Question 1

Thomas International paid $30,000 rent in advance for a three-year period on January 1, 2012. If the company initially recorded the $30,000 as a debit to Prepaid Rent, then the adjusting entry at year-end December 31, 2012, would be:

A.

Rent Expense	20,000
Prepaid Rent		20,000

B.

Rent Expense	10,000
Prepaid Rent		10,000

C.

Prepaid Rent	10,000
Rent Expense		10,000

D.

Prepaid Rent	20,000
Rent Expense		20,000

2 points

Question 2

The accrual basis of accounting ignores the timing of cash receipts and cash payments.

True

False

2 points

Question 3

The credit to Unearned Rental Fees totaled $6,000 (for 12 months rent) when received on March 1. The adjusting entry at the fiscal year's end, June 30, would:

	A.	include a credit to Unearned Rental Fees of $1,500.
	B.	include a debit to Unearned Rental Fees of $3,500.
	C.	result in a credit to Rental Revenue of $2,000.
	D.	show a decrease in Rental Revenue of $3,500.

2 points

Question 4

The need for adjusting entries is based on:

	A.	the cost principle.
	B.	the outcome of the trial balance.
	C.	the matching principle.
	D.	the cash basis of accounting.

2 points

Question 5

Depreciation calculated on a straight-line basis results in an equal amount of expense for each year of the asset's estimated useful life.

True

False

2 points

Question 6

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

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

2 points

Question 7

The account, Unearned Service Fees, is an income statement account that recognizes the amount of cash received before services are rendered.

True

False

2 points

Question 8

All the following are examples of prepaid expenses except:

	A.	Accounts Receivable.
	B.	Supplies on Hand.
	C.	Prepaid Insurance.
	D.	Prepaid Rent.

2 points

Question 9

Revenue received in advance is an example of a class of items referred to broadly as unearned revenues.

True

False

2 points

Question 10

Adjusting entries always involve both a balance sheet account and an income statement account.

True

False

2 points

Question 11

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

True

False

2 points

Question 12

If salaries are owed but not yet paid on the last day of the fiscal year, the adjusting entry is a(n):

	A.	accrued item where the amount must be recorded as both a liability and an expense.
	B.	deferred item where data are transferred from an asset account to an expense account.
	C.	accrued item where the amount must be recorded as both an asset and a revenue.
	D.	deferred item where data are transferred from a liability account to a revenue account.

2 points

Question 13

Failure to record the accrual of a liability will:

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

2 points

Question 14

Failure to record depreciation expense at year's end will overstate the asset's book value.

True

False

2 points

Question 15

Which of the following items is (are) important in the matching of expenses and revenues under the accrual basis of accounting?

	A.	Earning of delivery fees for which payment has already been received
	B.	Depreciation of a building
	C.	Accrual of rent expense
	D.	All of the above answers are correct.

2 points

Question 16

The balance in the Dividends account is closed to the Retained Earnings account by debiting the Retained Earnings account and crediting the Dividends account.

True

False

2 points

Question 17

Mortgage Payable and Bonds Payable are classified as long-term liabilities because they are large in amount compared to other liabilities.

True

False

2 points

Question 18

If the Income Summary account has a debit balance before it is closed, the company has net income for the period.

True

False

2 points

Question 19

An Interest Revenue account containing a balance of $1,000 is closed by an entry debiting Interest Revenue and crediting Income Summary for $1,000.

True

False

2 points

Question 20

The formal financial statements are prepared from the work sheet.

True

False

2 points

Question 21

The two basic components of stockholders' equity are paid-in capital and retained earnings.

True

False

2 points

Question 22

The current ratio shows the:

	A.	the quality of the current assets of a company.
	B.	short-term debt-paying ability of a company.
	C.	the profitability of a company.
	D.	long-term debt-paying ability of a company.

2 points

Question 23

The final figure on the income statement is:

	A.	gross margin.
	B.	net income.
	C.	net loss.
	D.	either net income or net loss.

2 points

Question 24

A classified balance sheet provides useful information for interpretation and analysis by users of financial statements.

True

False

2 points

Question 25

Which of the following accounts is closed by an entry that includes a debit to Income Summary?

	A.	Rent Expense
	B.	Service Revenue
	C.	Dividends
	D.	Accounts Payable

2 points

Question 26

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

True

False

2 points

Question 27

Which is the normal sequence for preparation of the following financial statements: (1) balance sheet, (2) statement of retained earnings, and (3) income statement?

	A.	1, 2, 3
	B.	3, 2, 1
	C.	2, 3, 1
	D.	3, 1, 2

2 points

Question 28

Dividends payable are generally classified as current liabilities because they will be paid within a short period of time.

True

False

2 points

Question 29

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.	shows the changes in retained earnings during the period.
	D.	is not needed if there are no dividends during the period.

2 points

Question 30

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

True

False

2 points

Save and Submit

Click Save and Submit to save and submit. Click Save All Answers to save all answers.