Ch. 15 True/False Exam Questions

The first step in preparing adjusting entries is to prepare an unadjusted trial balance.

• True

• False

Businesses must use a 12-month period, or fiscal year, ending on December 31 for reporting their financial performance.

• True

• False

Answer explanation

Businesses can use any fiscal period length they desire.

A trial balance provides a complete list of accounts that may need to be brought up to date.

• True

• False

Rather than using a work sheet, a business can use an unadjusted trial balance and record adjustments directly to a general journal.

• True

• False

For a company using the periodic inventory method, the account balance of Merchandise Inventory changes during the fiscal year.

• True

• False

Answer explanation

If periodic, it doesn't change during the year; that would be a perpetual system. Periodic is captured at the END of a fiscal period.

The adjustment for the Supplies—Office account will result in a debit to Supplies Expense—Office.

• True

• False

The amount of the adjustment for Prepaid Insurance represents the value of the insurance premium used during the fiscal period.

• True

• False

The adjusting entry for accrued revenue increases a revenue account (a credit) and increases a receivable account (a debit).

• True

• False

If ending inventory is less than the account balance of Merchandise Inventory, the inventory adjustment will include a credit to Income Summary.

• True

• False

Answer explanation

It would be a debit because you have less inventory from the beginning of the year. So, you would credit the Merchandise Inventory account. Every credit needs a debit in life to be happy, so you will debit Income Summary.

The opposite is true if you had MORE inventory. You would then debit inventory and credit Income Summary.

Estimates of the cost, salvage value, and useful life of a plant asset are used to calculate its annual depreciation.

• True

• False

Answer explanation

An estimate is NOT used for the cost; that is an actual figure, not an estimate.