Q: Charlotte’s Web Design purchased a $20,000 certificate of deposit on December 1 that pays 3% interest at the end of one year. What adjusting entry should be made on December 31 to recognize one month of interest revenue?

$$\text{DR Interest Receivable } 50 \\ \text{CR Interest Revenue } 50$$

Q: A company paid $1,200 cash on December 1 for one year of prepaid hosting. What is the correct adjusting entry at December 31?

$$\text{DR Hosting Expense } 100 \\ \text{CR Prepaid Hosting } 100$$

Q: A company purchased equipment for $5,000 cash. Which of the following journal entries correctly records this transaction?

$$\text{DR Equipment } 5,000 \\ \text{CR Cash } 5,000$$

Q: Charlotte’s Web Design borrowed $15,000 from the bank on January 10. What is the correct journal entry to record this transaction?

$$\text{DR Cash } 15,000 \\ \text{CR Notes Payable } 15,000$$

Q: A company earned $2,000 of revenue on account. Which of the following is the correct journal entry?

$$\text{DR Accounts Receivable } 2,000 \\ \text{CR Revenue } 2,000$$

Question 1

Which of the following best describes the primary purpose of the Statement of Cash Flows?

Accepted Answer

To provide information about a company’s cash receipts and cash payments during an accounting period.

Question 2

Charlotte’s Web Design purchased a $20,000 certificate of deposit on December 1 that pays 3% interest at the end of one year. What adjusting entry should be made on December 31 to recognize one month of interest revenue?

Accepted Answer

$$	ext{DR Interest Receivable } 50 \ 	ext{CR Interest Revenue } 50$$

Question 3

Under the accrual basis of accounting, when is revenue recognized?

Accepted Answer

When the performance obligation is satisfied, regardless of when cash is received.

Question 4

A company paid $1,200 cash on December 1 for one year of prepaid hosting. What is the correct adjusting entry at December 31?

Accepted Answer

$$	ext{DR Hosting Expense } 100 \ 	ext{CR Prepaid Hosting } 100$$

Question 5

Which of the following transactions would NOT require an adjusting entry at year-end under accrual accounting?

Accepted Answer

Payment of cash dividends to shareholders.

Question 6

If total assets increased by $25,000 during the year and total liabilities increased by $10,000, what is the change in equity for the year?

Accepted Answer

$$\$15,000$$ increase

Question 7

Which of the following best describes the effect of declaring (but not yet paying) dividends on the accounting equation?

Accepted Answer

Assets are unchanged; liabilities increase; equity decreases.

Question 8

A company purchased equipment for $5,000 cash. Which of the following journal entries correctly records this transaction?

Accepted Answer

$$	ext{DR Equipment } 5,000 \ 	ext{CR Cash } 5,000$$

Question 9

Which of the following is NOT a characteristic of adjusting entries?

Accepted Answer

They always involve cash.

Question 10

Charlotte’s Web Design borrowed $15,000 from the bank on January 10. What is the correct journal entry to record this transaction?

Accepted Answer

$$	ext{DR Cash } 15,000 \ 	ext{CR Notes Payable } 15,000$$

Question 11

Which of the following best describes the matching principle in accrual accounting?

Accepted Answer

Expenses are matched to the period in which the related revenues are earned.

Question 12

A company earned $2,000 of revenue on account. Which of the following is the correct journal entry?

Accepted Answer

$$	ext{DR Accounts Receivable } 2,000 \ 	ext{CR Revenue } 2,000$$

Question 13

Which of the following is the correct formula for calculating ending retained earnings?

Accepted Answer

$$	ext{Beginning Retained Earnings} + 	ext{Net Income} - 	ext{Dividends}$$

Question 14

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

Accepted Answer

Interest incurred but not yet paid.

Question 15

A company recognizes $500 of depreciation expense for its truck at year-end. What is the correct adjusting entry?

Accepted Answer

$$	ext{DR Depreciation Expense } 500 \ 	ext{CR Accumulated Depreciation - Truck } 500$$

Question 16

Which of the following best describes the effect of issuing common shares for cash on the accounting equation?

Accepted Answer

Assets increase; equity increases.

Question 17

Which of the following is NOT a step in the accounting cycle?

Accepted Answer

Calculating income tax payments.

Question 18

A company has the following balances at year-end: Total assets $45,710, Total liabilities $21,410, Common shares $7,500. What is the amount of retained earnings at year-end?

Accepted Answer

$$\$16,800$$

Question 19

Which of the following best explains why adjusting entries are necessary at the end of an accounting period?

Accepted Answer

To ensure that revenues and expenses are recorded in the period in which they are earned or incurred.

Financial Accounting Review: Chapters 1-4 Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards