Chapter 8: Adjusting Entries

Question 1

Technically, these refer to entries prepared prior to the preparation of financial statements to update certain accounts so that they reflect the correct balances as of the designated time

a. adjusting entries
b. updating entries
c. correcting entries
d. status entries

Answer 1

a. adjusting entries

Question 2

Which of the following is most likely not considered an adjusting entry?

a. the accrual of an electricity bill used but not yet paid
b. the recognition of depreciation expense for the period
c. the recognition of the used and unused portion of the prepaid rent
d. the entry to record the collection of interest receivable

Answer 2

d. the entry to record the collection of interest receivable

Question 3

Which of the following is most likely considered an adjusting entry?

a. the entry to record the payment of interest payable
b. the entry to record the collection of accounts receivable
c. the entry to record the purchase of equipment
d. the entry to record bad debt expense for the period

Answer 3

d. the entry to record bad debt expense for the period

Question 4

The term “accrual” as used in accounting means

a. to record an income that is already earned but not yet collected
b. to record an expense that is already incurred but not yet paid
c. to record the collection of income or the payment of expense
d. a and b

Answer 4

d. a and b

Question 5

The term “deferral” as used in accounting means

a. to split the earned and unearned portions of an advanced collection
b. to split the expired and unexpired portions of a prepayment
c. to record the collection of income or the payment of expense
d. a and b

Answer 5

d. a and b

Question 6

Which of the following is incorrect regarding adjusting entries?

a. adjusting entries involves at least one balance sheet account and one income statement account
b. adjusting entries affect profit or loss
c. the process of splitting mixed accounts into their expired and unexpired portions or earned and unearned portions are called accrual
d. adjusting entries are typically prepared only when financial statements are prepared

Answer 6

c. the process of splitting mixed accounts into their expired and unexpired portions or earned and unearned portions are called accrual

Question 7

These accounts are not closed at the end of the accounting period

a. real account
b. nominal account
c. mixed accounts
d. wi-fi

Answer 7

a. real account

Question 8

These accounts refers to the income statement accounts and other temporary accounts that are closed at the end of the accounting period

a. real accounts
b. nominal accounts
c. mixed accounts
d. door accounts

Answer 8

b. nominal accounts

Question 9

Under this method, an advanced collection for an item of income is initially recorded to an income account

a. liability method
b. income method
c. asset method
d. expense method

Answer 9

b. income method

Question 10

Your business records payments of items of expenses by debiting an expense account. For example, when you purchase office supplies, you record them as "Supplies expense". At the end of the accounting period, the adjusting entry to record the used and unused portions of the office supplies would involve
a
a. debit to "supplies expense"
b. debit to "prepaid supplies"
c. credit to prepaid supplies"
d. credit to "cash"

Answer 10

a. debit to “supplies expense”

Question 11

A business rents office space. The business failed to pay the monthly rentals for November and December by the end of 20x1. The business settled the unpaid rent in 20x2. The unpaid rentals should be recognized as expenses in

a. 20x1
b. 20x2
c. partly 20x1 and partly 20x2
d. not recognized as expense

Answer 11

d. not recognized as expense

Question 12

A business rents office space. The business failed to pay the monthly rentals for November and December by the end of 20x1. The business settled the unpaid rent in 20x2. The instance is an application of which of the following accounting concepts

a. accrual
b. time period
c. rental
d. a and b

Answer 12

d. a and b

Question 13

Recording an expense that is already incurred but not yet paid is referred to as

a. accrual
b. deferral
c. posting
d. reversal

Answer 13

a. accrual

Question 14

Entity A issued a 12%, 100,000, one-year, note payable on October 1, 20x1. Entity A uses a calendar year period. The principal and interest on the note are due on October 1, 20x2. How much interest expense is reported in each of the following accounting periods?
20x1               20x2
a. 9,000         3,000
b. 0                 12,000
c. 12,000        0
d. 3,000          9,000

Answer 14

20x1 20x2

d. 3,000 9,000

Question 15

Recognizing depreciation expense is an application of which of the following expense recognition principles?

a. matching
b. systematic and rational allocation
c. immediate recognition
d. depreciation concept

Answer 15

b. systematic and rational allocation

Question 16

Recognizing bad debt expense is an application of which of the following expense recognition?

a. matching
b. systematic and rational allocation
c. immediate recognition
d. bad concept

Answer 16

c. immediate recognition

Question 17

Recognizing the cost of inventories sold as an expense only when they are sold, and in the same period when the related revenue is recognized, is an application of which of the following expense recognition principles?

a. matching
b. systematic and rational allocation
c. immediate recognition
d. selling concept

Answer 17

a. matching

Question 18

On January 1, 20x1, Entity A acquires computer equipment for 120,000. The computer is expected to be used over the next five years. How much is the depreciation expense per year?

a. 120,000
b. 24,000
c. 12,000
d. 0

Answer 18

b. 24,000

Question 19

It is an account used temporarily to store discrepancies in the accounts pending their analysis and permanent classification

a. suspense account
b. horror account
c. romance account
d. comedy account

Answer 19

a. suspense account

Question 20

The “income summary” account is an example of a (an)

a. suspense account
b. clearing account
c. income account
d. summarization account

Answer 20

b. clearing account