenly throughout the next six months. An adjusted trial balance prepared on December 31 of the current year will show a credit balance in Unearned Revenue in the amount of:
    • A. 

      $0

    • B. 

      $900

    • C. 

      $4500

    • D. 

      $5400


  • 39. 
    To record wages that have been earned but have not been paid:
    • A. 

      Debit wages payable, credit cash

    • B. 

      Debit wages expense, credit cash

    • C. 

      Debit wages expense, credit wages payable

    • D. 

      Debit cash, credit wages expense


  • 40. 
    To close the revenue account:
    • A. 

      Debit retained earnings

    • B. 

      Credit revenue

    • C. 

      Credit retained earnings


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