Q: A company pays $3,000 for three months of rent in advance on March 1. What is the adjusting entry on March 31?

$$ \begin{align*} \text{Rent Expense} &\quad 1,000 \\ \text{Prepaid Rent} &\quad 1,000 \end{align*} $$

Q: On September 1, a company collects $1,200 in advance for services to be provided evenly over the next 3 months. What is the adjusting entry on December 31?

$$ \begin{align*} \text{Unearned Service Revenue} &\quad 400 \\ \text{Service Revenue} &\quad 400 \end{align*} $$

Q: Which of the following is a correct adjusting entry for accrued interest revenue of $250 at year-end?

$$ \begin{align*} \text{Interest Receivable} &\quad 250 \\ \text{Interest Revenue} &\quad 250 \end{align*} $$

Q: A company has supplies account balance of $$700. At year-end, only 400 of $$supplies remain. What is the correct adjusting entry?

$$ \begin{align*} \text{Supplies Expense} &\quad 300 \\ \text{Supplies} &\quad 300 \end{align*} $$

Question 1

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

Accepted Answer

Expenses are recorded in the same period as the revenues they help to generate, regardless of when cash is paid.

Question 2

A company pays $3,000 for three months of rent in advance on March 1. What is the adjusting entry on March 31?

Accepted Answer

$$
\begin{align*}
	ext{Rent Expense} &\quad 1,000 \
	ext{Prepaid Rent} &\quad 1,000 
\end{align*}
$$

Question 3

On September 1, a company collects $1,200 in advance for services to be provided evenly over the next 3 months. What is the adjusting entry on December 31?

Accepted Answer

$$
\begin{align*}
	ext{Unearned Service Revenue} &\quad 400 \
	ext{Service Revenue} &\quad 400 
\end{align*}
$$

Question 4

Which of the following is a correct adjusting entry for accrued interest revenue of $250 at year-end?

Accepted Answer

$$
\begin{align*}
	ext{Interest Receivable} &\quad 250 \
	ext{Interest Revenue} &\quad 250 
\end{align*}
$$

Question 5

A company has supplies account balance of $$700. At year-end, only 400 of $$supplies remain. What is the correct adjusting entry?

Accepted Answer

$$
\begin{align*}
	ext{Supplies Expense} &\quad 300 \
	ext{Supplies} &\quad 300 
\end{align*}
$$

Question 6

Which of the following best describes a contra asset account?

Accepted Answer

An account with a credit balance that is subtracted from a related asset on the balance sheet.

Question 7

A company purchased equipment for $24,000 with an estimated useful life of 5 years and no salvage value. What is the monthly depreciation expense using straight-line depreciation?

Accepted Answer

$$
\400$

Question 8

Which of the following accounts is NOT closed at the end of the accounting period?

Accepted Answer

Retained Earnings

Question 9

If a company fails to record an adjusting entry for accrued wages of $950 at year-end, what is the effect on the financial statements?

Accepted Answer

Net income is overstated and liabilities are understated.

Question 10

Which of the following best describes the purpose of closing entries?

Accepted Answer

To transfer the balances of temporary accounts to retained earnings.

Question 11

A company collected $4,500 cash in advance for services to be performed in the future. Which accounts are affected at the time of collection?

Accepted Answer

Increase Cash and increase Unearned Service Revenue.

Question 12

Which of the following is an example of an accrual?

Accepted Answer

Recording interest revenue earned but not yet received.

Question 13

Which of the following statements about the accrual basis of accounting is TRUE?

Accepted Answer

Revenues are recognized when earned, and expenses are recognized when incurred.

Question 14

A company has the following balances at year-end: Equipment $$24,000, Accumulated Depreciation 400. $$What is the book value of the equipment?

Accepted Answer

$$
\23$$,600$

Question 15

Which of the following is the correct order for preparing financial statements?

Accepted Answer

Income Statement, Statement of Retained Earnings, Balance Sheet

Question 16

If a company fails to record depreciation expense at year-end, what is the effect on the financial statements?

Accepted Answer

Net income and assets are both overstated.

Question 17

Which of the following is a permanent (real) account?

Accepted Answer

Accounts Payable

Question 18

A company performed services worth $$22,000 on account. Later, it collected 9$$,000 from these customers. What is the balance in Accounts Receivable after these transactions?

Accepted Answer

$$
\13$$,000$

Question 19

Which of the following best describes a deferral?

Accepted Answer

Recognition of revenue or expense is postponed to a future period.

Question 20

A company has a beginning retained earnings balance of $$18,800, net income of 2$$,900, and dividends declared of $3,200. What is the ending retained earnings balance?

Accepted Answer

$$
\18$$,500$

Accrual Accounting and Income Measurement: Key Concepts and Applications

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