Financial Accounting (Chapter 4)

The purpose of adjusting entries is to:

• Adjust the Retained Earnings account for the revenue, expense, and dividends recorded during the accounting period.

• Adjust daily the balances in asset, liability, revenue, and expense accounts for the effects of business transactions.

• Apply the realization principle and the matching principle to transactions affecting two or more accounting periods.

• Prepare revenue and expense accounts for recording the transactions of the next accounting period.

The CPA firm auditing Mason Street Recording Studios found that total stockholders’ equity was understated and liabilities were overstated. Which of the following errors could have been the cause?

• Making the adjustment entry for depreciation expense twice.

• Failure to record interest accrued on a note payable.

• Failure to make the adjusting entry to record revenue that had been earned but not yet billed to clients.

• Failure to record the earned portion of fees received in advance.

Assume Fisher Corporation usually earns taxable income, but sustains a loss in the current period. The entry to record income taxes expense in the current period will most likely be:

• Increase the amount of that loss.

• Include a credit to the Income Taxes Expense account.

• Be an adjusting entry, rather than an entry to record a transaction completed during the period.

• Include a credit to Income Taxes Payable.

The adjusting entries are made:

• At the end of every month

• At the end of every quarter

• At the end of every accounting period

• After six months

The revenue which is received before goods have been delivered or services have been rendered is called

• Earned revenue

• Prepaid revenue

• Deferred revenue

• Uncollected revenue

Which of the folowing is the example of prepaid expenses?

• Unearned revenue

• Unexpired insurance

• Uncollected revenue

• Office supplies

Which assets are depreciated?

• Current assets

• Variable assets

• Fixed assets

• Cash-back assets

Accumulated depreciation is:

• Asset account

• Contra-asset account

• Liability account

• Contra-liability account

"Cost of an asset/useful life (years)" is the formula for:

• Diminishing Balance Depreciation Method .

• Sum of Years' Digits Depreciation Method

• Straight Line Depreciation Method

• Double Declining Balance Depreciation Method

Prepaid expenses fall into the category of

• Revenue

• Liabilities

• Assets

• Stockholders' equity