Q: What is the formula for calculating straight-line depreciation?

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

Q: Which of the following is the correct formula for 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 cash basis accounting and accrual basis accounting?

Accepted Answer

Cash basis records revenues and expenses when cash is received or paid; accrual basis records revenues and expenses when they are earned or incurred.

Question 2

Smart Touch Learning paid $1,200 for six months of insurance on May 1. Under accrual accounting, what is the insurance expense recorded for May?

Accepted Answer

$200

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

A company receives $600 in advance for services to be performed over six months. Under accrual accounting, what is the correct adjusting entry at the end of the first month?

Accepted Answer

Debit Unearned Revenue $100; Credit Service Revenue $100

Question 5

Which of the following is NOT a type of adjusting entry?

Accepted Answer

Deferred Liabilities

Question 6

Smart Touch Learning purchased $500 of office supplies. At year-end, $100 remains. What is the adjusting entry?

Accepted Answer

Debit Supplies Expense $400; Credit Office Supplies $400

Question 7

A company uses the straight-line method to depreciate furniture worth $18,000 over 5 years with no residual value. What is the annual depreciation expense?

Accepted Answer

$3,000

Question 8

What is the formula for calculating straight-line depreciation?

Accepted Answer

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

Question 9

If a company fails to record an adjusting entry for accrued salaries at year-end, what is the impact on the financial statements?

Accepted Answer

Expenses are understated; liabilities are understated

Question 10

Which account is a contra asset and is used to accumulate depreciation?

Accepted Answer

Accumulated Depreciation

Question 11

A company earns $800 in service revenue by year-end but has not yet received payment. What is the adjusting entry?

Accepted Answer

Debit Accounts Receivable $800; Credit Service Revenue $800

Question 12

What is the purpose of preparing an adjusted trial balance?

Accepted Answer

To ensure total debits equal total credits after adjusting entries

Question 13

Which of the following is the correct formula for book value of an asset?

Accepted Answer

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

Question 14

Which adjusting entry is required when a company incurs interest expense but has not yet paid it?

Accepted Answer

Debit Interest Expense; Credit Interest Payable

Question 15

Which of the following best describes a worksheet in accounting?

Accepted Answer

An internal document used to summarize data for preparing financial statements

Question 16

If a company records a deferred expense as an expense instead of an asset, what adjusting entry is needed at period end if part of the expense remains unused?

Accepted Answer

Debit Prepaid Expense; Credit Expense

Question 17

Which of the following is true about deferred revenues?

Accepted Answer

They are recorded as liabilities until the service is performed or product delivered

Question 18

A company receives $600 in advance and records it as revenue. By year-end, only $200 is earned. What is the adjusting entry?

Accepted Answer

Debit Service Revenue $400; Credit Unearned Revenue $400

Question 19

Which of the following is NOT a result of failing to record adjusting entries?

Accepted Answer

Financial statements are correct

Chapter 3: The Adjusting Process – Financial Accounting Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards