Q: How is straight-line depreciation calculated?

$$(\text{Cost} - \text{Residual value}) / \text{Useful life}$$

Question 1

Which of the following best describes the main difference between cash basis accounting and accrual basis accounting?

Accepted Answer

Cash basis accounting records revenues and expenses only when cash is exchanged, while accrual basis accounting records revenues when earned and expenses when incurred.

Question 2

A company pays $1,200 for a six-month insurance policy on May 1. Under accrual basis accounting, how much insurance expense should be recorded on May 31?

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 business receives $600 on April 30 for services to be performed over the next six months. Under accrual accounting, how much revenue should be recognized by May 31?

Accepted Answer

$100

Question 5

Which of the following is NOT a step in the five-step revenue recognition process?

Accepted Answer

Recognize revenue when the entity receives cash

Question 6

On December 1, a company prepays three months’ rent for $3,000. What is the adjusting entry on December 31?

Accepted Answer

Debit Rent Expense $$1,000; Credit Prepaid Rent 1$$,000

Question 7

Which of the following best describes a deferred expense?

Accepted Answer

A payment made in advance for a future expense, recorded as an asset until used

Question 8

A company purchased $$500 of office supplies. At year-end, 100 $$remains. What is the correct adjusting entry?

Accepted Answer

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

Question 9

How is straight-line depreciation calculated?

Accepted Answer

$$(	ext{Cost} - 	ext{Residual value}) / 	ext{Useful life}$$

Question 10

Which account is a contra asset related to depreciation?

Accepted Answer

Accumulated Depreciation

Question 11

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 and net income is overstated

Question 12

A company receives $600 in advance for services to be performed next month. What is the correct journal entry at the time of receipt?

Accepted Answer

Debit Cash $$600; Credit Unearned Revenue 600$$

Question 13

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

Accepted Answer

A company performs a service but has not yet collected cash

Question 14

What is the purpose of preparing an adjusted trial balance?

Accepted Answer

To ensure total debits equal total credits after adjusting entries

Question 15

Which of the following is true about the worksheet in the accounting cycle?

Accepted Answer

It is an internal document used to summarize data for preparing financial statements

Question 16

A company incurs $$100 interest on a 60$$,000 loan at 2% annual interest for one month. What is the adjusting entry at year-end?

Accepted Answer

Debit Interest Expense $$100; Credit Interest Payable 100$$

Question 17

If a company does not adjust for used office supplies at year-end, what is the effect on the financial statements?

Accepted Answer

Assets are overstated and expenses are understated

Question 18

Which of the following is the correct formula for calculating book value of a depreciable asset?

Accepted Answer

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

Question 19

Which of the following is NOT a result of failing to record an adjusting entry for deferred revenue?

Accepted Answer

Liabilities are understated

Question 20

Which of the following best describes the accounting cycle?

Accepted Answer

A series of steps performed during each accounting period to analyze, record, and summarize financial data

Chapter 3: The Adjusting Process – Financial Accounting Study Notes

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