Q: Which of the following is the correct formula for straight-line depreciation?

$$ \text{Depreciation Expense} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}} $$

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 received or paid, while accrual basis accounting records revenues when earned and expenses when incurred.

Question 2

A company pays $3,000 for three months of rent in advance on December 1. Using accrual basis accounting, what is the adjusting entry on December 31?

Accepted Answer

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

Question 3

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

Accepted Answer

Matching principle

Question 4

Smart Touch Learning purchased $$500 of office supplies on account. At year-end, 100 of $$supplies remain. What is the adjusting entry?

Accepted Answer

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

Question 5

Which of the following is the correct formula for straight-line depreciation?

Accepted Answer

$$ 	ext{Depreciation Expense} = \frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Useful Life}} $$

Question 6

A company receives $600 in advance for services to be performed over six months. At the end of the first month, what is the adjusting entry?

Accepted Answer

Debit Unearned Revenue $$100; Credit Service Revenue 100$$

Question 7

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

Accepted Answer

Salaries earned by employees but not yet paid at the end of the period

Question 8

On December 31, a company owes $2,400 in salaries for the second half of the month but will not pay until January 1. What is the adjusting entry on December 31?

Accepted Answer

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

Question 9

A company purchases a building for $60,000 on December 1 with a one-year, 2% note. What is the interest expense for December, and what is the adjusting entry?

Accepted Answer

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

Question 10

Which of the following best describes the purpose of an adjusted trial balance?

Accepted Answer

To ensure total debits equal total credits after adjusting entries have been made

Question 11

If a company fails to record an adjusting entry for accrued revenue, what is the impact on the financial statements?

Accepted Answer

Assets and revenues are understated

Question 12

Which of the following is a characteristic of a contra asset account?

Accepted Answer

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

Question 13

What is the book value of an asset with a cost of $$18,000 and accumulated depreciation of 300$$?

Accepted Answer

$$ \18$$,000 - \$$300 = \$17,700 $$

Question 14

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

Accepted Answer

Record the cash receipt before identifying the contract

Question 15

A worksheet in accounting is primarily used to:

Accepted Answer

Summarize data for the preparation of financial statements and adjusting entries

Question 16

If a company fails to record an adjusting entry for a deferred expense, what is the likely effect?

Accepted Answer

Expenses are understated and assets are overstated

Question 17

Which of the following is the correct adjusting entry for accrued revenue earned but not yet received?

Accepted Answer

Debit Accounts Receivable; Credit Service Revenue

Question 18

Which of the following best describes the time period concept?

Accepted Answer

Business activities can be sliced into small time segments and financial statements can be prepared for specific periods

Question 19

A company performs services worth $800 in December but will not receive payment until January. What is the correct adjusting entry at December 31?

Accepted Answer

Debit Accounts Receivable $$800; Credit Service Revenue 800$$

Chapter 3: The Adjusting Process – Financial Accounting Study Notes

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