Chapter 3: The Adjusting Process
3.1-1
Accrual accounting records transactions ONLY when cash is received or paid.
3.1-2
The owner of Recipes.org purchases $2,000 of supplies on account. Under the accrual basis of
accounting, no entry is made until the $2,000 is paid.
3.1-3
In cash-basis accounting, revenue is recognized when cash is received and expenses are recognized when
they are paid.
3.1-4
Under accrual basis accounting, revenue is recorded ONLY when cash is received.
3.1-5
Under cash-basis accounting, revenue is recorded when it is earned, regardless of when cash is received.
3.1-6
Under accrual basis accounting, an expense is recorded ONLY when the cash is paid out.
3.1-7
Under cash-basis accounting, an expense is recorded ONLY when cash is paid out.
3.1-8
Generally accepted accounting principles require the use of accrual accounting.
3.1-9
If a company is using the accrual method of accounting, when is revenue recorded?
A) When cash is received, even though services may be rendered at a later date
B) When services are rendered, even though cash may be received at a later date
C) When cash is received, before the completion of the services
D) When cash is received, 30 days after the completion of the services
3.1-10
If a company is using the cash-basis method of accounting, when is revenue recorded?
A) When services are rendered, even though cash may be received at a later date
B) When cash is received, prior to the services being rendered
C) When cash is received, at a time after the services were rendered
D) When cash is received, either prior to the services being rendered or at a time after the services were
rendered
3.1-11
Which of the following accounts does cash-basis accounting ignore?
A) Payables
B) Revenue
C) Cash
D) Expenses
3.1-12
Which of the following entries would be recorded ONLY if a company is using the accrual method of
accounting?
A)
Cash
1,000
Accounts receivable
B)
1,000
Salary expense
1,000
Cash
C)
1,000
Cash
1,000
Service revenue
1,000
1
D)
Supplies
1,000
Cash
3.1-13
1,000
Which of the following entries would be recorded if a company is using the cash-basis method of
accounting?
A)
Cash
1,000
Accounts receivable
B)
1,000
Salary expense
1,000
Salary payable
C)
1,000
Prepaid rent
1,000
Cash
D)
1,000
Rent expense
1,000
Cash
1,000
3.1-14
Which of the following is TRUE?
A) Accrual accounting is required by generally accepted accounting principles.
B) Accrual accounting records expenses when incurred. Cash-basis accounting records expenses when cash
is paid.
C) Accrual accounting records revenue when services are rendered. Cash-basis accounting records revenue
when cash is received.
D) All of the above are true.
3.1-15
Which of the following situations would result in an increase in income under the accrual method of
accounting, but would NOT result in an increase in income under the cash-basis method of accounting?
A) Purchase of supplies for cash
B) Performance of services on account
C) Use of supplies purchased earlier
D) Receipt of cash for services that were performed earlier on account
3.1-16
Which of the following accounts would be used under the accrual method of accounting, but NOT under
the cash-basis method of accounting.
A) Cash
B) Unearned revenue
C) Equipment
D) Salary expense
3.2-1
The revenue principle is the basis for recording revenues―both when to record revenue and the amount of
revenue to record.
3.2-2
An example of an interim accounting period is one year.
3.2-3
Which of the following is NOT considered an interim accounting period?
2
A) Monthly
B) Quarterly
C) Annually
D) Semi-annually
3.2-4
Which of the following would be considered an interim accounting period?
A) One to two months
B) One to two quarters
C) One to two years
D) Either one month or one quarter
3.2-5
In accounting, the matching principle means to match which of the following?
A) Revenues to liabilities
B) Expenses to assets
C) Expenses to revenues
D) Expenses to liabilities
3.2-6
The matching principle means which of the following?
A) Revenues are subtracted from expenses.
B) Expenses are subtracted from revenues.
C) Assets are subtracted from liabilities.
D) Liabilities are subtracted from expenses.
3.2-7
The revenue principle guides accountants in which of the following ways?
A) Ensures that information is reported at regular intervals
B) Determines when to record expenses
C) Determines when to record revenue
D) Dictates that expenses be deducted from revenues
3.2-8
Ensuring that accounting information is updated each period is the purpose of the:
A) matching principle.
B) revenue principle.
C) time-period concept.
D) expense principle
3.2-9
Which of the following statements BEST mirrors the matching principle?
A) The principle that ensures that information is reported at regular intervals
B) The principle that only determines when to record revenues
C) The principle that determines when to record expenses
D) None of the above
3.2-10
Which of the following is the time-period concept?
A) The concept that ensures that information is reported at regular intervals
B) The concept that determines when to record revenues
C) The concept that determines when to record expenses
D) None of the above
3.2-11
Robert Rogers, CPA performed accounting services for a client in December. A bill was mailed to the
client on December 30. Roberts received a check in the mail on January 5. The revenue principle would
require that which of the following accounts appear on the balance sheet for December 31?
A) Prepaid expense
B) Accounts receivable
C) Unearned revenue
D) Accounts payable
3
3.2-12
Robert Rogers, CPA owns a computer used for the company’s business. The matching principle would
require that which of the following accounts appear on the income statement for the year ended
December 31?
A) Depreciation expense
B) Service revenue
C) Accumulated depreciation
D) Equipment expense
3.2-13
Robert Rogers, CPA owns a computer used by the business. The matching principle would require that
which of the following accounts appear on the balance sheet for the year ended December 31?
A) Depreciation expense
B) Service revenue
C) Accumulated depreciation
D) Equipment expense
3.2-14
Employees of Robert Rogers, CPA worked during the last two weeks of December. They received
their paychecks on January 2. The matching principle would require that which of the following accounts
appear on the balance sheet for December 31?
A) Accounts payable
B) Salaries payable
C) Salary expense
D) Prepaid expense
3.2-15
Employees of Robert Rogers, CPA worked during the last two weeks of December. They received
their paychecks on January 2. The matching principle would require that which of the following accounts
appear on the income statement for the year ended December 31?
A) Salary expense
B) Prepaid expense
C) Salaries payable
D) Unearned revenue
3.2-16
Which of the following entries would be made as the result of the revenue principle?
A)
Service revenue
1,000
Service revenue
B)
1,000
Accounts receivable
1,000
Service revenue
C)
1,000
Salary expense
1,000
Accounts payable
D)
1,000
Depreciation expense
1,000
Accumulated depreciation
1,000
4
3.2-17
Which of the following entries would be made because of the matching principle?
A)
Salary expense
1,000
Accounts receivable
B)
1,000
Cash
1,000
Salary expense
C)
1,000
Salary expense
1,000
Salary payable
D)
1,000
Cash
1,000
Unearned revenue
1,000
3.2-18
The purposes of the adjusting process are:
A) to adjust expenses and revenues to the proper accrual basis.
B) to adjust asset and liability balances to the proper accrual basis.
C) to adjust expenses and revenues as well as asset and liability balances to the proper accrual basis.
D) none of the above.
3.3-1
How do the adjusting entries differ from other journal entries?
A) Adjusting entries always include debits or credits to at least one income statement account and at least
one balance sheet account.
B) Adjusting entries are made only at the end of the period.
C) Adjusting entries never affect cash.
D) All of the above are true.
3.4-1
To accrue revenue means that the cash receipt is recorded before the revenue is earned.
3.4-2
Prepaid insurance is an asset account.
3.4-3
Prepaid rent is an expense account.
3.4-4
A contra account has two characteristics: (1) a contra account is paired with a companion account, and (2)
a contra account's normal balance is the same as that of the companion account.
3.4-5
In the case of a prepaid expense, the adjusting entry required at the end of a period consists of a debit to
Prepaid expense.
3.4-6
In the case of a prepaid expense, the adjusting entry required at the end of a period consists of a credit to
Prepaid expense.
3.4-7
In the case of Unearned revenue, the cash is received first, and the revenue is earned later.
3.4-8
In the case of Unearned revenue, the adjusting entry at the end of the period includes a debit to Service
revenue.
5
3.4-9
In the case of Unearned revenue, the adjusting entry at the end of the period includes a credit to Service
revenue.
3.4-10
Contra asset accounts like Accumulated depreciation have normal debit balances.
3.4-11
At January 1, Smith has a beginning balance in Prepaid insurance expense of $1,200. Smith pays
insurance premiums once a year, and his total premium is $4,800. As of the end of February, the balance
in prepaid insurance is $2,000.
3.4-12
At January 1, Smith has $1,200 of supplies on hand. During January, Smith purchases $3,000 worth of
new supplies. At the end of the month, a count reveals $500 worth of supplies remaining on the shelves.
The adjustment entry needed will include a debit to Supply expense of $3,700.
3.4-13
Smith owns manufacturing equipment that originally cost $12,600 and has an estimated useful life of 7
years. Smith records depreciation monthly in the amount of $100.
3.4-14
At January 1, Smith has a beginning balance in Unearned revenue of $1,000. During January, he earns
$800 of that amount. He also collects $4,000 from a new customer for services to be rendered the
following month. As of the end of January, the Unearned revenue account had a balance of $4,800.
3.4-15
Smith borrows $10,000 on a one year Note payable that bears interest at 12% per year. He will repay the
principal and interest at the end of the one year period. Smith makes accrual adjustments and each
month, he records interest expense of $1,200.
3.4-16
Smith signed a contract with a service provider for security services at a rate of $250 per month for the
period of January through June. He will pay the service provider the entire amount at the end of June.
Smith makes adjusting entries each month. During the month of February, Smith will record total
security expense of $500.
3.4-17
Argyle Designs has a contract to design 20 new dresses for a customer, and will collect a total of $40,000
when the design services are complete. They start on June 1. As of June 30, Argyle has finished 4 of
the 20 designs. They will make an adjusting entry at the end of June to accrue $10,000 of service
revenue.
3.4-18
Unearned revenue would be classified as a(n) ______ account.
A) liability
B) asset
C) revenue
D) equity
3.4-19
Robert Rogers, CPA performed accounting services for a client in December. A bill was mailed to the
client on December 30. Roberts received a check in the mail on January 5. The revenue principle would
require that which of the following accounts appear on the income statement for the year ended December
31?
A) Service revenue
B) Unearned revenue
C) Accounts payable
D) Prepaid expense
3.4-20
Real Losers, a diet magazine, collected $360,000 in subscription revenue in May. Each subscriber will
receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The
company uses the accrual method of accounting. By the end of December, how much Subscription
revenue has been earned?
6
A)
B)
C)
D)
$120,000
$ 12,000
$360,000
$210,000
3.4-21
Real Losers, a diet magazine, collected $360,000 in subscription revenue in May. Each subscriber
will receive an issue of the magazine for each of the next 12 months, beginning with the June issue. The
company uses the accrual method of accounting. What is the balance in the Unearned revenue account at
the end of December?
A) $150,000
B) $330,000
C) $360,000
D) $
0
3.4-22
The table below represents Able Company’s supplies account. Please supply the missing
amount.
Beginning supplies
Supplies purchased
Supplies expense
Ending supplies
2,000
?
8,000
3,000
A) $ 9,000
B) $ 5,000
C) $11,000
D) $13,000
3.4-23
The table below represents Able Company’s supplies account. Please supply the missing
amount.
Beginning supplies
Supplies purchased
Supplies expense
Ending supplies
?
7,000
9,000
4,000
A) $ 2,000
B) $15,000
C) $11,000
D) $ 6,000
3.4-24
The table below represents Able Company’s supplies account. Please supply the missing
amount.
Beginning supplies
Supplies purchased
Supplies expense
Ending supplies
5,000
6,000
8,000
?
A) $ 9,000
B) $ 1,000
7
C) $ 3,000
D) $11,000
3.4-25
The table below represents Able Company’s supplies account. Please supply the missing
amount.
Supplies, beginning balance
Supplies purchased during year
Supplies expense during the year
Supplies, ending balance
1,000
12,000
?
3,000
A) $ 9,000
B) $10,000
C) $ 6,000
D) $16,000
3.4-27
The entry to record depreciation includes a debit to which account?
A) Equipment
B) Cash
C) Accumulated depreciation
D) Depreciation expense
3.4-28
The entry to record depreciation includes a credit to which account?
A) Equipment
B) Cash
C) Accumulated depreciation
D) Depreciation expense
3.4-29
Which of the following accounts would NOT be included in the adjusting entries made at the end of an
accounting period?
A) Accounts receivable
B) Accounts payable
C) Cash
D) Prepaid insurance
3.4-30
Which of the following accounts would NOT be adjusted at the end of an accounting period?
A) Accounts receivable
B) Unearned revenue
C) Equipment
D) Prepaid insurance
3.4-31
Adjusting entries NEVER involve:
A) expenses.
B) cash.
C) liabilities.
D) revenues.
3.4-32
If an adjusting entry includes a debit to Rent expense, that would indicate that the payment of rent had
been previously recorded as a(n) ______ entry.
A) prepaid expense
B) depreciation
C) accrued expense
D) accrued revenue
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3.4-33
An entry that reflects the using up of a portion of a fixed asset’s value would be a(n) ______ entry.
A) prepaid expense
B) accrued expense
C) accrued revenue
D) depreciation
3.4-34
Which of the following is a contra account?
A) Depreciation expense
B) Accumulated depreciation
C) Unearned revenue
D) Earned revenue
3.4-35
Accrued revenue is revenue that:
A) has been collected and earned.
B) the business has collected, but not yet earned.
C) the business has earned, but not collected.
D) will be collected and earned in the future.
3.4-36
Unearned revenue is revenue that:
A) will be collected and earned in the future.
B) the business has collected, but not yet earned.
C) has been collected and earned.
D) the business has earned, but not collected.
3.4-37
An adjusting entry that credits Salaries payable is an example of a(n):
A) accrued expense.
B) unearned revenue.
C) accrued revenue.
D) prepaid expense.
3.4-38
An adjusting entry that debits Accounts receivable is an example of a(n):
A) prepaid expense.
B) accrued revenue.
C) accrued expense.
D) unearned revenue.
3.4-39
At the end of the current year, the accountant for Navistar Graphics forgot to make an adjusting entry to
accrue Wages payable to the company's employees for the last week in December. The wages will be paid
to the employees in January. Which of the following is one of the effects of this error?
A) Net income is overstated.
B) Liabilities are overstated.
C) Net income is understated.
D) Expenses are overstated.
3.4-40
The accountant for Noble Jewelry Repair Services forgot to make an adjusting entry for Depreciation
expense for the current year. Which of the following is one of the effects of this error?
A) Net income is understated.
B) Total assets are understated.
C) Net income is overstated.
D) Total liabilities are understated.
3.4-41
The accountant for Noble Jewelry Repair Services forgot to make an adjusting entry for Depreciation
expense for the current year. What is the effect of this error on total assets?
A) Total assets are understated.
9
B) Total assets are not affected.
C) Total assets are overstated.
D) There is not enough information presented to answer the question.
3.4-42
What is the effect of the adjusting entry for Depreciation expense?
A) The entry increases total liabilities and increases total expenses.
B) The entry increases total assets and increases total expenses.
C) The entry decreases total assets and increases total expenses.
D) The entry decreases total liabilities and increases total expenses.
3.4-43
Entries that record an expense before the cash is paid are:
A) accrued revenues.
B) prepaid expenses.
C) unearned revenues.
D) accrued expenses.
3.4-44
Entries that record revenues earned before the cash is collected are:
A) accrued revenues.
B) prepaid expenses.
C) unearned revenues.
D) accrued expenses.
3.4-45
Entries that record cash collected before the revenues are earned are:
A) accrued revenues.
B) prepaid expenses.
C) unearned revenues.
D) accrued expenses.
3.4-46
Entries that record cash paid out before the expense is incurred are:
A) accrued revenues.
B) prepaid expenses.
C) unearned revenues.
D) accrued expenses.
3.4-47
In accounting, depreciation is the:
A) method of spreading the cost of an asset over its useful life.
B) decline in market value of an asset.
C) estimation of an asset’s current value.
D) sale of an asset.
3.4-48
The Accumulated depreciation account is:
A) a record of the sum of all the depreciation recorded.
B) a contra account to the asset being depreciated.
C) an expense account.
D) both a record of the sum of all the depreciation recorded and a contra account to the asset being
depreciated.
3.4-49
On January 1, 2012, Lexmark Company's Accounts receivable account had a debit balance of $10,000.
During January, 2012, the company billed customers for services in the amount of $300,000. Also
during January, the company collected $240,000 from its customers on account. What was the balance in
the Accounts receivable account at the end of January?
A) $ 60,000
B) $250,000
C) $ 70,000
D) $ 10,000
10
3.4-50
A business pays its insurance premium of $2,400 on November 1 of each year. On January 1 of the new
year (after December 31 adjustments), the Prepaid insurance account has a debit balance of:
A) $1,200.
B) $ 400.
C) $2,400.
D) $2,000.
3.4-51
Active Education sells tickets in advance for their weekly productions and records the proceeds as
Unearned revenue. At the end of each month, they make an adjusting entry to account for the tickets
used during the month (Ticket revenue.) At March 1, the Unearned revenue account had a credit
balance of $3,000. During March, they sold 300 tickets at $20 each, and 250 tickets were used during the
month. What is the balance in Unearned revenue at the end of March?
A) Credit balance of $4,000
B) Debit balance of $4,000
C) Credit balance of $2,000
D) Debit balance of $2,000
3.4-52
Smith Technical Services is working on a six-month job for a client, starting February 1. They will
collect $48,000 from their customer when the job is finished. On March 1, their Accounts receivable
account has a debit balance of $8,000. At the end of March, after monthly adjusting entries have been
made, what will the balance in Accounts receivable be?
A) Debit balance of $48,000
B) Credit balance of $8,000
C) Debit balance of $16,000
D) Debit balance of $12,000
3.4-53
Classic Artists’ Services has hired a maintenance man to maintain a building they use for instruction. He
will begin work on February 1 and work through till May 31. They will pay the maintenance man $2,000 at
the end of May. Classic Artists’ Services accrue Maintenance expense at the end of every month. What is
the balance in the Accounts payable account for amounts owed to the maintenance man at the end of
March?
A) Debit balance of $2,000
B) Credit balance of $1,000
C) Debit balance of $1,000
D) Credit balance of $2,000
3.4-54
On December 31, 2012, the adjusting entry for depreciation was made incorrectly. The following is the
entry which was made erroneously:
Depreciation expense
1,500
Accumulated depreciation
1,500
The correct amount of depreciation should have been $5,100. Consider the effects of this error on the
balance sheet, and identify which of the following statements is TRUE.
A) Total liabilities are overstated by $3,600.
B) Total liabilities are understated by $3,600.
C) Total assets are overstated by $3,600.
11
D) Total assets are understated by $3,600.
3.4-55
On December 31, 2012, the adjusting entry for depreciation was made incorrectly. The following entry
was made erroneously:
Depreciation expense
1,500
Accumulated depreciation
1,500
The correct amount of depreciation should have been $5,100. Consider the effects of this error on the
income statement, and identify which of the following statements is TRUE.
A) Net income is overstated by $3,600.
B) Net income is understated by $3,600.
C) Net income is understated y $1,500.
D) Net income is not affected by this error.
3.4-56
On August 1, 2011, Xcel Auto Repair paid $6,000 in advance for six months rent. Xcel makes proper
adjusting entries at the end of every month. What is the balance of Prepaid rent on December 31, 2011?
A) $6,000
B) $1,000
C) $2,000
D) $4,000
3.4-57
On December 31, 2011, the balance in Pinnacle Exploration Company's Unearned revenue account is
credit of $4,200. In January, 2012, the company received an advance payment of $12,000 from a new
customer for services to be performed. By January 31, adjustments had been made to recognize $8,500 of
the revenue which had been earned during January. What would be the balance in Unearned revenue on
January 31, 2012?
A) $16,200 credit
B) $8,500 debit
C) $ 3,500 credit
D) $ 7,700 credit
3.4-58
The Supplies account for Vulcan Cleaning Services had a debit balance of $200 at the beginning of the
month. Additional supplies of $1,400 were purchased during the month. A physical count of supplies
revealed that $600 of supplies was still on hand at the end of the month. What was total Supplies expense
for the month?
A) $1,400
B) $ 100
C) $1,000
D) $ 600
3.4-59
The adjusting entry to record Depreciation expense accomplishes which of the following?
A) Records an expense
B) Updates a contra asset
C) Updates a liability
D) Both A and B
3.4-60
The beginning balance in the Supplies account was $3,000. Purchases of supplies during the year were
$25,000. The business makes adjusting entries for supplies once a year. A count of supplies at year-end
revealed that the ending balance in the Supplies account should be $1,500. What is the amount of the
adjusting entry?
12
A) $ 1,500
B) $25,000
C) $26,500
D) $ 3,000
3.4-61
A business pays salaries of $140,000 on the first and fifteenth day of every month. Which of the
following is the adjusting entry required on December 31, 2011?
A) A debit $140,000 to Salaries expense and a credit $140,000 to Salaries payable.
B) A debit $140,000 to Salaries receivable and a credit $140,000 to Salaries payable.
C) A debit $140,000 to Salaries expense and a credit $140,000 to Salaries receivable.
D) No adjusting entry is required.
3.4-62
A business acquires equipment for $140,000 on January 1, 2011. The equipment depreciation will be
$20,000 each year for the seven years of the asset’s expected life. The business records depreciation once
a year on December 31. Which of the following is the adjusting entry required on December 31, 2011?
A) A debit $140,000 to Equipment and a credit $140,000 to Cash.
B) A debit $140,000 to Depreciation expense and a credit $140,000 to Accumulated depreciation.
C) A debit $20,000 to Depreciation expense and a credit $20,000 to Accumulated depreciation.
D) A debit $20,000 to Depreciation expense and a credit $20,000 to Equipment.
3.4-63
On September 1, 2011, Joy Company paid $4,000 in advance for an 8-month rental space covering the
period of September, 2011 through April, 2012. The business makes adjusting entries once a year at
year-end. The adjusting entry at December 31, 2011 would include a:
A) debit of $4,000 to Prepaid rent expense on December 31, 2011.
B) debit of $2,000 to Prepaid rent expense on December 31, 2011.
C) debit of $2,000 to Rent expense on December 31, 2011.
D) credit of $2,000 to Rent expense on December 31, 2011.
3.4-64
ABC Company signed a one-year $12,000 note payable at 8% interest on May 1, 2012. How much
interest expense must be accrued on May 31, 2012?
A) $960
B) $320
C) $ 80
D) $ 40
3.4-65
ABC Company signed a one-year $12,000 note payable at 8% interest on May 1, 2012. If ABC only
adjusts their accounts once a year at year-end, how much interest expense must be accrued on December
31, 2012?
A) $960.
B) $320.
C) $640.
D) $474.
3.4-66
What type of account is Accumulated depreciation and what is its normal balance?
A) Revenue and debit
B) Expense and debit
C) Contra asset and credit
D) Liability and credit
3.4-67
What type of account is Unearned revenue and what is its normal balance?
A) Liability and credit
B) Asset and credit
C) Revenue and debit
D) Asset and debit
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3.4-68
What type of account is Prepaid rent and what is its normal balance?
A) Expense and debit
B) Liability and credit
C) Revenue and credit
D) Asset and debit
3.4-69
What is the term for the difference between the Equipment account and the Accumulated depreciation
account?
A) Contra asset
B) Market value
C) Historical cost
D) Book value
3.4-70
A company received $5,000 for 100 one-year subscriptions on July 1. The journal entry to record this
cash receipt would include a:
A) debit to Unearned revenue.
B) debit to Prepaid expenses.
C) credit to Unearned revenue.
D) credit to Cash.
3.4-71
Hank’s Tax Planning Service started business in January, 2012. He rented an office for $900 a month
starting January 1. He prepaid the rentals through June 30. He makes accrual adjustments monthly. As
of April 30, Hank’s ledger shows a balance in Prepaid Rent of how much?
A) $1,800
B) $ 900
C) $2,700
D) $5,400
3.4-72
Hank’s Tax Planning Service has a beginning balance in the Supplies account of $800. During the
current month, he purchased an additional $2,000 of supplies. At the end of the month, he had $250 of
supplies left. The amount of supply expense to be recorded for the month is:
A) $1,750.
B) $2,000.
C) $ 250.
D) $2,550.
3.4-73
Hank’s Tax Planning Service bought computer equipment for $19,200 on January 1, 2012. It has an
estimated useful life of 4 years. Hank records depreciation monthly. As of September 30, 2012, Hank
has recorded total depreciation expense for this equipment of:
A) $ 2,400.
B) $ 3,600.
C) $ 400.
D) $14,400.
3.4-74
Hank’s Tax Planning Service bought communications equipment for $7,200 on January 1, 2012. It has
an estimated useful life of 5 years. Hank records depreciation monthly. As of June 30, 2012, the balance
in the Accumulated depreciation account for this equipment is:
A) $1,440.
B) $ 600.
C) $ 120.
D) $ 720.
3.4-75
Hank’s Tax Planning Service bought communications equipment for $7,200 on January 1, 2012. It has
an estimated useful life of 5 years. Hank records depreciation monthly. As of June 30, 2012, Hank’s
balance sheet will show book value for this equipment of:
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A) $6,480.
B) $7,200.
C) $ 120.
D) $ 720.
3.4-76
Hank’s Tax Planning Service has the following plant assets:
Communications equipment: Cost, $4,800; useful life 8 years
Furniture: Cost, $15,840; useful life 12 years
Computer equipment: Cost, $10,080; useful life 4 years
Hank’s monthly depreciation expense is:
A) $2,560.
B) $4,440.
C) $ 210.
D) $ 370.
3.4-77
Hank’s Tax Planning Service has the following plant assets:
Communications equipment: Cost, $4,800; useful life 8 years
Furniture: Cost, $15,840; useful life 12 years
Computer equipment: Cost, $10,080: useful life 4 years
Hank’s monthly depreciation entry will include a:
A) debit to depreciation expense of $210.
B) credit to depreciation expense of $370.
C) debit to Accumulated Depreciation of $210.
D) credit to Accumulated Depreciation of $370.
3.5-1
The accountant for Jones Auto Repair Company failed to make an adjusting entry to record $5,000 of
unpaid salaries for the last 2 weeks of the year. Which of the following is TRUE?
A) Net income is overstated.
B) Total assets are understated.
C) Total liabilities are overstated.
D) Total assets are overstated.
3.5-2
Financial statements are prepared from a(n):
A) general journal.
B) general ledger.
C) unadjusted trial balance.
D) adjusted trial balance.
3.5-3
All of a company's accounts and their balances appear on the:
A) statement of retained earnings.
B) balance sheet.
C) adjusted trial balance.
D) income statement.
3.5-4
The accountant for Wilson Consulting Company failed to make an adjusting entry to record $3,000 of
unearned service revenue that has now been earned. Which of the following is TRUE?
A) Total liabilities are overstated.
B) Total liabilities are understated.
C) Total assets are overstated.
D) Total assets are understated.
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3.5-5
The accountant for Hobson Electrical Repair Company failed to make an adjusting entry to record
$5,000 of unpaid salaries for the last two weeks of the year. Which of the following is TRUE?
A) Total liabilities are overstated.
B) Total liabilities are understated.
C) Total assets are overstated.
D) Total assets are understated.
3.5-6
The accountant for Barnes Architectural Services failed to make an adjusting entry to record $7,000
of depreciation expense. Which of the following is TRUE?
A) Total liabilities are overstated.
B) Total liabilities are understated.
C) Total assets are overstated.
D) Total assets are understated.
3.5-7
The accountant for Duman Legal Services failed to make an adjusting entry for supplies that had been
used for the year. Which of the following is TRUE?
A) Total liabilities are overstated.
B) Total liabilities are understated.
C) Total assets are overstated.
D) Total assets are understated.
3.5-8
The accountant for Wilson Consulting Company failed to make an adjusting entry to record $3,000 of
unearned service revenue that has now been earned. Which of the following is TRUE?
A) Total revenue is overstated.
B) Total revenue is understated.
C) Total expenses are overstated.
D) Total expenses are understated.
3.5-9
The accountant for Hobson Electrical Repair Company failed to make an adjusting entry to record
$5,000 of unpaid salaries for the last two weeks of the year. Which of the following is TRUE?
A) Total revenue is overstated.
B) Total revenue is understated.
C) Total expenses are overstated.
D) Total expenses are understated.
3.5-10
The accountant for Barnes Architectural Services failed to make an adjusting entry to record $7,000
of depreciation expense. Which of the following is TRUE?
A) Total revenue is overstated.
B) Total revenue is understated.
C) Total expenses are overstated.
D) Total expenses are understated.
3.5-11
Pattie’s Event Planning Service collects the fees from their customers in advance. At January 1, 2012, the
balance of her Unearned revenue account was a credit of $4,000. During January and February, she
collected $2,000 and $1,000 respectively. During the two month period, she rendered services of $5,500.
At the end of February, her adjusted trial balance will show what balance in Unearned revenues?
A) Debit balance of $3,000
B) Credit balance of $3,000
C) Debit balance of $2,300
D) Credit balance of $1,500
3.5-12
Pattie’s Event Planning Service has just prepared the unadjusted trial balance, which shows the
following balances:
Salary expense: Debit $6,000
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Service revenues: Credit $20,000
Interest expense: 0
Pattie’s salaries are $2,000 per week and are paid out at the end of the day on Fridays. The end of the
month falls on a Thursday. Patti will make the appropriate accrual adjustment and post to the ledger. The
final adjusted balance of Salary payable, as shown on the adjusted trial balance, will be a:
A) credit balance of $1,600.
B) credit balance of $3,600.
C) debit balance of $3,600.
D) credit balance of $400.
3.5-13
Pattie’s Event Planning Service has just prepared the unadjusted trial balance, which shows the
following balances:
Salary expense: Debit $8,000
Service revenues: Credit $3,000
Interest expense: 0
Late in this month, she began working with a new client, providing event planning services for an upcoming
event. When the event is complete, in the following month, she will collect the full amount of $900 from
her client. As of the end of this month, she has rendered one-third of the services covered by the contract.
She makes accrual adjustments monthly. The final adjusted balance of Service revenues, as shown on the
adjusted trial balance, should be a:
A) debit balance of $300.
B) credit balance of $3,900.
C) debit balance of $3,300.
D) credit balance of $3,300.
3.5-14
Pattie’s Event Planning Service has just prepared the unadjusted trial balance, which shows the
following balances:
Salary expense: Debit $8,000
Service revenues: Credit $3,000
Interest expense: 0
On the first day of January, Pattie borrowed $1,800 on a one-year note payable bearing interest at 4% per
year. The note specifies that principal and interest is to be paid in full at the end of the one-year period. On
June 30, the adjusted trial balance will show what amount for Interest expense?
A) Debit balance of $36
B) Credit balance of $36
C) Debit balance of $72
D) Debit balance of $6
3.6-1
The financial statements should be prepared in this order: 1) income statement, 2) balance sheet, and 3)
owner’s equity.
3.6-2
Net income from the income statement is reported in the assets section of the balance sheet.
3.6-3
Which of the following reports a company's results of operations?
A) Balance sheet
B) Statement of owner’s equity
C) Adjusted trial balance
D) Income statement
3.6-4
Which of the following reports a company's financial position?
A) Balance sheet
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B) Income statement
C) Adjusted trial balance
D) Statement of owner’s equity
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