Question 1

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

Accepted Answer

A) True 
 B)False

Question 2

The fiscal year of a business is usually determined by

Accepted Answer

A)   the IRS.
B)   a lottery.
C)   the business.
D)   the SEC.

Question 3

Sebastian Belle, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will Sebastian make upon receipt of the payments?

Accepted Answer

A)   Debit Unearned Service Revenue and credit Service Revenue
B)   Debit Cash and credit Accounts Receivable
C)   Debit Accounts Receivable and credit Service Revenue
D)   Debit Cash and credit Service Revenue

Question 4

If accounting information has relevance, it is useful in making predictions about

Accepted Answer

A)   future tax audits.
B)   new accounting principles.
C)   foreign currency exchange rates.
D)   the future events of a company. D

Question 5

Crue Company had the following transactions during 2015: 
-Sales of $4,500 on account
-Collected $2,500 for services to be performed in 2016
-Paid $1,625 cash in salaries
-Purchased airline tickets for $250 in December for a trip to take place in 2016
What is Crue's 2015 net income using cash basis accounting?

Accepted Answer

A)   $625.
B)   $875.
C)   $5,125.
D)   $5,375.

Question 6

Meat Puppets Company purchased equipment for $7,200 on December 1. It is estimated that annual depreciation on the equipment will be $1,800. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

Accepted Answer

A)   Debit Depreciation Expense, $1,800; Credit Accumulated Depreciation, $1,800.
B)   Debit Depreciation Expense, $150; Credit Accumulated Depreciation, $150.
C)   Debit Depreciation Expense, $5,400; Credit Accumulated Depreciation, $5,400.
D)   Debit Equipment, $7,200; Credit Accumulated Depreciation, $7,200.

Question 7

Husker Du Supplies Inc. purchased a 12-month insurance policy on March 1, 2015 for $1,800. At March 31, 2015, the adjusting journal entry to record expiration of this asset will include a

Accepted Answer

A)   debit to Prepaid Insurance and a credit to Cash for $1,800.
B)   debit to Prepaid Insurance and a credit to Insurance Expense for $200.
C)   debit to Insurance Expense and a credit to Prepaid Insurance for $150.
D)   debit to Insurance Expense and a credit to Cash for $150.

Question 8

Expenses sometimes make their contribution to revenue in a different period than when they are paid. When salaries and wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the time period?

Accepted Answer

A)   Due from Employees.
B)   Due to Employer.
C)   Salaries and Wages Payable.
D)   Salaries and Wages Expense.

Question 9

Jackson Cement Corporation reported $35 million for sales when it only had $20 million of actual sales. Which of the following qualities of useful information has Jackson most likely violated?

Accepted Answer

A)   Comparability
B)   Relevance
C)   Faithful representation
D)   Consistency

Question 10

Yo La Corporation issued a one-year, 6%, $100,000 note on August 31, 2015. Interest expense for the year ended December 31, 2015 was

Accepted Answer

A)   $6,000.
B)   $2,500.
C)   $2,000.
D)   $1,500.

Question 11

The expense recognition principle requires that expenses be matched with revenues.

Accepted Answer

A) True 
 B)False

Question 12

Depreciation is the process of

Accepted Answer

A)   valuing an asset at its fair value.
B)   increasing the value of an asset over its useful life in a rational and systematic manner.
C)   allocating the cost of an asset to expense over its useful life in a rational and systematic manner.
D)   writing down an asset to its real value each accounting period.

Question 13

Accounting time periods that are one year in length are referred to as interim periods.

Accepted Answer

A) True 
 B)False

Question 14

Which one of the following is not a justification for adjusting entries?

Accepted Answer

A)   Adjusting entries are necessary to ensure that the revenue recognition principle is followed.
B)   Adjusting entries are necessary to ensure that the expense recognition principle is followed.
C)   Adjusting entries are necessary to enable financial statements to be in conformity with GAAP.
D)   Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

Question 15

A business pays weekly salaries of $30,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on a Thursday is

Accepted Answer

A)   debit Salaries and Wages Payable, $24,000; credit Cash, $24,000.
B)   debit Salaries and Wages Expense, $24,000; credit Cash, $24,000.
C)   debit Salaries and Wages Expense, $24,000; credit Salaries and Wages Payable, $24,000.
D)   debit Salaries and Wages Expense, $6,000; credit Salaries and Wages Payable, $6,000.

Question 16

NWA Air Charter signed a four-month note payable in the amount of $20,000 on September 1. The note requires interest at an annual rate of 9%. The amount of interest to be accrued at the end of September is

Accepted Answer

A)   $150.
B)   $200.
C)   $600.
D)   $1,800.

Question 17

Sonic Youth Corporation purchased a one-year insurance policy in January 2015 for $49,500. The insurance policy is in effect from March 2015 through February 2016. If the company neglects to make the proper year-end adjustment for the expired insurance

Accepted Answer

A)   net income and assets will be understated by $41,250.
B)   net income and assets will be overstated by $41,250.
C)   net income and assets will be understated by $8,250.
D)   net income and assets will be overstated by $8,250. B

Question 18

Accrued revenues are amounts recorded and received but not yet recognized.

Accepted Answer

A) True 
 B)False

Question 19

An item is considered material if

Accepted Answer

A)   it doesn't cost a lot of money.
B)   it is of a tangible good.
C)   it is likely to influence the decision of an investor or creditor.
D)   the cost of reporting the item is greater than its benefits.

Question 20

Live Wire Hot Rod Shop follows the revenue recognition principle. Live Wire services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Live Wire on August 5. Live Wire receives the check in the mail on August 6. When should Live Wire show that the revenue was recognized?

Accepted Answer

A)   July 31
B)   August 1
C)   August 5
D)   August 6 A

Exam 3: Adjusting the Accounts

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

Correct Answer
verified

The fiscal year of a business is usually determined by

Correct Answer
verified

Sebastian Belle, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will Sebastian make upon receipt of the payments?

Correct Answer
verified

If accounting information has relevance, it is useful in making predictions about

Correct Answer
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D

Correct Answer
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Meat Puppets Company purchased equipment for $7,200 on December 1. It is estimated that annual depreciation on the equipment will be $1,800. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

Correct Answer
verified

Husker Du Supplies Inc. purchased a 12-month insurance policy on March 1, 2015 for $1,800. At March 31, 2015, the adjusting journal entry to record expiration of this asset will include a

Correct Answer
verified

Expenses sometimes make their contribution to revenue in a different period than when they are paid. When salaries and wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the time period?

Correct Answer
verified

Jackson Cement Corporation reported $35 million for sales when it only had $20 million of actual sales. Which of the following qualities of useful information has Jackson most likely violated?

Correct Answer
verified

Yo La Corporation issued a one-year, 6%, $100,000 note on August 31, 2015. Interest expense for the year ended December 31, 2015 was

Correct Answer
verified

The expense recognition principle requires that expenses be matched with revenues.

Correct Answer
verified

Depreciation is the process of

Correct Answer
verified

Accounting time periods that are one year in length are referred to as interim periods.

Correct Answer
verified

Which one of the following is not a justification for adjusting entries?

Correct Answer
verified

A business pays weekly salaries of $30,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on a Thursday is

Correct Answer
verified

NWA Air Charter signed a four-month note payable in the amount of $20,000 on September 1. The note requires interest at an annual rate of 9%. The amount of interest to be accrued at the end of September is

Correct Answer
verified

Sonic Youth Corporation purchased a one-year insurance policy in January 2015 for $49,500. The insurance policy is in effect from March 2015 through February 2016. If the company neglects to make the proper year-end adjustment for the expired insurance

Correct Answer
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B

Accrued revenues are amounts recorded and received but not yet recognized.

Correct Answer
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An item is considered material if

Correct Answer
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Correct Answer
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A

Exam 3: Adjusting the Accounts

Income will always be greater under the cash basis of accounting than under the accrual basis of accounting.

Correct AnswerverifiedShow Answer

The fiscal year of a business is usually determined by

Correct AnswerverifiedShow Answer

Sebastian Belle, CPA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will Sebastian make upon receipt of the payments?

Correct AnswerverifiedShow Answer

If accounting information has relevance, it is useful in making predictions about

Correct AnswerverifiedD

Correct AnswerverifiedShow Answer

Meat Puppets Company purchased equipment for $7,200 on December 1. It is estimated that annual depreciation on the equipment will be $1,800. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

Correct AnswerverifiedShow Answer

Husker Du Supplies Inc. purchased a 12-month insurance policy on March 1, 2015 for $1,800. At March 31, 2015, the adjusting journal entry to record expiration of this asset will include a

Correct AnswerverifiedShow Answer

Expenses sometimes make their contribution to revenue in a different period than when they are paid. When salaries and wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the time period?

Correct AnswerverifiedShow Answer

Jackson Cement Corporation reported $35 million for sales when it only had $20 million of actual sales. Which of the following qualities of useful information has Jackson most likely violated?

Correct AnswerverifiedShow Answer

Yo La Corporation issued a one-year, 6%, $100,000 note on August 31, 2015. Interest expense for the year ended December 31, 2015 was

Correct AnswerverifiedShow Answer

The expense recognition principle requires that expenses be matched with revenues.

Correct AnswerverifiedShow Answer

Depreciation is the process of

Correct AnswerverifiedShow Answer

Accounting time periods that are one year in length are referred to as interim periods.

Correct AnswerverifiedShow Answer

Which one of the following is not a justification for adjusting entries?

Correct AnswerverifiedShow Answer

A business pays weekly salaries of $30,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on a Thursday is

Correct AnswerverifiedShow Answer

NWA Air Charter signed a four-month note payable in the amount of $20,000 on September 1. The note requires interest at an annual rate of 9%. The amount of interest to be accrued at the end of September is

Correct AnswerverifiedShow Answer

Sonic Youth Corporation purchased a one-year insurance policy in January 2015 for $49,500. The insurance policy is in effect from March 2015 through February 2016. If the company neglects to make the proper year-end adjustment for the expired insurance

Correct AnswerverifiedB

Accrued revenues are amounts recorded and received but not yet recognized.

Correct AnswerverifiedShow Answer

An item is considered material if

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

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D

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B

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A