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Exam 3: The Adjusting Process

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Question 21

Multiple Choice

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Using accrual accounting,expenses are recorded and reported only

A) when they are incurred,whether or not cash is paid
B) when they are incurred and paid at the same time
C) if they are paid before they are incurred
D) if they are paid after they are incurred

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Question 22

Multiple Choice

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The balance in the prepaid rent account before adjustment at the end of the year is $32,000,which represents four months' rent paid on December 1.The adjusting entry required on December 31 is

A) debit Rent Expense,$8,000; credit Prepaid Rent,$8,000
B) debit Prepaid Rent,$24,000; credit Rent Expense,$8,000
C) debit Rent Expense,$24,000; credit Prepaid Rent,$8,000
D) debit Prepaid Rent,$8,000; credit Rent Expense,$8,000

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Question 23

Multiple Choice

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All of the following statements regarding vertical analysis are true except

A company pays $36,000 for twelve months' rent on October 1,recording the prepayment as an asset.The adjusting entry on December 31 is a debit to Rent Expense,$9,000,and a credit to Prepaid Rent,$9,000.

Revenues and expenses should be recorded in the same period to which they relate.

Supplies are recorded as assets when purchased.Therefore,the credit to Supplies in the adjusting entry is for the amount of supplies

Depreciation Expense is reported on the balance sheet as an addition to the related asset.

The revenue recognition principle

An adjusting entry to accrue an incurred expense will affect total liabilities.

Accumulated Depreciation and Depreciation Expense are classified,respectively,as

Which of the following is not a characteristic of the accrual basis of accounting?

Adjusting entries affect at least one

Bloom's Company pays biweekly salaries of $40,000 every other Friday for a ten-day period ending on that day.The last payday of December is Friday,December 27.Assuming the next pay period begins on Monday,December 30,journalize the adjusting entry necessary at the end of the fiscal period (December 31).

At the end of the current year,$3,700 fees have been earned but have not been billed to clients.Journalize the adjusting entry to record the accrued fees.

The balance in the accumulated depreciation account is the sum of the depreciation expense recorded in past periods.

Accrued salaries of $600 owed to employees for December 29,30,and 31 are not taken into consideration in preparing the financial statements for the year ended December 31.Indicate which items will be erroneously stated,because of the error,on (a)the income statement for the year and (b)the balance sheet as of December 31.Also indicate whether the items in error will be overstated or understated.

The matching principle requires expenses be recorded in the same period that the related revenue is recorded.

Gizmo Inc.purchased a one-year insurance policy on October 1 for $1,800.The adjusting entry on December 31 would be ​

The revenue recognition principle requires that the reporting of revenue be included in the period when cash for the service is received.

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