Multiple Choice Questions

1. Ron’s Diner received the following bills for December 2009 utilities:

Electricity: $400 on December 29, 2009

Telephone: $150 on January 5, 2010

Both bills were paid on January 10, 2010. On the December 31, 2009 balance sheet, Ron’s Diner will report accrued expenses of:

a. $550

b. $400

c. $150

d. $ 0

2. In September 2009, GolfWorld Magazine obtained $12,000 of subscriptions for one year of magazines and credited Unearned Subscription Revenue. The magazines will begin to be delivered in October 2009. At December 31, 2009, GolfWorld should make the following adjustment:

a. Debit Subscription Revenue by $3,000 and credit Unearned Subscription Revenue by $3,000.

b. Debit Subscription Revenue by $9,000 and credit Unearned Subscription Revenue by $9,000.

c. Debit Unearned Subscription Revenue by $3,000 and credit Subscription Revenue by $3,000.

d. Debit Unearned Subscription Revenue by $9,000 and credit Subscription Revenue by $9,000.

3. Hurd, Inc., prepays rent every three months on March 1, June 1, September 1, and December 1. Rent for the three months totals $2,700. On December 31, 2009, Hurd, Inc., will report:

a. Prepaid Rent of $2,700

b. Prepaid Rent of $1,800

c. Prepaid Rent of $ 900

d. Prepaid Rent of $ 0

4. Which of the following statements is incorrect regarding preparing financial statements?

a. The adjusted trial balance is the primary source of information needed to prepare the financial statements.

b. The financial statements are prepared in the following order:

(1) The income statement;

(2) The statement of retained earnings;

(3) The balance sheet.

c. The adjusted trial balance lists only the balance sheet accounts in a ‘‘debit’’ and ‘‘credit’’ format.

d. The income statement and the balance sheet are related through the retained earnings account.

5. Reinhardt Company reported revenues of $110,000 and expenses of $75,000 on its 2009 income statement. In addition, Reinhardt paid $4,000 of dividends during the 2009. On December 31, 2009, Reinhardt prepared closing entries. The net effect of the closing entries on retained earnings was a(n):

a. Decrease of $ 4,000

b. Decrease of $79,000

c. Increase of $35,000

d. Increase of $31,000

6. Which of the following is true regarding the accounting cycle?

a. The temporary accounts are closed after the financial statements are prepared.

b. The accounts are adjusted after preparing the financial statements.

c. Journal entries are made prior to the transaction being analyzed.

d. A trial balance is usually prepared after the accounts are closed.