Chapter 3

When should a company record earned revenue under accrual accounting?

• When the customer orders services to be rendered

• When services are rendered

• When cash is received before services are rendered

• When cash is received after services are rendered

The matching principle requires that

• expenses are recorded when they are incurred during a period.

• revenue is recorded only after it has been earned.

• time is divided into annual periods to measure expenses properly.

• revenue is recorded after cash is received.

The adjustment for accrued revenues

• increases a revenue with a debit and increases an asset with a credit.

• increases an asset with a debit and increases a revenue with a credit.

• decreases a revenue with a debit and increases an asset with a credit.

• decreases a liability with a debit and increases a revenue with a credit.

What is the impact on the financial statements if an adjusting entry for deferred expense is not made?

• Assets understated

• Expenses understated

• Expenses overstated

• Both A and B

Go Outdoors Monthly gains a client who prepays $60 for a package of one magazine per month for twelve months. Go Outdoors Monthly collects the $60 in advance and will provide the magazines throughout the next year. Which of the following will be included in the journal entry when Go Outdoors Monthly records receipt of this $60 prepayment?

• Credit to Subscription Revenue of $60

• Debit to Subscription Revenue of $60

• Credit to Unearned Revenue of $60

• Credit to Cash of $60

Refer to question 5 above. Which of the following will be included in the journal entry when Go Outdoors Monthly provides a magazine to the client each month?

• Credit to Subscription Revenue of $5

• Debit to Subscription Revenue of $5

• Credit to Unearned Revenue of $5

• Credit to Cash of $5

Unearned revenue is always

• a liability.

• owner’s equity.

• an asset.

• a revenue.

The unadjusted trial balance shows a $4,400 balance for the Office Supplies account. At the end of the period, the office manager determines that the value of supplies on hand is $1,600. What adjusting entry will be made?

• DR Supplies expense 1,600 and CR Supplies Payable 1,600

• DR Supplies expense 2,800 and CR Office Supplies 2,800

• DR Supplies expense 1,600 and CR Office Supplies 1,600

• DR Supplies expense 2,800 and CR Supplies Payable 2,800

Assume that the weekly payroll of Happy Hiking, Inc., is $2,000. The end of the year, December 31, falls on Tuesday. Happy Hiking will pay its employees on Friday for the full week. What adjusting entry will Happy Hiking make on Tuesday, December 31? (Use five days as a full workweek.)

• DR Salaries expense 800 and CR Salaries Payable 800

• DR Salaries Payable 800 and CR Salaries expense 800

• DR Salaries expense 1,200 and CR Cash 1,200

• DR Salaries expense 1,200 and CR Salaries Payable 1,200

A contra account

• A. is paired with its related account in the chart of accounts and related financial statement

• B. has a normal balance (debit or credit) that is the same as the normal balance of its related account.

• C. increases the balance of its related account when the two accounts are combined.

• Both A and B.