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| 1 | |
Although it is possible to find an exception to the following statement, the vast majority of adjusting entries follow which pattern described below: |
| | A) | One of the accounts debited or credited is an income statement account while the second account debited or credited is a balance sheet account. |
| | B) | Both of the accounts debited or credited are income statement accounts. |
| | C) | Both of the accounts debited or credited are balance sheet accounts. |
| | D) | Both of the accounts debited or credited are part of the statement of owner's equity. |
| | E) | None of the above is correct. |
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| 2 | |
The financial accounting principle which best explains why most entities adopt a 12-month accounting period is the: |
| | A) | Going-concern principle. |
| | B) | Cost principle. |
| | C) | Conservatism principle. |
| | D) | Time period or periodicity principle. |
| | E) | Monetary-unit principle. |
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| 3 | |
A company has adopted a 12-month accounting period which ends on January 31 of each year. The company prepares quarterly interim financial statements and one set of annual financial statements. Which of the following date sequences is the correct sequence for the issuance of company balance sheets? |
| | A) | December 31, March 31, June 30, September 30 |
| | B) | February 28, May 31, August 31, November 30 |
| | C) | December 31, January 31, April 30, July 31 |
| | D) | January 31, April 30, August 31, November 30 |
| | E) | January 31, April 30, July 31, October 31 |
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| 4 | |
A company purchased a two-year fire insurance policy on May 1, 2006. It paid the $2,400 premium in cash on the same date and recorded the entry with a debit to Prepaid Insurance for $2,400. The company has adopted a 12-month accounting period ending on January 31 of each year. How much insurance expense will be recorded for the accounting periods ending January 31, 2007, and January 31, 2008, if the company uses the accrual basis of accounting? |
| | A) | $1,800 and $2,400 |
| | B) | $900 and $1,200 |
| | C) | $2,400 and $0 |
| | D) | $0 and $2,400 |
| | E) | None of the above. |
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| 5 | |
The basic difference between the cash basis of accounting and the accrual basis of accounting is that each basis interprets differently which two accounting principles? |
| | A) | The cost principle and the going-concern principle |
| | B) | The monetary unit principle and the time-period principle |
| | C) | The matching principle and the revenue recognition principle |
| | D) | The cost principle and the revenue recognition principle |
| | E) | The conservatism principle and the cost principle |
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| 6 | |
Four types of adjustments are discussed in the textbook. Two of these types are called Accrued Expenses and Accrued Revenues. Which statement best describes the income statement effect of these two types of adjustments? |
| | A) | An expense or revenue has already been recorded in the books for the item in question so the adjustment must decrease the expense account or must decrease the revenue account. |
| | B) | An expense or revenue has already been recorded in the books for the item in question so the adjustment must increase the expense account or increase the revenue account. |
| | C) | An expense or revenue has not yet been recorded in the books for the item in question so the adjustment must increase the expense account or increase the revenue account. |
| | D) | An expense or revenue has not yet been recorded in the books for the item in question so the adjustment must decrease the expense account or must decrease the revenue account. |
| | E) | None of the above. |
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| 7 | |
The theoretical reason for recording periodic depreciation expense rather than immediately expensing the cost of a plant asset in the period it is acquired is to adhere to the: |
| | A) | Cost principle |
| | B) | Monetary unit principle |
| | C) | Going-concern principle |
| | D) | Materiality principle |
| | E) | Matching principle |
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| 8 | |
A company adopts the accounting practice whereby all external transactions involving prepaid expenses, such as prepaid insurance, prepaid rent, and office supplies are initially debited to the asset account when acquired. If the company fails to adjust any one of these accounts for the current year, what will be the effect on (1) the current year's total expenses, (2) total revenues, (3) net income, and (4) ending owner's equity? |
| | A) | understated, understated, understated, and understated |
| | B) | understated, overstated, overstated, and overstated |
| | C) | understated, no effect, overstated, and overstated |
| | D) | overstated, overstated, no effect, and no effect |
| | E) | understated, no effect, overstated, and understated |
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| 9 | |
Boron Company is a sole proprietorship. Its bookkeeper has prepared a correct adjusted trial balance as of December 31, 2006. Even though this adjusted trial balance is correct in every respect, there is still one account whose balance does not represent the correct end-of-the-period balance. Which account is it? |
| | A) | The owner's drawing account (also called owner withdrawals) |
| | B) | The Cash account |
| | C) | The Accumulated Depreciation account |
| | D) | The owner's equity account |
| | E) | None of these. |
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| 10 | |
At the beginning of the year, a business had a three-year, $2,520 insurance policy on its office equipment which is the balance in the Prepaid Insurance account. On July 1, it purchased a three-year, $3,600 policy on a newly constructed building and debited this amount to Prepaid Insurance. Which of the following will be the December 31, year-end, adjusting entry? |
| | A) | Insurance Expense, debit, $6,120; Prepaid Insurance, credit, $6,120 |
| | B) | Insurance Expense, debit, $2,400; Prepaid Insurance, credit, $2,400 |
| | C) | Prepaid Insurance, debit, $1,440; Cash, credit, $1,400 |
| | D) | Insurance Expense, debit, $1,440; Prepaid Insurance, credit, $1,440 |
| | E) | None of the journal entries in this group |
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| 11 | |
At the end of the accounting period, the business had $5,000 of office supplies on hand. At the beginning of the period, the amount of supplies on hand was $2,000. If the business purchased $12,000 of office supplies during the year, what amount of office supplies were used during the year? |
| | A) | $ 7,000 |
| | B) | $14,000 |
| | C) | $10,500 |
| | D) | $ 9,000 |
| | E) | None of the above |
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| 12 | |
At the end of the fiscal year, an adjusting entry was made for accrued salaries of $2,000. The salaries for one week, $4,250, were paid on the first Friday of the new fiscal period. When the weekly salaries are paid on the first Friday of the new accounting period, what will be the general journal entry? |
| | A) | Salaries Expense, debit, $4,250; Cash, credit, $4,250 |
| | B) | Salary Exp., debit, $2,000; Cash, credit, $2,000 |
| | C) | Salaries Expense, debit, $4,250; Salaries Payable, credit, $4,250 |
| | D) | Salary Exp., debit, $2,250; Salaries Payable, debit, $2,000; Cash, credit, $4,250 |
| | E) | None of the journal entries shown above |
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| 13 | |
You own your own CPA firm. You have agreed to keep the accounting records for a business that has agreed to pay you $650 per month. Your services to this client are rendered uniformly over the year and you begin rendering services on April 16. You use the accrual basis of accounting for your own company and you prepare monthly financial statements for your firm. Your client makes his first payment of $650 to you on May 16. Which of the following entries will you record on May 16 when you receive the $650 cash payment? |
| | A) | Cash, debit, $325; Accounts Receivable, credit, $325 |
| | B) | Cash, debit, $650; Accounts Receivable, credit, $325; Fees Earned, credit, $325 |
| | C) | Cash, debit, $650; Fees Earned, credit, $650 |
| | D) | Accounts Receivable, debit, $650; Cash, credit, $325; Fees Earned, credit, $325 |
| | E) | None of the above |
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| 14 | |
A tenant rented space in your company's office building on October 1 at $1,800 per month, paying seven months' rent in advance. The bookkeeper recognized a current liability of $12,600. How much of this amount remains unearned as of December 31? |
| | A) | $12,600 |
| | B) | $5,400 |
| | C) | $7,200 |
| | D) | $0 |
| | E) | None of the above |
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| 15 | |
An NBA basketball team sells season tickets worth $48 million before the basketball season starts late in the year. Assume this $48 million is debited to Cash and credited to Unearned Ticket Revenue. By the end of the calendar year, which also happens to be the team's accounting period end, 25% of the games have been played. What adjusting journal entry should be made at the end of the year? |
| | A) | Unearned Ticket Revenue, debit, $12 million; Cash, credit, $12 million |
| | B) | Ticket Revenue, debit, 12 million; Unearned Ticket Revenue, credit, $12 million |
| | C) | Unearned Ticket Revenue, debit, $12 million; Ticket Revenue, credit, $12 million |
| | D) | Ticket Revenue, debit, $12 million; Cash, credit, $12 million |
| | E) | None of the above |
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| 16 | |
A firm forgets to adjust it accounts for interest revenue that has been earned but not yet received. Which type of adjustment should they have made? |
| | A) | Accrued revenue |
| | B) | Accrued expense |
| | C) | Prepaid (deferred) expense |
| | D) | Unearned (deferred) revenue |
| | E) | None of the above. |
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| 17 | |
Which of the following is a type of adjusting journal entry? |
| | A) | Prepaid (Deferred) expenses. |
| | B) | Unearned (Deferred) revenues. |
| | C) | Accrued revenues. |
| | D) | Accrued expenses. |
| | E) | All of the above |
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| 18 | |
| Cash | $15,000 | | Accounts Payable | $15,000 | | Accounts Receivable | 35,000 | | Notes Payable | 25,000 | | Supplies | 4,000 | | Mortgage Payable | 85,000 | | Prepaid Insurance | 3,000 | | Capital, Mary Ling | 195,000 | | Other Prepaid Expenses | 1,000 | | Withdrawals, Mary Ling | 22,000 | | Equipment | 65,000 | | Revenues | 190,000 | | Buildings | 140,000 | | Salaries Expense | 73,000 | | Land | 40,000 | | Rent Expense | 65,000 | | Patents | 10,000 | | Utilities Expense | 37,000 |
Assuming all of the accounts have normal balances, what is the total of the trial balance? |
| | A) | $532,000 |
| | B) | $508,000 |
| | C) | $488,000 |
| | D) | $510,000 |
| | E) | Does not balance |
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| 19 | |
The notion that the life of a business is divisible into time periods of equal length is known as which of the following? |
| | A) | Continuing-concern principle |
| | B) | Monetary unit principle |
| | C) | Revenue recognition principle |
| | D) | Time-period principle |
| | E) | Business entity principle |
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| 20 | |
A business rented space in an office building on October 1, at $600 per month, paying 9 months of rent in advance. The bookkeeper recognized a prepaid asset of $5,400 when the payment was made. No year-end adjustment was recorded. As a consequence of overlooking the required adjustment, which of following occurred? |
| | A) | Expenses were overstated and assets were understated |
| | B) | Expenses were understated and assets were overstated |
| | C) | Expenses were overstated and assets were overstated |
| | D) | Expenses were understated and assets were understated |
| | E) | None of the above |
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| 21 | |
At the beginning of the year, a business had a two-year, $12,000 insurance policy on its office equipment. On July 1 it purchased a three-year, $18,000 policy on a newly constructed building. A December 31, year-end, an adjusting entry was made for the policy on the building but not for the policy on the office equipment. As a consequence of the oversight, which of the following occurred? |
| | A) | Expenses are overstated and assets are overstated |
| | B) | Expenses are understated and assets are understated |
| | C) | Expenses are overstated and assets are understated |
| | D) | Expenses are understated and assets are overstated |
| | E) | None of the above will occur |
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| 22 | |
Dee Hellings, Inc. performed $3,000 worth of services for a client during December but did not get paid until the first week of February of the next year. No year-end adjusting entry was recorded on December 31. As a consequence of this oversight, which of the following occurred? |
| | A) | Assets were understated and revenue was understated |
| | B) | Assets were overstated and revenue was understated |
| | C) | Assets were understated and revenue was overstated |
| | D) | Assets were overstated and revenue was overstated |
| | E) | Liabilities were understated and revenue was understated |
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| 23 | |
Only the credit portion of an adjusting entry to record $750 of expired insurance was posted. The trial balance will reflect which of the following?
| | Amount out of balance | | Column with larger total | | A. | $1,500 | | debit | | B. | $1,500 | | credit | | C. | $ 750 | | debit | | D. | $ 750 | | credit | | E. | $ 0 | | neither |
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| | A) | Option A |
| | B) | Option B |
| | C) | Option C |
| | D) | Option D |
| | E) | Option E |
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| 24 | |
Revenues for the period total $480,000 and expenses for the period total $420,000. What will be the profit marginpercentage for the business operations? |
| | A) | 25.0% |
| | B) | 87.5% |
| | C) | 12.5% |
| | D) | $60,000 |
| | E) | None of the above |
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| 25 | |
Which year shows the best profit margin for the business? |
| | A) | 2001: Profit Margin 12.45% |
| | B) | 2002: Profit Margin 14.25% |
| | C) | 2003: Profit Margin 15.35% |
| | D) | 2004: Profit Margin 10.80% |
| | E) | 2005: Profit Margin 13.71% |
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