QUESTION 6

Which of the following statements is not true regarding prepaid expenses?

		Prepaid expenses represent assets.
		Prepaid expenses are shown in a special section of the income statement.
		Prepaid expenses become expenses only as goods or services are used up.
		Prepaid expenses appear in the balance sheet.

4 points

QUESTION 7

The balance of an unearned revenue account:

		Appears in the balance sheet as a component of stockholders' equity.
		Appears in the income statement along with other revenue accounts.
		Appears in a separate section of the income statement for revenue not yet earned.
		Appears in the liability section of the balance sheet.

4 points

QUESTION 8

As of January 31, Hudson Corporation owes $600 to U-Rent-It for equipment used during January. If no adjustment is made for this item at January 31, how will Hudson's financial statements be affected?

		Cash will be overstated at January 31.
		Net income for January will be overstated.
		Stockholders' equity will be understated.
		The financial statements will be accurate since the $600 does not have to be paid yet.

4 points

QUESTION 9

The accountant for the Linville Company forgot to make an adjusting entry to record revenue earned but not yet billed to customers. The effect of this error is:

		An overstatement of assets.
		An overstatement of stockholders' equity.
		Understatement of both assets and stockholders' equity
		Overstatement of both assets and stockholders' equity.

4 points

QUESTION 10

An adjusting entry involving recognition of unrecorded revenue is necessary at the end of March in which of the following situations?

		Financial Consultants received payment in February for consulting services rendered in March.
		Financial Consultants began working for a client on March 15; bills will be sent monthly beginning April 15.
		Financial Consultants made payment in January for office rent for the first three months of the year.
		On March 31, a major customer paid his bill for a consulting job completed in February.

4 points

QUESTION 11

Which of the following entries causes an immediate decrease in assets and in stockholders' equity?

		The entry to record depreciation expense.
		The entry to record revenue earned but not yet received.
		The entry to record the earned portion of rent received in advance.
		The entry to record accrued wages payable.

4 points

QUESTION 12

The CPA firm auditing Greer Company found that net income had been overstated. Which of the following errors could be the cause?

		Failure to record depreciation expense for the period.
		No entry made to record purchase of land for cash on the last day of the year.
		Failure to record payment of an account payable on the last day of the year.
		Failure to make an adjusting entry to record revenue which had been earned but not yet billed to customers.