1.

Accruals occur when cash flows: Clothes is now preparing quarterly financial
a. Occur before expense recognition. statements for the three months ended June 30.
b. Occur after revenue or expense What is the adjusting entry to record accrued
recognition. salaries at the end of June?
c. Are uncertain. a. Salaries expense 22,400
d. May be substituted for goods or services. Prepaid salaries 9,600
2. An example of a contra account is: Salaries payable 32,000
a. Depreciation expense. b. Salaries expense 6,400
b. Accounts receivable. Salaries payable 6,400
c. Sales revenue. c. Prepaid salaries 9,600
d. Accumulated depreciation. Salaries payable 9,600
3. The purpose of closing entries is to transfer: d. Salaries expense 22,400
a. Accounts receivable to retained earnings Salaries payable 22,400
when an account is fully paid. 8. On September 1, 2003, Time Magazine sold 600
b. Balances in temporary accounts to a one-year subscriptions for $81 each. The total
permanent account. amount received was credited to Unearned
c. Inventory to cost of goods sold when subscriptions revenue. What would be the
merchandise is sold. required adjusting entry at December 31, 2003?
d. Assets and liabilities when operations are a. Unearned subscriptions revenue 48,600
discontinued. Subscriptions revenue 16,200
4. Which of the following would not be used as an Prepaid subscriptions 32,400
adjusting entry? b. Unearned subscriptions revenue 16,200
Subscriptions revenue 16,200
a. Prepaid Rent
c. Unearned subscriptions revenue 16,200
Rent expense Subscriptions payable 16,200
b. Cash d. Unearned subscriptions revenue 32,400
Unearned revenue Subscriptions revenue 32,400
c. Interest expense 9. On December 31, 2002, Typical Fashions had
Interest payable balances in its Accounts receivable and
d. Bad debt expense Allowance for uncollectible accounts of $48,400
Allowance for doubtful accounts and $940, respectively. During 2003, Typical
5. The adjusting entry required when amounts Fashions wrote off $820 in Accounts receivable
previously recorded as unearned revenues are and determined that there should be an
earned includes: Allowance for uncollectible accounts of $1,140
a. A debit to a liability. at December 31, 2003. Bad debt expense for
b. A debit to an asset. 2003 would be:
c. A credit to a liability. A) $ 320.
d. A credit to an asset. B) $1,140.
6. Bland Foods purchased a two-year fire and C) $ 820.
extended coverage insurance policy on August D) $1,020.
1, 2003, and charged the $4,200 premium to 10. Fink Insurance collected premiums of
Insurance expense. At its December 31, 2003, $18,000,000 from its customers during the
year-end, Bland Foods would record which of current year. The adjusted balance in the
the following adjusting entries? Unearned premiums account increased from $6
a. Insurance expense 875 million to $8 million dollars during the year.
Prepaid insurance 875 What875
was Fink's revenues from earned insurance
b. Prepaid insurance 875 875
premiums for the current year?
Insurance expense 875 A) $10,000,000.
c. Insurance expense 875 875 B) $16,000,000.
Prepaid insurance 3,325 C) $18,000,000.
Insurance payable 4,200 D) $20,000,000.
d. Prepaid insurance 3,325 11. The adjusted trial balance is a list of accounts
Insurance expense 3,325 and their balances at
7. The employees of Neat Clothes work Monday a. The beginning of the accounting Period
through Friday. Every other Friday the company b. The end of the accounting period
issues payroll checks totaling $32,000. The
current pay period ends on Friday, July 3. Neat
 c. The end of the accounting period
immediately after adjusting entries have
been posted
d. Any point during the accounting period
e. The end of the accounting period
immediately before adjusting entries
have been posted
12. The revenue recognition concept
a. Determines when revenue is credited
to a revenue account.
b. States that revenue is not recorded
until the cash is received.
c. Controls all revenue reporting for
the cash basis of accounting.
d. Is in conflict with accrual
accounting.
13. The matching principle:
a. Addresses the relationship between
the journal and the ledger.
b. Determines the normal balance of an
account.
c. Requires that expenses related to
revenue and revenue be reported at
the same time.
d. Requires that the dollar amount of
debits equal the dollar amount of
credits in a journal entry.
14. Using accrual accounting, expenses are
recorded only:
a. When they are incurred and paid at
the same time \
b. If they are paid before they are
incurred
c. If they are paid after they are
incurred
d. When they are incurred, whether or
not cash is paid
15. The primary difference between deferred
and accrued expenses is that deferred
expenses have:
a. Been recorded and accrued expenses
have not been incurred
b. Been incurred and accrued expenses
have not
c. Not been incurred and accrued
expenses have been incurred
d. Not been recorded and accrued
expenses have been incurred
16. Adjusting entries affect at least one:
a. Revenue and one expense account
b. Asset and one liability account
c. Revenue and one stockholders’
equity account
d. Income statement account and one
balance sheet account
17. The year-end balance in the prepaid rent
account before adjustment is $18,000,
representing three months’ rent paid on
December 1. The adjusting entry required on
December 31 is:
a. Debit Rent Expense, $6,000; credit
Prepaid Rent, $6,000
b. Debit Prepaid Rent, $6,000; credit
Rent Expense, $6,000
c. Debit Rent expense, $12,000; credit
Prepaid Rent, $12,000
d. Debit Prepaid Rent, $12,000; credit
Rent expense, $12,000
18. At the end of the fiscal year, the usual
adjusting entry for accrued salaries owed to
employees was omitted. Which of the
following statements is true?
a. Stockholders’ equity at the end of the
year was overstated
b. Salary Expense for the year was
overstated
c. The total of the liabilities at the end
of the year was overstated
d. Net Income for the year was
understated
19. What is the proper adjusting entry at June
30, the end of the fiscal year, based on a
supplies account balance before adjustment,
$7,200, and supplies inventory on June 30,
$1,200?
a. Debit Supplies, $1,200; credit
Supplies Expense, $1,200
b. Debit Supplies Expense, $1,200;
credit Supplies, $1,200
c. Debit Supplies Expense, $6,000;
credit Supplies, $6,000
d. Debit Supplies, $6,000; credit
Supplies Expense, $6,000
20. A business enterprise pays weekly salaries
of $45,000 on Friday for a five-day week
ending on that day. The adjusting entry
necessary at the end of the fiscal period
ending on Thursday is:
a. Debit Salaries Payable, $36,000;
credit Cash, $36,000
b. Debit Salary Expense, $36,000;
credit Dividends, $36,000
 c. Debit Salary Expense, $36,000; a. Debit Rental Revenue $2,500; credit
credit Salaries Payable, $36,000 Unearned Rental Revenue $2,500.
d. Debit Dividends, $36,000; credit b. Debit Unearned Rental Revenue
Cash, $36,000 $7,500; credit Rental Revenue
21. At the end of the fiscal year, M Company $7,500
omitted the usual adjusting entry for c. Debit Unearned Rental Revenue
depreciation on equipment. Which of the $22,500; credit Rental Revenue
following statements is true? $22,500
a. Total assets will be understated at the d. Debit Rental Revenue $22,500;
end of the current year. credit Unearned Rental Revenue
b. The balance sheet, income statement, $22,500
and retained earnings statement will 26. If revenues are recognized only when a
be misstated for the current year. customer pays, what method of accounting
c. Expenses will be overstated at the is being used?
end of the current year. a. Accrual basis
d. Net income will be understated for b. Recognition basis
the current year. c. Cash basis
22. Data for an adjusting entry described as d. Matching basis
“accrued wages, $800” means to debit:
a. Capital Stock and credit Wages
Payable
b. Wages Expense and credit Wages
Payable
c. Wages Payable and credit Wages
Expense
d. Accounts Receivable and credit
Wages Expense
23. If cash is received in advance from a
customer, then
a. Assets will decrease.
b. Retained earnings will increase.
c. Liabilities will increase.
d. Stockholders’ equity will decrease.
24. If the adjusting entry is not made for
unearned revenues the result will be to
a. Overstate assets and understate
liabilities.
b. Overstate liabilities and understate
revenues.
c. Understate net income and overstate
retained earnings
d. Understate retained earnings and
overstate revenues.
25. G Company received a check for $30,000 on
October 1 which represents a one year
advance payment of rent on an office it rents
to a client. Unearned Rental Revenue was
credited for the full $30,000. Financial
statements are prepared on December 31.
The appropriate adjusting journal entry to
make on December 31 would be