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1. Accrual-basis accounting involves recording revenues when earned and recording expenses with their
related revenues.
True False
2. The revenue recognition principle states that we record revenue in the period in which we collect cash.
True False
3. According to the revenue recognition principle, if a company provides services to a customer in the current
year but does not collect cash until the following year, the company should report the revenue in the current
year.
True False
4. Jones Corporation provides services to a customer on June 17, but the customer does not pay for the
services until August 12. According to the revenue recognition principle, Jones Corporation should record
the revenue on August 12.
True False
5. The matching principle states that we recognize expenses in the same period as the revenues they help to
generate.
True False
6. According to the matching principle, if costs associated with producing revenue in the current year are not
paid in cash until the following year, the costs should be expensed in the current year.
True False
7. Under cash-basis accounting, we record revenues at the time we receive cash and expenses at the time we
pay cash.
True False
8. Under cash-basis accounting, the timing of cash inflows and outflows exactly matches the reporting of
revenues and expenses in the income statement.
True False
9. Under cash-basis accounting, if a company provides services to a customer in the current year but does not
collect cash until the following year, the company should report the revenue in the current year.
True False
10. Under cash-basis accounting, if costs associated with producing revenue in the current year are not paid in
cash until the following year, the costs should be expensed in the following year.
True False
11. Because cash-basis accounting violates both the revenue recognition principle and the matching principle,
it is generally not accepted in preparing financial statements.
True False
12. Adjusting entries involve recording events that have occurred but that have not yet been recorded by the
end of the period.
True False
13. Adjusting entries should be prepared after financial statements are prepared.
True False
14. Because adjusting entries allow the proper application of the revenue recognition principle or the matching
principle, they are a necessary part of cash-basis accounting.
True False
15. Prepaid expenses involve payment of cash (or an obligation to pay cash) for the purchase of an asset before
the expense is incurred.
True False
16. Unearned revenues occur when cash is received after the revenue is earned.
True False
17. Accrued expenses involve the payment of cash before recording an expense and a liability.
True False
18. Accrued revenues involve the receipt of cash after the revenue has been earned and an asset has been
recorded.
True False
19. The adjusting entry for a prepaid expense always includes a debit to an expense account and a credit to a
liability account.
True False
20. The adjusting entry for a prepaid expense has the effect of reducing total assets and reducing net income.
True False
21. The Supplies account is an example of an accrued expense.
True False
22. Suppose Simeon Company begins the year with $1,000 in supplies, purchases an additional $5,500 of
supplies during the year, and ends the year with $700 in supplies. The year-end adjusting entry includes
Supplies Expense of $7,200.
True False
23. The adjusting entry for an unearned revenue always includes a debit to an asset account and a credit to a
revenue account.
True False
24. The adjusting entry for an unearned revenue has the effects of reducing liabilities and increasing net
income.
True False
25. On November 1, 2012, a company receives $1,800 for services to be provided evenly over the next six
months. The December 31, 2012, adjusting entry for the company would include a credit to Unearned
Revenue for $600.
True False
26. The adjusting entry for an accrued expense always includes a debit to an expense account and a credit to a
liability account.
True False
27. The adjusting entry for an accrued expense has the effects of decreasing net income and decreasing
liabilities.
True False
28. On December 31, 2012, employees who earn $500 per day have worked eight days and will be paid on
January 6, 2013. The adjusting entry on December 31, 2012, includes a debit to Salaries Expense for
$4,000.
True False
29. At December 31, 2012, a company has received, but not paid, a utility bill for $250. The amount of utility
expense for the current period equals $250.
True False
30. The adjusting entry for an accrued revenue always includes a debit to a liability account and a credit to a
revenue account.
True False
31. The adjusting entry for an accrued revenue has the effects of increasing assets and increasing net income.
True False
32. Adjusting entries are unnecessary for transactions that do not involve revenue or expense activities, such as
selling common stock or paying dividends.
True False
33. Adjusting entries are not necessary when cash is received at the same time revenues are earned.
True False
34. Adjusting entries are not necessary when cash is paid at the same time expenses are incurred.
True False
35. A post-closing trial balance is a list of all accounts and their balances after we have updated account
balances for adjusting entries.
True False
36. Once the adjusted trial balance is complete, financial statements are prepared.
True False
37. A classified balance sheet separates assets into current and long-term, and separates liabilities into current
and long-term.
True False
38. Current assets are assets that provide a benefit to a company over more than one year.
True False
39. Long-term assets are assets that provide a benefit to a company for more than one year.
True False
40. Current liabilities are liabilities due within one year.
True False
41. Long-term liabilities are liabilities due in more than one year.
True False
42. Long-term asset categories include investments; property, plant, and equipment; and intangible assets.
True False
43. The components of retained earnings include assets, expenses, and dividends.
True False
44. Closing entries transfer the balances of all temporary accounts (revenues, expenses, and dividends) to the
balance of the Common Stock account.
True False
45. The closing entry for revenue accounts includes a debit to Retained Earnings and a credit to all revenue
accounts.
True False
46. The closing entry for expense accounts includes a debit to Retained Earnings and a credit to all expense
accounts.
True False
47. The closing entry for dividends includes a debit to the Dividends account and a credit to Retained Earnings.
True False
48. If the beginning balance of Retained Earnings equals $10,000, net income for the year equals $6,000, and
dividends for the year equal $2,000, then the ending balance of Retained Earnings equals $18,000.
True False
49. If the beginning balance of Retained Earnings equals $12,000, the ending balance of Retained Earnings
equals $15,000, and dividends for the year equal $1,000, then net income for the year equals $4,000.
True False
50. After closing entries are prepared, all asset and liability accounts have a balance of zero.
True False
51. After closing entries are prepared, the balance of Retained Earnings is updated to reflect the activity in the
revenue, expense, and dividend accounts for the period.
True False
52. The post-closing trial balance is a list of all accounts and their balances at a particular date after the account
balances have been updated for closing entries.
True False
53. The post-closing trial balance does not include any assets or liabilities, because these accounts all have zero
balances after closing entries.
True False
54. The revenue recognition principle states that:
A. All costs that are used to generate revenue are recorded in the period the revenue is recognized.
B. All transactions are recorded at the exchange price.
C. The business is separate from its owners.
D. The business will continue to operate indefinitely unless there is evidence to the contrary.
56. Which of the following accounting principles states that expenses are recognized in the same period as the
revenues they help to generate?
A. Accounting equation.
B. Revenue recognition.
C. Matching principle.
D. Conservatism.
57. The primary difference between accrual-basis and cash-basis accounting is:
Assuming that Sooner Company uses cash-basis accounting, when would the company record the expense
related to the supplies?
A. May 2.
B. May 8.
C. May 15.
D. May 20.
64. The following information pertains to Sooner Company:
Assuming that Sooner Company uses accrual-basis accounting, when would the company record the
expense related to the supplies?
A. May 2.
B. May 8.
C. May 15.
D. May 20.
65. Consider the following events for Betterment Incorporated:
Under accrual-basis accounting, what is the appropriate day to record the revenues related to lawn services?
A. January 1.
B. January 7.
C. January 9.
D. January 12.
66. Consider the following events for Betterment Incorporated:
Under accrual-basis accounting, what is the appropriate day to record the expenses related to the gasoline?
A. January 1.
B. January 7.
C. January 12.
D. January 13.
67. Consider the following events for Betterment Incorporated:
Under cash-basis accounting, what is the appropriate day to record the expenses related to the gasoline?
A. January 1.
B. January 9.
C. January 12.
D. January 13.
68. Consider the following events for Sophia Incorporated:
Under accrual-basis accounting, what is the appropriate day to record the revenues from the sand volleyball
camp?
A. April 5.
B. April 6.
C. April 12.
D. April 21.
69. Consider the following events for Sophia Incorporated:
Under accrual-basis accounting, what is the appropriate day to record the expenses related to the sand
volleyball camp?
A. April 5.
B. April 12.
C. April 21.
D. April 23.
70. Consider the following events for Sophia Incorporated:
Under cash-basis accounting, what is the appropriate day to record the expenses related to the sand
volleyball camp?
A. April 5.
B. April 12.
C. April 21.
D. April 23.
71. Consider the following events for Sophia Incorporated:
Under cash-basis accounting, what is the appropriate day to record the revenues related to the sand
volleyball camp?
A. April 5.
B. April 12.
C. April 21.
D. April 23.
72. Which of the following is a possible adjusting journal entry?
A. Cash-basis accounting.
B. Accrual-basis accounting.
C. Current value accounting.
D. Manual accounting systems.
74. Which of the following is true about adjusting entries?
A. An accrued revenue.
B. An accrued expense.
C. An unearned revenue.
D. A prepaid expense.
76. When a magazine sells subscriptions to customers, it is an example of:
A. An accrued expense.
B. An accrued revenue.
C. A prepaid expense.
D. An unearned revenue.
77. When a company makes an end-of-period adjusting entry which includes a credit to Prepaid Rent, the debit
is usually made to:
A. Cash.
B. Rent Expense.
C. Rent Payable.
D. Rent Receivable.
78. When a company makes an end-of-period adjusting entry which includes a debit to Supplies Expense, the
usual credit entry is made to:
A. Accounts Payable.
B. Supplies.
C. Cash.
D. Retained Earnings.
79. Prepayments occur when:
A. Cash payment (or an obligation to pay cash) occurs before the expense recognition.
B. Sales are delayed pending credit approval.
C. Customers are unable to pay the full amount due when goods are delivered.
D. Cash payment occurs after the expense is incurred and liability is recorded.
80. An example of an adjusting entry would not include:
A. Option a
B. Option b
C. Option c
D. Option d
82. The adjusting entry required when amounts previously recorded as unearned revenues are earned includes:
A. A debit to a liability.
B. A debit to an asset.
C. A credit to a liability.
D. A credit to an asset.
83. Adjusting entries:
A. A credit to Cash.
B. A debit to an asset.
C. A credit to an asset.
D. A credit to liability.
85. Yummy Foods purchased a one-year hazard insurance policy on August 1 and recorded the $4,200
premium to prepaid insurance. At its December 31 year-end, Yummy Foods would record which of the
following adjusting entries?
A. Option a
B. Option b
C. Option c
D. Option d
86. The employees of Neat Clothes work Monday through Friday. Every other Friday the company issues
payroll checks totaling $32,000. The current pay period ends on Friday, January 3. Neat Clothes is now
preparing financial statements for the year ended December 31. What is the adjusting entry to record
accrued salaries at the end of the year?
A. Option a
B. Option b
C. Option c
D. Option d
87. On April 1, a $4,800 premium on a one-year insurance policy on equipment was paid and charged to
Prepaid Insurance. At the end of the year, the financial statements would report:
A. Option a
B. Option b
C. Option c
D. Option d
89. During the year, Cheng Company paid salaries of $24,000. In addition, $8,000 in salaries has accrued by
the end of the year but has not been paid. The year-end adjusting entry would include which one of the
following?
A. $9,000.
B. $18,000.
C. $30,000.
D. $48,000.
92. A list of all accounts and their balances after updating account balances for adjusting entries is referred to
as:
A. A trial balance.
B. An adjusted trial balance.
C. A post-closing trial balance.
D. An accounting trial balance.
93. An adjusted trial balance:
A. Current assets.
B. Current liabilities.
C. Long-term assets.
D. Revenues.
95. The following financial information is from Shovels Construction Company for 2012:
What is the amount of current assets, assuming the accounts above reflect normal activity?
A. $20,000.
B. $60,000.
C. $140,000.
D. $175,000.
96. Consider the following items:
Land
Accounts Receivable
Notes Payable (due in three years)
Accounts Payable
Retained Earnings
Prepaid Rent
Unearned Revenue
Buildings
Notes Payable (due in six months)
Equipment
How many of the items listed above are generally long-term assets?
A. 2
B. 3
C. 4
D. 5
97. The following financial information is from Bronco Company. All debt is due within one year unless stated
otherwise.
A. $63,000.
B. $28,000.
C. $45,600.
D. $22,000.
98. The following table contains financial information for Trumpeter Inc. before closing entries:
A. $3,500.
B. $2,500.
C. $5,000.
D. $5,500.
99. The following table contains financial information for Trumpeter Inc. before closing entries:
A. $81,500
B. $82,500
C. $68,500
D. $83,500
100.The closing entry for expenses includes:
A. Prove the equality of the debit and credit entries in the general journal.
B. Ensure that all assets and liabilities are recognized in the appropriate period.
C. Update the balance of Retained Earnings and prepare revenue, expense, and dividend accounts for next
period's transactions.
D. Assure that adjusting entries balance.
102.The following table contains financial information for Fisher Inc. for 2012 before closing entries:
A. 3
B. 4
C. 5
D. 6
103.Permanent accounts would not include:
A. Interest Expense.
B. Salaries Payable.
C. Prepaid Rent.
D. Unearned Revenues.
104.The purpose of closing entries is to transfer:
A. Accounts Payable.
B. Office Supplies.
C. Utilities Expense.
D. Common Stock.
107.Temporary accounts would not include:
A. Salaries Payable.
B. Advertising Expense.
C. Supplies Expense.
D. Dividends.
108.Of the following six accounts, which ones have temporary balances?
(1) Service Revenue
(2) Dividends
(3) Salaries Expense
(4) Common Stock
(5) Retained Earnings
(6) Cash
A. $1.9 million
B. $3.2 million
C. $4.5 million
D. $1.3 million
110.The Retained Earnings account had a beginning credit balance of $26,000. During the period, the business
had a net loss $12,000, and the company paid dividends of $8,000. The ending balance in the Retained
Earnings account is:
A. $6,000
B. $30,000
C. $22,000
D. $14,000
111.The closing process includes which of the following?
Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing
entries?
A. Increase of $11,000.
B. Increase of $13,000.
C. Increase of $12,000.
D. Increase of $14,000.
113.A list of all accounts and their balances after posting closing entries is referred to as:
A. A trial balance.
B. An adjusted trial balance.
C. A post-closing trial balance.
D. An accounting trial balance.
114.A post-closing trial balance:
116.For each transaction below, calculate the amount of expense to be recognized in the current period using
accrual-basis accounting
(a) Paid $3,500 on account for supplies purchased last period. All supplies were used last month.
(b) Paid $5,000 cash for advertising in the current period.
(c) Employees worked in the current period but will not be paid until the following period, $4,500.
117.A company reports the following amounts: Assets = $6,000; Liabilities = $2,000; Stockholders' equity =
$4,000; Dividends = $500; Revenues = $5,000; and Expenses = $3,000. What amount is reported for net
income?
118.A company receives $2,500 cash from customers for services to be provided next month. Record the cash
receipt using (a) accrual-basis accounting and (b) cash-basis accounting.
119.A company performs $2,800 of services during the month and bills customers. The customers are expected
to pay next month. Record the customer billing using (a) accrual-basis accounting and (b) cash-basis
accounting.
120.A company performs $4,200 of services during the month and receives full cash payment from customers
at the time of service. Record the cash receipt using (a) accrual-basis accounting and (b) cash-basis
accounting.
121.A company pays $1,700 cash to employees for work performed during the month. Record the payment
using (a) accrual-basis accounting and (b) cash-basis accounting.
122.A company receives a $700 utility bill for the current month but does not plan to pay the bill until early
next month. Record the receipt of the utility bill using (a) accrual-basis accounting and (b) cash-basis
accounting.
123.A company pays $1,200 on account for supplies purchased last month. All supplies were used last month.
Record the payment using (a) accrual-basis accounting and (b) cash-basis accounting.
124.A company maintains its records using cash-basis accounting. During the year, the company received cash
from customers, $34,000, and paid cash for taxes, $24,000. At the beginning of the year, customers owe the
company $3,000. By the end of the year, customers owe $5,000. At the beginning of the year, the company
owes taxes of $4,000. At the end of the year, the company owes taxes of $5,000. Determine cash-basis net
income and accrual-basis net income for the year.
125.The following data are taken from the cash-basis accounting records of Myerson Company for the year
ended December 31, 2012:
Calculate the amount of revenues and expenses for 2012 under cash-basis accounting.
126.The following data are taken from the cash-basis accounting records of Myerson Company for the year
ended December 31, 2012:
Calculate the amount of revenues and expenses for 2012 under accrual-basis accounting.
127.At the beginning of the period, a company reports a balance in office supplies of $500. During the period,
the company purchases an additional $3,500 of office supplies for cash. By the end of the period, only $700
of office supplies remains. Record the period-end adjusting entry.
128.Suppose a company rents office space for one year, paying $12,000 ($1,000/month) in advance on
September 1. Record the adjusting entry on December 31.
129.A company purchases one year of flood insurance in advance on May 1, paying $24,000 ($2,000/month).
Record the adjusting entry on December 31.
130.A company purchases new equipment for $24,000 cash on August 1, 2012. At the time of purchase, the
equipment is expected to be used in operations for four years (48 months) and have no resale or scrap value
at the end. The company depreciates the equipment evenly over the 48 months ($500/month). Record the
adjusting entry for depreciation on December 31, 2012.
131.Suppose a customer rents a vehicle for four months from Rent-A-Car on October 1, paying $4,000 ($1,000/
month). Record Rent-A-Car's adjusting entry on December 31.
132.A company pays its employees $5,600 every two weeks ($400/day). The current two-week pay period ends
on December 26, 2012, and employees are paid $5,600. The next two-week pay period ends on January 9,
2013, and employees will be paid $5,600. Record the adjusting entry on December 31, 2012.
133.A company borrows $20,000 with 8% interest on October 1, 2012. This amount plus interest is due on
September 30, 2013. Record the adjusting entry on December 31, 2012.
134.A company lends $30,000 with 10% interest on May 1, 2012. This amount plus interest is due on April 30,
2013. Record the adjusting entry on December 31, 2012.
135.For each of the following accounts, indicate whether the account is shown in the income statement or the
balance sheet:
136.Prepare adjusting journal entries, as needed, for the following items.
(a) The Supplies account shows a balance of $500, but a count of supplies reveals only $200 on hand at
year-end.
(b) The company initially records the payments of all insurance premiums as prepaid insurance. The
unadjusted trial balance at year-end shows a balance of $500 in Prepaid Insurance. A review of insurance
policies reveals that $100 of insurance is unexpired.
(c) Employees work Monday through Friday, and salaries of $2,500 per week are paid each Friday. The
company's year-end falls on Tuesday.
(d) At year-end, the company received a utility bill for December's electricity usage of $200 that will be
paid in early January.
137.The adjusted trial balance for China Tea Company at December 31, 2012, is presented below:
Prepare an income statement for China Tea Company for the year ended December 31, 2012:
138.The adjusted trial balance for China Tea Company at December 31, 2012, is presented below:
Prepare a classified balance sheet for China Tea Company as of December 31, 2012:
139.The December 31, 2012, post-closing trial balance for Strong Corporation is presented below:
Prepare a classified balance sheet for Strong Corporation at December 31, 2012.
140.The following is selected financial information for Osmond Dental Laboratories for 2012 and 2013:
Osmond issued 2,000 shares of additional capital stock in 2013 for $20,000. There were no other capital
transactions. Prepare a statement of stockholders' equity for the year ended December 31, 2013.
141.The adjusted trial balance for Yondel Company at December 31, 2012 is presented below:
Prepare the closing entries for Yondel Company for the year ended December 31, 2012.
142.The adjusted trial balance for China Tea Company at December 31, 2012 is presented below:
Prepare the closing entries for China Tea Company for the year ended December 31, 2012.
143.The year-end adjusted trial balance included the following account balances: Cash, $5,000; Equipment,
$25,000; Accounts payable, $7,000; Common stock, $15,000; Retained earnings, $6,000; Dividends,
$1,000; Service revenue, $18,000; Salaries expense, $9,000; and Utilities expense, $6,000. Prepare the
post-closing trial balance.
Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms.
Match each phrase with the correct term by placing the letter designating the term in the space provided.
Terms:
a. Accrued expenses
b. Adjusted trial balance
c. Adjusting entries
d. Depreciation expense
e. Balance sheet
f. Prepaid expenses
g. Expenses
h. Post-closing trial balance
i. Income statement
j. Trial balance
149.____ Financial statement showing that assets equal liabilities plus stockholders' equity.
Answer: e
151.____ A list of accounts and their balances used as the source data to prepare the financial statements.
Answer: b
Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms.
Match each phrase with the correct term by placing the letter designating the term in the space provided.
Terms:
a. Accrued expenses
b. Adjusted trial balance
c. Adjusting entries
d. Depreciation expense
e. Balance sheet
f. Prepaid expenses
g. Expenses
h. Post-closing trial balance
i. Income statement
j. Trial balance
154.____ A list of accounts and their balances prepared before adjusting entries are recorded.
Answer: j
155.____ Records events that have occurred but not previously recorded.
Answer: c
157.____ Liabilities created when expenses are recognized before cash flows.
Answer: a
A. Prepaid Rent.
B. Accounts Payable.
C. Salaries Expense.
D. Two of these three accounts would be included in a post-closing trial balance.
160.Which of the following describes the purpose(s) of closing entries?
A. Adjust the balances of asset and liability accounts for unrecorded activity during the period.
B. Transfer the balances of temporary accounts to common stock.
C. Reduce the balances of the temporary accounts to zero to prepare them for measuring activity in the next
period.
D. Both b and c.
161.A company provided $1,500 of services to customers during the month of May. The customers paid in
June. What would the impact of these transactions be during May on each of the following three items?
Cash Cash-basis Accrual-basis
Balance Net Income Net Income
A. January.
B. February.
C. April.
D. Evenly in each of the three months.
165.A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered
two weeks later. The customer paid for the drill press on December 5. When should Sears record the
revenue for this transaction according to the revenue recognition principle?
A. November.
B. December.
C. Evenly in each of the two months.
D. One-third in November and two-thirds in December.
166.Which of the following is(are) true regarding the characteristics of adjusting entries?
A. Adjusting entries reduce the balance of revenue, expense, and dividend accounts to zero.
B. Adjusting entries allow for the proper application of the revenue recognition principle.
C. Adjusting entries allow for the proper application of the matching principle.
D. Both b and c are true.
167.Pawn Shops Unlimited recorded the following four transactions during April. Which of these transactions
would have the same income statement impact in April regardless of whether the company used accrual-
basis or cash-basis accounting?
A. Purchased $500 of office supplies on account (supplies were used in May and paid for in May).
B. Paid $1,800 for a six-month insurance policy covering the period July 1—December 31.
C. Paid $700 for an advertisement that appeared in the May 17 edition of the Las Vegas Sun newspaper.
D. Received $300 from customers for services performed in March.
169.Which accounting principle states that a company should "record revenues when they are earned"?
A. Matching
B. Revenue recognition
C. Conservatism
D. Materiality
170.The following events pertain to Jasper Corporation:
May 1 Jasper purchased office supplies of $3,000 on account.
May 5 The office supplies were shipped to Jasper.
May 8 Jasper used these office supplies for a one-time event.
May 9 Jasper paid $3,000 cash for the office supplies purchased on May 1.
Using cash-basis accounting, on which date should Jasper record supplies expense?
A. May 1.
B. May 5.
C. May 8.
D. May 9.
171.On July 1, 2012, Charlie Co. paid $18,000 to Rent-An-Office for rent covering 18 months from July 2012
through December 2013. What adjusting entry should Charlie Co. record on December 31, 2012?
A. Option a
B. Option b
C. Option c
D. Option d
172.Which of the following is a permanent account?
A. Dividends
B. Service Revenue
C. Advertising Expense
D. Retained Earnings
173.Which one of the following accounts would NOT have a balance after closing entries?
A. Unearned Revenue
B. Supplies
C. Prepaid Rent
D. Dividends
174.The following events pertain to Bills Company:
December 28, 2012 - Bills was contacted by a customer for possible accounting and tax
services.
December 30, 2012 - Bills signed a formal agreement with the customer to provide
accounting and tax services in 2013.
January 4, 2013 - The customer paid $1,000 in advance for the services to be provided by Bills Company.
January 11, 2013 - Bills provided accounting and tax services to the customer.
Using cash-basis accounting, on which date should Bills Company record revenue for the accounting and
tax services?
A. Prepaid Insurance.
B. Service Revenue.
C. Utilities Expense.
D. Retained Earnings.
176.Which of the following regarding adjusting entries is correct?
A. $130,000.
B. $120,000.
C. $80,000.
D. $380,000.
180.For the first three years of operations, the company reports net income of $1,000, $2,000, and $3,000, and
pays dividends of $500, $1,000, and $1,000. What is the balance of retained earnings at the end of the third
year?
A. $2,000.
B. $2,500.
C. $3,500.
D. $6,000.
181.When a company provides services on account, which of the following would be recorded using cash-basis
accounting?
A. Debit to Cash.
B. Debit to Service Revenue.
C. Credit to Unearned Revenue.
D. No entry would be recorded.
182.Which of the following is true concerning temporary and permanent accounts?
A. $5,000
B. $78,500
C. $68,500
D. $83,500
Ch3 Key
1. TRUE
2. FALSE
3. TRUE
4. FALSE
5. TRUE
6. TRUE
7. TRUE
8. TRUE
9. FALSE
10. TRUE
11. TRUE
12. TRUE
13. FALSE
14. FALSE
15. TRUE
16. FALSE
17. FALSE
18. TRUE
19. FALSE
20. TRUE
21. FALSE
22. FALSE
23. FALSE
24. TRUE
25. FALSE
26. TRUE
27. FALSE
28. TRUE
29. TRUE
30. FALSE
31. TRUE
32. TRUE
33. TRUE
34. TRUE
35. FALSE
36. TRUE
37. TRUE
38. FALSE
39. TRUE
40. TRUE
41. TRUE
42. TRUE
43. FALSE
44. FALSE
45. FALSE
46. TRUE
47. FALSE
48. FALSE
49. TRUE
50. FALSE
51. TRUE
52. TRUE
53. FALSE
54. B
55. A
56. C
57. A
58. C
59. A
60. D
61. C
62. C
63. D
64. C
65. D
66. C
67. D
68. D
69. C
70. D
71. B
72. C
73. B
74. D
75. D
76. D
77. B
78. B
79. A
80. D
81. B
82. A
83. C
84. D
85. A
86. D
87. B
88. D
89. D
90. C
91. B
92. B
93. A
94. C
95. B
96. B
97. B
98. D
99. D
100. B
101. C
102. D
103. A
104. B
105. C
106. C
107. A
108. A
109. C
110. A
111. D
112. A
113. C
114. C
117. $2,000
118.
119.
120.
121.
122.
123.
124.
127.
128.
129.
130.
131.
132.
133.
134.
135.
136.
137.
138.
139.
140.
141.
142.
143.
*Ending Retained Earnings = Beginning Retained Earnings ($6,000) + Revenues ($18,000) - Expenses ($9,000 + $6,000) - Dividends ($1,000) =
$8,000.
144. Unearned revenues are inflows of resources before the earnings process is complete. Examples include magazine subscription payments
received in advance by a publishing firm or rent payments received in advance by a property leasing firm. A liability exists because of the obligation
to provide the service.
145. Prepaid expenses are outflows of resources that create benefits that will last beyond the current reporting period. Examples include insurance or
rent paid in advance of use.
146. An accrued expense results from an expense being incurred and a liability recorded prior to cash payment. Examples include interest payable
and salaries payable.
147. Permanent accounts represent assets, liabilities, and stockholders' equity at a point in time. Temporary accounts represent changes in retained
earnings caused by changes in dividend, revenue, and expense accounts. The temporary accounts are closed out annually to facilitate measuring
income on an annual basis, but the permanent account balances are carried forward from period to period.
148. The closing process serves a dual purpose: (1) to reduce the balances of temporary accounts to zero so they are ready to measure activity in the
next accounting period, and (2) to transfer the balances of these temporary accounts to the Retained Earnings account so it reflects the activity that
has occurred in the temporary accounts during the period.
149.
150.
151.
152.
153.
154.
155.
156.
157.
158.
159. D
160. C
161. A
162. A
163. C
164. C
165. A
166. D
167. C
168. A
169. B
170. D
171. D
172. D
173. D
174. C
175. A
176. C
177. D
178. B
179. C
180. C
181. D
182. B
183. A
Ch3 Summary
Category # of Questions
AACSB: Analytic 65
AACSB: Reflective Thinking 118
AICPA: Critical Thinking 79
AICPA: Measurement 89
AICPA: Reporting 15
Blooms: Analysis 45
Blooms: Application 36
Blooms: Comprehension 67
Blooms: Knowledge 30
Blooms: Synthesis 5
Difficulty: Easy 41
Difficulty: Hard 19
Difficulty: Medium 123
Learning Objective: 03-01 Record revenues using the revenue recognition principle and expenses using the matching 19
principle.
Learning Objective: 03-02 Distinguish between accrual-basis and cash-basis accounting. 38
Learning Objective: 03-03 Demonstrate the purposes and recording of adjusting entries. 68
Learning Objective: 03-04 Post adjusting entries and prepare an adjusted trial balance. 13
Learning Objective: 03-05 Prepare financial statements using the adjusted trial balance. 25
Learning Objective: 03-06 Demonstrate the purposes and recording of closing entries. 29
Learning Objective: 03-07 Post closing entries and prepare a post-closing trial balance. 16
Spiceland - Chapter 03 185