Question 1

1. The failure of a company to accrue interest earned at the end of a period would result in which of the following?

   	A.	Overstated assets, overstated net income, and overstated retained earnings.
   	B.	Understated assets, understated expenses, and understated retained earnings.
   	C.	Understated assets, overstated net income, and overstated retained earnings.
   	D.	Understated assets, understated net income, and understated retained earnings.

2 points

Question 2

1. Franklin International purchased a three-year insurance policy on July 1, 2012, providing coverage from that date and paid the entire three-year premium of $15,000 on the date of purchase. Franklin recorded the purchase by debiting Prepaid Insurance and crediting Cash for $15,000. What adjusting entry should be made at December 31, 2012?

   A.

   Insurance Expense	1,250
   Prepaid Insurance		1,250

   B.

   Insurance Expense	3,750
   Prepaid Insurance		3,750

   C.

   Insurance Expense	2,500
   Prepaid Insurance		2,500

   D.

   Prepaid Insurance	2,500
   Insurance Expense		2,500

2 points

Question 3

1. The undepreciated cost of an asset is also called its book value.

   True

   False

2 points

Question 4

1. The Prepaid Insurance account shows a balance of $2,400, representing the payment on July 1, of a six-year insurance premium of $2,400 providing coverage from July 1. The correct adjusting entry on December 31, the close of the annual accounting period in which the policy was purchased, is:

   	A.	debit Insurance Expense; credit Prepaid Insurance, $67.
   	B.	debit Insurance Expense; credit Prepaid Insurance, $200.
   	C.	debit Insurance Expense; credit Prepaid Insurance, $400.
   	D.	debit Prepaid Insurance; credit Insurance Expense, $200.

2 points

Question 5

1. Failure to record the accrual of a liability will:

   	A.	understate liabilities and overstate net income.
   	B.	overstate liabilities and overstate net income.
   	C.	understate liabilities and understate net income.
   	D.	overstate liabilities and understate net income.

2 points

Question 6

1. The objective of depreciation accounting is to spread the depreciable amount of an asset over its estimated useful life.

   True

   False

2 points

Question 7

1. Which of the following time periods best describes an accounting fiscal year?

   	A.	Only a 365-day period ending on December 31
   	B.	Any 365-day period not ending on December 31
   	C.	Any period of twelve consecutive months
   	D.	Any 50-week period

2 points

Question 8

1. On December 31, the end of an annual accounting period, interest in the amount of $500 has been earned but has not been received. The correct entry on December 31 is:

   A.

   Cash	500
   Interest Revenue		500

   B.

   Interest Receivable	500
   Interest Revenue		500

   C.

   No entry.

   D.

   Accounts Receivable	500
   Interest Expense		500

2 points

Question 9

1. Book value of an asset is equal to:

   	A.	depreciable cost less accumulated depreciation.
   	B.	depreciable cost divided by the estimated useful life.
   	C.	acquisition cost less the estimated salvage value.
   	D.	acquisition cost less accumulated depreciation.

2 points

Question 10

1. The management of Fendley Place, an exclusive office park in Boston, requires tenants to prepay their rents for a two-year period. If Richards, Inc., prepaid rent of $24,000 on December 1, 2012, and debited Prepaid Rent, the end-of-year adjusting entry on December 31, 2012, would be a debit to Rent Expense and a credit to Prepaid Rent in the amount of:

   	A.	$12,000
   	B.	$23,000
   	C.	$ 1,000
   	D.	$ 2,000

2 points

Question 11

1. The balance in the Prepaid Rent account before adjustment at the end of the year is $4,000, which represents four months rent paid on December 1. The adjusting entry required on December 31 is:

   	A.	debit Rent Expense, $3,000; credit Prepaid Rent, $3,000.
   	B.	debit Prepaid Rent, $1,000; credit Rent Expense, $1,000.
   	C.	debit Rent Expense, $1,000; credit Prepaid Rent, $1,000.
   	D.	debit Prepaid Rent, $3,000; credit Rent Expense, $3,000.

2 points

Question 12

1. The Prepaid Insurance account shows a balance of $1,800, representing the payment on July 1 of a three-year insurance premium of $1,800 providing coverage from July 1. The correct adjusting entry on December 31, the close of the annual accounting period in which the policy was purchased, is:

   A.

   Insurance Expense	300
   Prepaid Insurance		300

   B.

   Insurance Expense	600
   Prepaid Insurance		600

   C.

   Prepaid Insurance	50
   Insurance Expense		50

   D.

   Prepaid Insurance	300
   Insurance Expense		300

2 points

Question 13

1. At the end of its first year of operations, the Hedrick Company conducted a physical inventory that revealed that $1,200 of office supplies were on hand. The unadjusted balance of the Office Supplies on Hand account is $6,000. What is the amount of the necessary adjusting entry?

   	A.	$1,200
   	B.	$4,800
   	C.	$6,000
   	D.	$7,200

2 points

Question 14

1. Machinery was purchased on April 1 at a cost of $17,600. The estimated salvage value is $1,600, and the estimated useful life is eight years. The entry to record the depreciation on December 31, the close of the annual accounting period, is:

   	A.	debit Depreciation Expense-Equipment; credit Accumulated Depreciation-Equipment, $1,500.
   	B.	debit Accumulated Depreciation-Equipment; credit Depreciation Expense-Equipment, $2,000.
   	C.	debit Accumulated Depreciation-Equipment; credit Depreciation Expense-Equipment, $1,500.
   	D.	debit Depreciation Expense-Equipment; credit Accumulated Depreciation-Equipment, $2,000.

2 points

Question 15

1. As a minimum, adjusting entries will be entered in every accounting system once a year.

   True

   False

2 points

Question 16

1. The statement of retained earnings:

   	A.	shows only the ending balance for retained earnings.
   	B.	shows the final balances of assets, liabilities, and stockholders' equity.
   	C.	is not needed if there are no dividends during the period.
   	D.	shows the changes in retained earnings during the period.

2 points

Question 17

1. In a classified balance sheet, current assets usually are listed in order of their liquidity.

   True

   False

2 points

Question 18

1. Mortgage Payable and Bonds Payable are classified as long-term liabilities because they have:

   	A.	maturity dates over one year from the balance sheet date.
   	B.	the strongest legal claim against the company's assets.
   	C.	the strongest legal claim against the company's assets and income.
   	D.	the strongest legal claim against the company's income.

2 points

Question 19

1. Which of the following statements concerning the post-closing trial balance is true?

   	A.	It contains only balance sheet accounts.
   	B.	It serves as a means of checking the accuracy of the closing process.
   	C.	It is similar in function to the trial balance.
   	D.	All of the above statements are true.

2 points

Question 20

1. A post-closing trial balance contains only asset, liability, Capital Stock, and Retained Earnings account balances.

   True

   False

2 points

Question 21

1. The Income Summary account will normally have a zero balance:

   	A.	only after the revenue and expense accounts have been closed to it.
   	B.	only after the revenue accounts have been closed to it.
   	C.	only after the expense accounts have been closed to it.
   	D.	at all times other than during the closing process.

2 points

Question 22

1. The computer automatically performs steps in the accounting cycle such as posting journal entries to the ledger accounts, closing the books, and preparing the financial statements.

   True

   False

2 points

Question 23

1. Examples of current liabilities are 6-month notes payable, salaries payable, and unearned revenue.

   True

   False

2 points

Question 24

1. A classified balance sheet typically will show liabilities divided into current liabilities and long-term liabilities.

   True

   False

2 points

Question 25

1. Property, plant, and equipment are also termed plant assets or fixed assets.

   True

   False

2 points

Question 26

1. The income statement is normally the first financial statement prepared from the work sheet.

   True

   False

2 points

Question 27

1. Expenses are extended into the Income Statement columns as debits, revenues as credits.

   True

   False

2 points

Question 28

1. The Income Summary account has a zero balance just prior to preparing the closing entries.

   True

   False

2 points

Question 29

1. The current ratio is found by dividing current assets by current liabilities.

   True

   False

2 points

Question 30

1. After closing entries have been posted, balances should appear only in balance sheet accounts.

   True

   False