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WorksheetsAdjusting the Accounts
Total questions: 45
Worksheet time: 26mins
An adjusting entry
a. affects two balance sheet accounts.
b. affects two income statement accounts
c. affects a balance sheet account and an income statement account.
d. is always a compound entry.
If a resource has been consumed but a bill has not been received at the end of the accounting period, then
a. an expense should be recorded when the bill is received.
b. an expense should be recorded when the cash is paid out.
c. an adjusting entry should be made recognizing the expense.
d. it is optional whether to record the expense before the bill is received.
Accounts often need to be adjusted because
a. there are never enough accounts to record all the transactions.
b. many transactions affect more than one time period.
c. there are always errors made in recording transactions.
d. management can’t decide what they want to report.
Adjusting entries are
a. not necessary if the accounting system is operating properly.
b. usually required before financial statements are prepared.
c. made whenever management desires to change an account balance.
d. made to balance sheet accounts only.
Expenses incurred but not yet paid or recorded are called
a. prepaid expenses.
b. accrued expenses.
c. interim expenses.
d. unearned expenses.
A law firm received $5,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Service Revenue. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause
a. expenses to be overstated.
b. net income to be overstated
c. liabilities to be understated.
d. revenues to be understated.
Adjusting entries can be classified as
a. postponements and advances.
b. accruals and deferrals.
c. deferrals and postponements.
d. accruals and advances.
Accrued revenues are
a. cash received and a liability recorded before services are performed.
b. revenue for services performed and recorded as liabilities before they are received.
c. revenue for services performed but not yet received in cash or recorded.
d. revenue for services performed and already received in cash and recorded.
Prepaid expenses are
a. paid and recorded in an asset account before they are used or consumed
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded
Accrued expenses are
a. paid and recorded in an asset account before they are used or consumed.
b. paid and recorded in an asset account after they are used or consumed.
c. incurred but not yet paid or recorded.
d. incurred and already paid or recorded.
Unearned revenues are
a. revenues not recorded as revenues until services are performed.
b. revenues for services already performed, and recorded as liabilities, before they are received.
c. revenues for services performed but not yet received in cash or recorded.
. revenues for services already performed and received in cash, and recorded as revenues when received.
A liability—revenue relationship exists with
a. prepaid expense adjusting entries.
b. accrued expense adjusting entries.
c. unearned revenue adjusting entries.
d. accrued revenue adjusting entries.
Which of the following reflects the balances of prepayment accounts prior to adjustment?
a. Balance sheet accounts are understated and income statement accounts are understated.
b. Balance sheet accounts are overstated and income statement accounts are overstated.
c. Balance sheet accounts are overstated and income statement accounts are understated.
d. Balance sheet accounts are understated and income statement accounts are overstated.
An asset—expense relationship exists with
a. liability accounts.
b. revenue accounts.
c. prepaid expense adjusting entries.
d. accrued expense adjusting entries.
Wallowa Company purchased supplies costing $6,000 and debited Supplies for the full amount. At the end of the accounting period, a physical count of supplies revealed $1,800 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be
a. Debit Supplies Expense, $1,800; Credit Supplies, $1,800.
b. Debit Supplies, $4,200; Credit Supplies Expense, $4,200.
c. Debit Supplies Expense, $4,200; Credit Supplies, $4,200.
d. Debit Supplies, $1,800; Credit Supplies Expense, $1,800.
Which of the following statements concerning accrual-basis accounting is incorrect?
a. Accrual-basis accounting follows the revenue recognition principle.
b. Accrual-basis accounting is the method required by generally accepted accounting principles
c. Accrual-basis accounting recognizes expenses when they are paid.
d. Accrual-basis accounting follows the expense recognition principle.
The revenue recognition principle dictates that revenue be recognized in the accounting period
a. before it is earned.
b. after it is earned.
c. in which the performance obligation is satisfied.
d. in which it is collected.
An expense is recorded under the cash basis only when
a. services are performed.
b. it is earned
c. cash is paid.
d. it is incurred.
For prepaid expense adjusting entries
a. an expense—liability account relationship exists.
b. prior to adjustment, expenses are overstated and assets are understated.
c. the adjusting entry results in a debit to an expense account and a credit to an asset account.
d. none of these answer choices are correct.
Expenses paid and recorded as assets before they are used are called
a. accrued expenses.
b. interim expenses.
c. prepaid expenses.
d. unearned expenses.
An accounting period that is one year in length is referred to as a(n):
a. business year.
b. accounting year.
c. fiscal year.
d. calendar year.
In a service company, the revenue is recognized when:
a. the product is sold
b. the service is paid for.
c. the service is performed.
d. the product is paid for.
If an adjustment is needed for unearned revenues, the
a. liability and related revenue are overstated before adjustment.
b. liability and related revenue are understated before adjustment
c. liability is overstated and the related revenue is understated before adjustment.
d. liability is understated and the related revenue is overstated before adjustment.
Mullins Real Estate received a check for $30,000 on July 1 which represents a 6-month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $30,000. Financial statements will be prepared on July 31. Mullins Real Estate should make the following adjusting entry on July 31:
a. Debit Unearned Rent Revenue, $5,000; Credit Rent Revenue, $5,000.
b. Debit Rent Revenue, $5,000; Credit Unearned Rent Revenue, $5,000.
c. Debit Unearned Rent Revenue, $30,000; Credit Rent Revenue, $30,000.
d. Debit Cash, $30,000; Credit Rent Revenue, $30,000.
What is the proper adjusting entry at June 30, the end of the fiscal year, based on a prepaid insurance account balance before adjustment, $15,400, and unexpired amounts per analysis of policies of $5,000?
a. Debit Insurance Expense, $5,000; Credit Prepaid Insurance, $5,000.
b. Debit Insurance Expense, $15,400; Credit Prepaid Insurance, $15,400.
c. Debit Prepaid Insurance, $10,400; Credit Insurance Expense, $10,400.
d. Debit Insurance Expense, $10,400; Credit Prepaid Insurance, $10,400.
At December 31, 2020, before any year-end adjustments, Obama Company’s Insurance Expense account had a balance of $2,600 and its Prepaid Insurance account had a balance of $7,600. It was determined that $3,200 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be
a. $2,600.
b. $4,400.
c. $3,200.
d. $5,800.
A new accountant working for Brady Company records $700 Depreciation Expense on store equipment as follows:
Dr. Depreciation Expense 700
Cr. Cash 700
The effect of this entry is to
a. adjust the accounts to their proper amounts on December 31.
b. understate total assets on the balance sheet as of December 31.
c. overstate the book value of the depreciable assets at December 31
d. understate the book value of the depreciable assets as of December 31.
The balance in the Prepaid Rent account before adjustment at the end of the year is $24,000, which represents three months’ rent paid on December 1. The adjusting entry required on December 31 is to
a. debit Rent Expense, $8,000; credit Prepaid Rent, $8,000.
b. debit Rent Expense, $16,000; credit Prepaid Rent $16,000.
c. debit Prepaid Rent, $8,000; credit Rent Expense, $8,000.
d. debit Prepaid Rent, $16,000; credit Rent Expense, $16,000.
Which of the following would not result in unearned revenue?
a. Rent collected in advance from tenants
b. Services performed on account
c. Sale of season tickets to football games
d. Sale of two-year magazine subscriptions
Unearned revenue is classified as
a. an asset account.
b. a revenue account
c. a contra-revenue account.
d. a liability account.
Durawash Laundry purchased $8,000 worth of supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the supplies indicated only $3,000 on hand. The adjusting entry that should be made by the company on June 30 is
a. Debit Supplies Expense, $3,000; Credit Supplies, $3,000.
b. Debit Supplies, $3,000; Credit Supplies Expense, $3,000.
c. Debit Supplies, $5,000; Credit Supplies Expense, $5,000.
d. Debit Supplies Expense, $5,000; Credit Supplies, $5,000.
On July 1, Outdoor Sports Store paid $15,000 to Midtown Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by Outdoor Sports Store is
a. Debit Rent Expense, $15,000; Credit Prepaid Rent, $3,750.
b. Debit Prepaid Rent, $3,750; Credit Rent Expense, $3,750.
c. Debit Rent Expense, $3,750; Credit Prepaid Rent, $3,750.
d. Debit Rent Expense, $15,000; Credit Prepaid Rent, $15,000.
Boneta City College sold season tickets for the 2020 football season for $250,000. A total of 8 games will be played during September, October and November. In September, three games were played. The adjusting journal entry at September 30
a. is not required. No adjusting entries will be made until the end of the season in November.
b. will include a debit to Cash and a credit to Ticket Revenue for $62,500.
c. will include a debit to Unearned Ticket Revenue and a credit to Ticket Revenue for $93,750.
d. will include a debit to Ticket Revenue and a credit to Unearned Ticket Revenue for $83,333.
Boneta City College sold season tickets for the 2020 football season for $250,000. A total of 8 games will be played during September, October and November. Assuming all the games are played, the Unearned Ticket Revenue balance that will be reported on the December 31 balance sheet will be
a. $0.
b. $93,750.
c. $156,250.
d. $250,000.
At March 1, 2020, Milo Corp. had supplies on hand of $600. During the month, Milo purchased supplies of $1,300 and used supplies of $1,400. The March 31 adjusting journal entry should include a
a. debit to the supplies account for $1,400
b. credit to the supplies account for $600.
c. debit to the supplies account for $1,300
d. credit to the supplies account for $1,400.
Grand Slam Company purchased equipment for $9,600 on January 1, 2020. The company expects to use the equipment for 4 years. It has no salvage value. Monthly depreciation expense on the asset is
a. $0.
b. $200.
c. $2,400
d. $9,600.
Cornhusker Supplies Inc. purchased a 12-month insurance policy on March 1, 2020 for $2,640. At March 31, 2020, the adjusting journal entry to record expiration of this asset will include a
a. debit to Prepaid Insurance and a credit to Cash for $2,640.
b. debit to Prepaid Insurance and a credit to Insurance Expense for $275.
c. debit to Insurance Expense and a credit to Prepaid Insurance for $220.
d. debit to Insurance Expense and a credit to Cash for $220.
Blue Chip Investments purchased a 12-month insurance policy on May 31, 2020 for $3,480. The December 31, 2020 balance sheet would report Prepaid Insurance of
a. $0 because Prepaid Insurance is reported on the Income Statement.
b. $2,030.
c. $1,450.
d. $3,480.
At March 1, Payday Inc. reported a balance in Supplies of $250. During March, the company purchased supplies for $800 and consumed supplies of $700. If no adjusting entry is made for supplies
a. owner’s equity will be overstated by $700.
b. expenses will be understated by $800.
c. assets will be understated by $150.
d. net income will be understated by $700.
Petite Inc. pays its rent of $57,000 annually on January 1. If the February 28 monthly adjusting entry for prepaid rent is omitted, which of the following will be true?
a. Failure to make the adjustment does not affect the February financial statements.
b. Expenses will be overstated by $4,750 and net income and owner’s equity will be understated by $4,750.
c. Assets will be overstated by $9,500 and net income and owner’s equity will be understated by $9,500.
d. Assets will be overstated by $4,750 and net income and owner’s equity will be overstated by $4,750.
Salem Corporation purchased a one-year insurance policy in January 2020 for $51,000. The insurance policy is in effect from April 2020 through March 2021. If the company neglects to make the proper year-end adjustment for the expired insurance
a. net income and assets will be understated by $38,250
b. net income and assets will be overstated by $38,250.
c. net income and assets will be understated by $8,500.
d. net income and assets will be overstated by $8,500.
Eli Company purchases equipment for $7,200 on November 1, 2020. It is estimated that
annual depreciation on the equipment will be $1,200. Assuming adjusting entries are only
prepared at year-end, the company should make the following adjusting entry:
a. Debit Depreciation Expense, $1,200; Credit Accumulated Depreciation, $1,200.
b. Debit Accumulated Depreciation, $200; Credit Depreciation Expense, $200.
c. Debit Depreciation Expense, $200; Credit Accumulated Depreciation, $200.
d. Debit Depreciation Expense, $600; Credit Equipment, $600.
SWC Bus Charter signed a four-month note payable in the amount of $30,000 on September 1. The note requires interest at an annual rate of 5%. The amount of interest to be accrued at the end of September is
a. $125.
b. $200.
c. $500.
d. $1,500
Ashley Company records unearned revenues initially as liabilities while Elijah Company records unearned revenues initially as revenues. Select the true statement regarding this transaction
a. Ashley Company’s net income will exceed that of Elijah Company.
b. Ashley Company’s net income will equal that of Elijah Company.
c. Ashley Company’s assets will exceed those of Elijah Company.
d. Ashley Company’s liabilities will exceed those of Elijah Company.
Luther Company records prepayments initially as assets while Burton Company records prepayments initially as expenses. Select the true statement this transaction.
a. Luther Company and Burton Company will make different adjusting entries but their
financial statements will be same regarding prepayments.
b. Luther Company’s net income will exceed that of Burton Company.
c. Burton Company’s net income will exceed that of Luther Company.
d. Burton Company’s assets will exceed those of Luther Company.
