Question 1

Which of the following statements is incorrect?

Accepted Answer

A)   Prepaid expenses, depreciation and unearned revenues involve previously recorded assets and liabilities
B)   Accrued expenses and accrued revenues involve assets and liabilities that were not previously been recorded
C)   Adjusting entries can be used to record both accrued expenses and accrued revenues
D)   Prepaid expenses, depreciation and unearned revenues often require adjusting entries to record the effects of the passage of time
E)   Adjusting entries affect the cash accountF) None of the above
G) A) and E)

Question 2

The following information is available for the Wooden Company:
$$\begin{array} { | l | r | r | r | } 
\hline & 2010 & 2009 & 2008 \
\hline \text { Net income } & \$ 2,630 & \$ 2,100 & \$ 1,850 \
\hline \text { Net Sales } & 36,500 & 32,850 & 31,200 \
\hline \text { Total assets } & 400,000 & 385,000 & 350,000 \
\hline
\end{array}$$
From the information provided, calculate Wooden's profit margin ratio for each of the three years. Comment on the results, assuming that the industry average for the profit margin ratio is 6% for each of the three years.

Accepted Answer

Analysis comment: The profit margin has ...

Question 3

Which of the following statements is incorrect?

Accepted Answer

A)   Working papers are useful aids in the accounting process
B)   On the work sheet, the effects of the accounting adjustments are shown on the account balances
C)   After the work sheet is completed, it can be used to help prepare the financial statements
D)   On the work sheet, the adjusted amounts are sorted into columns according to whether the accounts are used in preparing the unadjusted trial balance or the adjusted trial balance
E)   A worksheet is not a substitute for financial statementsF) A) and B)
G) A) and C)

Question 4

A post-closing trial balance includes:

Accepted Answer

A)   All ledger accounts with balances, none of which can be temporary accounts
B)   All ledger accounts with balances, none of which can be permanent accounts
C)   All ledger accounts with balances, which include some temporary and some permanent accounts
D)   Only revenue and expense accounts
E)   Only asset accountsF) B) and D)
G) A) and C)

Question 5

Under the alternative method for accounting for unearned revenues, which of the following pairs of journal entry formats is correct?
  Initial Entry  Adjusting Entry \begin{array}{|c|c|}\hline 	ext { Initial Entry } & 	ext { Adjusting Entry } \\hline\end{array} Initial Entry ​ Adjusting Entry ​​

Accepted Answer

A)    Cash  Unearned Consulting Revenue  Unearned Consulting Revenue  Consulting Revenue \begin{array} { | c | c | } \hline 	ext { Cash } & 	ext { Unearned Consulting Revenue } \\hline 	ext { Unearned Consulting Revenue } & 	ext { Consulting Revenue } \\hline\end{array} Cash  Unearned Consulting Revenue ​ Unearned Consulting Revenue  Consulting Revenue ​​ 
B)    Cash  Consulting Revenue  Consulting Revenue  Unearned Revenue \begin{array} { | l | c | } \hline 	ext { Cash } & 	ext { Consulting Revenue } \\hline 	ext { Consulting Revenue } & 	ext { Unearned Revenue } \\hline\end{array} Cash  Consulting Revenue ​ Consulting Revenue  Unearned Revenue ​​ 
C)    Cash  Unearned Revenue  Unearned Revenue  Cash \begin{array} { | c | c | } \hline 	ext { Cash } & 	ext { Unearned Revenue } \\hline 	ext { Unearned Revenue } & 	ext { Cash } \\hline\end{array} Cash  Unearned Revenue ​ Unearned Revenue  Cash ​​ 
D)    Consulting Revenue  Unearned Revenue  Cash  Consulting Revenue \begin{array} { | c | c | } \hline 	ext { Consulting Revenue } & 	ext { Unearned Revenue } \\hline 	ext { Cash } & 	ext { Consulting Revenue } \\hline\end{array} Consulting Revenue  Cash ​ Unearned Revenue  Consulting Revenue ​​ 
E)    Cash  Consulting Revenue  Unearned Revenue  Unearned Revenue \begin{array} { | l | c | } \hline 	ext { Cash } & 	ext { Consulting Revenue } \\hline 	ext { Unearned Revenue } & 	ext { Unearned Revenue } \\hline\end{array} Cash  Unearned Revenue ​ Consulting Revenue  Unearned Revenue ​​F) D) and E)
G) A) and B)

Question 6

If a company records prepayment of expenses in an asset account, the adjusting entry would:

Accepted Answer

A)   Result in a debit to an expense and a credit to an asset account
B)   Cause an adjustment to prior expense to be overstated and assets to be understated
C)   Cause an accrued liability account to exist
D)   Result in a debit to a liability and a credit to an asset account
E)   Decrease cashF) A) and D)
G) A) and C)

Question 7

If a company failed to make the end-of-period adjustment to remove the amount earned from the Unearned Management Fees account, there would be:

Accepted Answer

A)   An overstatement of net income
B)   An overstatement of assets
C)   An overstatement of liabilities
D)   An overstatement of equity
E)   An understatement of liabilitiesF) B) and E)
G) A) and D)

Question 8

The current ratio is computed by dividing current liabilities by current assets.

Accepted Answer

A) True 
 B)False

Question 9

On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance Sheet Debit column.

Accepted Answer

A) True 
 B)False

Question 10

The length of time covered by a set of periodic financial statements is referred to as the:

Accepted Answer

A)   Fiscal cycle
B)   Natural business year
C)   Accounting period
D)   Business cycle
E)   Operating cycleF) B) and E)
G) B) and D)

Question 11

It is acceptable to credit cash received in advance to revenue accounts when cash is received.

Accepted Answer

A) True 
 B)False

Question 12

A company shows a $600 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results in:

Accepted Answer

A)   $200 less in net income
B)   $200 more in net income
C)   $200 difference between the debit and credit columns of the Unadjusted Trial Balance
D)   $200 of prepaid insurance
E)   An error in the financial statementsF) B) and C)
G) None of the above

Question 13

Adjusting entries result in a better matching of revenues and expenses.

Accepted Answer

A) True 
 B)False

Question 14

On January 1, Denton Mabrey College received $1,200,000 in Unearned Tuition Revenue from its students for the spring semester, which spans four months beginning on January 2. What amount of tuition revenue should the college recognize on January 31?

Accepted Answer

A)   $300,000
B)   $600,000
C)   $800,000
D)   $900,000
E)   $1,200,000F) A) and B)
G) C) and E)

Question 15

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Accepted Answer

A)   Debit Cash and credit Legal Fees Earned
B)   Debit Cash and credit Unearned Legal Fees
C)   Debit Unearned Legal Fees and credit Legal Fees Earned
D)   Debit Legal Fees Earned and credit Unearned Legal Fees
E)   Debit Unearned Legal Fees and credit Accounts ReceivableF) B) and E)
G) A) and E)

Question 16

The cash basis of accounting is an accounting system in which revenues are reported when cash is received and expenses are reported when cash is paid.

Accepted Answer

A) True 
 B)False

Question 17

If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be _______________ and equity would be __________.

Accepted Answer

Overstated...

Question 18

The 12-month period that ends when a company's activities are at their lowest point is called the:

Accepted Answer

A)   Fiscal year
B)   Calendar year
C)   Natural business year
D)   Accounting period
E)   Interim periodF) A) and E)
G) D) and E)

Question 19

Recording revenues before they are earned overstates current-period income; recording revenues in periods after they have been earned understates the recording period's income.

Accepted Answer

A) True 
 B)False

Question 20

Shown below are a company's ledger accounts and their end-of-period balances before closing entries are posted. What amount will be posted to Retained Earnings in the process of closing the Income Summary account? (Assume all accounts have normal balances.) 
  Retained earnings $14,000 Dividends 19,200 Sales Revenue 58,000 Rent expense 7,200 Salaries expense 14,400 Insurance expense 840 Depr. Expense - equipment 900 Accum depr. - equipment 2,500\begin{array} { | l | r | } \hline 	ext { Retained earnings } & \$ 14,000 \\hline 	ext { Dividends } & 19,200 \\hline 	ext { Sales Revenue } & 58,000 \\hline 	ext { Rent expense } & 7,200 \\hline 	ext { Salaries expense } & 14,400 \\hline 	ext { Insurance expense } & 840 \\hline 	ext { Depr. Expense - equipment } & 900 \\hline 	ext { Accum depr. - equipment } & 2,500 \\hline\end{array} Retained earnings  Dividends  Sales Revenue  Rent expense  Salaries expense  Insurance expense  Depr. Expense - equipment  Accum depr. - equipment ​$14,00019,20058,0007,20014,4008409002,500​​

Accepted Answer

A)   $16,780 debit
B)   $15,460 credit
C)   $48,660 credit
D)   $34,660 credit
E)   $17,960 credit F) A) and C)
G) None of the above

Exam 3: Adjusting Accounts and Preparing Financial Statements

Which of the following statements is incorrect?

Correct Answer
verified

A company shows a $600 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results in:

Correct Answer
verified

It is acceptable to credit cash received in advance to revenue accounts when cash is received.

Correct Answer
verified

On January 1, Denton Mabrey College received $1,200,000 in Unearned Tuition Revenue from its students for the spring semester, which spans four months beginning on January 2. What amount of tuition revenue should the college recognize on January 31?

Correct Answer
verified

Which of the following statements is incorrect?

Correct Answer
verified

The 12-month period that ends when a company's activities are at their lowest point is called the:

Correct Answer
verified

Correct Answer
verified

If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be _____ and equity would be .

Correct Answer
verified
Overstated...
View Answer

The cash basis of accounting is an accounting system in which revenues are reported when cash is received and expenses are reported when cash is paid.

Correct Answer
verified

If a company failed to make the end-of-period adjustment to remove the amount earned from the Unearned Management Fees account, there would be:

Correct Answer
verified

On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance Sheet Debit column.

Correct Answer
verified

Recording revenues before they are earned overstates current-period income; recording revenues in periods after they have been earned understates the recording period's income.

Correct Answer
verified

Adjusting entries result in a better matching of revenues and expenses.

Correct Answer
verified

Correct Answer
verified
Analysis comment: The profit margin has ...
View Answer

Under the alternative method for accounting for unearned revenues, which of the following pairs of journal entry formats is correct? $\begin{array}{|c|c|}\hline \text { Initial Entry } & \text { Adjusting Entry } \\\hline\end{array}$

Correct Answer
verified

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Correct Answer
verified

If a company records prepayment of expenses in an asset account, the adjusting entry would:

Correct Answer
verified

The length of time covered by a set of periodic financial statements is referred to as the:

Correct Answer
verified

A post-closing trial balance includes:

Correct Answer
verified

The current ratio is computed by dividing current liabilities by current assets.

Correct Answer
verified

Exam 3: Adjusting Accounts and Preparing Financial Statements

Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

A company shows a $600 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results in:

Correct AnswerverifiedShow Answer

It is acceptable to credit cash received in advance to revenue accounts when cash is received.

Correct AnswerverifiedShow Answer

On January 1, Denton Mabrey College received $1,200,000 in Unearned Tuition Revenue from its students for the spring semester, which spans four months beginning on January 2. What amount of tuition revenue should the college recognize on January 31?

Correct AnswerverifiedShow Answer

Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

The 12-month period that ends when a company's activities are at their lowest point is called the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be _______________ and equity would be __________.

Correct AnswerverifiedOverstated...View AnswerShow Answer

The cash basis of accounting is an accounting system in which revenues are reported when cash is received and expenses are reported when cash is paid.

Correct AnswerverifiedShow Answer

If a company failed to make the end-of-period adjustment to remove the amount earned from the Unearned Management Fees account, there would be:

Correct AnswerverifiedShow Answer

On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance Sheet Debit column.

Correct AnswerverifiedShow Answer

Recording revenues before they are earned overstates current-period income; recording revenues in periods after they have been earned understates the recording period's income.

Correct AnswerverifiedShow Answer

Adjusting entries result in a better matching of revenues and expenses.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedAnalysis comment: The profit margin has ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

If throughout an accounting period the fees for legal services paid in advance by clients are recorded in an account called Unearned Legal Fees, the end-of-period adjusting entry to record the portion of those fees that has been earned is:

Correct AnswerverifiedShow Answer

If a company records prepayment of expenses in an asset account, the adjusting entry would:

Correct AnswerverifiedShow Answer

The length of time covered by a set of periodic financial statements is referred to as the:

Correct AnswerverifiedShow Answer

A post-closing trial balance includes:

Correct AnswerverifiedShow Answer

The current ratio is computed by dividing current liabilities by current assets.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be _____ and equity would be .

Correct Answer
verified
Overstated...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
Analysis comment: The profit margin has ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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