Multiple Choice: Adjustments Select the correct answer for each of the following:

1, Paying insurance bills in advance gives rise to:

a. Unearned income.

b. Accrued income.

c. Accrued expense.

d. Prepaid expense.

2. The concept of matching often requires the use of adjusting entries. An example of matching is:

a. Recording a prepaid expense when an accrued expense is recorded.

b. Recording a prepaid expense when accrued income is recorded.

c. Recording a current liability when accrued income is recorded.

d. Recording a current asset when accrued income is recorded.
3. In December 2001, The Carm Property Management company received the January 2002 rent payments from one-third of its renters and recorded the payments as income. If Carm prepares financial statements on December 31, 2001, an adjustment will be necessary to recognize:

a. Unearned income.

b. Accrued income.

c. Accrued expense.

d. Prepaid expense.
4, When a company owns an interest-bearing certificate of deposit issued by a bank, interest often is not paid until the certificate of deposit matures. If a five-year certificate of deposit is purchased on January 1, 2001, the company will make an adjusting entry at December 31, 2001. The bank also will make an adjusting entry. The entries will be:

a. Unearned income for the company and accrued expense for the bank.

b. Accrued income for the company and prepaid expense for the bank.

c. Accrued income for the company and accrued expense for the bank.

d. Unearned income for the company and prepaid expense for the bank.
5. Adjusting entries may be required at the end of the year to make sure that the accounting concept of matching is met.
Which of the following would be most likely to require an adjusting entry?

a. A new union contract has been approved that will increase wage expense by 25 percent next year.

b. Wages earned by office employees at the end of this year are paid on the fifteenth day of the following month.

c. Company sales in December of this year were 10 percent less than sales for the same month last year.

d. Orders for $35,000 of goods were received from customers in December and will be shipped early next year.