Q: Which of the following is the correct formula for calculating depreciation expense using the straight-line method?

Depreciation Expense = $\frac{\text{Cost of Asset} - \text{Salvage Value}}{\text{Useful Life}}$

Question 1

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

Accepted Answer

Matching Principle

Question 2

A company pays $6,000 for a one-year insurance policy on July 1. At December 31, what adjusting entry should be made to record the expired portion of the insurance?

Accepted Answer

Debit Insurance Expense $3,000; Credit Prepaid Insurance $3,000

Question 3

Which of the following best describes an accrual?

Accepted Answer

Expense or revenue is recognized before cash is paid or received

Question 4

A business receives $2,000 in advance for services to be performed next month. Which account should be credited at the time of receipt?

Accepted Answer

Unearned Revenue

Question 5

Which of the following is NOT true about Accumulated Depreciation?

Accepted Answer

It is reported as an expense on the income statement

Question 6

A company earned $1,500 for services performed but has not yet received payment. What adjusting entry should be made?

Accepted Answer

Debit Accounts Receivable $1,500; Credit Service Revenue $1,500

Question 7

Which accounting method is NOT allowed under GAAP?

Accepted Answer

Cash Basis

Question 8

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

Accepted Answer

Expenses are understated; liabilities are understated

Question 9

Which equation correctly represents the calculation of book value for a depreciable asset?

Accepted Answer

Book Value = Cost of Asset $-$ Accumulated Depreciation

Question 10

Which step in the accounting cycle comes immediately after posting adjusting entries?

Accepted Answer

Preparation of adjusted trial balance

Question 11

A company purchased supplies for $800. At year-end, $200 of supplies remain. What is the adjusting entry?

Accepted Answer

Debit Supplies Expense $600; Credit Supplies $600

Question 12

Which principle requires revenue to be recorded when it is earned, not necessarily when cash is received?

Accepted Answer

Revenue Recognition Principle

Question 13

A company pays $1,200 for rent covering the next 12 months. What type of account is affected and what adjusting entry is needed at month-end?

Accepted Answer

Prepaid Expense; Debit Rent Expense $100; Credit Prepaid Rent $100

Question 14

Which of the following is an example of a deferral?

Accepted Answer

Prepaid Insurance

Question 15

If a company records revenue only when cash is received, which accounting method is it using?

Accepted Answer

Cash Basis

Question 16

Which of the following is the correct formula for calculating depreciation expense using the straight-line method?

Accepted Answer

Depreciation Expense = $\frac{	ext{Cost of Asset} - 	ext{Salvage Value}}{	ext{Useful Life}}$

Question 17

Which account is a contra asset and has a normal credit balance?

Accepted Answer

Accumulated Depreciation

Question 18

A company receives $5,000 for services to be performed over the next 5 months. At the end of the first month, what adjusting entry should be made?

Accepted Answer

Debit Unearned Revenue $1,000; Credit Service Revenue $1,000

Question 19

Which of the following statements about the adjusted trial balance is correct?

Accepted Answer

It is used as the primary source for preparing financial statements

Question 20

A company incurs $400 in interest expense at year-end but has not yet paid it. What adjusting entry should be made?

Accepted Answer

Debit Interest Expense $400; Credit Interest Payable $400

Chapter 3: The Adjusting Process – Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards