Chapter 3

the revenue recognition principle states that:

• 1. revenue should be recognized in the accounting period in which a performance obligation is

     satisfied.

• 1. expenses should be matched with revenues.

• 1. the economic life of a business can be divided into

     artificial time periods.

• 1. the fiscal year should correspond with the calen-

     dar year.

The time period assumption states that

• 1. companies must wait until the calendar year is completed to prepare financial statements.

• 1. companies use the fiscal year to report financial information.

• 1. the economic life of a business can be divided into artificial time periods.

• 1. companies record information in the time period in which the events occur.

Which of the following statements about the accrual basis of accounting is false?

• 1. Events that change a company’s financial state-

     ments are recorded in the periods in which the

     events occur.

• 1. Revenue is recognized in the period in which ser-

     vices are performed.

• 1. This basis is in accord with generally accepted

     accounting principles.

• 1. Revenue is recorded only when cash is received,

     and expense is recorded only when cash is paid.

the principle or assumption dictating that efforts (expenses) be matched with accomplishments (reve-

nues) is the:

• expense recognition principle.

• cost assumption.

• time period assumption.

• revenue recognition principle.

Adjusting entries are made to ensure that:

• 1. expenses are recognized in the period in which

     they are incurred.

• 1. revenues are recorded in the period in which ser-

     vices are performed.

• 1. balance sheet and income statement accounts

     have correct balances at the end of an accounting

     period.

• 1. All the responses above are correct.

Each of the following is a major type (or category) of adjusting entries except:

• prepaid expenses.

• accrued revenues.

• accrued expenses.

• recognized revenues.

The trial balance shows Supplies $1,350 and Supplies Expense $0. If $600 of supplies are on hand at the end of the period, the adjusting entry is:

• Supplies 600

  SuppliesExpense 600

• Supplies 750

  SuppliesExpense

  750

• SuppliesExpense

  750

  Supplies 750

• SuppliesExpense 600

  Supplies 600

Adjustments for prepaid expenses:

• decrease assets and increase revenues.

• decrease expenses and increase assets.

• decrease assets and increase expenses.

• decrease revenues and increase assets.

ccumulated Depreciation is:

• a contra asset account.

• an expense account.

• an owner’s equity account.

• a liability account.

Rivera Company computes depreciation on delivery equipment at $1,000 for the month of June. The adjusting entry to record this depreciation is as follows.
(a) DepreciationExpense

Accumulated Depreciation— Rivera Company

(b)

(c)
(d)

• Depreciation— Rivera Company 1000

  Accumulated

  DepreciationExpense 1000

• DepreciationExpense 1000

  Equipment 1000

• DepreciationExpense 1000

  Accumulated Depreciation—

  Equipment 1000

• EquipmentExpense 1000

  Accumulated Depreciation—
  Equipment 1,000