Q: What is the formula for calculating interest expense for one month on a $60,000 loan at 2% annual interest?

$$60,000 \times 0.02 \times 1/12$$

Question 1

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

Accepted Answer

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

Question 2

A company receives $1,200 cash on May 1 for services to be performed over the next six months. Under accrual basis accounting, how much revenue should be recognized by June 30?

Accepted Answer

$400

Question 3

Which principle requires that expenses be recorded in the same period as the revenues they help generate?

Accepted Answer

Matching principle

Question 4

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

Accepted Answer

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

Question 5

Which of the following is NOT a type of deferral?

Accepted Answer

Accrued salaries

Question 6

A company purchased $$500 of office supplies. At year-end, 100 $$remains. What is the amount of supplies expense to be recorded?

Accepted Answer

$400

Question 7

Using the straight-line method, what is the monthly depreciation expense for furniture costing $18,000 with a useful life of 5 years and no residual value?

Accepted Answer

$300

Question 8

Which account is a contra asset and appears immediately after its related asset on the balance sheet?

Accepted Answer

Accumulated Depreciation

Question 9

If a company receives $600 in advance for services to be performed over 30 days, what is the initial journal entry?

Accepted Answer

Debit Cash $$600; Credit Unearned Revenue 600$$

Question 10

Which adjusting entry is required at year-end for accrued salaries of $1,200?

Accepted Answer

Debit Salaries Expense $$1,200; Credit Salaries Payable 1$$,200

Question 11

A company purchased a building for $60,000 on December 1 with a one-year loan at 2% interest. What is the interest expense for December?

Accepted Answer

$100

Question 12

What is the formula for calculating interest expense for one month on a $60,000 loan at 2% annual interest?

Accepted Answer

$$60,000 	imes 0.02 	imes 1/12$$

Question 13

Which adjusting entry is required for accrued revenue of $800 earned but not yet received?

Accepted Answer

Debit Accounts Receivable $$800; Credit Service Revenue 800$$

Question 14

What is the book value of furniture with a cost of $$18,000 and accumulated depreciation of 300$$?

Accepted Answer

$17,700

Question 15

Which of the following is the correct sequence of steps in the accounting cycle?

Accepted Answer

Journalize transactions, post to ledger, prepare trial balance, adjust entries, prepare adjusted trial balance, prepare financial statements

Question 16

What is the primary purpose of preparing an adjusted trial balance?

Accepted Answer

To confirm that total debits equal total credits after adjusting entries

Question 17

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

Accepted Answer

Net income or net loss will be misstated

Question 18

Which section is NOT included in a worksheet used to prepare adjusting entries and the adjusted trial balance?

Accepted Answer

Financial statements

Question 19

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

Accepted Answer

Salaries payable

Question 20

When a company performs a service but has not yet collected cash, which accounts are affected by the adjusting entry?

Accepted Answer

Accounts Receivable and Service Revenue

Chapter 3: The Adjusting Process – Financial Accounting Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards