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Exam 3: Adjustments: Accruals and Deferrals

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Question 91

Multiple Choice

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The cash basis of accounting records revenues and expenses when the cash is exchanged while the accrual basis of accounting

A) records revenues when they are earned and expenses when they are paid
B) records revenues when they are earned and expenses when they are incurred
C) records revenues when cash is received and expenses when they are incurred
D) records revenues and expenses when the company needs to apply for a loan

E) None of the above
F) B) and C)

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Question 92

Multiple Choice

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At the end of the fiscal year, the usual adjusting entry to recognize accrued revenues was omitted. Which of the following is true?

A) total assets will be understated at the end of the current year
B) the balance sheet and income statement will be misstated but the statement of stockholders' equity will be correct for the current year
C) net income will be overstated for the current year
D) total liabilities will be understated

E) B) and C)
F) A) and B)

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Question 93

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On November 1, clients of Great Designs Company prepaid $4,250 for services to be provided in the future at a rate of $85 per hour. ​ (a) Journalize the receipt of cash. (b) As of November 30, Great Designs shows that 15 hours of services have been provided on this agreement. Prepare the necessary journal entry. (c) Determine the total unearned fees in hours and dollars at November 30.

The type of account and normal balance of Unearned Fees is

If the equipment account has a balance of $80,400 and its accumulated depreciation account has a balance of $22,500, the book value of the equipment is

The revenue recognition principle states that revenue should be recorded in the same period as the cash is received.

The account type and normal balance of Prepaid Expense is

Generally accepted accounting principles require accrual-basis accounting.

Prepaid expenses have

For most large businesses, the cash basis of accounting will provide accurate financial statements for user needs.

The balance in the office supplies account on January 1 was $7,000, supplies purchased during January were $3,000, and the supplies on hand at January 31 were $2,000. The amount to be used for the appropriate adjusting entry is

Deferrals are recorded transactions that delay the recognition of an expense or revenue.

Gracie, Inc. made a prepaid rent payment of $2,800 on January 1. The company's monthly rent is $700. The amount of prepaid rent that would appear on the January 31 balance sheet after adjustment is

Depreciation on an office building is $2,800. The adjusting entry on December 31 would be

The general term used to indicate delaying the recognition of an expense already paid or of a revenue already received is

On January 1, Great Designs Company had a debit balance of $1,450 in the office supplies account. During the month, Great Designs purchased $115 and $160 of office supplies and journalized them to the asset account upon purchasing. On January 31, an inspection of the office supplies cabinet shows that only $350 of office supplies remains. Prepare the January 31 adjusting entry for office supplies.

For each of the following errors, considered individually, indicate whether the error would cause the adjusted trial balance totals to be unequal. If the error would cause the adjusted trial balance total to be unequal, indicate whether the debit or credit total is higher and by how much.

The net book value of a fixed asset is determined by the original cost

As time passes, fixed assets other than land lose their capacity to provide useful services. To account for this decrease in usefulness, the cost of fixed assets is systematically allocated to expense through a process called

When preparing an income statement vertical analysis, each revenue and expense is expressed as a percent of net income.