TestBank financial accounting 2n spiceland ch3

Ch3 Student: _ Accrual-basis accounting involves recording revenues when earned and recording expenses with their related revenues True The revenue recognition principle states that we record revenue in the period in which we collect cash True False 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 Under cash-basis accounting, we record revenues at the time we receive cash and expenses at the time we pay cash True False 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 The matching principle states that we recognize expenses in the same period as the revenues they help to generate True False 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 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 False 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 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 B C D Revenue should be recognized in the period the cash is received Revenue should be recognized in the period earned Revenue should be recognized in the balance sheet Revenue is a component of common stock 55 The matching principle is the principle that states: A B C D All costs that are used to generate revenue are recorded in the period the revenue is recognized All transactions are recorded at the exchange price The business is separate from its owners 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 B C D Accounting equation Revenue recognition Matching principle Conservatism 57 The primary difference between accrual-basis and cash-basis accounting is: A The timing of when revenues and expenses are recorded B Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis accounting C Accrual-basis accounting violates both the revenue recognition and matching principles D Adjusting entries are only a necessary part of cash-basis accounting 58 When the amount of interest receivable decreases during an accounting period: A B C D Accrual-basis revenues exceed cash collections from borrowers Accrual-basis net income exceeds cash-basis net income Accrual-basis revenues are less than cash collections from borrowers Accrual-basis expenses are less than cash payments to borrowers 59 When the balance of the Unearned Revenue account decreases during an accounting period: A B C D Accrual-basis revenues exceed cash collections from customers Accrual-basis expenses exceed cash collections from customers Accrual-basis revenues are less than cash collections from customers Accrual-basis net income is less than cash-basis net income 60 Which transaction would not be recorded under cash-basis accounting? A B C D Providing services to customers for cash Purchasing one year of rent in advance Paying salaries to employees Purchasing supplies on account 61 Which of the following statements are correct? For accrual-basis accounting: (1) record revenues when earned (2) record expenses when cash is paid For cash-basis accounting: (3) record revenue when cash is received (4) record expenses when benefit is received A B C D (1) and (4) (2) and (3) (1) and (3) (2) and (4) 62 On July 1, 2012, Rents-A-Lot Inc paid $72,000 for 36 months of advance rent on its warehouse What would be the amount of rent expense in the 2013 financial statements for Rents-A-Lot under both cashbasis and accrual-basis accounting? A B C D Cash-basis = $24,000; Accrual-basis = $24,000 Cash-basis = $72,000; Accrual-basis = $12,000 Cash-basis = $0; Accrual-basis = $24,000 Cash-basis = $0; Accrual-basis = $12,000 63 The following information pertains to Sooner Company: Assuming that Sooner Company uses cash-basis accounting, when would the company record the expense related to the supplies? A B C D May May May 15 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 B C D May May May 15 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 B C D January January January 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 B C D January January January 12 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 B C D January January January 12 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 B C D April April April 12 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 B C D April April 12 April 21 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 B C D April April 12 April 21 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 B C D April April 12 April 21 April 23 72 Which of the following is a possible adjusting journal entry? A B C D Debit Cash, credit Accounts Payable Debit Service Revenue, credit Cash Debit Salaries Expense, credit Salaries Payable Debit Utilities Expense, credit Retained Earnings 73 Adjusting entries are primarily needed for: A B C D Cash-basis accounting Accrual-basis accounting Current value accounting Manual accounting systems 74 Which of the following is true about adjusting entries? A B C D Entries are necessary due to the conservatism principle Entries can be done at the beginning or end of the accounting period They zero the balance of all income statement accounts They are a necessary part of accrual-basis accounting 75 Making insurance payments in advance is an example of: A B C D An accrued revenue An accrued expense An unearned revenue A prepaid expense 76 When a magazine sells subscriptions to customers, it is an example of: A B C D An accrued expense An accrued revenue A prepaid expense 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 B C D Cash Rent Expense Rent Payable 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 B C D Accounts Payable Supplies Cash Retained Earnings 79 Prepayments occur when: A B C D Cash payment (or an obligation to pay cash) occurs before the expense recognition Sales are delayed pending credit approval Customers are unable to pay the full amount due when goods are delivered Cash payment occurs after the expense is incurred and liability is recorded 80 An example of an adjusting entry would not include: A B C D Recording the use of office supplies Recording the expiration of prepaid insurance Recording unpaid salaries Paying salaries to company employees 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 B C D No effect No effect Increase No effect No effect No Effect Increase Increase Increase Increase Increase No effect 162.A company purchased $400 of office supplies on account during May All the supplies were used in May, and the account was paid during June What would the impact of these transactions being during May on each of the following three items? Cash Cash-basis Accrual-basis Balance Net Income Net Income A B C D No effect No effect Decrease Decrease Decrease No Effect Decrease Decrease Decrease Decrease No effect No effect 163.A company paid $900 to workers during May Of this amount, $600 was for work performed in April, while the other $300 was for work performed during May What would the impact of this transaction be during May on each of the following three items? Cash Cash-basis Accrual-basis Balance Net Income Net Income A B C D No effect No effect Decrease Decrease Decrease No Effect Decrease Decrease Decrease Decrease No effect No effect 164.Air France collected cash on February from the sale of a ticket to a customer on January 26.The flight took place on April According to the revenue recognition principle, in which month should Air France have recognized this revenue? A B C D January February April 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 When should Sears record the revenue for this transaction according to the revenue recognition principle? A B C D November December Evenly in each of the two months One-third in November and two-thirds in December 166.Which of the following is(are) true regarding the characteristics of adjusting entries? A B C D Adjusting entries reduce the balance of revenue, expense, and dividend accounts to zero Adjusting entries allow for the proper application of the revenue recognition principle Adjusting entries allow for the proper application of the matching principle 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 accrualbasis or cash-basis accounting? A Received $600 from customers for services to be provided 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 April 17 edition of the Las Vegas Sun newspaper D Received $300 from customers for services performed in March 168.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 accrualbasis 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 B C D Matching Revenue recognition Conservatism Materiality 170.The following events pertain to Jasper Corporation: May Jasper purchased office supplies of $3,000 on account May The office supplies were shipped to Jasper May Jasper used these office supplies for a one-time event May Jasper paid $3,000 cash for the office supplies purchased on May Using cash-basis accounting, on which date should Jasper record supplies expense? A B C D May May May May 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 B C D Option a Option b Option c Option d 172.Which of the following is a permanent account? A B C D Dividends Service Revenue Advertising Expense Retained Earnings 173.Which one of the following accounts would NOT have a balance after closing entries? A B C D Unearned Revenue Supplies Prepaid Rent 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 B C D December 30, 2012 December 31, 2012 January 4, 2013 January 11, 2013 175.Which of the following accounts will NOT be involved in closing entries? A B C D Prepaid Insurance Service Revenue Utilities Expense Retained Earnings 176.Which of the following regarding adjusting entries is correct? A Adjusting entries are recorded for all external transactions B Adjusting entries are recorded to make sure all cash inflows and outflows are recorded in the current period C Adjusting entries are needed because we use accrual-basis accounting D After adjusting entries, all temporary accounts should have a balance of zero 177.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 accrual-basis accounting, on which date should Bills Company record revenue for the accounting and tax services? A B C D December 30, 2012 December 31, 2012 January 4, 2013 January 11, 2013 178.When a company prepares closing entries, which one of the following is NOT a correct closing entry? A B C D Debit Retained Earnings; credit Salaries Expense Debit Dividends; credit Retained Earnings Debit Service Revenue; credit Retained earnings All of the above are correct 179.In the first three years of operations, Lindsey Corporation earned net income/loss of -$150,000, $100,000, and $250,000 At the end of the third year, Lindsey Corporation has a balance of $120,000 for its Retained Earnings account What is the total amount of dividends Lindsey Corporation paid over the three years? A B C D $130,000 $120,000 $80,000 $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 B C D $2,000 $2,500 $3,500 $6,000 181.When a company provides services on account, which of the following would be recorded using cash-basis accounting? A B C D Debit to Cash Debit to Service Revenue Credit to Unearned Revenue No entry would be recorded 182.Which of the following is true concerning temporary and permanent accounts? A B C D Cash is a temporary account Permanent accounts represent activity over the entire life of the company Permanent accounts must be closed at the end of every reporting period Temporary accounts represent activity over the previous three years 183.The following table contains financial information for Trumpter's Inc before closing entries: What is the amount of Trumpter's total liabilities? A B C D $5,000 $78,500 $68,500 $83,500 Ch3 Key TRUE FALSE TRUE FALSE TRUE TRUE TRUE TRUE 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 115 (a) $24,000; (b) $9,000; (c) $0 116 (a) $0; (b) $5,000; (c) $4,500 117 $2,000 118 119 120 121 122 123 124 125 Cash-basis revenues = $20,000 + $300,000 = $320,000 126 Accrual-basis revenues = $400,000 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 *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 AACSB: Analytic AACSB: Reflective Thinking AICPA: Critical Thinking AICPA: Measurement AICPA: Reporting Blooms: Analysis Blooms: Application Blooms: Comprehension Blooms: Knowledge Blooms: Synthesis Difficulty: Easy Difficulty: Hard Difficulty: Medium Learning Objective: 03-01 Record revenues using the revenue recognition principle and expenses using the matching principle Learning Objective: 03-02 Distinguish between accrual-basis and cash-basis accounting Learning Objective: 03-03 Demonstrate the purposes and recording of adjusting entries Learning Objective: 03-04 Post adjusting entries and prepare an adjusted trial balance Learning Objective: 03-05 Prepare financial statements using the adjusted trial balance Learning Objective: 03-06 Demonstrate the purposes and recording of closing entries Learning Objective: 03-07 Post closing entries and prepare a post-closing trial balance Spiceland - Chapter 03 # of Questions 65 118 79 89 15 45 36 67 30 41 19 123 19 38 68 13 25 29 16 185 ... cash-basis accounting is: A The timing of when revenues and expenses are recorded B Cash-basis accounting is allowed for financial reporting purposes but not accrual-basis accounting C Accrual-basis accounting. .. Adjusting entries are primarily needed for: A B C D Cash-basis accounting Accrual-basis accounting Current value accounting Manual accounting systems 74 Which of the following is true about adjusting... 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