PA_Midterm MCQ Chap 3

The matching principle

• addresses the relationship between the journal and the balance sheet

• determines whether the normal balance of an account is a debit or credit

• requires that the dollar amount of debits equal the dollar amount of credits on a trial balance

• states that the revenues and related expenses should be reported in the same period

The main purpose of adjusting entries is to:

• Record external transactions and events.

• Record internal transactions and events.

• Recognize assets purchased during the period.

• Correct errors in the accounting records.

Prior to the adjusting process, accrued expenses have

• not yet been incurred, paid, or recorded

• been incurred, have not been paid, but have been recorded

• been incurred but not paid and not recorded

• been paid but have not yet been incurred

In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); incurred expenses of $35,000 ($31,000 cash paid toward them); prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the accrual basis of accounting is:

• $17,000.

• $21,000.

• $13,000.

• $25,000.

Which of the following is considered to be unearned revenue?

• theater tickets sold last month for yesterday's performance

• theater tickets sold yesterday on credit for yesterday's performance

• theater tickets that were not sold for the current performance

• theater tickets sold for next month's performance

Which of the following is an example of accrued revenue?

• snow removal services that have been paid for three months in advance

• snow removal services that have been provided but have not been billed or paid

• an agreement that has been signed for snow removal services for the next three months

• snow removal services that have been provided and paid on the same day

The entry to adjust the accounts for salaries accrued at the end of the accounting period is

• debit Salaries Payable; credit Cash

• debit Cash; credit Salaries Payable

• debit Salaries Payable; credit Salaries Expense

• debit Salaries Expense; credit Salaries Payable

The balance in the office supplies account on January 1 was $7,000, supplies purchased during January were $3,000, and the supplies on hand on January 31 were $2,000.  The amount to be used for the appropriate adjusting entry is

• $4,300

• $12,000

• $5,000

• $8,000

Which of the following is the proper adjusting entry, based on a prepaid insurance account balance before adjustment of $14,000 and unexpired insurance of $3,000, for the fiscal year ending on April 30?

• debit Insurance Expense, $3,000; credit Prepaid Insurance, $3,000

• debit Insurance Expense, $14,000; credit Prepaid Insurance, $14,000

• debit Prepaid Insurance, $11,000; credit Insurance Expense, $11,000

• debit Insurance Expense, $11,000; credit Prepaid Insurance, $11,000

Gracie Company made a prepaid rent payment of $2,800 on January 1.  The company’s monthly rent is $700.  The amount of prepaid rent that would appear on the January 31 balance sheet after adjustment is

• $2,100

• $700

• $2,800

• $1,400