66.

Monthly and quarterly time periods are called

a. calendar periods.

b. fiscal periods.

c. interim periods.

d. quarterly periods.

67. The time period assumption states that

a. a transaction can only affect one period of time.

b. estimates should not be made if a transaction affects more than one

time period.

c. adjustments to the enterprise’s accounts can only be made in the

time period when the business terminates its operations.

d. the economic life of a business can be divided into artificial time

periods.
68. An accounting time period that is one year in length, but does not

begin on January 1, is referred to as

a. a fiscal year.

b. an interim period.

c. the time period assumption.

d. a reporting period.

69. Adjustments would not be necessary if financial statements were

prepared to reflect net income from

a. monthly operations.

b. fiscal year operations.

c. interim operations.

d. lifetime operations.

70. Management usually desires ________ financial statements and the

taxing authorities require all businesses to file _________ tax returns.

a. annual, annual

b. monthly, annual

c. quarterly, monthly

d. monthly, monthly

71. The time period assumption is also referred to as the

a. calendar assumption.

b. cyclicity assumption.

c. periodicity assumption.

d. fiscal assumption.
72. In general, the shorter the time period, the difficulty of making the

proper adjustments to accounts

a. is increased.

b. is decreased.

c. is unaffected.

d. depends on if there is a profit or loss.

73. Which of the following is not a common time period chosen by

businesses as their accounting period?

a. Daily

b. Monthly

c. Quarterly

d. Annually

74. Which of the following time periods would not be referred to as

an interim period? a. Monthly

b. Quarterly

c. Semi-annually

d. Annually

75. The fiscal year of a business is usually determined by

a. a government agency.

b. Share holders.

c. the business.

d. the IASB.

76. Which of the following is in accordance with IFRS?

a. Accrual basis accounting

b. Cash basis accounting

c. Both accrual basis and cash basis accounting

d. Neither accrual basis nor cash basis accounting

77. The revenue recognition principle dictates that revenue should

be recognized in the accounting records

a. when cash is received.

b. when the performance obligation is satisfied.

c. at the end of the month.

d. in the period that income taxes are paid.

78. In a service-type business, revenue is considered earned

a. at the end of the month.

b. at the end of the year.

c. when the service is performed.

d. when cash is received.

79. The expense recognition principle matches

a. customers with businesses.

b. expenses with revenues.

c. assets with liabilities.

d. .creditors with businesses.

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

b. August 1

c. August 5

d. August 6

81. A company spends $10 million dollars for an office building. Over

what period should the cost be written off?

a. When the $10 million is expended in cash.

b. All in the first year.

c. Over the useful life of the building.

d. After $10 million in revenue is earned.

82. The expense recognition principle states that expenses should be

matched with revenues. Another way of stating the principle is to say

that

a. assets should be matched with liabilities.

b. efforts should be matched with accomplishments.

c. dividends to shareholders should be matched with shareholders’

investments.

d. cash payments should be matched with cash receipts.

83. A flower shop makes a large sale and provides flowers to a

customer for $1,000 on November 30. The customer is sent a

statement on December 5 and a check is received on December 10.

The flower shop follows IFRS and applies the revenue recognition

principle. When is the $1,000 considered to be earned?

a. December 5.

b. December 10.

c. November 30.

d. December 1.

84. A candy factory’s employees work overtime to finish an order that is

sold and shipped on February 28. The office sends a statement to the

customer in early March and payment is received by mid-March. The

overtime wages should be expensed in

a. February.

b. March.

c. the period when the workers receive their checks.

d. either in February or March depending on when the pay period ends.

85. Expenses sometimes make their contribution to revenue in a

different period than when they are paid. When wages are incurred in

one period and paid in the next period, this often leads to which

account appearing on the statement of financial position at the end of

the time period?

a. Due from Employees.

b. Due to Employer.

c. Salaries and Wages Payable.

d. Salaries and Wages Expense.

86. Under accrual-basis accounting

a. cash must be received before revenue is recognized.

b. net income is calculated by matching cash outflows against cash
inflows.

c. events that change a company’s financial statements are recognized in

the period they occur rather than in the period in which cash is paid or

received.

d. the ledger accounts must be adjusted to reflect a cash basis of

accounting before financial statements are prepared under IFRS.

87. Adjusting entries are required

a. yearly.

b. quarterly.

c. monthly.

d. every time financial statements are prepared.

88. Which one of the following is not an application of revenue

recognition?

a. Recording revenue as an adjusting entry on the last day of the

accounting period.

b. Accepting cash from an established customer for services to be

performed over the

next three months.

c. Billing customers on June 30 for services completed during June.

d. Receiving cash for services performed.

89. Which statement is correct?

a. As long as a company consistently uses the cash basis of

accounting, IFRS allow its use.

b. The use of the cash basis of accounting violates both the

revenue recognition and expense recognition principles.

c. The cash basis of accounting is objective because no one can

be certain of the amount of revenue until the cash is received.

d. As long as management is ethical, there are no problems with using

the cash basis of accounting.

90. The following is selected information from Alpha-Beta-Gamma

Corporation for the fiscal year ending October 31, 2017.

Cash received from customers €600,000

Revenue earned 660,000

Cash paid for expenses 340,000

Cash paid for computers on November 1, 2016 that

will be used for 3 years (annual depreciation is

$32,000) 96,000

Expenses incurred, including interest, but excluding any

depreciation 400,000 Proceeds from a bank loan, part of

which was used to pay for the computers 200,000

Based on the accrual basis of accounting, what is Alpha-Beta-Gamma

Corporation’s net income for the year ending October 31, 2017?

a. €388,000.

b. €228,000.

c. €124,000.
d. €260,000.

91. Wing Company had the following transactions during 2016:

Sales of ¥72,000 on account

Collected ¥32,000 for services to be performed in 2017

Paid ¥10,000 cash in salaries

Purchased airline tickets for ¥4,000 in December for a trip to take place
in 2017

What is wing’s 2016 net income using accrual accounting?

a. ¥62,000.

b. ¥94,000.

c. ¥90,000.

d. ¥58,000.

92. Wing Company had the following transactions during 2016:

Sales of ¥72,000 on account

Collected ¥32,000 for services to be performed in 2017

Paid ¥10,000 cash in salaries

Purchased airline tickets for ¥4,000 in December for a trip to take place
in 2017

What is Wing’s 2016 net income using cash basis accounting?

a. ¥94,000.

b. ¥22,000.

c. ¥90,000.

d. ¥18,000.

93. Under International Financial Reporting Standards (IFRS)

a. the cash-basis method of accounting is accepted.

b. events are recorded in the period in which the event occurs.

c. interim period financial statements are either a calendar year or a fiscal

year.

d. a fiscal year is an accounting time period encompassing less than 12

months.

94. The expense recognition principle refers to

a. recognizing revenue in the period when it is earned.

b. matching the revenue reported on the income statement with the

receivable reported on the statement of financial position.

c. letting expenses follow revenues.

d. dividing the life of the business into artificial time periods.

95. When companies record transactions in the period in which the

events occur, ______ is being applied.

a. accrual-basis accounting.

b. the time period assumption.

c. the matching of the income statement with the statement of financial

position.

d. the expense recognition principle.

96. A small company may be able to justify using a cash basis of

accounting if they have a. sales under $1,000,000.

b. no accountants on staff.

c. few receivables and payables.

d. all sales and purchases on account.

97. Which of the following adjustments would require decreasing the liabilities

reported on the statement of financial position?

a. A company uses $400 worth of supplies during the year.

b. A company records $400 worth of depreciation on equipment.

c. A company has earned $400 of revenue collected at the beginning of

the year.

d. A company records $400 of wages earned by employees that will be

paid next year.

98. Adjusting entries

a. ensure that the revenue recognition and expense recognition principles

are followed.

b. are necessary to enable the financial statements to conform to

International Financial

Reporting Standards (IFRS).

c. include both accruals and deferrals

d. all of these answer choices are correct.

99. Adjusting entries are required

a. because some costs expire with the passage of time and have not

yet been journalized.

b. when the company’s profits are below the budget.

c. when expenses are recorded in the period in which they are incurred.

d. when revenues are recorded in the period in which they are earned.

100. A company must make adjusting entries

a. to ensure that the revenue recognition and expense recognition

principles are followed.

b. each time it prepares an income statement and a statement of financial
position.

c. to account for accruals or deferrals.

d. all of these answer choices are correct.

101. Which one of the following is not a justification for adjusting

entries?

a. Adjusting entries are necessary to ensure that revenue

recognition principles are 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 IFRS.

d. Adjusting entries are necessary to bring the general ledger

accounts in line with the budget.

102. An adjusting entry

a. affects two statement of financial position accounts.

b. affects two income statement accounts.

c. affects a statement of financial position account and an income

statement account.

d. is always a compound entry.

103. The preparation of adjusting entries is

a. straight forward because the accounts that need adjustment will be out
of balance.

b. often an involved process requiring the skills of a professional.

c. only required for accounts that do not have a normal balance.

d. optional when financial statements are prepared.

104. If a resource has been consumed but a bill has not been received at

the end of the accounting period, then

a. an expense should be recorded when the bill is received.

b. an expense should be recorded when the cash is paid out.

c. an adjusting entry should be made recognizing the expense.

d. it is optional whether to record the expense before the bill is received.

105. Accounts often need to be adjusted because

a. there are never enough accounts to record all the transactions.

b. many transactions affect more than one time period.

c. there are always errors made in recording transactions.

d. management can’t decide what they want to report.

106. Adjusting entries are

a. not necessary if the accounting system is operating properly.

b. usually required before financial statements are prepared.

c. made whenever management desires to change an account balance.

d. made to statement of financial position accounts only.

107. Expenses incurred but not yet paid or recorded are called

a. prepaid expenses.

b. accrued expenses.

c. interim expenses.

d. unearned expenses.
108. An asset—expense relationship exists with

a. liability accounts.

b. revenue accounts.

c. prepaid expense adjusting entries.

d. accrued expense adjusting entries.

109. Adjusting entries can be classified as

a. postponements and advances.

b. accruals and deferrals.

c. deferrals and postponements.

d. accruals and advances.

110. Accrued revenues are

a. received and recorded as liabilities before they are earned.

b. earned and recorded as liabilities before they are received.

c. earned but not yet received or recorded.

d. earned and already received and recorded.

111. Prepaid expenses are

a. paid and recorded in an asset account before they are used or

consumed.

b. paid and recorded in an asset account after they are used or consumed.

c. incurred but not yet paid or recorded.

d. incurred and already paid or recorded.

112. Accrued expenses are

a. paid and recorded in an asset account before they are used or

consumed.
b. paid and recorded in an asset account after they are used or consumed.

c. incurred but not yet paid or recorded.

d. incurred and already paid or recorded.

113. Unearned revenues are

a. received and recorded as liabilities before they are earned.

b. earned and recorded as liabilities before they are received.

c. earned but not yet received or recorded.

d. earned and already received and recorded.

114. A liability—revenue relationship exists with

a. prepaid expense adjusting entries.

b. accrued expense adjusting entries.

c. unearned revenue adjusting entries.

d. accrued revenue adjusting entries.

115. Which of the following reflect the balances of prepayment

accounts prior to adjustment?

a. Statement of financial position accounts are understated and

income statement accounts are understated.

b. Statement of financial position accounts are overstated and income

statement accounts are overstated.

c. Statement of financial position accounts are overstated and income

statement accounts are understated.

d. Statement of financial position accounts are understated and

income statement accounts are overstated.

116. A law firm received $2,000 cash for legal services to be rendered

in the future. The full amount was credited to the liability account

Unearned Service Revenue. If the legal services have been rendered

at the end of the accounting period and no adjusting entry is made,

this would cause

a. expenses to be overstated.

b. net income to be overstated.

c. liabilities to be understated.

d. revenues to be understated.

117. Bee-In-The-Bonnet Company purchased office supplies costing

$8,000 and debited Supplies for the full amount. At the end of

the accounting period, a physical count of supplies revealed $2,200

still on hand. The appropriate adjusting journal entry to be made at the

end of the period would be

a. Debit Supplies Expense, $2,200; Credit Supplies, $2,200.

b. Debit Supplies, $5,800; Credit Supplies Expense, $5,800.

c. Debit Supplies Expense, $5,800; Credit Supplies, $5,800.

d. Debit Supplies, $2,200; Credit Supplies Expense, $2,200.

118. If an adjustment is needed for unearned revenues, the

a. liability and related revenue are overstated before adjustment.

b. liability and related revenue are understated before adjustment.

c. liability is overstated and the related revenue is understated before
adjustment.

d. liabilityis understated and the related revenue is overstated before

adjustment.

119. The balance in the supplies account on June 1 was $5,200,

supplies purchased during June were $3,500, and the supplies on hand

at June 30 were $2,000. The amount to be used for the appropriate

adjusting entry is

a. $5,500.

b. $3,500.

c. $10,700.

d. $6,700.

120. Depreciation expense for a period is computed by taking the

a. original cost of an asset – accumulated depreciation.

b. depreciable cost ÷ depreciation rate.

c. cost of the asset ÷ useful life.

d. market value of the asset ÷ useful life. 121. Accumulated Depreciation is

a. an expense account.

b. an equity account.

c. a liability account.

d. a contra asset account.

122. Hercules Company purchased a computer for $4,500 on December

1. It is estimated that annual depreciation on the computer will be

$900. If financial statements are to be prepared on December 31, the

company should make the following adjusting entry:

a. Debit Depreciation Expense, $900; Credit Accumulated Depreciation,

$900.

b. Debit Depreciation Expense, $75; Credit Accumulated Depreciation,

$75.

c. Debit Depreciation Expense, $3,600; Credit Accumulated Depreciation,

$3,600.

d. Debit Office Equipment, $4,500; Credit Accumulated Depreciation,

$4,500.

123. Action Real Estate received a check for $24,000 on July 1 which

represents a 6 month advance payment of rent on a building it rents to

a client. Unearned Rent Revenue was credited for the full $24,000.

Financial statements will be prepared on July 31. Action Real

Estate should make the following adjusting entry on July 31:

a. Debit Unearned Rent Revenue, $4,000; Credit Rent Revenue, $4,000.

b. Debit Rent Revenue, $4,000; Credit Unearned Rent Revenue, $4,000.

c. Debit Unearned Rent Revenue, $24,000; Credit Rent Revenue, $24,000.

d. Debit Cash, $24,000; Credit Rent Revenue, $24,000.

124. As prepaid expenses expire with the passage of time, the correct
adjusting entry will be a

a. debit to an asset account and a credit to an expense account.

b. debit to an expense account and a credit to an asset account.

c. debit to an asset account and a credit to an asset account.

d. debit to an expense account and a credit to an expense account.

125. A company usually determines the amount of supplies used during
a period by

a. adding the supplies on hand to the balance of the Supplies account.

b. summing the amount of supplies purchased during the period.

c. taking the difference between the supplies purchased and the supplies

paid for during the period.

d. taking the difference between the balance of the Supplies account

and the cost of supplies on hand.

126. If a company fails to make an adjusting entry to record supplies

expense, then

a. equity will be understated.

b. expense will be understated.

c. assets will be understated.

d. net income will be understated.

127. What is the proper adjusting entry at June 30, the end of the

fiscal year, based on a prepaid insurance account balance before

adjustment, € 41,000, and unexpired amounts per analysis of policies of

€8,000?

a. Debit Insurance Expense, €8,000; Credit Prepaid Insurance, €8,000.

b. Debit Insurance Expense, €41,000; Credit Prepaid Insurance, €41,000.

c. Debit Prepaid Insurance, €33,000; Credit Insurance Expense, €33,000.

d. Debit Insurance Expense, €33,000; Credit Prepaid Insurance, €33,000.

128. At December 31, 2017, before any year-end adjustments,

Cable Car Company’s Insurance Expense account had a balance of

£5,800 and its Prepaid Insurance account had a balance of £15,200.

It was determined that £12,800 of the Prepaid Insurance had

expired. The adjusted balance for Insurance Expense for the year

would be

a. £12,800.

b. £5,800.

c. £18,600.

d. £8,200.

129. Depreciation is the process of

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.

130. A new accountant working for Unitas Company records $800

Depreciation Expense on store equipment as follows:

Depreciation Expense ............................................ 800

Cash .............................................................. 800

The effect of this entry is to

a. adjust the accounts to their proper amounts on December 31.

b. understate total assets on the statement of financial position as of

December 31.

c. overstate the book value of the depreciable assets at December 31.

d. understate the book value of the depreciable assets as of December 31.

131. From an accounting standpoint, the acquisition of productive facilities

can be thought of as a long-term

a. accrual of expense.

b. accrual of revenue.

c. accrual of unearned revenue.

d. prepayment for services.

132. The balance in the Prepaid Rent account before adjustment at

the end of the year is ¥15,000, which represents three months’ rent

paid on December 1. The adjusting entry required on December 31 is to

a. debit Rent Expense, ¥5,000; credit Prepaid Rent, ¥5,000.

b. debit Rent Expense, ¥10,000; credit Prepaid Rent ¥10,000.

c. debit Prepaid Rent, ¥5,000; credit Rent Expense, ¥5,000.

d. debit Prepaid Rent, ¥10,000; credit Rent Expense, ¥10,000.

133. An accumulated depreciation account

a. is a contra-liability account.

b. increases on the debit side.

c. is offset against total assets on the statement of financial position.

d. has a normal credit balance.

134. The difference between the cost of a depreciable asset and its

related accumulated depreciation is referred to as the

a. fair value of the asset.

b. blue book value of the asset.

c. book value of the asset.

d. depreciated difference of the asset.

135. If a business has several types of Non-current assets such as

equipment, buildings, and trucks,

a. there should be only one accumulated depreciation account.

b. there should be a separate accumulated depreciation account for each

type of asset.

c. all the long-term asset accounts will be recorded in one general ledger
account.

d. there won’t be a need for an accumulated depreciation account.

136. Which of the following would not result in unearned revenue?

a. Rent collected in advance from tenants

b. Services performed on account

c. Sale of season tickets to football games

d. Sale of two-year magazine subscriptions

137. If business pays rent in advance and debits a Prepaid Rent

account, the company receiving the rent payment will credit

a. cash.

b. prepaid rent.

c. unearned rent revenue.

d. accrued rent revenue.

138. Unearned revenue is classified as

a. an asset account.

b. a revenue account.

c. a contra-revenue account.

d. a liability account.

139. If a business has received cash in advance of services performed

and credits a liability account, the adjusting entry needed after the

services are performed will be

a. debit Unearned Service Revenue and credit Cash.

b. debit Unearned Service Revenue and credit Service Revenue.

c. debit Unearned Service Revenue and credit Prepaid Expense.

d. debit Unearned Service Revenue and credit Accounts Receivable.

140. Speedy Clean Laundry purchased € 6,500 worth of laundry

supplies on June 2 and recorded the purchase as an asset. On

June 30, an inventory of the laundry supplies indicated only €1,000

on hand. The adjusting entry that should be made by the company on

June 30 is

a. Debit Supplies Expense, €1,000; Credit Supplies, €1,000.

b. Debit Supplies, €1,000; Credit Supplies Expense, €1,000.

c. Debit Supplies, €5,500; Credit Supplies Expense, €5,500.

d. Debit Supplies Expense, €5,500; Credit Supplies, €5,500.

141. On July 1, Runner’s Sports Store paid $12,000 to Acme Realty

for 4 months rent beginning July 1. Prepaid Rent was debited for the

full amount. If financial statements are prepared on July 31, the

adjusting entry to be made by Runner’s Sports Store is

a. Debit Rent Expense, $12,000; Credit Prepaid Rent, $3,000.

b. Debit Prepaid Rent, $3,000; Credit Rent Expense, $3,000.

c. Debit Rent Expense, $3,000; Credit Prepaid Rent, $3,000.

d. Debit Rent Expense, $12,000; Credit Prepaid Rent, $12,000.

142. Middle City College sold season tickets for the 2017 football season

for $400,000. A total of 8 games will be played during September,

October and November. In September, three games were played. The

adjusting journal entry at September 30

a. is not required. No adjusting entries will be made until the end of

the season in

November.

b. will include a debit to Cash and a credit to Ticket Revenue for $100,000.

c. will include a debit to Unearned Ticket Revenue and a credit to

Ticket Revenue for $150,000.

d. will include a debit to Ticket Revenue and a credit to Unearned

Ticket Revenue for $133,333.

143. Middle City College sold season tickets for the 2017 football season

for $400,000. A total of 8 games will be played during September,

October and November. In September, two games were played. In

October, three games were played. The balance in Unearned Ticket

Revenue at October 31 is

a. $0.

b. $100,000.

c. $150,000.

d. $250,000.

144. Middle City College sold season tickets for the 2017 football season

for $400,000. A total of 8 games will be played during September,

October and November. Assuming all the games are played, the

Unearned Ticket Revenue balance that will be reported on the

December 31 statement of financial position will be

a. $0.

b. $150,000.

c. $250,000.

d. $400,000.

145. At March 1, 2017, Jupiter Corp. had supplies on hand of £1,000.

During the month, Jupiter purchased supplies of £2,400 and used

supplies of £2,000. The March 31 adjusting journal entry should

include a

a. debit to the supplies account for £2,000.

b. credit to the supplies account for £1,000.

c. debit to the supplies account for £2,400.

d. credit to the supplies account for £2,000.

146. Henry-K Company purchased a computer system for €5,400 on

January 1, 2017. The company expects to use the computer system

for 3 years. It has no residual value. Monthly depreciation expense

on the asset is

a. €0.

b. €150.

c. €1,800.

d. €5,400.

147. Hardwood Supplies Inc. purchased a 12-month insurance policy

on March 1, 2017 for ₤ 3,000. At March 31, 2017, the adjusting journal

entry to record expiration of this asset will include a

a. debit to Prepaid Insurance and a credit to Cash for ₤3,000.

b. debit to Prepaid Insurance and a credit to Insurance Expense for ₤300.

c. debit to Insurance Expense and a credit to Prepaid Insurance for ₤250

d. debit to Insurance Expense and a credit to Cash for ₤250.

148. Daly Investments purchased an 18-month insurance policy on May

31, 2017 for ₤12,600. The December 31, 2017 statement of financial

position would report Prepaid Insurance of

a. ₤0 because Prepaid Insurance is reported on the

Income Statement.

b. ₤4,900.

c. ₤7,700.
d. ₤12,600.

149. At March 1, Progressive Auto Inc. reported a balance in Supplies of

€600. During March, the company purchased supplies for €2,250 and

consumed supplies of €1,800. If no adjusting entry is made for

supplies

a. equity will be overstated by €1,800.

b. expenses will be understated by €2,250.

c. assets will be understated by €1,050

d. net income will be understated by €1,800.

150. Y-B-2 Inc. pays its rent of €90,000 annually on January 1. If the

February 28 monthly adjusting entry for prepaid rent is omitted, which of the

following will be true?

a. Failure to make the adjustment does not affect the February financial
statements.

b. Expenses will be overstated by €7,500 and net income and equity will

be understated by €7,500.

c. Assets will be overstated by €15,000 and net income and equity will be

understated by €15,000.

d. Assets will be overstated by €7,500 and net income and equity will be
overstated by

€7,500.

151. On January 1, 2016, P.T. Scope Company purchased a computer

system for $8,100. The company expects to use the system for 3
years. The asset has no residual value. The book value of the

system at December 31, 2017 is

a. $0.

b. $2,700.

c. $5,400.

d. $8,100.

152. On January 1, 2016, Grills and Grates Inc. purchased

equipment for £90,000. The company is depreciating the equipment

at the rate of £1,200 per month. At January 31, 2017, the balance in

Accumulated Depreciation is

a. £1,200.

b. £14,400.

c. £15,600.

d. £74,400.

153. On January 1, 2016, Masters and Masters Company purchased

equipment for € 60,000. The company is depreciating the equipment at

the rate of € 1,400 per month. The book value of the equipment at

December 31, 2016 is

a. €0.

b. €16,800.

c. €43,200.

d. €60,000.
154. O.K.C. Company collected $21,000 in September of 2016 for 4

months of service which would take place from October of 2016

through January of 2017. The revenue reported from this transaction

during 2016 would be

a. 0.

b. $15,750.

c. $21,000.

d. $5,025.

155. Turner Company collected $26,000 in September of 2016 for 5

months of service which would take place from October of 2016 through

February of 2017. The revenue reported from this transaction during

2016 would be

a. $0.

b. $15,600.

c. $26,000.

d. $10,400.

156. Niagara Corporation purchased a one-year insurance policy in

January 2016 for €24,000. The insurance policy is in effect from March

2016 through February 2017. If the company neglects to make the

proper year-end adjustment for the expired insurance

a. Net income and assets will be understated by €20,000.

b. Net income and assets will be overstated by €20,000.

c. Net income and assets will be understated by €4,000.

d. Net income and assets will be overstated by €4,000.

157. James Corporation purchased a one-year insurance policy in

January 2016 for € 24,000.

The insurance policy is in effect from May 1, 2016 through April 30,
2017. If the company neglects to make the proper year-end adjustment
for the expired insurance

a. Net income and assets will be understated by €16,000.

b. Net income and assets will be overstated by €16,000.

c. Net income and assets will be understated by €8,000.

d. Net income and assets will be overstated by €8,000.

158. Sele, Inc. purchased supplies costing ₤7,000 on January 1, 2017

and recorded the transaction by increasing assets. At the end of the

year ₤2,600 of the supplies are still on hand. How will the adjusting

entry impact Sele, Inc.’s statement of financial position at

December 31, 2017?

a. Decreased Assets ₤2,600.

b. Increased Equity ₤2,600.

c. Increased Liabilities ₤4,400.

d. Decreased Assets ₤4,400.

159. Sele, Inc. purchased supplies costing ₤7,000 on January 1,

2017 and recorded the transaction by increasing assets. At the end

of the year ₤2,600 of the supplies are still on hand. If Sele, Inc. does
not make the appropriate adjusting entry, what is the impact on its

statement of financial position at December 31, 2017?

a. Assets overstated by ₤ 4,400.

b. Equity understated by ₤4,400.

c. Equity overstated by ₤ 2,600.

d. Assets overstated by ₤ 2,600.

160. Sele, Inc. purchased a building on January 1, 2017 for ₤1,200,000.

The useful life of the building is 10 years. What impact will the

appropriate adjusting entry at December 31,

2017 have on its statement of financial position at December 31, 2017?

a. Increased Equity ₤ 120,000.

b. Increased Liabilities ₤ 120,000.

c. Decreased Assets ₤ 120,000.

d. Since the adjusting entry has offsetting debits and credits, there is no

impact on the statement of financial position.

161. Sele, Inc. purchased a building on January 1, 2017 for ₤ 1,200,000.

The useful life of the building is 10 years. The asset is reported on

the December 31, 2017 statement of financial position at ₤ 1,080,000.

What was the impact of the adjusting entry recorded by

Sele, Inc.?

a. Decreased Equity ₤ 120,000.

b. Increased Liabilities ₤ 120,000.

c. Increased Assets ₤ 120,000.

d. All of these answer choices are correct.

162. Iron Inn is a resort located in Canada. Wave Inn collects cash

when guests make a reservation. During December 2016, Iron Inn

collected €150,000 of cash and recorded the receipt by recognizing

unearned revenue. By the end of the month Iron Inn had earned one

third of this amount, the other two thirds will be earned during

January 2017. The adjusting entry required at December 31, 2016

would impact the statement of financial position by

a. Increased Equity €100,000.

b. Decreased Liabilities €50,000.

c. Increased Assets €150,000.

d. Decreased Equity €50,000.

163. Iron Inn is a resort located in Canada. During December 2016 Wave

Inn collects €200,000 cash related to a conference booked by the Spin

Jammers. The conference is scheduled for February 12 and 13, 2017.

Which of the following is true regarding how this transaction is reported

on the December 31, 2016 statement of financial position?

a. Spin Jammers reports unearned revenue of €200,000.

b. Iron Inn reports a prepaid asset of €200,000.

c. Iron Inn reports unearned revenue of €200,000.

d. All of these answer choices are correct.

164. Bread Basket provides baking supplies to restaurants and

grocery stores. During December 2017, Bread Basket’s employees

worked 2,400 hours at an average rate of €15 per hour. At

December 31, 2017, Bread Basket has paid €21,000 of salary expense.

If Bread Basket fails to make the appropriate adjusting entry, which of

the following is true regarding its December 31, 2017 statement of

financial position?

a. Equity is overstated by €21,000.

b. Equity is understated by €15,000.

c. Liabilities are understated by €15,000.

d. Liabilities are overstated by €21,000.

165. Bread Basket provides baking supplies to restaurants and grocery

stores. On November

1, 2017, Bread Basket signed a €600,000, 6-month note payable.

The note requires Bread Basket to pay interest at an annual rate of

6%. Assuming Bread Basket makes the appropriate adjusting entry,

what is the impact on its December 31, 2017 statement of financial

position?

a. An expense of €18,000.

b. An expense of €6,000.

c. A liability of €6,000.

d. An expense of €18,000 and a liability of.€18,000.

166. Bread Basket provides baking supplies to restaurants and grocery
stores. On November

1, 2017, Bread Basket signed a €700,000, 6-month note payable.

The note requires Bread Basket to pay interest at an annual rate

of 6%. Bread Basket’s accountant is a recent college graduate

who lacks practical experience. Therefore, the appropriate

adjusting entry is not made. What is the impact on its December 31,

2017 statement of financial position?

a. Assets are overstated by €21,000.

b. Equity is overstated by €21,000.

c. Liabilities are understated by €21,000.

d. Liabilities are understated by €7,000.

167. Iron Inn is a resort located in Canada. During December 2017

Spin Jammers held its annual conference at the resort. The charges

related to the conference total € 400,000, of which 25% has been paid

by Spin Jammers. When Iron Inn makes the appropriate adjusting

entry, which of the following is a part of the adjustment made to its

December

31, 2017 statement of financial position?

a. Debit Cash €300,000.

b. Credit revenues €300,000.

c. Credit Cash €300,000.

d. Debit Cash and credit revenue €300,000.

168. Which of the following statements is false regarding adjusting
entries?

a. Cash is neither debited nor credited as a result of adjusting entries.

b. Each adjusting entry affects one statement of financial position

account and one income statement account.

c. Each adjusting entry affects one revenue account and one expense
account.

d. Adjusting entries involve accruals or deferrals.

169. If an adjusting entry is not made for an accrued revenue,

a. assets will be overstated.

b. expenses will be understated.

c. equity will be understated.

d. revenues will be overstated.

170. If an adjusting entry is not made for an accrued expense,

a. expenses will be overstated.

b. liabilities will be understated.

c. net income will be understated.

d. equity will be understated.

171. Failure to prepare an adjusting entry at the end of the period to

record an accrued expense would cause

a. net income to be understated.

b. an overstatement of assets and an overstatement of liabilities.

c. an understatement of expenses and an understatement of liabilities.

d. an overstatement of expenses and an overstatement of liabilities.

172. Failure to prepare an adjusting entry at the end of a period to

record an accrued revenue would cause

a. net income to be overstated.

b. an understatement of assets and an understatement of revenues.

c. an understatement of revenues and an understatement of liabilities.

d. an understatement of revenues and an overstatement of liabilities.

173. Betty Carson has performed $500 of accounting services for a client

but has not billed the client as of the end of the accounting period.

What adjusting entry must Betty make?

a. Debit Cash and credit Unearned Service Revenue

b. Debit Accounts Receivable and credit Unearned Service Revenue

c. Debit Accounts Receivable and credit Service Revenue

d. Debit Unearned Service Revenue and credit Service Revenue

174. Betty Carson, an accountant, has billed her clients for

services performed. She subsequently receives payments from her

clients. What entry will Betty make upon receipt of the payments?

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

175. Sherman Air Charter signed a four-month note payable in the

amount of $12,000 on

September 1. The note requires interest at an annual rate of 6%. The

amount of interest
to be accrued at the end of September is

a. $240.

b. $60.

c. $720.

d. $180.

176. Joyce’s Gifts signs a three-month note payable to help finance

increases in inventory for the Christmas shopping season. The note

is signed on November 1 in the amount of $50,000 with annual

interest of 6%. What is the adjusting entry to be made on December 31

for the interest expense accrued to that date, if no entries have been

made previously for the interest?

a. Interest Expense................................................................. 500

Interest Payable......................................................... 500

b. Interest Expense................................................................. 7,500

Interest Payable......................................................... 7,500

c. Interest Expense................................................................. 500

Cash .......................................................................... 500

d. Interest Expense................................................................. 500

Note Payable ............................................................. 500

177. Cindi’s Candies paid employee wages on and through Friday,

January 26, and the next payroll will be paid in February. There are

three more working days in January (29–31). Employees work 5 days a

week and the company pays $900 a day in wages. What will be the

adjusting entry to accrue wages expense at the end of January?

a. Salaries and Wages Expense............................................. 900

Salaries and Wages Payable ..................................... 900

b. Salaries and Wages Expense............................................. 4,500

Salaries and Wages Payable ..................................... 4,500

c. Salaries and Wages Expense............................................. 2,700

Salaries and Wages Payable ..................................... 2,700

d. No adjusting entry is required.

178. A company shows a balance in Salaries and Wages Payable of

¥48,000 at the end of the month. The next payroll amounting to ¥54,000

is to be paid in the following month. What will be the journal entry to

record the payment of salaries?

a. Salaries and Wages Expense............................................. 54,000

Salaries and Wages Payable ..................................... 54,000

b. Salaries and Wages Expense............................................. 54,000

Cash .......................................................................... 54,000

c. Salaries and Wages Expense............................................. 6,000

Cash .......................................................................... 6,000

d. Salaries and Wages Expense............................................. 6,000

Salaries and Wages Payable.............................................. 48,000

Cash .......................................................................... 54,000

179. 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

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.

180. Jenni’s Music Store borrowed $60,000 from the bank signing a

7%, 3-month note on September 1. Principal and interest are payable

to the bank on December 1. If the company prepares monthly

financial statements, the adjusting entry that the company should

make for interest on September 30, would be

a. Debit Interest Expense, $4,200; Credit Interest Payable, $4200.

b. Debit Interest Expense, $350; Credit Interest Payable, $350.

c. Debit Note Payable, $4,200; Credit Cash, $4,200

d. Debit Cash, $1,050; Credit Interest Payable, $1,050.

181. Becki Jean Corporation issued a one-year, 6%, £500,000 note on

April 30, 2017. Interest expense for the year ended December 31, 2017

was

a. £30,000.
b. £22,500.

c. £20,000.

d. £17,500.

182. RAS Corporation issued a one-year, 6%, €400,000 note on

August 31, 2017. Interest expense for the year ended December 31,

2017 was

a. €24,000.

b. €10,000.

c. €8,000.

d. €6,000.

183. Employees at Julian Corporation are paid € 20,000 cash every

Friday for working Monday through Friday. The calendar year

accounting period ends on Wednesday, December 31.

How much salary expense should be recorded two days

later on January 2?

a. €20,000

b. €12,000

c. None, matching requires the weekly salary to be accrued on

December 31. d. €8,000

184. Can financial statements be prepared directly from the adjusted

trial balance?

a. They cannot. The general ledger must be used.

b. Yes, adjusting entries have been recorded in the general journal

and posted to the ledger accounts.

c. No, the adjusted trial balance merely proves the equality of the
total debit and total credit balances in the ledger after adjustments
are posted. It has no other purpose.

d. They can because that is the only reason that an adjusted trial balance

is prepared.

185. The adjusted trial balance is prepared

a. after financial statements are prepared.

b. before the trial balance.

c. to prove the equality of total assets and total liabilities.

d. after adjusting entries have been journalized and posted.

186. An adjusted trial balance

a. is prepared after the financial statements are completed.

b. proves the equality of the total debit balances and total credit

balances of ledger accounts after all adjustments have been made.

c. is a required financial statement under IFRS.

d. cannot be used to prepare financial statements.

187. Which of the statements below is not true?

a. An adjusted trial balance should show ledger account balances.

b. An adjusted trial balance can be used to prepare financial statements.

c. An adjusted trial balance proves the mathematical equality of debits

and credits in the ledger.

d. An adjusted trial balance is prepared before all transactions have been
journalized.

188. A document prepared to prove the equality of debits and credits after all

adjustments have been prepared is the

a. adjusted statement of financial position.

b. adjusted trial balance.

c. adjusted financial statements.

d. post-closing trial balance.

189. Similarities between International Financial Reporting Standards

(IFRS) and U.S. GAAP include all of the following except

a. Cash-basis accounting is not in accordance with either IFRS or U.S.

GAAP.

b. Both IFRS and U.S. GAAP allow revaluation of item such as land and

building to fair value.

c. Both IFRS and U.S. GAAP divide the economic life of companies

into artificial time periods.

d. The form and content of financial statements are very similar

under IFRS and U.S. GAAP.

190. Cara, Inc. purchased supplies costing €7,500 on January 1,

2017 and recorded the transaction by debiting an expense. At the

end of the year €3,000 of the supplies are still on hand. If Cara, Inc.

does not make the appropriate adjusting entry, what is the impact on

its statement of financial position at December 31, 2017?

a. Assets understated by €4,500.

b. Equity understated by €4,500.

c. Equity overstated by €3,000.

d. Assets understated by €3,000.

191. Wave Inn is a resort located in Canada. Wave Inn collects cash

when guests make a reservation. During December 2016, Wave Inn

collected $90,000 of cash and recorded the receipt by recognizing

revenue. By the end of the month Wave Inn had earned one third of this

amount, the other two thirds will be earned during January 2017.

The adjusting entry required at December 31, 2016 would impact the

statement of financial position by

a. Decreased Equity $60,000.

b. Decreased Liabilities $60,000.

c. Increased Assets $90,000.

d. Increased Equity $30,000.

192. Myron is a barber who does his own accounting for his shop. When

he buys supplies he routinely debits Supplies Expense. Myron

purchased €3,000 of supplies in January and

his inventory at the end of January shows €800 of supplies

remaining. What adjusting entry should Myron make on January 31?

a. Supplies Expense ............................................................... 800

Supplies ..................................................................... 800

b. Supplies Expense ............................................................... 3,000

Cash........................................................................... 3,000

c. Supplies.............................................................................. 800

Supplies Expense....................................................... 800

d. Supplies Expense ............................................................... 2,200

Supplies ..................................................................... 2.200

193. Alternative adjusting entries do not apply to

a. accrued revenues and accrued expenses.

b. prepaid expenses.

c. unearned revenues.

d. prepaid expenses and unearned revenues.

194. Mike Conway is a lawyer who requires that his clients pay

him in advance of legal services rendered. Mike routinely credits

Service Revenue when his clients pay him in advance. In June Mike

collected €20,000 in advance fees and completed 75% of the work

related to these fees. What adjusting entry is required by Mike’s firm at

the end of June?

a. Unearned Service Revenue ............................................... 15,000

Service Revenue ....................................................... 15,000

b. Unearned Service Revenue ............................................... 5,000

Service Revenue ....................................................... 5,000

c. Cash .................................................................................. 20,000

Service Revenue ....................................................... 20,000

d. Service Revenue ................................................................ 5,000

Unearned Service Revenue ....................................... 5,000

195. If prepaid expenses are initially recorded in expense accounts and

have not all been used at the end of the accounting period, then failure

to make an adjusting entry will cause

a. assets to be understated.

b. assets to be overstated.

c. expenses to be understated.

d. contra-expenses to be overstated.

196. If unearned revenues are initially recorded in revenue accounts

and have not all been earned at the end of the accounting period, then

failure to make an adjusting entry will cause

a. liabilities to be overstated.

b. revenues to be understated.

c. revenues to be overstated.

d. accounts receivable to be overstated.

197. On January 2, 2017, National Credit and Cash purchased a

general liability insurance policy for ₤6,000 for coverage for the

calendar year. The entire ₤6,000 was charged to Insurance Expense on

January 2, 2017. If the firm prepares monthly financial statements, the

proper adjusting entry on January 31, 2017, will be:

a. Insurance Expense............................................................. 5,500

Prepaid Insurance...................................................... 5,500

b. Prepaid Insurance............................................................... 5,500

Insurance Expense .................................................... 5,500

c. Insurance Expense............................................................. 500

Prepaid Insurance...................................................... 500

d. Prepaid Insurance............................................................... 500

Insurance Expense .................................................... 500

198. Information that is presented in a clear fashion, so that reasonably

informed users of that information can interpret it is an example of

a. relevance.

b. faithful representation.

c. understandability.

d. comparability.

199. Accounting information should be verifiable in order to enhance

a. comparability.

b. faithful representation.

c. consistency.

d. relevance.

200. If accounting information has relevance, it is useful in making

predictions about

a. future tax audits.

b. new accounting principles.

c. foreign currency exchange rates.

d. the future events of a company.

201. Which one of the following is not an enhancing quality of

useful information?

a. Timelines

b. Understandability

c. Monetary Unit

d. Comparability

202. All of the following are characteristics of accounting information

except

a. faithful representation.

b. comparability.

c. relevance.

d. flexibility.

203. The two fundamental qualities of useful information are

a. verifiability and timeliness.

b. relevance and faithful representation.

c. comparability and flexibility.

d. understandability and consistency.

204. Relevant accounting information

a. is information that has been audited.

b. must be reported within the operating cycle or one year, whichever is

longer.

c. has been objectively determined.

d. is information that is capable of making a difference in a business

decision.

205. Characteristics associated with relevant accounting information are

a. comparability and timeliness.

b. predictive value and confirmatory value.

c. neutral and verifiable.

d. consistency and understandability.

206. Characteristics associated with faithfully representative

accounting information are

a. verifiable and timely.

b. neutral and verifiable.

c. complete and neutral.

d. relevance and verifiable.

207. Which of the following statements is not true?

a. Comparability means using the same accounting principles from

year to year within a company.

b. Faithful representation is the quality of information that gives

assurance that it is free from error.

c. Relevant accounting information must be capable of making a

difference in the decision.

d. The primary objective of financial reporting is to provide

financial information that is useful to investors and creditors for making

decision.

208. An item is considered material if

a. it doesn’t cost a lot of money.

b. it is of a tangible good.

c. its size is likely to influence the decision of an investor or creditor.

d. the cost of reporting the item is greater than its benefits.

209. A company using the same accounting principles from year to year

is an application of

a. timelines.

b. consistency.

c. full disclosure.

d. materiality.

210. Which of the following is a constraint in accounting?

a. Comparability.

b. Cost.

c. Consistency.

d. Relevance.

211. The periodicity assumption states that the economic life of a

business can be divided into

a. equal time periods.

b. cyclical time periods.

c. artificial time periods.

d. perpetual time periods.

212. Which accounting assumption assumes that an enterprise will

continue in operation long enough to carry out its existing objectives

and commitment?

a. Monetary unit assumption.

b. Economic entity assumption.

c. Periodicity assumption.

d. Going concern assumption.

213. The economic entity assumption states that economic events

a. of different entities can be combined if all the entities are corporations.

b. must be reported to the IASB.

c. of a sole proprietorship cannot be distinguished from the personal

economic events of its owners.

d. of every entity can be separately identified and accounted for.

214. Which of the following is not an accounting

assumption?

a. Integrity.

b. Going concern.

c. Periodicity.

d. Economic entity.

215. The periodicity assumption states

a. the business will remain in operation for the foreseeable future.

b. the life of a business can be divided into artificial time periods and that

useful reports covering those periods can be prepared.

c. every economic entity can be separately identified and accounted for.

d. only those things that can be expressed in money are included in

the accounting records.

216. Valuing assets at their fair value rather than at their cost is
inconsistent with the:

a. economic entity assumption.

b. historical cost principle.

c. periodicity assumption.

d. full disclosure principles.

217. 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?

a. Comparability

b. Relevance

c. Faithful representation

d. Consistency

218. Which of the following statements concerning accrual-basis

accounting is incorrect?

a. Accrual-basis accounting follows the revenue recognition principle.

b. Accrual-basis accounting is the method required by IFRS.

c. Accrual-basis accounting recognizes expenses when they are paid.

d. Accrual-basis accounting follows the expense recognition principle.

219. The revenue recognition principle dictates that revenue be

recognized in the accounting period

a. before it is earned.

b. after it is earned.

c. in which the performance obligation is satisfied.

d. in which it is collected.

220. An expense is recorded under the cash basis only when

a. services are performed.

b. it is earned.

c. cash is paid.

d. it is incurred.

221. For prepaid expense adjusting entries

a. an expense—liability account relationship exists.

b. prior to adjustment, expenses are overstated and assets are

understated.

c. the adjusting entry results in a debit to an expense account and a credit

to an asset account.

d. none of these.

222. Expenses paid and recorded as assets before they are used are
called

a. accrued expenses.

b. interim expenses.

c. prepaid expenses.

d. unearned expenses.
223. Sail & Surf Cruises purchased a five-year insurance policy for its
ships on April 1, 2017 for

€120,000. Assuming that April 1 is the effective date of the policy, the
adjusting entry on

December 31, 2017 is

a. Prepaid Insurance............................................................... 18,000

Insurance Expense...................................................... 18,000

b. Insurance Expense............................................................. 18,000

Prepaid Insurance ....................................................... 18,000

c. Insurance Expense............................................................. 24,000

Prepaid Insurance ....................................................... 24,000

d. Insurance Expense............................................................. 6,000

Prepaid Insurance ....................................................... 6,000

224. CHS Company purchased a truck from JLS Corp. by issuing a 6-

month, 8% note payable for $45,000 on November 1. On December

31, the accrued expense adjusting entry is

a. No entry is required.

b. Interest Expense ................................................................. 3,600

Interest Payable........................................................... 3,600

c. Interest Expense ................................................................. 7,200

Interest Payable........................................................... 7,200

d. Interest Expense ................................................................. 600

Interest Payable........................................................... 600

225. If the adjusting entry for depreciation is not made,

a. assets will be understated.

b. equity will be understated.

c. net income will be understated.

d. expenses will be understated.

226. BJ, an employee of Walker Corp., will not receive her paycheck

until April 2. Based on services performed from March 16 to March 31,

her salary was $800. The adjusting entry for Walker Corp. on March 31

is

a. Salaries and Wages Expense .............................................. 800 Salaries

and Wages Payable........................................ 800

b. No entry is required.

c. Salaries and Wages Expense .............................................. 800

Cash ............................................................................. 800

d. Salaries and Wages Payable ............................................... 800

Cash ............................................................................. 800

227. Which of the following statements related to the adjusted trial

balance is incorrect?

a. It shows the balances of all accounts at the end of the accounting

period.

b. It is prepared before adjusting entries have been made.

c. It proves the equality of the total debit balances and the total credit

balances in the ledger.

d. Financial statements can be prepared directly from the adjusted trial

balance.

228. Financial statements are prepared directly from the

a. general journal.

b. ledger.

c. trial balance.

d. adjusted trial balance.

86. Maso Company recorded journal entries for the issuance of common
stock for $40,000, the payment of $13,000 on accounts payable, and the
payment of salaries expense of $21,000.
What net effect do these entries have on owners’ equity?

a. Increase of $40,000.

b. Increase of $27,000.

c. Increase of $19,000.

d. Increase of $6,000.

87. Mune Company recorded journal entries for the declaration of $50,000
of dividends, the $32,000 increase in accounts receivable for services
rendered, and the purchase of equipment for $21,000. What net effect
do these entries have on owners’ equity?

a. Decrease of $71,000.

b. Decrease of $39,000.

c. Decrease of $18,000.

d. Increase of $11,000.
88. Pappy Corporation received cash of $13,500 on September 1, 2010 for
one year’s rent in advance and recorded the transaction with a credit to
Unearned Rent. The December 31, 2010 adjusting entry is

a. debit Rent Revenue and credit Unearned Rent, $4,500.

b. debit Rent Revenue and credit Unearned Rent, $9,000.

c. debit Unearned Rent and credit Rent Revenue, $4,500.

d. debit Cash and credit Unearned Rent, $9,000.

89. Panda Corporation paid cash of $18,000 on June 1, 2010 for one year’s
rent in advance and recorded the transaction with a debit to Prepaid
Rent. The December 31, 2010 adjusting entry is

a. debit Prepaid Rent and credit Rent Expense, $7,500.

b. debit Prepaid Rent and credit Rent Expense, $10,500.

c. debit Rent Expense and credit Prepaid Rent, $10,500.

d. debit Prepaid Rent and credit Cash, $7,500.

90. Tate Company purchased equipment on November 1, 2010 and gave a 3-

month, 9% note with a face value of $20,000. The December 31, 2010
adjusting entry is

a. debit Interest Expense and credit Interest Payable, $1,800.

b. debit Interest Expense and credit Interest Payable, $450.

c. debit Interest Expense and credit Cash, $300.

d. debit Interest Expense and credit Interest Payable, $300.

91. Brown Company's account balances at December 31, 2010 for Accounts
Receivable and the related Allowance for Doubtful Accounts are
$460,000 debit and $700 credit, respectively. From an aging of accounts
receivable, it is estimated that $12,500 of the December 31 receivables
 will be uncollectible. The necessary adjusting entry would include a
credit to the allowance account for

a. $12,500.

b. $13,200.

c. $11,800.

d. $700.

92. Chen Company's account balances at December 31, 2010 for Accounts
Receivable and the Allowance for Doubtful Accounts are $320,000 debit
and $600 credit. Sales during 2010 were $900,000. It is estimated that
1% of sales will be uncollectible. The adjusting entry would include a
credit to the allowance account for

a. $9,600.

b. $9,000.

c. $8,400.

d. $3,200.

93. Starr Corporation loaned $90,000 to another corporation on December

1, 2010 and received a 3-month, 8% interest-bearing note with a face
value of $90,000. What adjusting entry should Starr make on December
31, 2010?

a. Debit Interest Receivable and credit Interest Revenue, $1,800.

b. Debit Cash and credit Interest Revenue, $600.

c. Debit Interest Receivable and credit Interest Revenue, $600.

d. Debit Cash and credit Interest Receivable, $1,800.

Use the following information for questions 94 and 95:

A company receives interest on a $30,000, 8%, 5-year note
receivable each April 1. At December 31, 2010, the following
adjusting entry was made to accrue interest receivable:
Interest Receivable ........................................................................
1,800

Interest Revenue .............................................................. 1,800

 94. Assuming that the company does not use reversing entries, what entry
should be made on April 1, 2011 when the annual interest payment is
received?

a. Cash ....................................................................................... 600

Interest Revenue .............................................................. 600

b. Cash .................................................................................... 1,800

Interest Receivable ........................................................... 1,800

c. Cash .................................................................................... 2,400

Interest Receivable ........................................................... 1,800

Interest Revenue .............................................................. 600

d. Cash .................................................................................... 2,400

Interest Revenue .............................................................. 2,400

*95. Assuming that the company does use reversing entries, what entry
should be made on April 1, 2011 when the annual interest payment is
received?

a. Cash ....................................................................................... 600

Interest Revenue .............................................................. 600

b. Cash .................................................................................... 1,800

Interest Receivable ........................................................... 1,800

c. Cash ............................................................................................
2,400

Interest Receivable ........................................................... 1,800

Interest Revenue .............................................................. 600

d. Cash .................................................................................... 2,400

 Interest Revenue ................................................................ 2,400

96. Murphy Company sublet a portion of its warehouse for five years at an
annual rental of $24,000, beginning on May 1, 2010. The tenant, Sheri
Charter, paid one year's rent in advance, which Murphy recorded as a
credit to Unearned Rental Revenue. Murphy reports on a calendar-year
basis. The adjustment on December 31, 2010 for Murphy should be a.
No entry

b. Unearned Rent Revenue ...............................................................

8,000

Rent Revenue ................................................................... 8,000

c. Rent Revenue ................................................................................

8,000

Unearned Rent Revenue .................................................. 8,000

d. Unearned Rent Revenue ...............................................................

16,000

Revenue Revenue .............................................................. 16,000

97. During the first year of Wilkinson Co.'s operations, all purchases were
recorded as assets. Store supplies in the amount of $19,350 were
purchased. Actual year-end store supplies amounted to $6,450. The
adjusting entry for store supplies will

a. increase net income by $12,900.

b. increase expenses by $12,900.

c. decrease store supplies by $6,450.

d. debit Accounts Payable for $6,450.

98. Big-Mouth Frog Corporation had revenues of $200,000, expenses of
$120,000, and dividends of $30,000. When Income Summary is closed to
Retained Earnings, the amount of the debit or credit to Retained
Earnings is a

a. debit of $50,000.

b. debit of $80,000.

c. credit of $50,000.

d. credit of $80,000.

Use the following information for questions 99 through 101:

The income statement of Dolan Corporation for 2010 included the

following items:
Interest revenue $65,500
Salaries expense 85,000
Insurance expense 7,600
The following balances have been excerpted from Dolan Corporation's
balance sheets:

December 31, 2010 December 31,

2009
Accrued interest receivable $9,100 $7,500

Accrued salaries payable 8,900 4,200

Prepaid insurance 1,100 1,500

The cash received for interest during

*99.
2010 was
a. $56,400.
 b. $63,900.

c. $65,500.

d. $67,100.

The cash paid for salaries during

*100.
2010 was

a. $89,700.

b. $80,300.

c. $80,800.

d. $93,900.

The cash paid for insurance premiums during 2010

*101.
was

a. $6,500.

b. $6,100.

c. $8,000.

d. $7,200.
Use the following information for questions 102 through
104:

Olsen Company paid or collected during 2010 the following

items:
Insurance premiums paid $ 10,400

Interest collected 33,900

Salaries paid 120,200

The following balances have been excerpted from Olsen's

balance sheets:
December 31,
December 31, 2010
2009
Prepaid insurance $ 1,200 $ 1,500
Interest receivable 3,700 2,900
Salaries payable 12,300 10,600

*102. The insurance expense on the income statement for 2010 was

a. $7,700.

b. $10,100.

c. $10,700.

d. $13,100.
*103. The interest revenue on the income statement for 2010 was
a. $27,300.
b. $33,100.
c. $34,700.
d. $40,500.

*104. The salary expense on the income statement for 2010 was
a. $97,300.
b. $118,500.
c. $121,900.
d. $143,100.

*105. The Office Supplies account had a balance at the beginning of year 3 of
$4,000 (before the reversing entry). Payments for purchases of office
supplies during year 3 amounted to $25,000 and were recorded as
expense. A physical count at the end of year 3 revealed supplies costing
$4,750 were on hand. Reversing entries are used by this company. The
required adjusting entry at the end of year 3 will include a debit to:
a. Office Supplies Expense for $750.
b. Office Supplies for $750.
c. Office Supplies Expense for $24,250.
d. Office Supplies for $4,750.

At the end of 2010, Drew Company made four adjusting entries for the
*106.
following items:
1. Depreciation expense, $25,000.
2. Expired insurance, $2,200 (originally recorded as prepaid insurance.)
3. Interest payable, $6,000.
4. Rental revenue receivable, $10,000.
 In the normal situation, to facilitate subsequent entries, the adjusting
entry or entries that may be reversed is (are)
a. Entry No. 3.

b. Entry No. 4.

c. Entry No. 3 and No. 4.

d. Entry No. 2, No. 3 and No. 4.

*107. Garcia Corporation received cash of $18,000 on August 1, 2010 for one
year's rent in advance and recorded the transaction with a credit to
Rent Revenue. The December 31, 2010 adjusting entry is

a. debit Rent Revenue and credit Unearned Rent, $7,500.

b. debit Rent Revenue and credit Unearned Rent, $10,500.

c. debit Unearned Rent and credit Rent Revenue, $7,500.

d. debit Cash and credit Unearned Rent, $10,500.

*108. Lopez Company received $6,400 on April 1, 2010 for one year's rent in
advance and recorded the transaction with a credit to a nominal
account. The December 31, 2010 adjusting entry is

a. debit Rent Revenue and credit Unearned Rent, $1,600.

b. debit Rent Revenue and credit Unearned Rent, $4,800.

c. debit Unearned Rent and credit Rent Revenue, $1,600.

d. debit Unearned Rent and credit Rent Revenue, $4,800.

*109. Gibson Company paid $3,600 on June 1, 2010 for a two-year insurance
policy and recorded the entire amount as Insurance Expense. The
December 31, 2010 adjusting entry is

a. debit Insurance Expense and credit Prepaid Insurance, $1,050.

b. debit Insurance Expense and credit Prepaid Insurance, $2,550.

c. debit Prepaid Insurance and credit Insurance Expense, $1,050

d. debit Prepaid Insurance and credit Insurance Expense, $2,550.

110. On September 1, 2010, Lowe Co. issued a note payable to National

Bank in the amount of $600,000, bearing interest at 12%, and payable
in three equal annual principal payments of $200,000. On this date, the
bank's prime rate was 11%. The first payment for interest and principal
was made on September 1, 2011. At December 31, 2011, Lowe should
record accrued interest payable of

a. $24,000.

b. $22,000.

c. $16,000.

d. $14,667.

111. Eaton Co. sells major household appliance service contracts for cash.
The service contracts are for a one-year, two-year, or three-year period.
Cash receipts from contracts are credited to Unearned Service
Revenues. This account had a balance of $1,800,000 at December 31,
 2010 before year-end adjustment. Service contract costs are charged as
incurred to the Service Contract Expense account, which had a balance
of $450,000 at December 31, 2010.

Service contracts still outstanding at December 31, 2010 expire as follows:

During 2011 $380,000
During 2012 570,000
During 2013 350,000
What amount should be reported as Unearned Service Revenues in Eaton's
December 31, 2010 balance sheet?

a. $1,350,000.

b. $1,300,000.

c. $850,000.

d. $500,000.

112. In November and December 2010, Lane Co., a newly organized

magazine publisher, received $90,000 for 1,000 three-year
subscriptions at $30 per year, starting with the January 2011 issue.
Lane included the entire $90,000 in its 2010 income tax return. What
amount should Lane report in its 2010 income statement for
subscriptions revenue?

a. $0.

b. $5,000.

c. $30,000.

d. $90,000.

113. On June 1, 2010, Nott Corp. loaned Horn $400,000 on a 12% note,
payable in five annual installments of $80,000 beginning January 2,
2011. In connection with this loan, Horn was required to deposit
$5,000 in a noninterest-bearing escrow account. The amount held in
escrow is to be returned to Horn after all principal and interest
 payments have been made. Interest on the note is payable on the first
day of each month beginning July 1, 2010. Horn made timely payments
through November 1, 2010. On January 2, 2011, Nott received payment
of the first principal installment plus all interest due. At December 31,
2010, Nott's interest receivable on the loan to Horn should be

a. $0.

b. $4,000.

c. $8,000.

d. $12,000.

114. Allen Corp.'s liability account balances at June 30, 2011 included a 10%
note payable in the amount of $2,400,000. The note is dated October 1,
2009 and is payable in three equal annual payments of $800,000 plus
interest. The first interest and principal payment was made on October
1, 2010. In Allen's June 30, 2011 balance sheet, what amount should be
reported as accrued interest payable for this note?

a. $180,000.

b. $120,000.

c. $60,000.

d. $40,000.

115. Colaw Co. pays all salaried employees on a biweekly basis.

Overtime pay, however, is paid in the next biweekly period.
Colaw accrues salaries expense only at its December 31 year
end. Data relating to salaries earned in December 2010 are as
follows:
Last payroll was paid on 12/26/10, for the 2-week period ended 12/26/10.

Overtime pay earned in the 2-week period ended 12/26/10 was

$10,000.
 Remaining work days in 2010 were December 29, 30, 31, on which days
there was no overtime.

The recurring biweekly salaries total $180,000.

Assuming a five-day work week, Colaw should record a liability at

December 31,
2010 for accrued salaries of
a. $54,000.

b. $64,000.

c. $108,000.

d. $118,000.
116. Tolan Corp.'s trademark was licensed to Eddy Co. for royalties of 15% of
sales of the trademarked items. Royalties are payable semiannually on
March 15 for sales in July through December of the prior year, and on
September 15 for sales in January through June of the same year. Tolan
received the following royalties from Eddy:

March 15 September 15

2009 $5,000 $7,500

2010 6,000 8,500

Eddy estimated that sales of the trademarked items would total

$40,000 for July through December 2010. In Tolan's 2010
income statement, the royalty revenue should be
a. $14,500.

b. $16,000.

c. $20,500.

d. $22,000.

117. At December 31, 2010, Sue’s Boutique had 1,000 gift certificates
outstanding, which had been sold to customers during 2010 for $50
each. Sue’s operates on a gross margin of 60% of its sales. What
amount of revenue pertaining to the 1,000 outstanding gift certificates
should be deferred at December 31, 2010?

a. $0.

b. $20,000.

c. $30,000.

d. $50,000.

*118. Compared to the accrual basis of accounting, the cash basis of

accounting overstates income by the net increase during the accounting
period of the
 Accounts Receivable Accrued Expenses Payable

a No No

b No Yes

c Yes No

d Yes Yes

*119. Gregg Corp. reported revenue of $1,100,000 in its accrual basis income
statement for the year ended June 30, 2011. Additional information
was as follows:
Accounts receivable June 30, 2010 $350,000
Accounts receivable June 30, 2011 530,000
Uncollectible accounts written off during the fiscal year 13,000
Under the cash basis, Gregg should report revenue of
a. $687,000.
b. $700,000.
c. $907,000.
d. $933,000.

*120. Jim Yount, M.D., keeps his accounting records on the cash basis. During
2011, Dr. Yount collected $360,000 from his patients. At December 31,
2010, Dr. Yount had accounts receivable of $50,000. At December 31,
2011, Dr. Yount had accounts receivable of $70,000 and unearned
revenue of $10,000. On the accrual basis, how much was Dr. Yount's
patient
service revenue for 2011?

a. $310,000.
b. $370,000.
c. $380,000.
 d. $390,000.
The following information is available for Ace Company for
*121.
2010:
Disbursements for purchases $1,050,000
Increase in trade accounts payable 75,000
Decrease in merchandise inventory 30,000
Costs of goods sold for 2010 was
a. $1,155,000.
b. $1,095,000.
c. $1,005,000.

d. $945,000.