1

1. Your company purchased $2,000 of supplies and recorded the amount as an asset. At year end, a physical count shows $700 of supplies on hand. Before closing the books, it is discovered that an adjusting entry was never made.If no correcting entry is made,
2. the income statement will be accurate,but the balance sheet will be understated
3. assets will be understated and net income will be understated
4. the balance sheet will be accurate,but the income statement will be understated
5. assets will be understated and net income will be overstated
6. assets will be overstated and net income will be overstated
7. assets will be overstated and net income will be understated

QUESTION 2

1. On March 31, 20X8, your calendar year company takes out a 3-year insurance policy with a premium of $4,000per year.The entire $12,000 is paid in advance and is recordedas prepaid insurance. At year-end 20X8, you discover that the adjusting entry debits Insurance Expense for $4,000 and credits Prepaid Insurance for $4,000. If you do not correct this,
2. everything will be fine. Since the original adjusting entry was correct, no correction needs to be made.
3. assets will be overstated and net income will be understated
4. assets will beoverstatedand net income will be overstated
5. assets will be understatedand net income will be understated
6. assets will be understated and net income will be overstated

QUESTION 3

1. On March 1, 20X1, your calendar year company borrows $10,000. Terms require repayment of principal and annual interest of 9% after 4 years. At year-end 20X1, an adjusting entry was made thataccrued$550 interest expense. If you discover the error before the books are closed, what correcting entry needs to be made?
2. debit Interest Payable for $200; creditInterest Expense for$200
3. debit Interest Expense for$350; creditInterest Payable for $350
4. debit Interest Payable for $550; credit Interest Expense for $550
5. debit Interest Expense for$550;credit Interest Payable for$550
6. debit Interest Payablefor$350;creditInterest Expense for $350
7. debit Interest Expense for $200; creditInterest Payable for $200

QUESTION 4

1. On November 1, 20X3, your calendar year company receives $40,000 for space it is subletting for 5 months (November 1, 20X3 through March 31, 20X4). The $40,000 was recorded as revenue. On December 31, 20X3, you discover thatan adjusting entry was never made.If you fail tomake the correcting entry,
2. the financial statements will be accurate because an adjusting entry was not necessary
3. liabilities will be overstated and net income will be overstated
4. liabilities will be understated and net income will be overstated
5. liabilities will be overstated and net income will be understated
6. liabilities will be understated and net income will be understated

QUESTION 5

1. On March 31, 20X8, your calendar year company takes out a 3-year insurance policy with a premium of $5,000per year. Theentire $15,000 is paid in advance on March 31, 20X8 andis recorded as prepaid insurance. On December 31, 20X8, you discover that the adjusting entry debited Insurance Expense for $5,000 and credited Prepaid Insurance for $5,000. Your correcting journal entry will:
2. debit Prepaid Insurance for $5,000; credit Insurance Expense for $5,000
3. debit Insurance Expense for $3,750; credit Prepaid Insurance for $3,750
4. debit Prepaid Insurance for $3,750; credit Insurance Expense for $3,750
5. not be necessarybecause the original adjusting entry was correct
6. debit Insurance Expense for $1,250; creditPrepaid Insurance for $1,250
7. debit Prepaid Insurance for $1,250; credit Insurance Expense for $1,250

QUESTION 6

1. If you fail to accrue revenue,
2. assets will be understated and net income will be overstated
3. assets will be understated and net income will be understated
4. the income statement will be accurate, but the balance sheet will be understated
5. the balance sheet will be accurate, but the income statement will be understated
6. assets willbe overstated and net income will be overstated
7. assets will beoverstatedand net income will be understated

QUESTION 7

1. Your calendar year company completes a $6,000 job, which has not been recorded or received. If you discover before the books are closed that no adjusting entry was made, your correcting entry will:
2. debit Cash for $6,000; creditAccounts Receivable for $6,000
3. debit cash for$6,000;credit Revenue for$6,000
4. debit Accounts Receivable for$6,000;credit Revenue for$6,000
5. not be necessary because an entry is not required until the cash is received
6. debit Revenue for$6,000;credit Account Receivable for $6,000

QUESTION 8

1. On September 1, 20X8, your calendar year company pays $2,400 for 12 months' insurance, recording the amount as an expense. Just before closing the books, you realize that no adjusting entry was recorded. Without it,
2. the financial statements will be accurate because no adjusting entry was necessary
3. assets will be overstated and net income will be overstated
4. assets will be understated and net income will be overstated
5. assets will be overstated and net income will be understated
6. assets will be understated and net income will be understated

QUESTION 9

1. Your company purchases $3,000 of supplies, recording them as expenses. At year end, a physical count shows $1,800 of supplies on hand. The year-end adjusting entry debits Suppliesfor $1,200and credits Supplies Expense for $1,200. The correcting entry will:
2. debit Supplies Expense for $1,800; credit Supplies for $1,800
3. debit Supplies for$1,800;credit Supplies Expense for$1,800
4. debitSupplies for $600; credit Supplies Expense for $600
5. debitSupplies Expense for $600; credit Supplies for $600
6. not benecessary because the adjusting entry was done correctly

QUESTION 10

1. On November 1, 20X3, your calendar year company receives $40,000 for space it is subletting for 5 months (November 1, 20X3 through March 31, 20X4). The $40,000 was recorded as revenue. On December 31, 20X3, you discover thatan adjusting entry was never made. The correcting entry will:
2. not be necessary
3. debit Rent Revenue for$24,000;credit Unearned Rent for$24,000
4. debit Rent Revenue for$16,000;credit Unearned Rentfor$16,000
5. debit Unearned Rentfor$16,000;credit Rent Revenue for$16,000
6. debit Unearned Rentfor$24,000;credit Rent Revenue for$24,000

QUESTION 11

1. On November 1, 20X3, your calendar year company receives $40,000 for space it is subletting for 5 months (November 1, 20X3 through March 31, 20X4). The $40,000 was recorded as a liability. On December 31, 20X3, you discover thatan adjusting entry was never made.If you fail tomake the correcting entry,
2. liabilities will be understated and net income will be understated
3. the financial statements will be accuratebecause an adjusting entry was not necessary
4. liabilities will be overstated and net income will be overstated
5. liabilities will be understated and net income will be overstated
6. liabilities will be overstated and net income will be understated

QUESTION 12

1. Your employer has a Monday-Friday workweek; the 5-day payroll totals$35,000 each week. In 20X2, December 31 is a Tuesday. One of your assistants made the adjusting entry bydebiting Salaries Expense and crediting Salaries Payable for $21,000. Your correcting entry will:
2. debitSalariesPayable for$14,000;creditSalariesExpense for $14,000
4. not be necessary because the original adjusting entry was done correctly
5. debit Salaries Payable for $7,000;creditSalariesExpense for$7,000
6. debit Salaries Expense for$7,000;creditSalariesPayable for$7,000
7. debitSalariesExpense for$14,000;credit Salaries Payable for$14,000

QUESTION 13

1. On November1,20X8,your calendar year company pays$1,200for12months' insurance,recording it as an expense.Just before closing the books,you realize that no adjusting entry was made.The correcting entry will:
2. debit Insurance Expense for $1,000; creditPrepaid Insurancefor $1,000
3. debitInsuranceExpense for $200; credit Prepaid Insurance for $200
4. debit Prepaid Insurance for$200;credit Insurance Expense for$200
5. debit Prepaid Insurancefor$1,000;credit Insurance Expense for$1,000
6. not be necessary

QUESTION 14

1. Accrual and deferralerrors:
2. affect both the income statement and the balance sheet
3. can affect different statements; it depends on the type of the error
4. affect the income statement only
5. affect the balance sheet only

QUESTION 15

1. A calendar year company plans to pay its December gas bill in January. As of December 31, no adjusting entry has been recorded. As a result,
2. the balance sheet is accurate,but the income statement is understated
3. netincome is understated and liabilities are understated
4. net income is overstated and liabilities are understated
5. net income is understated and liabilities are overstated
6. net income is overstated and liabilities are overstated
7. the income statement and the balance sheet are both accurate because the bill won't be paid until January

QUESTION 16

1. On November 1, 20X3, your calendar year company receives $40,000 for space it is subletting for 5 months (November 1, 20X3 through March 31, 20X4). The $40,000 was recorded as Rent Revenue. On December 31, 20X3, you discover the following adjusting entry:
2. Rent Revenue24,000
3. Unearned Rent24,000
4. To correct this error you must:
5. do nothing;the adjusting entry is correct
6. debit Unearned Rentfor$8,000;credit Rent Revenue for$8,000
7. debit Unearned Rentfor$16,000;credit Rent Revenue for$16,000
8. debit Rent Revenue for$16,000;credit Unearned Rentfor$16,000
9. debit Rent Revenue for$8,000;creditUnearned Rent for$8,000

QUESTION 17

1. On November 1, 20X3, your calendar year company receives $40,000 for space it is subletting for 5 months (November 1, 20X3 through March 31, 20X4). The $40,000 was recorded as a liability. On December 31, 20X3, you discover thatan adjusting entry was never made.The correcting entry will:
2. debit Rent Revenue for$24,000;credit Unearned Rent for$24,000
3. debit Unearned Rentfor$16,000;credit Rent Revenue for$16,000
4. notbe necessary
5. debit Unearned Rent for$24,000;credit Rent Revenue for$24,000
6. debit Rent Revenue for$16,000;credit Unearned Rent for$16,000

QUESTION 18

1. Your employer has aMonday-Fridayworkweek; the 5-day payroll totals$20,000 each week. In 20X1, December 31 is a Thursday. Just before closing the books, you realize that no adjusting entry was made.If no correcting entry is recorded,
2. liabilities will be overstated and net income will be understated
3. liabilities will be understated and net income will be overstated
4. everything will be fine.The original adjusting entry was unnecessaryand no correction needs to be made
5. liabilities will beunderstatedand net income will be understated
6. liabilities will be overstated and net income will be overstated

QUESTION 19

1. Which of the following is a deferral error?
2. Debiting Accounts Payable and crediting Revenue when billing a customer
3. Failure to book revenue earned but not received as of year end
4. Failure to adjust Unearned Revenue at year end
5. Failure to calculate and record interest expense owed on a note payable

QUESTION 20

On November 1, 20X8, your calendar year company pays $1,200 for 12 months' insurance, recording it as an asset. Just before closing the books, you realize that noadjusting entry was made. The correcting entry will:

debit an assetaccount for $1,000;credit an expense account for $1,000

debit an expense account for$200;credit an asset account for$200

Not be necessary

debit an expense account for$1,000; creditan asset account for $1,000

debit an asset account for $200;credit an expenseaccount for $200