Chapter III

Question 1

time period assumption

periodicity assumption

Answer 1

Accountants divide econ life of business into artificial time periods

Question 2

interim periods

Answer 2

Monthly and quarterly time periods

Question 3

Fiscal Year

Answer 3

Accounting time period that is one year in length

Question 4

Calendar Year

Answer 4

January 1 to December 31

Question 5

Time period assumption states that:
A. Rev should be recognized in acc period in which it is earned.
B. Exp should be matched with rev.
C. Econ life of business can be divided into artificial time periods.
D. Fiscal year should correspond with calendar year.

Answer 5

C

Question 6

accrual-basis accounting

Answer 6

• Trans recorded in periods in which events occur.
• Companies recognize rev when they perform services (rather than when they receive cash).
• Exp recognized when incurred (rather than when paid).

Question 7

Cash-Basis Accounting

Answer 7

• Rev recorded when cash is received.
• Exp recorded when cash is paid.
• not in accordance with (GAAP).

Question 8

revenue recognition principle

Answer 8

Recognize rev in acc period in which performance obligation is satisfied.

Question 9

expense recognition principle

Answer 9

Match exp with rev in period when comp makes efforts to generate those rev.
“Let the expenses follow the revenues.”

Question 10

What is false?
A. Events changing comp’s fin statemt are recorded in periods in which events occur.
B. Rev is recognized in period in which performance obligation is satisfied.
C. Accrual basis of accounting is in accordance with GAAP.
D. Rev is recorded only when cash is received and exp are recorded only when cash is paid.

Answer 10

D

Question 11

Adjusting Entries

Answer 11

• Ensure Rev recognition and exp recognition principles are followed.
• Necessary bec trial balance may not contain up-to-date and complete data.
• Required every time comp prepares fin statements.
• Will include 1 income statemt acc and 1 balance sheet acc.

Question 12

Adjusting entries are made to ensure that:
A. exp are recognized in period in which they are incurred.
B. rev are recorded in period in which services are performed.
C. balance sheet and income statement acc have correct balances at the end of acc period.
D. all of the above.

Answer 12

D

Question 13

Deferrals:

(a) . Prepaid expenses:
(b) . Unearned revenues:

Answer 13

(a) Expenses paid in cash before they are used or consumed. (Cash payment before exp recorded)
(b) Cash received before services are performed.

Question 14

Accruals:

(a) Accrued revenues:
(b) Accrued expenses:

Answer 14

(a) Rev for services performed but not yet received in cash or recorded.
(b) Exp incurred but not yet paid in cash or recorded.

Question 15

Deferrals

Answer 15

Exp or rev recognized at a date later than point when cash was originally exchanged

Question 16

Prepaid expenses

Answer 16

• Payments of exp will benefit more than 1 acc period.
• CASH payment before Exp recorded.
• Ex: insurance, supplies, advertising, rent, equipment, buildings.
• Dr. exp acc and Cr. asset acc

Question 17

Depreciation

Answer 17

• Process of allocating cost of asset to expense over its useful life.
• No attempt to report actual change in value of asset.

Question 18

Accumulated Depreciation

Answer 18

• Contra asset account (credit)
• LESS: accumulated depreciation
• Dr. depre exp and Cr. accumulated Depre - equip

Question 19

Unearned revenues

Answer 19

• Receipt of cash recorded as a liability because service has not been performed.
• CASH receipt before Rev recorded.
• Ex: Rent, Airline tickets, Magazine subscriptions, Customer deposits.
• Dr. lia acc and Cr. rev acc

Question 20

Accrued revenues

Answer 20

• Rev recorded before CASH receipt
• Ex: Rent, Interest, Service performed
• Dr. asset acc and Cr. rev acc

Question 21

Accrued expenses

Answer 21

• Expense recorded before Cash payment
• Ex: Interest, Taxes, Salaries
• Dr. exp acc and Cr. lia acc

Question 22

Book value

Answer 22

difference between cost of depreciable asset and its accumulated depreciation

Question 23

1. The revenue recognition principle states that:
   (a) revenue should be recognized in the accounting
   period in which a performance obligation is satisfied.
   (b) expenses should be matched with revenues.
   (c) the economic life of a business can be divided
   into artificial time periods.
   (d) the fiscal year should correspond with the calendar year.

Answer 23

A

Question 24

2. The time period assumption states that:
   (a) companies must wait until the calendar year is
   completed to prepare financial statements.
   (b) companies use the fiscal year to report financial
   information.
   (c) the economic life of a business can be divided
   into artificial time periods.
   (d) companies record information in the time period
   in which the events occur.

Answer 24

C

Question 25

3. Which about accrual basis of accounting is false? (a) Events that change a company’s fin statemt are recorded in the periods in which the events occur. (b) Revenue is recognized in the period in which services are performed. (c) This basis is in accord with generally accepted accounting principles. (d) Revenue is recorded only when cash is received, and expense is recorded only when cash is paid.

Answer 25

B

Question 26

4. Principle or assumption dictating efforts (expenses) be matched with accomplishments (revenues) is: (a) expense recognition principle. (b) cost assumption. (c) time period assumption. (d) revenue recognition principle.

Answer 26

A

Question 27

5. Adjusting entries are made to ensure that: (a) expenses are recognized in the period in which they are incurred. (b) revenues are recorded in the period in which services are performed. (c) balance sheet and income statement accounts have correct balances at the end of an accounting period. (d) All the responses above are correct.

Answer 27

D

Question 28

``` 6. Each of the following is a major type (or category) of adjusting entries except: (a) prepaid expenses. (b) accrued revenues. (c) accrued expenses. (d) recognized revenues. ```

Answer 28

D

Question 29

``` 7. Trial balance shows Supplies $1,350 and Supplies Exp $0. If $600 of supplies are on hand at the end of the period, adjusting entry is: (a) Dr. Supplies 600 Cr. Supplies Expense 600 (b) Dr. Supplies 750 Cr. Supplies Expense 750 (c) Dr. Supplies Expense 750 Cr. Supplies 750 (d) Dr. Supplies Expense 600 Cr. Supplies ```

Answer 29

C

Question 30

8. Adjustments for prepaid expenses: (a) decrease assets and increase revenues. (b) decrease expenses and increase assets. (c) decrease assets and increase expenses. (d) decrease revenues and increase assets.

Answer 30

C

Question 31

9. Accumulated Depreciation is: (a) a contra asset account. (b) an expense account. (c) a stockholders’ equity account. (d) a liability account.

Answer 31

A

Question 32

10. Comp depreciation on delivery equip at $1,000 for month of June. Adjusting entry to record this depreciation is: (a) Dr. Depre Exp 1,000 Cr. Accumulated Depre - comp 1,000 (b) Dr. Depre Exp 1,000 Cr. Equip 1,000 (c) Dr. Depre Exp 1,000 Cr. Accumulated Depre - Equip 1,000 (d) Dr. Equip Exp 1,000 Cr. Accumulated Depre - Equip 1,000

Answer 32

C

Question 33

11. Adjustments for unearned revenues: (a) decrease liabilities and increase revenues. (b) have an assets and revenues account relationship. (c) increase assets and increase revenues. (d) decrease revenues and decrease assets.

Answer 33

A

Question 34

12. Adjustments for accrued revenues: (a) have a liabilities and revenues account relationship. (b) have an assets and revenues account relationship. (c) decrease assets and revenues. (d) decrease liabilities and increase revenues.

Answer 34

B

Question 35

``` 13. Anika earned salary of $400 for last week of Sep. She will be paid on Oct 1. => adjusting entry for Anika’s employer at Sep 30 is: (a) No entry is required. (b) Dr. Salaries and Wages Expense 400 Cr. Salaries and Wages Payable 400 (c) Dr. Salaries and Wages Expense 400 Cr. Cash 400 (d) Dr. Salaries and Wages Payable 400 Cr. Cash 400 ```

Answer 35

B

Question 36

14. Which is incorrect about adjusted trial balance? (a) It proves equality of total Dr.and total Cr. balances in ledger after all adjustments. (b) It provides primary basis for the preparation of fin statemt (c) It lists acc balances segregated by assets and liabilities. (d) It is prepared after adjusting entries have been journalized and posted.

Answer 36

C

Question 37

* 15. Trial balance: Supplies $0 and Supplies Exp $1,500. If $800 of supplies are on hand at the end of the period, the adjusting entry is: (a) Dr. Supplies $800 and Cr. Supplies Exp $800. (b) Dr. Supplies Exp $800 and Cr. Supplies $800. (c) Dr. Supplies $700 and Cr. Supplies Exp $700. (d) Dr. Supplies Exp $700 and Cr. Supplies $700.

Answer 37

A

Question 38

* 16. Neutrality is an ingredient of: (1) Faithful Representation (2) Relevance (a) Yes Yes (b) No No (c) Yes No (d) No Yes

Answer 38

C

Question 39

* 17. Which item is a constraint in fin acc? (a) Comparability. (c) Cost. (b) Materiality. (d) Consistency.

Answer 39

C