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

$$ (\text{Cost} - \text{Residual Value}) / \text{Useful Life} $$

Q: How is the amount of interest expense calculated for a note payable?

$$ \text{Principal} \times \text{Interest Rate} \times \text{Time} $$

Question 1

Which of the following best describes the time period concept in financial accounting?

Accepted Answer

It assumes that a business’ activities can be divided into artificial time periods for reporting purposes.

Question 2

According to the revenue recognition principle, when should revenue be recognized?

Accepted Answer

When the company has completed its performance obligation.

Question 3

Smart Touch Learning prepaid $3,000 for three months of office rent on December 1. By December 31, how much should be reported as rent expense for December under accrual accounting?

Accepted Answer

$1,000

Question 4

Which of the following is an example of a deferral adjustment?

Accepted Answer

Recording prepaid insurance as an expense as it is used up.

Question 5

What is the formula for straight-line depreciation?

Accepted Answer

$$ (	ext{Cost} - 	ext{Residual Value}) / 	ext{Useful Life} $$

Question 6

If Smart Touch Learning purchased furniture for $18,000 with a useful life of 5 years and no residual value, what is the monthly depreciation expense using the straight-line method?

Accepted Answer

$300

Question 7

What is the book value of an asset?

Accepted Answer

The asset’s cost minus accumulated depreciation.

Question 8

Which of the following best describes a contra asset account?

Accepted Answer

It is paired with a related asset account and has a normal credit balance.

Question 9

Smart Touch Learning collected $600 in advance for services to be performed over six months. Under accrual accounting, how much revenue should be recognized each month?

Accepted Answer

$100

Question 10

Which journal entry correctly records the adjusting entry for $400 of supplies used during the period?

Accepted Answer

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

Question 11

A company pays its employees $2,400 per month, half on the 15th and half on the 1st of the next month. What adjusting entry is needed on December 31?

Accepted Answer

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

Question 12

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

Accepted Answer

Interest expense that has accumulated but not yet been paid.

Question 13

How is the amount of interest expense calculated for a note payable?

Accepted Answer

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

Question 14

If an adjusting entry for supplies is not made at year-end, what is the effect on the financial statements?

Accepted Answer

Assets will be overstated and expenses understated.

Question 15

Which of the following is true about deferred revenue?

Accepted Answer

It is a liability representing cash received before services are performed.

Question 16

A company purchased a building for $$60,000 and recorded 250 $$depreciation for December. What is the book value of the building at December 31?

Accepted Answer

$59,750

Question 17

Which of the following best explains the purpose of adjusting entries?

Accepted Answer

To ensure that revenues and expenses are recorded in the correct accounting period.

Question 18

If Smart Touch Learning earned $200 of service revenue in December that was collected in advance, what is the adjusting entry at year-end?

Accepted Answer

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

Question 19

Which of the following accounts would NOT require an adjusting entry at year-end?

Accepted Answer

Land

The Adjusting Process in Financial Accounting: Principles, Examples, and Applications

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