Q1) In October, your calendar year company pays $1,200 for 1 years rent that you recorded in Rent Expense. If you do not record an adjusting entry at year-end, how will the financial statements be affected?

a) net income will be understated; assets will be understated

b) net income will be understated; assets will be overstated

c) financial statements will not be affected

d) net income will be overstated; assets will be understated

e) net income will be overstated; assets will be overstated

Q2: On December 1, an accrual basis company takes on an 18-month job and receives a $10,000 advance that is recorded in Unearned Revenue. At year end, 10% of the job has been completed. If no adjusting entry is made at year end, how will the financial statements be affected?

a) net income will be overstated; assets will not be affected; liabilities will be understated

b) net income will be understated; assets will not be affected; liabilities will be overstated

c) net income will be understated; assets will be understated; liabilities will not be affected

d) net income will be overstated; assets will be overstated; liabilities will not be affected

Q3: Your firm buys $27,000 of office supplies and debits Supplies Expense. At year end, $6,000 of supplies are still on hand. If your company uses the accrual basis, what adjusting entry will you record at year end?

a) debit Supplies Expense for $6,000; credit Supplies for $6,000

b) debit Supplies Expense for $21,000; credit Supplies for $21,000

c) debit Supplies Expense for $21,000; credit Supplies for $21,000

d) debit Supplies for $21,000; credit Supplies Expense for $21,000

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