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Chapter 4

1) Adjusting entries are typically prepared at the end of the accounting period. 2) A company uses up an existing asset and adjusts its accounts accordingly, which is an example of a closing adjustment. 3) When a company makes a deferral adjustment that increases a revenue account, it must mean that an expense account was decreased by the same amount.

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57 views3 pages

Chapter 4

1) Adjusting entries are typically prepared at the end of the accounting period. 2) A company uses up an existing asset and adjusts its accounts accordingly, which is an example of a closing adjustment. 3) When a company makes a deferral adjustment that increases a revenue account, it must mean that an expense account was decreased by the same amount.

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amaliakb5
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1.

Adjusting entries are typically prepared:


at the beginning of the accounting period.
at the end of the accounting period.
on a daily basis.
on a weekly basis.

2. A company uses up $5,000 of an existing asset and the company adjusts its accounts
accordingly. This is an example of a(n):
accrual adjustment.
closing adjustment.
deferral adjustment.
unethical adjustment.

3. A company makes a deferral adjustment that increased a revenue account. This must mean that
a(n):
expense account was decreased by the same amount.
expense account was increased by the same amount.
liability account was decreased by the same amount.
asset account was decreased by the same amount.

4.
When existing assets are used up in the ordinary course of business:
an expense is increased.
deferred revenue is increased.
an accrual is recorded.
a prepaid expense is increased.

5. When a deferral adjustment is made to a liability account, that liability becomes a(n):
asset.
other liability.
expense.
revenue.

6. Accrual adjustments involve increasing:


assets and revenues or increasing liabilities and expenses.
assets and expenses or increasing liabilities and revenues.
assets and decreasing revenues or increasing liabilities and decreasing expenses.
assets and decreasing expenses or increasing liabilities and decreasing revenues.

7. An example of an account that could be included in an accrual adjustment related to an expense


is:
Accounts Receivable.
Income Tax Payable.
Prepaid Insurance.
Accumulated Depreciation.

8. If an expense has been incurred but will be paid later, then:


nothing is recorded on the financial statements.
a liability account is created or increased and an expense is recorded.
an asset account is decreased or eliminated and an expense is recorded.
a revenue and an expense are increased.

9. Which of the following statements about adjustments is correct?


An accrual adjustment that increases an asset will include an increase in an expense.
A deferral adjustment that decreases an asset will include an increase in an expense.
An accrual adjustment that increases an expense will include a decrease in a liability.
A deferral adjustment that increases a contra-account will include an increase in an asset.

10. One major difference between deferral and accrual adjustments is that deferral adjustments:
involve previously recorded assets and liabilities, and accrual adjustments involve no previously
recorded assets and liabilities.
are made after financial statements are prepared, and accrual adjustments are made before
financial statements are prepared.
are made annually, and accrual adjustments are made monthly.
are influenced by estimates of future events, and accrual adjustments are not.

11. To accrue a revenue or an expense in accounting means that the amount:


will not be reported in the accounting records.
will be reported as a revenue or an expense in the current period.
will be reported as a revenue or an expense in a later period.
was reported as a revenue or an expense in a prior period.

12. A deferral adjusting entry that adjusts assets, such as prepaids and supplies:
decreases total assets because cash is paid at the time of the adjustment.
increases an expense in the amount used during the period.
increases total assets because costs are incurred.
increases total assets because cash will be received in the future.

13. In recording an accrual adjustment to account for revenues earned but not yet collected:
an asset is decreased since cash is being paid at the time of the adjustment.
an asset recorded when cash was paid is decreased as the revenue is earned.
an asset recorded when cash was paid is increased as the revenue is earned.
an asset is increased since cash will be collected at a later date.

14. At the end of the month, the adjusting journal entry to record the use of supplies would include a
debit to:
Supplies and a credit to Supplies Expense.
Supplies Expense and a credit to Supplies.
Supplies and a credit to Service Revenue.
Supplies and a credit to Cash.

15. On January 1, the Sleepy Monk Coffee Shop paid $16,500 for a full year of rent beginning on
January 1. The rent payment was appropriately recorded in the Cash and Prepaid Rent accounts. If
financial statements are prepared on January 31, the journal entry to record the adjustment would
be:
Debit Rent Expense and credit Prepaid Rent for $1,375.
Debit Rent Expense and credit Prepaid Rent for $16,500.
Debit Prepaid Rent and credit Rent Expense for $16,500.
Debit Prepaid Rent and credit Rent Expense for $1,375.

16. The Prepaid Insurance account has a normal balance of $5,625 at the beginning of the month.
The company used $1,470 of insurance coverage during the month. Which of the following
statements is correct?
The company should credit Insurance Expense for $1,470 and debit Prepaid Insurance for
$1,470.
Retained earnings will decrease and stockholders' equity will increase.
The company should debit Insurance Expense for $1,470 and credit Prepaid Insurance for
$1,470.
Retained earnings and stockholders' equity will both increase.

17. Eagle Company reported Salaries and Wages Payable of $790 at the beginning of the year and
$2,580 at the end of the year. The income statement for the year reported Salaries and Wages
Expense of $57,000. How much cash was paid for salaries and wages during the year?
$57,000
$53,630
$54,420
$55,210

18. The balance in the Prepaid Insurance account after the adjusting entries have been recorded
represents the:
amount of the insurance prepayment that remains to benefit future periods.
cost of the insurance expired during the period.
amount owed for insurance at the end of the accounting period.
cash paid for insurance of current and future periods.

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