Q&A Hero

Q: Awn Services paid a dividend of $8,700 during the current year. The entry to close the dividend account at the end of the year is: A. Dividends 8,700 Cash 8,700 B. Retained earnings 8,700 Dividends 8,700 C. Dividends 8,700 Retained earnings 8,700 D. Common Stock 8,700 Dividends 8,700 E. Income Summary 8,700 Retained earnings 8,700

Q: The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the: A. Income Summary account B. Closing account C. Balance column account D. Contra account E. Nominal account

Q: Which of the following statements regarding financial statement preparation is false? A. Financial statements can be prepared from information in the adjusted trial balance. B. The Sarbanes-Oxley Act requires that financial statements filed with the Securities and Exchange Commission include declarations by the CEO and CFO of the company. C. It makes sense to prepare the balance sheet first because it contains information needed on the income statement. D. When preparing financial statements an adjusted trial balance is easier to work with than the entire ledger. E. The income statement is prepared first.

Q: Financial statements are typically prepared in the following order: A. Balance sheet, statement of retained earnings, income statement. B. Statement of retained earnings, balance sheet, income statement. C. Income statement, balance sheet, statement of retained earnings. D. Income statement, statement of retained earnings, balance sheet. E. Balance sheet, income statement, statement of retained earnings.

Q: The adjusted trial balance contains information pertaining to: A. Asset accounts only. B. Balance sheet accounts only. C. Income statement accounts only. D. All general ledger accounts. E. Revenue accounts only.

Q: A trial balance prepared after adjustments have been recorded is called a(n): A. Balance sheet B. Adjusted trial balance C. Unadjusted trial balance D. Classified balance sheet E. Unclassified balance sheet

Q: On December 31, the balance in the Prepaid Advertising account was $176,000, which is the remaining balance of a 12-month advertising campaign purchased on August 31 in the current year. Assuming the cost is spread equally over each month, how much did this advertising campaign cost in total? A. $286,000 B. $176,000 C. $264,000 D. $154,000 E. $22,000

Q: On December 31, the balance in the Prepaid Subscription account was $648. This is the remaining balance of a 12-month subscription purchased on September 30 in the current year. How much did this subscription originally cost? A. $72 B. $648 C. $7,776 D. $864 E. $1,512

Q: On December 31, the balance in the Prepaid Insurance account was $4,500, which is the remaining balance of a 12-month policy purchased on October 31 in the current year. How much did this policy originally cost? A. $5,400 B. $3,750 C. $4,909 D. $4,500 E. $6,000

Q: If accrued salaries were recorded on December 31 with a credit to Salaries Payable, the entry to record payment of these wages on the following January 5 would include: A. A debit to Cash and a credit to Salaries Payable. B. A debit to Cash and a credit to Prepaid Salaries. C. A debit to Salaries Payable and a credit to Cash. D. A debit to Salaries Payable and a credit to Salaries Expense. E. No entry would be necessary on January 5.

Q: A company recorded two days of accrued salaries of $1,400 for its employees on January 31. On February 9, it paid its employees for these accrued salaries and for other salaries earned through February 9. The January 31 and February 9 journal entries are: A 1/31 Salaries Expense 1,400 Salaries Payable 1,400 2/9 Salaries Payable 7,000 Salaries Expense 1,400 Cash 7,000 B. 1/31 Salaries Payable 1,400 Salaries Expense 1,400 2/9 Salaries Expense 5,600 Salaries Payable 1,400 Cash 7,000 C. 1/31 Salaries Expense 1,400 Cash 1,400 2/9 Salaries Expense 7,000 Cash 7,000 D. 1/31 Salaries Expense 1,400 Salaries Payable 1,400 2/9 Salaries Expense 7,000 Cash 7,000 E. 1/31 Salaries Expense 1,400 Salaries Payable 1,400 2/9 Salaries Expense 5,600 Salaries Payable 1,400 Cash 7,000

Q: If a company records prepayment of expenses in an asset account, the adjusting entry would: A. Result in a debit to an expense and a credit to an asset account. B. Cause an adjustment to prior expense to be overstated and assets to be understated. C. Cause an accrued liability account to exist. D. Result in a debit to a liability and a credit to an asset account. E. Decrease cash.

Q: A company's Office Supplies account shows a beginning balance of $600 and an ending balance of $400. If office supplies expense for the year is $3,100, what amount of office supplies was purchased during the period? A. $2,700 B. $2,900 C. $3,300 D. $3,500 E. $3,700

Q: A company purchased a new truck at a cost of $42,000 on July 1, 2014. The truck is estimated to have a useful life of 6 years and a salvage value of $3,000. Using the straight- line method, how much depreciation expense will be recorded for the truck for the year ended December 31, 2014? A. $3,250 B. $3,500 C. $4,000 D. $6,500 E. $7,000

Q: The difference between the cost of an asset and the accumulated depreciation for that asset is called A. Depreciation Expense B. Unearned Depreciation C. Prepaid Depreciation D. Depreciation Value E. Book Value

Q: An adjusting entry was made on December 31, 2014 to accrue a salary expense of $1,200. Which of the following entries would be prepared to record the next payment of salaries on January, 2015 in the amount of $3,000? A. Salaries Expense 3,000 Salaries Payable 1,200 Cash 4,200 B. Salaries Payable 3,000 Cash 3,000 C. Salaries Payable 1,200 Cash 1,200 D. Salaries Expense 1,200 Salaries Payable 1,200 E. Salaries Payable 1,200 Salaries Expense 1,800 Cash 3,000

Q: On January 1, Acme College received $1,200,000 in Unearned Tuition Revenue from its students for the spring semester, which spans four months beginning on January 2. What amount of tuition revenue should the college recognize on January 31? A. $300,000 B. $600,000 C. $800,000 D. $900,000 E. $1,200,000

Q: A company pays each of its two office employees each Friday at the rate of $100 per day each for a five-day week that begins on Monday. If the monthly accounting period ends on Tuesday and the employees worked on both Monday and Tuesday, the month-end adjusting entry to record the salaries earned but unpaid is: A. Debit Unpaid Salaries $600 and credit Salaries Payable $600 B. Debit Salaries Expense $400 and credit Salaries Payable $400 C. Debit Salaries Expense $600 and credit Salaries Payable $600 D. Debit Salaries Payable $400 and credit Salaries Expense $400 E. Debit Salaries Expense $400 and credit Cash $400

Q: The adjusting entry to record the earned but unpaid salaries of employees at the end of an accounting period is: A. Debit Unpaid Salaries and credit Salaries Payable B. Debit Salaries Payable and credit Salaries Expense C. Debit Salaries Expense and credit Cash D. Debit Salaries Expense and credit Salaries Payable E. Debit Cash and credit Salaries Expense

Q: Expenses incurred but unpaid that are recorded during the adjusting process with a debit to an expense and a credit to a liability are: A. Intangible expenses B. Prepaid expenses C. Unearned expenses D. Net expenses E. Accrued expenses

Q: On May 1, 2014, Giltus Advertising Company received $1,500 from Julie Bee for advertising services to be completed April 30, 2015. The cash receipt was recorded as unearned fees. At December 31, 2014, $500 of the fees had been earned. The adjusting entry on December 31, 2014, should include: A. A debit to Unearned Fees for $500. B. A credit to Unearned Fees for $500. C. A credit to Earned Fees for $1,000. D. A debit to Earned Fees for $1,000. E. A debit to Earned Fees for $500.

Q: ABC Co. leased a portion of its store to another company for eight months beginning on October 1, 2014, at a monthly rate of $800. This other company paid the entire $6,400 cash on October 1, which ABC Co. recorded as unearned revenue. The journal entry made by ABC Co. at year-end on December 31, 2014, would include: A. A debit to Rent Earned for $2,400. B. A credit to Unearned Rent for $2,400. C. A debit to Cash for $6,400. D. A credit to Rent Earned for $2,400. E. A debit to Unearned Rent for $4,000.

Q: On April 30, 2014, a three-year insurance policy was purchased for $18,000 with coverage to begin immediately. What is the amount of insurance expense that would appear on the company's income statement for the year ended December 31, 2014? A. $500 B. $4,000 C. $6,000 D. $14,000 E. $18,000

Q: Which of the following does not require an adjusting entry at year-end? A. Accrued interest on notes payable. B. Supplies used during the period. C. Cash investments by stockholders. D. Accrued wages. E. Expired portion of prepaid insurance.

Q: Which of the following assets is not depreciated? A. Store fixtures B. Computers C. Land D. Buildings E. Vehicles

Q: Unearned revenue is reported on the financial statements as: A. A revenue on the balance sheet. B. A liability on the balance sheet. C. An unearned revenue on the income statement. D. An asset on the balance sheet. E. An operating activity on the statement of cash flows.

Q: A company had no office supplies at the beginning of the year. During the year, the company purchased $250 worth of office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year? A. $75 B. $125 C. $175 D. $250 E. $325

Q: On April 1, 2014, a company paid $1,350 premium on a three-year insurance policy with benefits beginning on that date. What will be the insurance expense on the annual income statement for the year ended December 31, 2014? A. $1,350 B. $450 C. $1,012.50 D. $337.50 E. $37.50

Q: Throughout an accounting period, the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees. What is the end-of-period adjusting entry to record the portion of those fees that have been earned? A. Debit Cash and credit Legal Fees Earned. B. Debit Cash and credit Unearned Legal Fees. C. Debit Unearned Legal Fees and credit Legal Fees Earned. D. Debit Legal Fees Earned and credit Unearned Legal Fees. E. Debit Unearned Legal Fees and credit Accounts Receivable.

Q: The periodic expense created by allocating the cost of plant and equipment to the periods in which they are used, representing the expense of using the assets, is called: A. Accumulated depreciation B. A contra account C. The matching principle D. Depreciation E. An accrued account

Q: The total amount of depreciation recorded against an asset or group of assets during the entire time the asset or assets have been used in the day-to-day operations of the business: A. Is referred to as depreciation expense. B. Is referred to as accumulated depreciation. C. Is shown on the income statement of the final period. D. Is only recorded when the asset is disposed of. E. Is referred to as an accrued asset.

Q: An account linked with another account that has an opposite normal balance and that is subtracted from the balance of the related account is a(n): A. Accrued expense B. Contra account C. Accrued revenue D. Intangible asset E. Adjunct account

Q: Which of the following is true of accrued revenues? A. Accrued revenues at the end of one accounting period often result in cash receipts from customers in the next period. B. Accrued revenues at the end of one accounting period often result in cash payments in the next period. C. Accrued revenues are also called unearned revenues. D. Accrued revenues are listed on the balance sheet as liabilities. E. Accrued revenues are recorded at the end of an accounting period because cash has already been received for revenues earned.

Q: On June 30, 2014, Apricot Co. paid $5,000 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31, 2014, for Apricot would include: A. A debit to Management Services Expense for $1,250. B. A debit to Prepaid Management Services Expense for $1,250. C. A credit to Management Services Expense for $3,750. D. A debit to Prepaid Management Services Expense for $3,750. E. A credit to Management Services Payable for $1,250.

Q: On June 30, 2014, Apricot Co. paid $5,000 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses in asset accounts at the time of cash payment. On June 30, 2014 Apricot should record: A. A credit to an expense for $5,000. B. A debit to an expense for $5,000. C. A credit to a prepaid expense for $5,000. D. A debit to a prepaid expense for $5,000. E. A debit to Cash for $5,000.

Q: Which of the following accounts would not be on the post- closing trial balance? A. Accounts Payable B. Accounts Receivable C. Common Stock D. Dividends E. Retained Earnings

Q: The current ratio: A. Is used to measure a company's profitability. B. Is used to measure the relation between assets and long-term debt. C. Measures the effect of operating income on profit. D. Is used to help evaluate a company's ability to pay its short-term obligations. E. Is calculated by dividing current assets by equity.

Q: Compute profit margin ratio given the following information. Cost of goods sold: $28,000 Net income: $21,400 Gross profit: $400,000 A. 5% B. 7% C. 1.65% D. 6.64% E. 76.42%

Q: Which of the following accounts would be closed at the end of the accounting period? A. Accounts Receivable B. Unearned Consulting Fees C. Fees Earned D. Retained Earnings E. Land

Q: A company earned $2,000 in net income for October. Its net sales for October were $10,000. Its profit margin is: A. 2% B. 20% C. 200% D. 500% E. $8,000

Q: Profit margin is defined as: A. Revenues divided by net sales. B. Net sales divided by assets. C. Net income divided by net sales. D. Net income divided by assets. E. Assets divided by net sales.

Q: A publishing company records the subscriptions paid in advance by its customers in an account called Unearned Subscription Revenue. If the company fails to make the end-of-period adjusting entry to record the portion of the subscriptions that have been earned, one effect will be: A. An overstatement of equity. B. An overstatement of liabilities. C. An understatement of assets. D. An understatement of liabilities. E. An overstatement of assets.

Q: A company records the fees for legal services paid in advance by its clients in an account called Unearned Legal Fees. If the company fails to make the end-of-period adjusting entry to record the portion of these fees that has been earned, one effect will be: A. An overstatement of equity. B. An understatement of equity. C. An understatement of assets. D. An understatement of liabilities. E. An overstatement of assets.

Q: If a company failed to make the end-of-period adjustment to remove the amount earned from the Unearned Management Fees account, there would be: A. An overstatement of net income. B. An overstatement of assets. C. An overstatement of liabilities. D. An overstatement of equity. E. An understatement of liabilities.

Q: If a company forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show: A. Assets overstated and equity understated. B. Assets and equity both understated. C. Assets overstated, net income understated, and equity overstated. D. Assets, net income, and equity understated. E. Assets, net income, and equity overstated.

Q: Due to an oversight, a company made no adjusting entry for accrued and unpaid employee wages of $24,000 on December 31. This oversight would: A. Understate net income by $24,000. B. Overstate net income by $24,000. C. Have no effect on net income. D. Overstate assets by $24,000. E. Understate assets by $24,000.

Q: IFRS tends to be more principles-based compared with GAAP, which is viewed as more rules-based. Which of the following is a true statement about a principles-based system? A. A principles-based system eliminates the need for internal controls. B. A principles-based system is significantly weaker than a rules-based system. C. A principles-based system will eliminate all fraud. D. A principles-based system is a way to calculate interest receivable or payable. E. A principles-based system depends heavily on control procedures to reduce the potential for fraud or misconduct.

Q: What is the difference between GAAP and IFRS presentations of the current assets section on the balance sheet? A. Under IFRS it is mandatory to present current assets first while under GAAP it is customary (but not required) to present noncurrent assets first. B. Both IFRS and GAAP require that current assets are listed first. C. Under GAAP it is mandatory to present current assets first, while under IFRS it is customary (but not required) to present noncurrent assets first. D. It is customary (but not required) under both IFRS and GAAP to present noncurrent assets first. E. GAAP requires that current assets be presented first, while IFRS requires that current assets be presented last.

Q: The asset section of a classified balance sheet usually includes: A. Current assets, investments, plant assets, and intangible assets. B. Current assets, long-term assets, revenues, and intangible assets. C. Current assets, investments, plant assets, and equity. D. Current liabilities, investments, plant assets, and intangible assets. E. Current assets, liabilities, plant assets, and intangible assets.

Q: A classified balance sheet: A. Measures a company's ability to pay its bills on time. B. Organizes assets and liabilities into important subgroups. C. Presents revenues, expenses, and net income. D. Reports operating, investing, and financing activities. E. Reports the effect of profit and dividends on retained earnings.

Q: Each letter below contains three of the steps found in the accounting cycle. Which presents the given steps in the proper sequence, first to last? A. Adjust, analyze transactions, close. B. Analyze transactions, adjust, close. C. Prepare post-closing trial balance, prepare statements, close. D. Prepare statements, post, close. E. Prepare adjusted trial balance, journalize, close.

Q: Which of the following is the usual final step in the accounting cycle? A. Journalizing transactions. B. Preparing an adjusted trial balance. C. Preparing a post-closing trial balance. D. Preparing the financial statements. E. Preparing a work sheet.

Q: The recurring steps performed each accounting period, starting with analyzing and recording transactions in the journal and continuing through the post-closing trial balance, are referred to as the: A. Accounting period B. Operating cycle C. Accounting cycle D. Closing cycle E. Natural business year

Q: Which of the following statements is incorrect? A. Prepaid expenses, depreciation, and unearned revenues involve previously recorded assets and liabilities. B. Accrued expenses and accrued revenues involve assets and liabilities that were not previously been recorded. C. Adjusting entries can be used to record both accrued expenses and accrued revenues. D. Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time. E. Adjusting entries affect the cash account.

Q: The accrual basis of accounting: A. Is generally accepted for external reporting since it is more useful for most business decisions. B. Is flawed because it gives complete information about cash flows. C. Recognizes revenues when received in cash. D. Recognizes expenses when paid in cash. E. Eliminates the need for adjusting entries at the end of each period.

Q: Prepaid expenses, depreciation, accrued expenses, unearned revenues, and accrued revenues are all examples of: A. Items that require contra accounts. B. Items that require adjusting entries. C. Asset and equity. D. Asset accounts. E. Income statement accounts.

Q: The approach to preparing financial statements based on recognizing revenues when they are earned and matching expenses to those revenues is: A. Cash basis accounting B. The matching principle C. The time period principle D. Accrual basis accounting E. Revenue basis accounting

Q: Which of the following accounts would not be impacted by adjusting journal entries? A. Accounts Receivable B. Consulting Fee Earned C. Unearned Consulting Fees D. Cash E. Wages Payable

Q: The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called: A. Accrual basis accounting B. Operating cycle accounting C. Cash basis accounting D. Revenue recognition accounting E. Current basis accounting

Q: The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of those expenses is the: A. Recognition principle B. Cost principle C. Cash basis of accounting D. Matching principle E. Time period principle

Q: The main purpose of adjusting entries is to: A. Record external transactions and events. B. Record internal transactions and events. C. Recognize assets purchased during the period. D. Recognize debts paid during the period. E. Correct errors.

Q: Adjusting entries: A. Affect only income statement accounts. B. Affect only balance sheet accounts. C. Affect both income statement and balance sheet accounts. D. Affect only cash flow statement accounts. E. Affect only equity accounts.

Q: The accounting principle that requires revenue to be reported when earned is the: A. Matching principle B. Revenue recognition principle C. Time period principle D. Accrual reporting principle E. Going-concern principle

Q: Western Company has an annual reporting period that runs from July 1 through June 30. Based on this information, which of the following is a true statement? A. Western probably has little seasonal variation in their sales. B. Western has violated the time period principle. C. Western must prepare financial statements as of December 31 each year. D. Western has adopted a fiscal year. E. Western does not have an accountant.

Q: The 12-month period that ends when a company's activities are at their lowest point is called the: A. Fiscal year B. Calendar year C. Natural business year D. Accounting period E. Interim period

Q: Interim financial statements refer to financial reports: A. That cover less than one year, usually spanning one, three, or six-month periods. B. That are prepared before any adjustments have been recorded. C. That show the assets above the liabilities and the liabilities above the equity. D. Where revenues are reported on the income statement when cash is received and expenses are reported when cash is paid. E. That are prepared on the last day of the calendar year.

Q: A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the: A. Operating cycle of a business. B. Time period assumption. C. Going-concern principle. D. Matching principle. E. Accrual basis of accounting.

Q: Which of the following identifies the proper order of the accounting cycle? A. Analyze, journalize, unadjusted trial balance B. Analyze, post, unadjusted trial balance C. Journalize, post, unadjusted trial balance D. Unadjusted trial balance, adjusted trial balance, close E. Adjusted trial balance, adjustments, financial statements

Q: On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance Sheet Debit column.

Q: Closing entries are normally entered in the general journal and then posted to the work sheet.

Q: All necessary numbers to prepare the income statement can be taken from the income statement columns of the work sheet, including the net income or net loss.

Q: Adjustments must be entered in the journal and posted to the ledger after the work sheet is prepared.

Q: It is acceptable to record prepayment of expenses as debits to expense accounts.

Q: A post-closing trial balance is a list of permanent accounts and their balances from the ledger after all closing entries are journalized and posted.

Q: The Income Summary account is used to close the permanent accounts at the end of an accounting period.

Q: When expenses exceed revenues, there is a net loss and the Income Summary account would have a credit balance.

Q: The Income Summary account is closed to the retained earnings account.

Q: The dividends account is normally closed by debiting it.

Q: An expense account is normally closed by debiting Income Summary and crediting the expense account.

Q: In preparing statements from the adjusted trial balance, the balance sheet must be prepared first.