Module 3 Review

MODULE 3
1. The account form of the balance sheet matches the accounting equation. That is, assets are on the left side of the statement and liabilities and equity are on the right side of the statement.

• A) True
• B) False
  
   

2. The time period principle assumes that an organization's activities can be divided into specific time periods.

• A) True
• B) False
  
   

3. 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:

• A) An overstatement of assets
• B) An overstatement of net income
• C) An understatement of liabilities
• D) An overstatement of equity
• E) An overstatement of liabilities
  
   

4. Acme company had revenue of $250,000, rent expense of $10,000, utility expense of $3,500, salary expense of $18,500, depreciation expense of $9,000, advertising expense of $4,500, dividends in the amount of $18,000, and a beginning balance in retained earnings of $17,900. What is the amount in the income summary account before it is closed for the period?

• A) $45,500
• B) $204,500
• C) $250,000
•  D) $222,400
• E) $232,100

5. Depreciation expense is an example of an accrued expense.

• A) True
• B) False

6. If accrued salaries were recorded on December 31 with a credit to Salaries Payable, the entry to record payment of these wages on the following January 5 would include:

• A) A debit to Cash and a credit to Salaries Payable
• B) A debit to Cash and a credit to Prepaid Salaries
• C) A debit to Salaries Payable and a credit to Cash
• D) A debit to Salaries Payable and a credit to Salaries Expense
• E) No entry would be necessary on January 5

7. Which of the following accounts would not be impacted by adjusting journal entries?

• A) Consulting Fee Earned
• B) Unearned Consulting Fees
• C) Wages Payable
• D) Accounts Receivable
• E) Cash

8. The accrual basis of accounting is a system of accounting in which the adjustments are needed to assign revenues to periods in which they are earned and to match expenses with revenues.

• A) True
• B) False

9. Plant assets and intangible assets are usually long-term assets that are used to produce or sell products and services.

• A) True
• B) False

10. The cash basis of accounting requires that revenues be recognized when cash payments from customers are received.

• A) True
• B) False

11. The system of preparing financial statements based on recognizing revenues when the cash is received and reporting expenses when the cash is paid is called:

• A) Cash basis accounting
• B) Accrual basis accounting
• C) Revenue recognition accounting
• D) Current basis accounting
• E) Operating cycle accounting

12. Which of the following statements is true?

• A) Closing entries are only necessary if errors have been made
• B) Information on the work sheet can be used in place of preparing financial statements
• C) By using a work sheet to prepare adjusting entries you need not post these entries to the ledger accounts
• D) Retained earnings must be closed each accounting period
• E) A post-closing trial balance should include only permanent accounts

13. Which of the following statements is incorrect?

• A) A worksheet is not a substitute for financial statements
• B) After the work sheet is completed, it can be used to help prepare the financial statements
• C) On the work sheet, the effects of the accounting adjustments are shown on the account balances
• D) Working papers are useful aids in the accounting process
• E) 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

14. Based on the following information, determine the current ratio, assuming all accounts have a normal balance?

  

• A) 1.23
• B) 3.58
• C) 1.23
• D) 11.57
• E) 1.57

15. On June 30, 2009, ABC Co. paid $5,000 cash for management services to be performed over a two-year period. ABC follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. On June 30, 2009 ABC should record:

• A) A debit to Cash for $5,000
• B) A debit to a prepaid expense for $5,000
• C) A credit to an expense for $5,000
• D) A debit to an expense for $5,000
• E) A credit to a prepaid expense for $5,000

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

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

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

• A) True
• B) False

18. Unearned revenue is reported on the financial statements as:

• A) A liability on the balance sheet
• B) A revenue on the balance sheet
• C) An asset on the balance sheet
• D) An operating activity on the statement of cash flows
• E) An unearned revenue on the income statement

19. Which of the following identifies the proper order of the accounting cycle?

• A) Adjusted Trial Balance, Adjustments, Financial Statements
• B) Journalize, Post, Adjusted Trial Balance
• C) Analyze, Journalize, Unadjusted Trial Balance
• D) Unadjusted Trial Balance, Adjusted Trial Balance, Close
• E) Analyze, Post, Unadjusted Trial Balance

20. Before an adjusting entry is made to recognize insurance expired, Prepaid Insurance and Insurance Expense are both overstated.

• A) True
• B) False

Show Answers

1. Correct Answer(s): True
2. Correct Answer(s): True
3.Correct Answer(s): E
4. Correct Answer(s): B
5.Correct Answer(s): False
6. Correct Answer(s): C
7. Correct Answer(s): E
8. Correct Answer(s): True
9. Correct Answer(s): True
10. Correct Answer(s): True
11. Correct Answer(s): A
12. Correct Answer(s): E
13. Correct Answer(s): E
14. Correct Answer(s): B
15. Correct Answer(s): B
16. Correct Answer(s): E
17. Correct Answer(s): True
18. Correct Answer(s): A
19. Correct Answer(s): B
20. Correct Answer(s): False