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4) The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the:

Multiple Choice

A. Recognition principle.

B. Cost principle.

C. Cash basis of accounting.

D. Expense recognition (Matching) principle.

E. Time period principle.

5) The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

Multiple Choice

A. Accrual basis accounting.

D. Operating cycle accounting.

C. Cash basis accounting.

E. Revenue recognition accounting.

F. Current basis accounting.

6) The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is:

Multiple Choice

A. Cash basis accounting.

B. The expense recognition (matching) principle.

C. The time period assumption.

D. Accrual basis accounting.

F. Revenue basis accounting.

7.) Profit margin is defined as:

Multiple Choice

A. Revenues divided by net sales.

B. Net sales divided by assets.

C. Net income divided by net sales.

D. Net income divided by assets.

E. Net sales divided by net income.

8) On July 1 Plum Co. paid $7,500 cash for management services to be performed over a two-year period. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On July 1 Plum should record:

Multiple Choice

A. A debit to an expense and credit to a prepaid expense for $7,500.

B. A debit to an expense and credit to Cash for $7,500.

C. A debit to a prepaid expense and a credit to Cash for $7,500.

D. A credit to a prepaid expense and a debit to Cash for $7,500.

E. A debit to Cash for $7,500 and a credit to an expense for $7,500.

9) On July 1 of the current calendar year, Plum Co. paid $7,500 cash for management services to be performed over a two-year period beginning July 1. Plum follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31 of the current year for Plum would include:

Multiple Choice

A. A debit to an expense and a credit to a prepaid expense for $5,625.

B. A debit to a prepaid expense and a credit to Cash for $5,625.

C. A debit to an expense and a credit to a prepaid expense for $1,875.

D. A debit to a prepaid expense and a credit to an expense for $1,875.

E. A credit to a liability and a debit to a prepaid expense for $1,875.

10) The total amount of depreciation recorded for an asset for all periods for which an asset has been used:

Multiple Choice

A. Is referred to as depreciation expense.

B. Is referred to as accumulated depreciation.

C. Is shown on the income statement of the final period.

D. Is only recorded when the asset is disposed of.

E. Is referred to as an accrued asset.

11) Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is:

Multiple Choice

A. Debit Office Supplies $105 and credit Office Supplies Expense $105.

B. Debit Office Supplies Expense $105 and credit Office Supplies $105.

C. Debit Office Supplies Expense $254 and credit Office Supplies $254.

D. Debit Office Supplies $254 and credit Office Supplies Expense $254.

E. Debit Office Supplies $105 and credit Supplies Expense $254.

12) If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Multiple Choice

A. Debit Cash and credit Legal Fees Earned.

B. Debit Cash and credit Unearned Legal Fees.

C. Debit Unearned Legal Fees and credit Legal Fees Earned.

D. Debit Legal Fees Earned and credit Unearned Legal Fees.

E. Debit Unearned Legal Fees and credit Accounts Receivable.

13) Unearned revenue is reported in the financial statements as:

Multiple Choice

A. A revenue on the balance sheet.

B. A liability on the balance sheet.

C. An unearned revenue on the income statement.

D. An asset on the balance sheet.

E. A financing activity on the statement of cash flows.

14.Incurred but unpaid expenses that are recorded during the adjusting process with a debit to an expense and a credit to a liability are:

Multiple Choice

A. Intangible expenses.

B. Prepaid expenses.

C. Unearned expenses.

D. Net expenses.

E. Accrued expenses.

15) On January 1, Fashion Forward Magazine received $15,000 from subscribers for the annual subscriptions that it recorded in Unearned Subscription Revenue. The issues of the magazine are mailed to subscribers quarterly. What amount of subscription revenue should the magazine recognize on March 31 when the first issue is sent in March?

Multiple Choice

A. $15,000.

B. $1,250.

C. $7,500.

D. $3,750.

E. $0.

17) The difference between the cost of an asset and the accumulated depreciation for that asset is called:

Multiple Choice

A. Depreciation Expense.

B. Unearned Depreciation.

C. Prepaid Depreciation.

D. Depreciation Value.

E. Book Value.