MULTIPLE CHOICE :

1.The purpose of adjusting entries is to:

a.Adjust the Retained Earnings account for the revenue, expense, and dividends recorded during the accounting period.

b.Adjust daily the balances in asset, liability, revenue, and expense accounts for the effects of business transactions.

c.Apply the realization principle and the matching principle to transactions affecting two or more accounting periods.

d.Prepare revenue and expense accounts for recording the transactions of the next accounting period.

2. Before month-end adjustments are made, the January 31 trial balance of Rover Excursions contains revenue of $27,900 and expenses of $17,340. Adjustments are necessary for the following items:

Portion of prepaid rent applicable to January, $2,700

Depreciation for January, $1,440

Portion of fees collected in advance earned in January, $3,300

Fees earned in January, not yet billed to customers, $1,950

Net income for January is:

a.$10,560.

b.$17,070.

c.$7,770.

d.Some other amount.

3. The CPA firm auditing Mason Street Recording Studios found that total stockholders equity was understated and liabilities were overstated. Which of the following errors could have been the cause?

a.Making the adjustment entry for depreciation expense twice.

b.Failure to record interest accrued on a note payable.

c.Failure to make the adjusting entry to record revenue that had been earned but not yet billed to clients.

d.Failure to record the earned portion of fees received in advance.

4. Assume Fisher Corporation usually earns taxable income, but sustains a loss in the current period. The entry to record income taxes expense in the current period will most likely (indicate all correct answers):

a.Increase the amount of that loss.

b.Include a credit to the Income Taxes Expense account.

c.Be an adjusting entry, rather than an entry to record a transaction completed during the period.

d.Include a credit to Income Taxes Payable.

5. The concept of materiality (indicate all correct answers):

a.Requires that financial statements be accurate to the nearest dollar, but need not show cents.

b.Is based upon what users of financial statements are thought to consider important.

c.Permits accountants to ignore generally accepted accounting principles in certain situations.

d.Permits accountants to use the easiest and most convenient means of accounting for events that are immaterial.