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Chapter 3—The Adjusting Process
MULTIPLE CHOICE
1. The revenue recognition concepta. is in not in conflict with the cash method of accountingb. determines when revenue is credited to a revenue accountc. states that revenue is not recorded until the cash is receivedd. controls all revenue reporting for the cash basis of accounting
ANS: B DIF: Moderate OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
2. The matching concepta. addresses the relationship between the journal and the balance sheetb. determines whether the normal balance of an account is a debit or creditc. requires that the dollar amount of debits equal the dollar amount of credits on a trial
balanced. determines that expenses related to revenue be reported at the same time the revenue is
reported
ANS: D DIF: Moderate OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
3. Using accrual accounting, revenue is recorded and reported onlya. when cash is received without regard to when the services are renderedb. when the services are rendered without regard to when cash is receivedc. when cash is received at the time services are renderedd. if cash is received after the services are rendered
ANS: B DIF: Moderate OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
4. Using accrual accounting, expenses are recorded and reported onlya. when they are incurred, whether or not cash is paidb. when they are incurred and paid at the same timec. if they are paid before they are incurredd. if they are paid after they are incurred
ANS: A DIF: Moderate OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
5. One of the accounting concepts upon which deferrals and accruals are based isa. matchingb. costc. price-level adjustmentd. conservatism
ANS: A DIF: Moderate OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
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119 Chapter 3—The Adjusting Process
6. If the effect of the debit portion of an adjusting entry is to increase the balance of an expense account, which of the following describes the effect of the credit portion of the entry?a. decreases the balance of an owner's equity accountb. increases the balance of an liability accountc. increases the balance of an asset accountd. decreases the balance of an expense account
ANS: B DIF: Difficult OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
7. If the effect of the credit portion of an adjusting entry is to increase the balance of a liability account, which of the following describes the effect of the debit portion of the entry?a. increases the balance of a contra asset accountb. increases the balance of an asset accountc. decreases the balance of an owner's equity accountd. increases the balance of an expense account
ANS: D DIF: Difficult OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
8. The primary difference between deferred and accrued expenses is that deferred expenses havea. been incurred and accrued expenses have notb. not been incurred and accrued expenses have been incurredc. been recorded and accrued expenses have not been incurredd. not been recorded and accrued expenses have been incurred
ANS: B DIF: Difficult OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
9. Prior to the adjusting process, accrued expenses havea. not yet been incurred, paid, or recordedb. been incurred, not paid, but have been recordedc. been incurred, not paid, and not recordedd. been paid but have not yet been incurred
ANS: C DIF: Difficult OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
10. Prior to the adjusting process, accrued revenue hasa. been earned and cash receivedb. been earned and not recorded as revenuec. not been earned but recorded as revenued. not been recorded as revenue but cash has been received
ANS: B DIF: Difficult OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
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Chapter 3—The Adjusting Process 120
11. Deferred expenses havea. not yet been recorded as expenses or paidb. been recorded as expenses and paidc. been incurred and paidd. not yet been recorded as expenses
ANS: D DIF: Difficult OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
12. Deferred revenue is revenue that isa. earned and the cash has been receivedb. earned but the cash has not been receivedc. not earned and the cash has not been receivedd. not earned but the cash has been received
ANS: D DIF: Difficult OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
13. Adjusting entries area. the same as correcting entriesb. needed to bring accounts up to date and match revenue and expensec. optional under generally accepted accounting principlesd. rarely needed in large companies
ANS: B DIF: Moderate OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
14. Adjusting entries affect at least onea. income statement account and one balance sheet accountb. revenue and the drawing accountc. asset and one owner's equity accountd. revenue and one capital account
ANS: A DIF: Moderate OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
15. The general term employed to indicate an expense that has not been paid and has not yet been recognized in the accounts by a routine entry isa. capitalb. deferralc. accruald. inventory
ANS: C DIF: Easy OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
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121 Chapter 3—The Adjusting Process
16. Which of the following is not a characteristic of accrual basis of accounting?a. Revenues and expenses are reported in the period in which cash is received or paidb. Revenues are reported in the income statement in the period in which they are earnedc. Supports the matching conceptd. All are correct.
ANS: A DIF: Difficult OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
17. Generally accepted accounting principles requires that companies use the ____ of accounting.a. cash basisb. deferral basisc. accrual basisd. account basis
ANS: C DIF: Easy OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
18. Which of the following supports the accrual basis of accounting?a. revenue recognition conceptb. cash conceptc. matching conceptd. revenue recognition and matching concepts
ANS: D DIF: Moderate OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
19. The cash basis of accounting records revenues and expenses when the cash is exchanged while the accrual basis of accountinga. records revenues when they are earned and expenses when they are paidb. records revenues and expenses when they are incurred.c. records revenues when cash is received and expenses when they are incurred.d. records revenues and expenses when the company needs to apply for a loan.
ANS: B DIF: Moderate OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
20. By matching revenues and expenses in the same period in which they incura. net income or loss will always be underestimated.b. net income or loss will always be overestimated.c. net income or loss will be properly reported on the income statementd. net income or loss will not be determined.
ANS: C DIF: Easy OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
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Chapter 3—The Adjusting Process 122
21. All adjusting entries always involvea. only income statement accounts.b. only balance sheet accounts.c. the cash account.d. at least one income statement account and one balance sheet account.
ANS: D DIF: Moderate OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
22. Prepaid expenses are eventually expected toa. become expenses when their future economic value expires.b. become revenues when services are performed.c. become expenses in the period when they are paid.d. become revenues when the liability is no longer owed.
ANS: A DIF: Moderate OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
23. Which of the following is considered to be unearned revenue?a. Concert tickets sold for tonight’s performance.b. Concert tickets sold yesterday on credit.c. Concert tickets that were not sold for the current performance.d. Concert tickets sold for next month’s performance.
ANS: D DIF: Difficult OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
24. Which of the following is an example of accrued revenue?a. Swimming pool cleaning that has been for three months in advance.b. Swimming pool cleaning that has been provided but has not been billed or paid.c. An agreement has been signed for swimming pool cleaning for the next three months.d. Swimming pool cleaning that has been provided and paid on the same day.
ANS: B DIF: Moderate OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
25. Which of the following is considered to be an accrued expense?a. A computer technician has installed the latest software updates and was paid on the same
day.b. A computer technician has been paid in advance to install software updates as they
become available.c. A computer technician has just signed an agreement with you regarding pricing for future
work.d. A computer technician has installed the latest software updates, but you have not received
their invoice for payment.
ANS: D DIF: Difficult OBJ: 03-01NAT: AACSB Analytic | AICPA FN-Measurement
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123 Chapter 3—The Adjusting Process
26. Which account would normally not require an adjusting entry?a. Wages Expenseb. Accounts Receivablec. Accumulated Depreciationd. Smith, Capital
ANS: D DIF: Difficult OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
27. Which one of the accounts below would likely be included in an accrual adjusting entry?a. Insurance Expenseb. Prepaid Rentc. Interest Expensed. Unearned Rent
ANS: C DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
28. Which one of the following accounts below would likely be included in a deferral adjusting entry? a. Interest Revenueb. Unearned Revenuec. Salaries Payabled. Accounts Receivable
ANS: B DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
29. The balance in the prepaid rent account before adjustment at the end of the year is $15,000, which represents three months' rent paid on December 1. The adjusting entry required on December 31 isa. debit Rent Expense, $5,000; credit Prepaid Rent, $5,000b. debit Prepaid Rent, $10,000; credit Rent Expense, $5,000c. debit Rent Expense, $10,000; credit Prepaid Rent, $5,000d. debit Prepaid Rent, $5,000; credit Rent Expense, $5,000
ANS: A DIF: Difficult OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
30. The balance in the office supplies account on June 1 was $5,200, supplies purchased during June were $2,500, and the supplies on hand at June 30 were $2,000. The amount to be used for the appropriate adjusting entry isa. $4,500b. $2,500c. $9,700d. $5,700
ANS: D DIF: Difficult OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
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Chapter 3—The Adjusting Process 124
31. What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $15,500, and unexpired amounts per analysis of policies, $4,500?a. debit Insurance Expense, $4,500; credit Prepaid Insurance, $4,500b. debit Insurance Expense, $15,500; credit Prepaid Insurance, $15,500c. debit Prepaid Insurance, $11,500; credit Insurance Expense, $11,500d. debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000
ANS: D DIF: Difficult OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
32. The entry to adjust for the cost of supplies used during the accounting period isa. Supplies Expense, debit; Supplies, creditb. James Smith, Capital, debit; Supplies, creditc. Accounts Payable, debit; Supplies, creditd. Supplies, debit; credit James Smith, Capital
ANS: A DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
33. A business pays weekly salaries of $20,000 on Friday for a five-day week ending on that day. The adjusting entry necessary at the end of the fiscal period ending on Thursday isa. debit Salaries Payable, $16,000; credit Cash, $16,000b. debit Salary Expense, $16,000; credit Drawing, $16,000c. debit Salary Expense, $16,000; credit Salaries Payable, $16,000d. debit Drawing, $16,000; credit Cash, $16,000
ANS: C DIF: Difficult OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
34. The balance in the prepaid insurance account before adjustment at the end of the year is $10,000. If the additional data for the adjusting entry is (1) "the amount of insurance expired during the year is $8,500," as compared to additional data stating (2) "the amount of unexpired insurance applicable to a future period is $1,500," for the adjusting entry:a. the debit and credit amount for (1) would be the same as (2) but the accounts would be
differentb. the accounts for (1) would be the same as the accounts for (2) but the amounts would be
differentc. the accounts and amounts would be the same for both (1) and (2)d. there is not enough information given to determine the correct accounts and amounts
ANS: C DIF: Difficult OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
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125 Chapter 3—The Adjusting Process
35. The difference between the balance of a fixed asset account and the related accumulated depreciation account is termeda. historical costb. contra assetc. book valued. market value
ANS: C DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
36. The adjusting entry to record the depreciation of equipment for the fiscal period isa. debit Depreciation Expense; credit Equipmentb. debit Depreciation Expense; credit Accumulated Depreciationc. debit Accumulated Depreciation; credit Depreciation Expensed. debit Equipment; credit Depreciation Expense
ANS: B DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
37. As time passes, fixed assets other than land lose their capacity to provide useful services. To account for this decrease in usefulness, the cost of fixed assets is systematically allocated to expense through a process calleda. equipment allocationb. depreciationc. accumulationd. matching
ANS: B DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
38. The entry to adjust the accounts for wages accrued at the end of the accounting period isa. Wages Payable, debit; Wages Income, creditb. Wages Income, debit; Wages Payable, creditc. Wages Payable, debit; Wages Expense, creditd. Wages Expense, debit; Wages Payable, credit
ANS: D DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
39. The supplies account has a balance of $1,000 at the beginning of the year and was debited during the year for $2,800, representing the total of supplies purchased during the year. If $750 of supplies are on hand at the end of the year, the supplies expense to be reported on the income statement for the year isa. $750b. $3,550c. $3,800d. $3,050
ANS: D DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
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Chapter 3—The Adjusting Process 126
40. A company purchases a one-year insurance policy on June 1 for $840. The adjusting entry on December 31 isa. debit Insurance Expense, $350 and credit Prepaid Insurance, $350b. debit Insurance Expense, $280 and credit Prepaid Insurance, $280c. debit Insurance Expense, $490, and credit Prepaid Insurance, $ 490.d. debit Prepaid Insurance, $720, and credit Cash, $720
ANS: C DIF: Difficult OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
41. If the prepaid rent account before adjustment at the end of the month has a debit balance of $1,600, representing a payment made on the first day of the month, and if the monthly rent was $800, the amount of prepaid rent that would appear on the balance sheet at the end of the month, after adjustment, isa. $800b. $400c. $2,400d. $1,600
ANS: A DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
42. Depreciation Expense and Accumulated Depreciation are classified, respectively, asa. expense, contra assetb. asset, contra liabilityc. revenue, assetd. contra asset, expense
ANS: A DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
43. The type of account and normal balance of Accumulated Depreciation isa. asset, creditb. asset, debitc. contra asset, creditd. contra asset, debit
ANS: C DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
44. The type of account and normal balance of Unearned Rent isa. revenue, creditb. expense, debitc. liability, creditd. liability, debit
ANS: C DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
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127 Chapter 3—The Adjusting Process
45. Data for an adjusting entry described as "accrued wages, $2,020" means to debita. Wages Expense and credit Wages Payableb. Wages Payable and credit Wages Expensec. Accounts Receivable and credit Wages Expensed. Drawing and credit Wages Payable
ANS: A DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
46. Supplies are recorded as assets when purchased. Therefore, the credit to supplies in the adjusting entry is for the amount of suppliesa. that are in the ending balanceb. purchasedc. usedd. either used or remaining
ANS: C DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
47. If there is a balance in the prepaid rent account after adjusting entries are made, it represents a(n)a. deferralb. accrualc. revenued. liability
ANS: A DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
48. If there is a balance in the unearned subscriptions account after adjusting entries are made, it represents a(n)a. deferralb. accrualc. drawingd. revenue
ANS: A DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
49. The cost of office supplies to be used in future periods is ordinarily shown on the balance sheet as a(n)a. capitalb. assetc. contra assetd. liability
ANS: B DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
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Chapter 3—The Adjusting Process 128
50. Which of the following is an example of a prepaid expense?a. Suppliesb. Accounts Receivablec. Unearned Subscriptionsd. Unearned Fees
ANS: A DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
51. The unexpired insurance at the end of the fiscal period representsa. an accrued assetb. an accrued liabilityc. an accrued expensed. a deferred expense
ANS: D DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
52. Accrued revenues would appear on the balance sheet asa. assetsb. liabilitiesc. capitald. prepaid expenses
ANS: A DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
53. Prepaid advertising, representing payment for the next quarter, would be reported on the balance sheet as a(n)a. assetb. liabilityc. contra assetd. expense
ANS: A DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
54. Unearned rent, representing rent for the next six months' occupancy, would be reported on the landlord's balance sheet as a(n)a. assetb. liabilityc. capital accountd. revenue
ANS: B DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
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129 Chapter 3—The Adjusting Process
55. Accrued expenses are ordinarily reported on the balance sheet asa. assetsb. liabilitiesc. fixed assetsd. prepaid expenses
ANS: B DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
56. Fees receivable would appear on the balance sheet as a(n)a. assetb. liabilityc. fixed assetd. unearned revenue
ANS: A DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
57. The general term employed to indicate a delay of the recognition of an expense already paid or of a revenue already received isa. depreciationb. deferralc. accruald. inventory
ANS: B DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
58. The adjusting entry for rent earned that is currently recorded in the unearned rent account isa. Unearned Rent, debit; Rent Revenue, creditb. Rent Revenue, debit; Unearned Rent, creditc. Unearned Rent, debit; Prepaid Rent, creditd. Rent Expense, debit; Unearned Rent, credit
ANS: A DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
59. Which of the following pairs of accounts could not appear in the same adjusting entry?a. Service Revenue and Unearned Revenueb. Interest Income and Interest Expensec. Rent Expense and Prepaid Rentd. Salaries Payable and Salaries Expense
ANS: B DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
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Chapter 3—The Adjusting Process 130
60. The unearned rent account has a balance of $40,000. If $3,000 of the $40,000 is unearned at the end of the accounting period, the amount of the adjusting entry isa. $3,000b. $40,000c. $37,000d. $43,000
ANS: C DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
61. The following adjusting journal entry was found on page 4 of the journal. Select the best explanation for the entry.
Unearned Revenue 4,500 Fees earned 4,500
????????????????
a. Record payment of fees earnedb. Record fees earned at the end of the monthc. Record fees that have not been earned at the end of the monthd. Record the payment of fees to be earned.
ANS: B DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
62. The following adjusting journal entry was found on page 4 of the journal. Select the best explanation for the entry.
Supplies Expense 360 Supplies 360
????????????????
a. Adjust supplies inventory to actualb. Record purchase of suppliesc. Adjust supplies expensed. Record sale of supplies
ANS: A DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
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131 Chapter 3—The Adjusting Process
63. The following adjusting journal entry was found on page 4 of the journal. Select the best explanation for the entry.
Wages Expense 2,555 Wages Payable 2,555
????????????????
a. Record the payment of wagesb. Record wages to be paid this monthc. Record wages paid in advanced. Record wages expense incurred and to be paid next month
ANS: D DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
64. What affect will this adjustment have on the accounting records?
Unearned Revenue 4,500 Fees earned 4,500
a. Increase net incomeb. Increase revenues reported for the periodc. Decrease liabilitiesd. All are true.
ANS: D DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
65. What affect will this adjusting journal entry have on the accounting records?
Supplies Expense 678 Supplies 678
a. Increase incomeb. Decrease net incomec. Decrease expensesd. Increase assets
ANS: B DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
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Chapter 3—The Adjusting Process 132
66. What affect will the following adjusting journal entry have on the accounting records?
Depreciation Expense 1,500 Accumulated Depreciation 1,500
a. Increase net incomeb. Increase revenuesc. Decrease expensesd. Decrease net book value
ANS: D DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
67. How will the following adjusting journal entry affect the accounting equation?.
Unearned Subscriptions 12,000 Subscriptions earned 12,000
a. Increase assets, increase revenuesb. Increase liabilities, increase revenuesc. Decrease liabilities, increase revenuesd. Decrease liabilities, decrease revenues
ANS: C DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
68. Which of the following is not true regarding Depreciation?a. Depreciation allocates the cost of a fixed asset over its estimated life.b. Depreciation expense reflects the decrease in market value each year.c. Depreciation is an allocation not a valuation method.d. Depreciation expense does not measure changes in market value.
ANS: B DIF: Difficult OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
69. The account type and normal balance of Prepaid Expense isa. revenue, creditb. expense, debitc. liability, creditd. asset, debit
ANS: D DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
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133 Chapter 3—The Adjusting Process
70. The account type and normal balance of Accumulated Depreciation isa. revenue, creditb. expense, debitc. asset, creditd. asset, debit
ANS: C DIF: Easy OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
71. Which of the following is an example of an accrued expense?a. Salary owed but not yet paidb. Fees received but not yet earnedc. Supplies on handd. A two-year premium paid on a fire insurance policy
ANS: A DIF: Difficult OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
72. The net book value of a fixed asset is determined bya. Original cost less accumulated depreciationb. Original cost less depreciation expensec. Original cost less accumulated depreciation plus depreciation expensed. Original cost plus accumulated depreciation
ANS: A DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
73. The balance in the supplies account, before adjustment at the end of the year is $625. The proper adjusting entry if the amount of supplies on hand at the end of the year is $325 would bea. debit Cash $325, credit Supplies $325b. debit Supplies Expense $300, credit Supplies $300c. debit Supplies Expense$325, credit Supplies $325d. debit Supplies $300, credit Supplies Expense $300
ANS: B DIF: Moderate OBJ: 03-02NAT: AACSB Analytic | AICPA FN-Measurement
74. The net income reported on the income statement is $90,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,700 and accrued salaries of $1,300. Net income, as corrected, isa. $87,300b. $90,000c. $88,700d. $86,000
ANS: D DIF: Moderate OBJ: 03-03NAT: AACSB Analytic | AICPA FN-Measurement
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Chapter 3—The Adjusting Process 134
75. At the end of the fiscal year, the usual adjusting entry to Prepaid Insurance to record expired insurance was omitted. Which of the following statements is true?a. Total assets at the end of the year will be understated.b. Owner's equity at the end of the year will be understated.c. Net income for the year will be overstated.d. Insurance Expense will be overstated.
ANS: C DIF: Difficult OBJ: 03-03NAT: AACSB Analytic | AICPA FN-Measurement
76. At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following statements is true?a. Total assets will be understated at the end of the current year.b. The balance sheet and income statement will be misstated but the statement of owner's
equity will be correct for the current year.c. Net income will be overstated for the current year.d. Total liabilities and total assets will be understated.
ANS: C DIF: Difficult OBJ: 03-03NAT: AACSB Analytic | AICPA FN-Measurement
77. At the end of the fiscal year, the usual adjusting entry for accrued salaries owed to employees was omitted. Which of the following statements is true?a. Salary Expense for the year was understated.b. The total of the liabilities at the end of the year was overstated.c. Net income for the year was understated.d. Owner's equity at the end of the year was understated.
ANS: A DIF: Difficult OBJ: 03-03NAT: AACSB Analytic | AICPA FN-Measurement
78. The adjusting entry to adjust supplies was omitted at the end of the year. This would effect the income statements by having a. expenses understated and therefore net income overstatedb. revenues understated and therefore net income understatedc. expenses understated and therefore net income understatedd. expenses overstated and therefore net income understated
ANS: A DIF: Difficult OBJ: 03-03NAT: AACSB Analytic | AICPA FN-Measurement
79. Which of the accounts below would appear on an adjusted trial balance but probably would not appear on the trial balance?a. Fees Earnedb. Accounts Receivablec. Unearned Feesd. Depreciation Expense
ANS: D DIF: Moderate OBJ: 03-04NAT: AACSB Analytic | AICPA FN-Measurement
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135 Chapter 3—The Adjusting Process
80. Which of the accounting steps in the accounting process below would be completed last?a. preparing the adjusted trial balanceb. postingc. preparing the financial statementsd. journalizing
ANS: C DIF: Moderate OBJ: 03-04NAT: AACSB Analytic | AICPA FN-Measurement
81. When is the adjusted trial balance prepared?a. Before adjusting journal entries are postedb. After adjusting journal entries are posted.c. After the adjusting journal entries are journalizedd. Before the adjusting journal entries are journalized.
ANS: B DIF: Moderate OBJ: 03-04NAT: AACSB Analytic | AICPA FN-Measurement
82. What is the purpose of the adjusted trial balance?a. to verify that all of the adjusting entries have been postedb. to verify that the net income <loss> is correctly reportedc. to verify that no adjusting journal entry has been omitted.d. to verify that the debits and credits balance
ANS: D DIF: Moderate OBJ: 03-04NAT: AACSB Analytic | AICPA FN-Measurement