Chapter 3 Self Test

Question 1

The time period assumption states that:
revenue should be recognized in the accounting period in which it is earned.
expenses should be matched with revenues.
the economic life of a business can be divided into artificial time periods.
the fiscal year should correspond with the calendar year.

Answer 1

the economic life of a business can be divided into artificial time periods.

Question 2

The time period assumption states that:
companies must wait until the calendar year is completed to prepare financial statements.
companies use the fiscal year to report financial information.
the economic life of a business can be divided into artificial time periods.
companies record information in the time period in which the events occur.

Answer 2

the economic life of a business can be divided into artificial time periods.

Question 3

Which of the following statements about the accrual basis of accounting is false?
Events that change a company’s financial statements are recorded in the periods in which the events occur.
Revenue is recognized in the period in which it is earned.
This basis is in accord with generally accepted accounting principles.
Revenue is recorded only when cash is received, and expense is recorded only when cash is paid.

Answer 3

Revenue is recorded only when cash is received, and expense is recorded only when cash is paid.

Question 4

The principle or assumption dictating that efforts (expenses) be matched with accomplishments (revenues) is the:
expense recognition principle.
cost assumption.
time period principle.
revenue recognition principle.

Answer 4

expense recognition principle.

Question 5

Adjusting entries are made to ensure that:
expenses are recognized in the period in which they are incurred.
revenues are recorded in the period in which they are earned.
balance sheet and income statement accounts have correct balances at the end of an accounting period.
All of the above

Answer 5

All of the above

Question 6

Each of the following is a major type (or category) of adjusting entries except:
prepaid expenses.
accrued revenues.
accrued expenses.
earned revenues.

Answer 6

earned revenues.

Question 7

The trial balance shows Supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is:

Answer 7

Supplies exp 750

Supplies 750

Question 8

Adjustments for prepaid expenses:
decrease assets and increase revenues.
decrease expenses and increase assets.
decrease assets and increase expenses.
decrease revenues and increase assets.

Answer 8

decrease assets and increase expenses.

Question 9

Accumulated Depreciation is:
a contra asset account.
an expense account.
an owner's equity account.
a liability account.

Answer 9

a contra asset account.

Question 10

Queenan Company computes depreciation on delivery equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows.

Answer 10

Dep Exp 1000

Acc Dep- Equip 1000

Question 11

Adjustments for unearned revenues:
decrease liabilities and increase revenues.
have an assets and revenues account relationship.
increase assets and increase revenues.
decrease revenues and decrease assets.

Answer 11

decrease liabilities and increase revenues.

Question 12

Adjustments for accrued revenues:
have a liabilities and revenues account relationship.
have an assets and revenues account relationship.
decrease assets and revenues.
decrease liabilities and increase revenues.

Answer 12

have an assets and revenues account relationship.

Question 13

Kathy Siska earned a salary of $400 for the last week of September. She will be paid on October 1. The adjusting entry for Kathy’s employer at September 30 is

Answer 13

Sal Exp 400

Sal Payable 400

Question 14

Which of the following statements is incorrect concerning the adjusted trial balance?
An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made.
The adjusted trial balance provides the primary basis for the preparation of financial statements.
The adjusted trial balance lists the account balances segregated by assets and liabilities.
The adjusted trial balance is prepared after the adjusting entries have been journalized and posted.

Answer 14

The adjusted trial balance lists the account balances segregated by assets and liabilities.

Question 15

The trial balance shows Supplies $0 and Supplies Expense $1,500. If $800 of supplies are on hand at the end of the period, the adjusting entry is:
Debit Supplies $800 and credit Supplies Expense $800.
Debit Supplies Expense $800 and credit Supplies $800.
Debit Supplies $700 and credit Supplies Expense $700.
Debit Supplies Expense $700 and credit Supplies $700.

Answer 15

Debit Supplies $800 and credit Supplies Expense $800.