MULTIPLE CHOICE QUESTIONS 1.

CHAPTER 3

Which of the following is a nominal account? a. Prepaid Insurance b. Unearned Revenue c. Insurance Expense d. Interest Receivable Which of the following errors will cause an imbalance in the trial balance? a. Omission of a transaction in the journal b. Posting an entire journal entry twice to the ledger c. Posting a credit of $ 720 to Accounts Payable as a credit of $ 720 to Accounts Receivable. d. Listing the balance of an account with a debit balance in the credit column of the trial balance. Which of the following statements is associated with the accrual basis of accounting? a. The timing of cash receipts and disbursements is emphasized. b. A minimum amount of record keeping is required. c. This method is used less frequently by businesses than the cash method of accounting. d. Revenues are recognized in the period they are earned, regardless of the time period the cash is received. An accrued expense is an expense that: a. Has been incurred but has not been paid. b. Has been paid but has not been incurred. c. Has been incurred for which payment is to be made in installments. d. Will never be paid. In reviewing some adjusting entries, you observe an entry which contains a debit to Prepaid Insurance and a credit to Insurance Expense. The purpose of this journal entry is to record a(n): a. Accrued expense b. Deferred expense c. Expired Cost d. Prepaid Revenue An adjusting entry to record an accrued expense involves a debit to a (n): a. Expense account and a credit to a prepaid account b. Expense account and a credit to cash. c. Expense account and a credit to a liability account d. Liability account and a credit to an expense account. The failure to properly record an adjusting entry to accrue an expense will result in an: a. Understatement of expenses and an understatement of liabilities b. Understatement of expenses and an overstatement of liabilities c. Understatement of expenses and an overstatement of assets d. Overstatement of expenses and an understatement of assets. Which of the following properly describes a deferral? a. Cash is received after revenue is earned. 1

2.

3.

4.

5.

6.

7.

8.

b. Cash is received before revenue is earned. c. Cash is paid after expense is incurred d. Cash is paid in the same period that an expense is incurred. 9. An adjusting entry to allocate a previously recorded asset to expense involves a debit to an: a. Asset account and a credit to cash. b. Expense account and a credit to cash c. Expense account and a credit to an asset account. d. Asset account and a credit to an expense account. Which of the following adjusting entries will cause an increase in revenues and a decrease in liabilities? a. Entry to record an accrued expense b. Entry to record an accrued revenue c. Entry to record the consumed portion of an expense paid in advance and initially recorded as an asset. d. Entry to record the earned portion of revenue received in advance and initially recorded as unearned revenue. The failure to properly record an adjusting entry to accrue a revenue item will result in an: a. Understatement of revenues and an understatement of liabilities b. Overstatement of revenues and an overstatement of liabilities c. Overstatement of revenues and an overstatement of assets. d. Understatement of revenues and an understatement of assets. The failure to properly record an adjusting entry for the expiration of insurance coverage will result in an (assume the account Prepaid Insurance) was charged when the premiums were paid.): a. Overstatement of assets and an overstatement of owners equity. b. Understatement of assets and an understatement of ownersequity. c. Overstatement of assets and an overstatement of liabilities d. Overstatement of liabilities and an understatement of ownersequity. The omission of the adjusting entry to record depreciation expense will result in an: a. Overstatement of assets and an overstatement of owners equity. b. Understatement of assets and an understatement of owners equity. c. Overstatement of assets and an overstatement of liabilities d. Overstatement of liabilities and an understatement of owners equity. An auditor is examining an adjusting entry that reduces liabilities and increases owners equity. Which of the following adjusting entries could that be? a. Entry to record an accrued revenue. b. Entry to record the earned portion of revenue received in advance and previously recorded as Unearned Rent Revenue. c. Entry to record an accrued expense. d. Entry to record the expired portion of expense paid in advance and previously recorded as Prepaid Expense. e. Entry to record bad debts expense. The Office Supplies on Hand account had a balance at the beginning of year 3 of $ 1,600. Payments for acquisitions of office supplies during year 3 amounted to $ 10,000 and were recorded by a debit 2

10.

11.

12.

13.

14.

15.

to the asset account. A physical count at the end of year 3 revealed supplies costing $ 1,900 were on hand. The required adjusting entry at the end of year 3 will include a debit to: a. b. c. d. 16. Office supplies expense for $ 300 Office supplies on hand for $ 300 Office supplies expense for $ 9,700 Office supplies on hand for $ 1,900

The book value of a piece of equipment is the : a. Original cost of the equipment. b. Current replacement cost of the used equipment. c. Current market value of the used equipment. d. Difference between the original cost of the equipment and its related accumulated depreciation. The purpose of recording closing entries is to: a. Reduce the number of nominal accounts. b. Enable the accountant to prepare the financial statements at the end of an accounting period. c. Prepare revenue and expense accounts for recording the next periods revenues and expenses. d. Establish new balances in some asset and liability accounts. If ending accounts receivable exceeds beginning accounts receivable: a. Cash collections during the period exceed the amount of revenue earned. b. Net income for the period is less than the amount of cash basis income. c. No cash was collected during the period. d. Cash collections during the year are less than the amount of revenue earned. The Camphor Company made cash sales of services of $ 5,000 and credit sales of services of $ 4,200 during the month of July. The company incurred expenses of $ 6,000 during July of which $ 2,000 was paid in cash and the remainder was expected to be paid in August. Using the accrual method of accounting, net income for July amounts to: a. $ 7,200 b. $ 5,200 c. $ 3,200 d. $ 200 Dr. Hellinger keeps his accounting records on the cash basis. During 2007, Dr. Hellinger collected $ 660,000 in fees from his patients. At December 31, 2006, the good doctor had accounts receivable of $ 50,000 and unearned fees of $ 6,000. At December 31, 2007, he had accounts receivable of $ 68,000 and unearned fees of $ 4,000. The amount of fees earned on the accrual basis by Dr. Hellinger during 2007 was: a. b. c. d. $ 640,000 $ 676,000 $ 680,000 $ 724,000 Cash receipts $ 660,000 - AR @ 12/31/06 ( 50,000) + AR @ 12/31/07 68,000 + Unearned @ 12/31/06 6,000 - Unearned @ 12/31/07 (4,000)

17.

18.

19.

20.