1. Of the following adjusting entries, which one results in a decrease in liabilities and the recognition of a revenue at the end of an accounting period?

A. The entry to record interest accrued on a note payable.

B. The entry to record interest accrued on a note receivable.

C. The entry to record the earned portion of rent previously received in advance from a tenant and recorded in a real account.

D. The entry to write off a portion of prepaid insurance used in the accounting period and originally recorded in a real account.

E. None of the above.

2. Liam Corporation, which maintains its accounts on the basis of a fiscal year ending December 31, began the active management of an office building on December 1, 2012 for an agreed monthly fee of $60,000. The first cash collection was due on January 3, 2013. The adjusting entry required at December 31, 2012 would be:

A. A debit to Rental Commissions Receivable for $60,000 and a credit to Rental Commissions Revenue for $60,000.

B. A $60,000 debit to Unearned Rental Commissions and a $60,000 credit to Rental Commissions Revenue.

C. A debit to Cash for $60,000 and a credit to Rental Commissions Revenue for $60,000.

D. A debit to Cash for $60,000 and a credit to Unearned Rental Commissions for $60,000.

E. None of the above.

3. The accountant for the Herb Company forgot to make an adjusting entry to record accrued salaries owed employees at the end of the year. The wages will be paid in the next year. The effect of this error would be:

A. An overstatement of assets and of net income offset by an understatement of owners equity.

B. An overstatement of net income and an understatement of assets.

C. An understatement of assets, net income, and owners equity.

D. An overstatement of liabilities offset by an understatement of owners equity.

E. None of the above.

4. Sophie Company made several purchases of office supplies totaling $11,200 during its first year of operations and recorded all purchases by debiting a temporary account. At December 31, the amount of unused supplies on hand was determined by count to amount to $3,600. The proper adjusting entry would be:

A. Debit Office Supplies Expense $3,600 and credit Office Supplies $3,600.

B. Debit Accounts Payable $3,600 and credit Office Supplies $3,600.

C. Debit Office Supplies $3,600 and credit Office Supplies Expense $3,600.

D. Debit Office Supplies Expense $7,600, and credit Office Supplies $7,600.

E. None of the above.

5. Willycom Company borrowed $80,000 from China Bank on September 2, 2012. Willycom signed a 180 day, 12% note payable to China Bank. On December 31, 2012, part of the adjusting entry should include:

A. Debit Interest Expense for $3,200.

B. Credit Interest Payable for $4,800.

C. Debit Interest Expense for $9,600.

D. Credit Note Payable for $80,000.

None of the above

Use the following information to answer questions the next 2 questions:

On December 31, 2012, Lauren Company prepared year-end financial statements. Lauren failed to record any of the following necessary adjusting entries. What would be the effect of failing to record each of the following necessary, but unrecorded, adjusting journal entries on Lauren Companys year-end financial statements?

6. Lauren Co. failed to correctly record the amount of insurance that had expired at the end of the year; it had originally recorded the cost of the insurance by a debit to Prepaid Insurance.

A. Total assets are understated.

B. Total liabilities are overstated.

C. Total owners equity is overstated.

D. Net income is understated.

E. None of the above

7. Lauren Co. failed to correctly record the amounts owed to them by its customers for services performed but not yet paid to Lauren Co. by the end of the year.

A. Total assets are overstated.

B. Total liabilities are understated.

C. Total owners equity is overstated.

D. Net income is overstated.

E. None of the above