BAINTEL-DIFFICULT-ACT233

If a business has received cash in advance of services performed and credits a liability

account, the adjusting entry needed after the services are performed will be

• debit Unearned Revenue and credit Cash.

• debit Unearned Revenue and credit Service Revenue.

• debit Unearned Revenue and credit Prepaid Expense.

• debit Unearned Revenue and credit Accounts Receivable.

• A

• B

• C

• D

Under accrual-basis accounting

• cash must be received before revenue is recognized.

• net income is calculated by matching cash outflows against cash inflows.

• c. events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received.

• the ledger accounts must be adjusted to reflect a cash basis of accounting before

  financial statements are prepared under generally accepted accounting principles.

Adjusting entries are required

• a. yearly.

• b. quarterly.

• c. monthly.

• d. every time financial statements are prepared

• a. $114,000

• b. $134,000

• c. $82,000

• d. $150,000

Which one of the following is not a justification for adjusting entries?

• a. Adjusting entries are necessary to ensure that revenue recognition principles are followed.

• b. Adjusting entries are necessary to ensure that the matching principle is followed.

• c. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP.

• d. Adjusting entries are necessary to bring the general ledger accounts in line with the

  budget.

Hardy Company purchased a computer for $4,800 on December 1. It is estimated that

annual depreciation on the computer will be $960. If financial statements are to be

prepared on December 31, the company should make the following adjusting entry:

• a. Debit Depreciation Expense, $960; Credit Accumulated Depreciation, $960.

• b. Debit Depreciation Expense, $80; Credit Accumulated Depreciation, $80.

• c. Debit Depreciation Expense, $3,840; Credit Accumulated Depreciation, $3,840.

• d. Debit Office Equipment, $4,800; Credit Accumulated Depreciation, $4,800.

n computing depreciation, the number of years of useful life of the asset is

• a. known with certainty.

• b. an estimate.

• c. always fixed at 5 years.

• d. always fixed at 3 years.

Southeastern Louisiana University sold season tickets for the 2008 football season for

$160,000. A total of 8 games will be played during September, October and November.

Assuming all the games are played, the Unearned Revenue balance that will be reported

on the December 31 balance sheet will be

• a. $0.

• b. $60,000.

• c. $100,000.

• d. $160,000.

If prepaid expenses are initially recorded in expense accounts and have not all been used

at the end of the accounting period, then failure to make an adjusting entry will cause

• a. assets to be understated.

• b. assets to be overstated.

• c. expenses to be understated.

• d. contra-expenses to be overstated.