1. The purpose of adjusting entries is to: (Points : 5)
Bring the revenue, expense, asset, and liability account balances into alignment with the rules ot cash basis accounting
Bring the revenue, expense, asset, and liability account balances into alignment with the rules ot accrual basis accounting
Correct errors made during the accounting period.
Update the Retained Earnings account for the changes in retained earnings that had been recorded in revenue and expense accounts throughout the period.
2. Which of the following is not a purpose of adjusting entries? (Points : 5)
To prepare the revenue and expense accounts for recording transactions in the following period.
To reflect on the financial statements the proper amounts of revenue and expenses for the period.
To establish the proper amounts of assets and liabilities in the balance sheet
To match expenses against the revenue that the expenses have helped to generage.
3. Adjusting entries are needed: (Points : 5)
Whenever revenue is not received in cash.
Whenever expenses are not paid in cash.
Only to correct errors in the initial recording of business transactions.
When transactions affect the revenue or expenses of more than one accounting period.
4. Genreally, adjusting entries do NOT consist of: (Points : 5)
A debit to an expense and a credit to an asset.
A debit to an expense and a credit to revenue.
A debit to an expense and a credit to a liability.
A debit to a liability and a credit to revenue.
5. A building might be depreciated over fifteen years because (Points : 5)
it is expected to help generate revenue for the company over fifteen years.
it has a fifteen year mortgage.
income tax provisions require depreciation
over fifteen years.
it will lose most of its market value in fifteen years.
6. Which of the following statements is not true regarding prepaid expenses? (Points : 5)
Prepaid expenses represent assets.
Prepaid expenses are shown in a special section of the income statement.
Prepaid expenses become expenses only as goods or services are used up.
Prepaid expenses appear in the balance sheet.
7. The balance of an unearned revenue account: (Points : 5)
Appears in the balance sheet as a component of stockholders' equity.
Appears in the income statement along with other revenue accounts.
Appears in a separate section of the income statement for revenue not yet earned.
Appears in the liability section of the balance sheet.
8. As of January 31, Hudson Corporation owes $600 to U-Rent-It for equipment used during January. If no adjustment is made for this item at January 31, how will Hudson's financial statements be affected? (Points : 5)
Cash will be overstated at January 31.
Net income for January will be overstated.
Stockholders' equity will be understated.
The financial statements will be accurate since the $600 does not have to be paid yet.
9. The adjusting entry to record corporate income taxes accrued during a profitable period: (Points : 5)
Is made when the income tax return is filed.
Is often omitted because this expense is relatively insignificant compared to most other business expenses.
Reduces net income, but has no immediate effect on the corporation's assets.
Includes a credit to the Cash account.
10. The accountant for the Linville Company forgot to make an adjusting entry to record revenue earned but not yet billed to customers. The effect of this error is: (Points : 5)
An overstatement of assets.
An overstatement of stockholders' equity.
Understatement of both assets and stockholders' equity
Overstatement of both assets and stockholders' equity.
11. An adjusting entry involving recognition of unrecorded revenue is necessary at the end of March in which of the following situations? (Points : 5)
Financial Consultants received payment in February for consulting services rendered in March.
Financial Consultants began working for a client on March 15; bills will be sent monthly beginning April 15.
Financial Consultants made payment in January for office rent for the first three months of the year.
On March 31, a major customer paid his bill for a consulting job completed in February.
12. Which of the following entries causes an immediate decrease in assets and in stockholders' equity? (Points : 5)
The entry to record depreciation expense.
The entry to record revenue earned but not yet received.
The entry to record the earned portion of rent received in advance.
The entry to record accrued wages payable.
13. The CPA firm auditing Greer Company found that net income had been overstated. Which of the following errors could be the cause? (Points : 5)
Failure to record depre