Exam 2 Chap 4-6 Review

Question 1

As a company uses supplies, an adjustment should be made to decrease an asset account and increase an expense account.

Answer 1

tf

Question 2

Adjusting entries are not needed when assets are used up gradually over several accounting periods after being purchased.

Answer 2

tf

Question 3

A contra account is added to the account it offsets

Answer 3

tf

Question 4

The amount charged for a good or service provided to a customer on account is posted to a revenue account only after the payment is received.

Answer 4

tf

Question 5

The carrying value of an asset is an approximation of the asset’s market value.

Answer 5

tf

Question 6

You mistakenly include a contra account of $20,000 in the same column of your trial balance as the account it offsets. All other things equal, your debit and credit column totals will differ by $40,000

Answer 6

aa

Question 7

Corporate income taxes cannot be calculated until all other adjustments are made.

Answer 7

tf

Question 8

8. Revenue and expense accounts are permanent accounts because they always appear on the income statement.

Answer 8

tf

Question 9

The amounts of all the accounts reported on the balance sheet can be taken from the adjusted trial balance.

Answer 9

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Question 10

One of the purposes of closing entries is to bring the balances in all asset, liability, revenue, and expense accounts down to zero to start the next accounting period.

Answer 10

tf

Question 11

Accumulated depreciation is reported on the balance sheet as a deduction from the cost of an asset

Answer 11

tf

Question 12

Depreciation is a measure of the decline in market value of an asset.

Answer 12

a

Question 13

After posting the closing entries, all the revenue accounts and all the expense accounts are zero and the Retained Earnings account has been debited for $4,000. This implies that the company had a net income of $4,000.

Answer 13

tf

Question 14

The closing process includes a transfer of the Dividends Declared account balance to the Retained Earnings account.

Answer 14

tf

Question 15

15. If a company failed to record depreciation expense on equipment for a period, the financial statements would show total assets overstated and total stockholders’ equity understated on the balance sheet.

Answer 15

a

Question 16

16. A post-closing trial balance should include only permanent accounts.

Answer 16

tf

Question 17

Asset, Liability, contributed capital and retained earnings accounts are called permanent accounts.

Answer 17

ar

Question 18

A company forgot to make an adjusting entry to record incurred wages that were unpaid at the end of the period. This would understate Total Liabilities and overstate Retained Earnings on the Balance Sheet

Answer 18

tf

Question 19

Prepaid expense accounts are reported as assets on the balance sheet

Answer 19

tf

Question 20

Adjusting journal entries often involve cash. 


Answer 20

tf

Question 21

21. Which of the following statements regarding types of adjusting entries is true? 
A. An accrual adjustment that increases an asset will include an increase in an expense.
B. A deferral adjustment that decreases an asset will include an increase in an expense.
C. An accrual adjustment that increases an expense will include an increase in assets.
D. A deferral adjustment that increases a contra account will include an increase in an asset

Answer 21

tf

Question 22

22. Which of the following statements regarding adjusting entries is not true? 
A. Adjustments are needed to ensure that the accounting system includes all of the revenues and expenses of the period.
B. Adjustments help to ensure the related accounts on the balance sheet and income statement are up to date and complete.
C. Adjusting entries often affect the cash account
D. Adjusting entries always include one balance sheet and one income statement account

Answer 22

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Question 23

23. Which of the following statements regarding the role of cash in adjusting entries is true? 
A. Adjustments are only made if cash has been received or paid during the period.
B. Adjusting journal entries do not affect the cash account.
C. Adjusting entries for expenses include a debit to cash.
D. Adjusting entries for revenues include a credit to cash.

Answer 23

tf

Question 24

24. Which of the following statements regarding the adjusted financial results is not true? 
A. Without adjustments, the financial statements present an incomplete and misleading picture of the company.
B. Adjusting entries are intended to change the operating results to reflect management’s objectives for operating performance.
C. Adjustments help the financial statements to present the best picture of whether the company’s activities were profitable for the period.
D. Adjustments help the financial statements to present the economic resources the company owns and owes at the end of the period.

Answer 24

tf

Question 25

25. Which of the following statements regarding the trial balance is correct? 
A. Trial balances are prepared after the financial statements to verify that the numbers are accurate.
B. The primary purpose of the adjusted trial balance is to see whether revenues are greater than expenses.
C. A trial balance is a check that the accounting records are still in balance after posting all entries to the accounts.
D. The trial balance debit column total is the amount to be shown as Total Assets on the Balance Sheet.

Answer 25

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Question 26

26. Which of the following statements regarding the presentation of a trial balance is correct? 
A. The adjusted trial balance shows the end-of-year balance for Retained Earnings.
B. An adjusted trial balance presents account balances in the same level of detail as in the presentation of the financial statements.
C. The order of accounts is assets, liabilities, stockholders’ equity, dividends, revenues and expenses.
D. The adjusted trial balance provides a check on the accuracy of the postings for the period.

Answer 26

tf

Question 27

27. Which of the following statements regarding financial statements and the trial balance is correct? 
A. Financial statements are prepared only after the trial balance has shown that debits equal credits.
B. A post-closing trial balance should be prepared before temporary accounts are closed.
C. An adjusted trial balance reflects the amount of retained earnings to be shown on the Balance Sheet.
D. A post-closing trial balance lists all the accounts that are shown on the Income Statement.

Answer 27

tf

Question 28

28. Which of the following statements regarding timing issues associated with closing entries is true? 
A. Closing journal entries are recorded at the end of each reporting period which could be monthly, quarterly or annually.
B. After closing entries are posted, the balances of the income statement accounts will be zero.
C. Closing entries are made to zero out the balances of the permanent accounts on the balance sheet.
D. After closing entries are posted, the only temporary account with a balance is the Dividends Declared account.

Answer 28

r

Question 29

30. If an expense has been incurred but will be paid later, then: 
A. nothing is recorded on the financial statements.
B. a liability account is created or increased and an expense is recorded.
C. an asset account is decreased or eliminated and an expense is recorded.
D. a revenue and an expense are recorded.

Answer 29

a

Question 30

31. If certain assets are partially used up during the accounting period, then: 
A. nothing is recorded on the financial statements until they are completely used up.
B. a liability account is decreased or eliminated and an expense is recorded.
C. an asset account is decreased or eliminated and an expense is recorded.
D. nothing is recorded on the financial statements until they are replaced or replenished.

Answer 30

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Question 31

33. One major difference between deferral and accrual adjustments is: 
A. deferral adjustments involve previously recorded transactions and accruals involve previously unrecorded events.
B. deferral adjustments are made after taxes and accrual adjustments are made before taxes.
C. deferral adjustments are made annually and accrual adjustments are made monthly.
D. deferral adjustments are influenced by estimates of future events and accrual adjustments are not.

Answer 31

a

Question 32

34. One major difference between deferral and accrual adjustments is: 
A. accrual adjustments are influenced by estimates of future events and deferral adjustments are not.
B. deferral adjustments are made before taxes and accrual adjustments are made after taxes.
C. deferral adjustments are made monthly and accrual adjustments are made annually.
D. accounts affected by an accrual adjustment always go in the same direction (i.e., both accounts are increased or both accounts are decreased) and accounts affected by a deferral adjustment always go in opposite directions

Answer 32

a

Question 33

35. The company uses up $5,000 of the book value of an existing asset. The company adjusts its accounts accordingly. Which of the following is a true statement? 
A. This is an accrual adjustment.
B. This is a closing adjustment.
C. This is a deferral adjustment.
D. The adjustment should not have been made.

Answer 33

a

Question 34

36. Accrual adjustments link: 
A. assets and revenues moving in the same direction or liabilities and expenses moving in the same direction.
B. assets and expenses moving in the same direction or liabilities and revenues moving in the same direction.
C. assets and revenues moving in the opposite direction or liabilities and expenses moving in the opposite direction.
D. assets and expenses moving in the opposite direction or liabilities and revenues moving in the opposite direction.

Answer 34

a

Question 35

40. When the future benefits of existing assets are used up in the ordinary course of business: 
A. an expense is recorded.
B. a loss is recorded.
C. a credit to a liability is recorded.
D. a debit to assets is recorded.

Answer 35

a

Question 36

51. Accumulated depreciation: 
A. is an expense account.
B. is a liability account.
C. is a regular asset account.
D. is an asset contra-account.

Answer 36

a

Question 37

52. A company pays wages every two weeks. Wages amount to $100 a day. On March 31, the company pays wages for the two weeks ending March 24. At the end of the month, the related adjusting journal entry will include a 
A. debit to Wages Payable for $700 and a credit to Cash for $700.
B. debit to Wage Expense for $700 and a credit to Wages Payable for $700.
C. debit to Wages Payable for $700 and a credit to Wages Expense for $700.
D. debit to Retained Earnings for $700 and a credit to Wages Payable for $700.

Answer 37

a

Question 38

53. Contra-accounts: 
A. are used to increase the original value of the account they offset.
B. always appear in the same column of the trial balance as the account they offset.
C. always reduce the account they offset.
D. are not allowed according to GAAP.

Answer 38

a

Question 39

54. Recording an adjusting journal entry to recognize depreciation would cause which of the following? 
A. An increase in liabilities and expenses, and a decrease in stockholders’ equity.
B. A decrease in assets and stockholders’ equity, and an increase in expenses.
C. A decrease in assets, an increase in liabilities, and an increase in expenses.
D. An increase in assets, an increase in liabilities, and a decrease in expenses

Answer 39

a

Question 40

71. An adjusted trial balance should be prepared immediately: 
A. after posting normal journal entries.
B. before analyzing transactions.
C. after posting adjusting journal entries.
D. after posting closing journal entries.

Answer 40

a

Question 41

72. Which of the following statements about an adjusted trial balance is true? 
A. Debits should equal credits both before and after adjustments are made.
B. Debits will equal credits after adjustments are made but not necessarily before.
C. Debits will equal credits before adjustments are made but not necessarily after.
D. Debits do not have to equal credits in the trial balance but they will in the income statement.

Answer 41

a

Question 42

74. Which of the following would appear in the debit column of an adjusted trial balance? 
A. Service revenue.
B. Prepaid rent.
C. Accumulated depreciation.
D. Contributed capital.

Answer 42

a

Question 43

110. A company started the year with $1,500 of supplies on hand. During the year the company purchased additional supplies of $800 and recorded them as increase to the supplies asset. At the end of the year the company determined that only $300 of supplies are still on hand. What is the adjusting journal entry to be made at the end of the period?

Answer 43

a