Q: Which of the following is the correct formula for straight-line depreciation?

$$\text{Depreciation Expense} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}}$$

Q: What is the book value of an asset?

$$\text{Book Value} = \text{Cost} - \text{Accumulated Depreciation}$$

Question 1

Which of the following best describes the main difference between the cash basis and accrual basis of accounting?

Accepted Answer

Cash basis records revenues and expenses only when cash is received or paid, while accrual basis records revenues when earned and expenses when incurred.

Question 2

Smart Touch Learning paid $1,200 for six months of insurance on May 1. Under the accrual basis, how much insurance expense should be recorded by July 31?

Accepted Answer

$600

Question 3

A company receives $600 on April 30 for services to be performed over the next six months. Under the accrual basis, how much revenue should be recognized by June 30?

Accepted Answer

$200

Question 4

Which principle requires that expenses be matched with the revenues they help to generate in the same period?

Accepted Answer

Matching Principle

Question 5

On December 1, Smart Touch Learning prepaid three months’ office rent of $3,000. What is the adjusting entry on December 31?

Accepted Answer

Debit Rent Expense $$1,000; Credit Prepaid Rent 1$$,000

Question 6

If $$500 of office supplies were purchased and only 100 $$remain at year-end, what is the correct adjusting entry?

Accepted Answer

Debit Supplies Expense $$400; Credit Office Supplies 400$$

Question 7

Which of the following is the correct formula for straight-line depreciation?

Accepted Answer

$$	ext{Depreciation Expense} = \frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Useful Life}}$$

Question 8

Smart Touch Learning received $600 in advance for services to be performed over 30 days. At the end of 10 days, what is the correct adjusting entry?

Accepted Answer

Debit Unearned Revenue $$200; Credit Service Revenue 200$$

Question 9

Which of the following is an example of an accrued expense?

Accepted Answer

Salaries earned by employees but not yet paid

Question 10

A company purchased a building for $60,000 on December 1 with a one-year note at 2% annual interest. What is the interest expense to be accrued at December 31?

Accepted Answer

$100

Question 11

What is the book value of an asset?

Accepted Answer

$$	ext{Book Value} = 	ext{Cost} - 	ext{Accumulated Depreciation}$$

Question 12

Which of the following accounts is NOT closed at the end of the accounting period?

Accepted Answer

Accumulated Depreciation

Question 13

What is the purpose of the adjusted trial balance?

Accepted Answer

To ensure total debits equal total credits after adjusting entries

Question 14

If adjusting entries are not made at the end of the period, which of the following is most likely to occur?

Accepted Answer

Financial statements will be incorrect

Question 15

A lawyer provides $500 of legal services on December 28 but invoices the client on January 3. What is the correct entry on December 28?

Accepted Answer

Debit Accounts Receivable $$500; Credit Service Revenue 500$$

Question 16

Which of the following is a deferral adjustment?

Accepted Answer

Recording prepaid rent as rent expense when used

Question 17

Which of the following is the correct formula for calculating interest expense?

Accepted Answer

$$	ext{Interest} = 	ext{Principal} 	imes 	ext{Rate} 	imes 	ext{Time}$$

Question 18

Which of the following best describes the closing process?

Accepted Answer

It zeroes out all revenue and expense accounts to measure each period’s net income separately.

Question 19

Which of the following is a correct adjusting entry for accrued revenue?

Accepted Answer

Debit Accounts Receivable; Credit Service Revenue

Question 20

After posting all closing entries, which accounts will have a zero balance?

Accepted Answer

Service Revenue and Rent Expense

Cash Basis and Accrual Basis Accounting: Adjusting Entries and the Accounting Cycle

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