Adjusting the Accounts

Question 1

True or False

The adjusting entry at the end of the period relating to a payment made in advance by a customer originally recorded as revenue would involve a debit to the revenue account and credit to unearned revenue account, the amount being the portion still unearned.

Answer 1

True

Question 2

True or False

If an adjustment for accrued expense has not been made, then liabilities, expenses, and capital will all be understated.

Answer 2

False

Question 3

True or False

Making adjusting entries at year-end is not needed if all transactions were originally recorded in conformity with GAAP.

Answer 3

False

Question 4

True or False

Failure to record the adjusting entry for accrued wages results in the current year’s profit being understated.

Answer 4

False

Question 5

True or False

An accrued income adjustment would require a debit to asset and credit to liability.

Answer 5

False

Question 6

True or False

After all adjusting and closing entries are recorded and posted, the general ledger accounts that appear on both balance sheet and income statement accounts have no balances.

Answer 6

False

Question 7

True or False

An adjusting entry crediting Rent expense and debiting Prepaid rent can be reversed.

Answer 7

True

Question 8

Multiple Choice (Theory)

Deferred revenues should be reported as:

a. Expenses on the income statement
b. Revenues on the income statement
c. Liabilities on the balance sheet
d. Assets on the balance sheet

Answer 8

c. Liabilities on the balance sheet

Question 9

Multiple Choice (Theory)

Failure to adjust for accrued wages at year-end will result in an:

a. Overstatement of assets
b. Understatement of owner’s equity
c. Overstatement of owner’s equity
d. Overstatement of liabilities

Answer 9

c. Overstatement of owner’s equity

Question 10

Multiple Choice (Theory)

Accrued revenues has a semblance of a(an):

a. Revenue
b. Asset
c. Liability
d. Expense

Answer 10

b. Asset

Question 11

Multiple Choice (Theory)

Merchandise inventory at the end of the year was inadvertently overstated. Which of the following statement correctly states the effect of the error on net income, assets and owner’s equity?

a. Net income is overstated, assets are overstated, owner’s equity is overstated
b. Net income is understated, assets are understated, owner’s equity is overstated
c. Net income is understated, assets are overstated, owner’s equity is understated
d. Net income is overstated, assets are overstated, owner’s equity is understated

Answer 11

a. Net income is overstated, assets are overstated, owner’s equity is overstated

Question 12

Multiple Choice (Theory)

Reversing entries apply to:

a. All adjusting entries
b. All accruals
c. All closing entries
d. All deferrals

Answer 12

b. All accruals

Question 13

Multiple Choice (Theory)

If the account interest income has a debit balance on the first day of the new accounting period, then you would know that:

a. A post-closing trial balance was prepared.
b. Closing entries have been made.
c. A reversing journal entry has been recorded.
d. The adjusting entries have been recorded.

Answer 13

c. A reversing journal entry has been recorded.

Question 14

Multiple Choice (Theory)

Accrued expenses should be reported as:

a. Expenses on the income statement
b. Liabilities on the balance sheet
c. Revenues on the income statement
d. Assets on the balance sheet

Answer 14

b. Liabilities on the balance sheet

Question 15

Multiple Choice (Theory)

Adjusting entries involve:

a. Only real accounts
b. Only nominal accounts
c. Only capital accounts
d. One real and one nominal

Answer 15

d. One real and one nominal

Question 16

Multiple Choice (Theory)

An understatement in the cost of goods sold in the current year will cause which of the following:

a. Ending inventory will be understated
b. Ending inventory will be overstated
c. Net income will be understated
d. Net income will be overstated

Answer 16

d. Net income will be overstated

Question 17

Multiple Choice (Theory)

An adjusting entry cannot debit to a(an):

a. Expense and credit to a revenue
b. Expense and credit to an asset
c. Asset and credit to a revenue
d. Liability and credit to a revenue

Answer 17

a. Expense and credit to a revenue

Question 18

Multiple Choice (Problem Solving)

OhmyV33nus, sole proprietor of Blacklist International, bought an office equipment costing P120,000. However, it was charged to repairs and maintenance.

The data about the purchased equipment are found below:

• Date of purchase – June 30, 2020
• Estimated useful life – 5 years
• Salvage value – none

Upon discovery of the error during the closing of the books on December 31, 2020, it was also corrected on the same date.

How much is the overstatement or understatement of net income for the year ended December 31, 2020 because of the error?

a. 12,000 understatement
b. 12,000 overstatement
c. 108,000 overstatement
d. 108,000 understatement

Answer 18

d. 108,000 understatement

Question 19

Multiple Choice (Problem Solving)

Based on the same problem, upon discovery of the error, which among the following is correct with regards to the correcting entry needed to update the balances of the office equipment and the related valuation account?

a. Cr. Accumulated depreciation, 24,000
b. Dr. Office Equipment, 120,000
c. Cr. Depreciation expense, 12,000
d. Dr. Repairs and Maintenance, 120,000

Answer 19

b. Dr. Office Equipment, 120,000

Question 20

Multiple Choice (Problem Solving)

The net income reported on the income statement of Lalisa Corp. is P187,500. However, adjusting entries have not been made at the end of the period for used supplies of 3,500, the expired portion of prepaid rent of 1,295, and accrued salaries of 6,800. Net income, as corrected, is:

a. 178,495
b. 182,705
c. 175,905
d. 189,505

Answer 20

c. 175,905

Question 21

Multiple Choice (Problem Solving)

Kwon Jiyong owns and manages a car wash business. Unearned revenue was P12,000 at the end of February, and 15,000 at the end of March. Car wash services rendered for the month of March amounted to 54,000. How much was received for services provided during March?

a. 69,000
b. 57,000
c. 51,000
d. 81,000

Answer 21

b. 57,000

Question 22

Multiple Choice (Problem Solving)

Total salaries paid on January 5, 2020 is 5,000. Out of the amount paid, 1,500 is applicable on the preceding period 2019. The effect on the 2009 balance sheet accounts if no adjusting entry is prepared:

Note: Answer according to this order: Assets; Liabilities; Owner’s equity

a. No effect; Overstated 1,500; Understated 1,500
b. Overstated 1,500; No effect; Overstated 1,500
c. No effect; Understated 1,500; Overstated 1,500
d. Understated 1,500; No effect; Understated 1,500

Answer 22

c. No effect; Understated 1,500; Overstated 1,500

Question 23

Multiple Choice (Problem Solving)

Bright Vachirawit paid an insurance premium amounting to 9,000. He used the expense method. At the end of the period, 3,500 has already expired. If an adjusting entry was not prepared, then:

a. The net income is understated by 5,500.
b. The net income is overstated by 3,500.
c. The net income is overstated by 5,500.
d. The net income is understated by 5,300.

Answer 23

a. The net income is understated by 5,500.

Question 24

Multiple Choice (Problem Solving)

On November 1, 2020, Jennie Kim issued a P200,000, 12%, 90-day note to a supplier. The interest was not yet paid at the end of the year 2020. The adjusting entry for December 31, 2020 is:

a. Dr. accrued interest income 4,000; Cr. interest income 4,000
b. Dr. interest expense 2,000; Cr. accrued interest expense 2,000
c. Dr. accrued interest income 2,000; Cr. interest income 2,000
d. Dr. interest expense 4,000; Cr. accrued interest expense 4,000

Answer 24

d. Dr. interest expense 4,000; Cr. accrued interest expense 4,000

Question 25

Multiple Choice (Problem Solving)

The salaries paid by Gdragon during the month are 90,000. The salary charged as expense in the income statement for the month is 80,000. The account “Salary Payable” has a balance of 20,000 at month-end. The salary payable has a balance at the beginning of the month of:

a. 80,000
b. 20,000
c. 30,000
d. 10,000

Answer 25

c. 30,000

Question 26

Multiple Choice (Problem Solving)

Hyolyn has an unpaid rental in the amount of 6,000. The bookkeeper mistakenly recorded the adjustment at 9,000. The adjusting entry to correct the balances of accounts affected in the entry would be:

a. Dr. rent expense 6,000; Cr. accrued rent expense 6,000
b. Dr. accrued rent expense 3,000; Cr. rent expense 3,000
c. Dr. rent expense 3,000; Cr. accrued rent expense 3,000
d. Dr. accrued rent expense 6,000; Cr. rent expense 6,000

Answer 26

b. Dr. accrued rent expense 3,000; Cr. rent expense 3,000

Question 27

Multiple Choice (Problem Solving)

The allowance for bad debts has a debit balance of 600. The accounts receivable has a debit balance of 100,000. The allowance account should be adjusted to one percent of the outstanding accounts receivable. The adjusting entry is:

a. Dr. bad debts 1,000; Cr. allowance for bad debts 1,000
b. Dr. bad debts 1,600; Cr. allowance for bad debts 1,600
c. Dr. bad debts 400; Cr. allowance for bad debts 400
d. None of the above

Answer 27

b. Dr. bad debts 1,600; Cr. allowance for bad debts 1,600