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lOMoARcPSD|12688101 Adjusting the Accounts 3-5 TRUE-FALSE STATEMENTS 1. Many business transactions affect more than one time period. 2. The time period assumption states that the economic life of a business entity can be divided into artificial time periods. 3. The time period assumption is often referred to as the matching principle. Matching: record revenues with all 4. A company's calendar year and fiscal year are always the same. 5. Accounting time periods that are one year in length are referred to as interim periods. 6. Income will always be greater under the cash basis of accounting than under the accrual basis of accounting. 7. The cash basis of accounting is not in accordance with generally accepted accounting principles. 8. The matching principle requires that efforts be matched with accomplishments. 9. Expense recognition is tied to revenue recognition. 10. The revenue recognition principle dictates that revenue be recognized in the accounting period in which cash is received. performance obligation is satisfied 11. Adjusting entries are not necessary if the trial balance debit and credit columns balances are equal. 12. An adjusting entry always involves two balance sheet accounts. 13. Adjusting entries are often made because some business events are not recorded as they occur. 14. Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger. 15. Revenue received before it is earned and expenses paid before being used or consumed are both initially recorded as liabilities. 16. Accrued revenues are revenues which have been received but not yet earned. 17. The book value of a depreciable asset is always equal to its market value because depreciation is a valuation technique. 18. Accumulated Depreciation is a liability account and has a credit normal account balance. 19. A liability—revenue account relationship exists with an unearned rent revenue adjusting entry. 20. The balances of the Depreciation Expense and the Accumulated Depreciation accounts should always be the same. related expenses Downloaded by K60 Nguy?n Huy?n Trang (k60.2112450092@ftu.edu.vn) lOMoARcPSD|12688101 3-6 Test Bank for Accounting Principles, Eighth Edition 21. Unearned revenue is a prepayment that requires an adjusting entry when services are performed. 22. Asset prepayments become expenses when they expire. 23. A contra asset account is subtracted from a related account in the balance sheet. 24. If prepaid costs are initially recorded as an asset, no adjusting entries will be required in the future. 25. The cost of a depreciable asset less accumulated depreciation reflects the book value of the asset. 26. Accrued revenues are revenues that have been earned and received before financial statements have been prepared. earn but not yet receive 27. Financial statements can be prepared from the information provided by an adjusted trial balance. a 28. The adjusting entry at the end of the period to record an expired cost may be different depending on whether the cost was initially recorded as an asset or an expense. a 29. Rent received in advance and credited to a rent revenue account which is still unearned at the end of the period, will require an adjusting entry crediting a liability account for the amount still unearned. a An adjusting entry requiring a credit to Insurance Expense indicates that the initial transaction was charged to an asset account. 30. Additional True-False Questions 31. The matching principle requires that expenses be matched with revenues. 32. In general, adjusting entries are required each time financial statements are prepared. 33. Every adjusting entry affects one balance sheet account and one income statement account. 34. The Accumulated Depreciation account is a contra asset account that is reported on the balance sheet. 35. Accrued revenues are amounts recorded and received but not yet earned. ngược lại 36. An adjusted trial balance should be prepared before the adjusting entries are made. after a When a prepaid expense is initially debited to an expense account, expenses and assets are both overstated prior to adjustment. assets understated 37. Downloaded by K60 Nguy?n Huy?n Trang (k60.2112450092@ftu.edu.vn) lOMoARcPSD|12688101 Adjusting the Accounts 3-7 Ans. Answers to True-False Statements Item 1. 2. 3. 4. 5. 6. Ans. T T F F F F Item 7. 8. 9. 10. 11. 12. Ans. T T T F F F Item 13. 14. 15. 16. 17. 18. Ans. T F F F F F Item 19. 20. 21. 22. 23. 24. Ans. T F T T T F Item 25. 26. 27. a 28. a 29. a 30. Item T F T T T F 31. 32. 33. 34. 35. 36. Ans. Item Ans. T T T T F F a F 37. MULTIPLE CHOICE QUESTIONS 38. Monthly and quarterly time periods are called a. calender periods. b. fiscal periods. c. interim periods. d. quarterly periods. 39. The time period assumption states that a. a transaction can only affect one period of time. b. estimates should not be made if a transaction affects more than one time period. c. adjustments to the enterprise's accounts can only be made in the time period when the business terminates its operations. d. the economic life of a business can be divided into artificial time periods. 40. An accounting time period that is one year in length, but does not begin on January 1, is referred to as a. a fiscal year. b. an interim period. c. the time period assumption. d. a reporting period. 41. Adjustments would not be necessary if financial statements were prepared to reflect net income from a. monthly operations. b. fiscal year operations. c. interim operations. d. lifetime operations. 42. Management usually desires ________ financial statements and the IRS requires all businesses to file _________ tax returns. a. annual, annual b. monthly, annual c. quarterly, monthly d. monthly, monthly 43. The time period assumption is also referred to as the a. calendar assumption. b. cyclicity assumption. c. periodicity assumption. d. fiscal assumption. Downloaded by K60 Nguy?n Huy?n Trang (k60.2112450092@ftu.edu.vn) lOMoARcPSD|12688101 3-8 Test Bank for Accounting Principles, Eighth Edition 44. In general, the shorter the time period, the difficulty of making the proper adjustments to accounts a. is increased. b. is decreased. c. is unaffected. d. depends on if there is a profit or loss. 45. Which of the following is not a common time period chosen by businesses as their accounting period? a. Daily b. Monthly c. Quarterly d. Annually 46. Which of the following time periods would not be referred to as an interim period? a. Monthly b. Quarterly c. Semi-annually d. Annually 47. The fiscal year of a business is usually determined by a. the IRS. b. a lottery. c. the business. d. the SEC. 48. Which of the following are in accordance with generally accepted accounting principles? a. Accrual basis accounting b. Cash basis accounting c. Both accrual basis and cash basis accounting d. Neither accrual basis nor cash basis accounting 49. The revenue recognition principle dictates that revenue should be recognized in the accounting records a. when cash is received. b. when it is earned. c. at the end of the month. d. in the period that income taxes are paid. 50. In a service-type business, revenue is considered earned a. at the end of the month. b. at the end of the year. c. when the service is performed. d. when cash is received. 51. The matching principle matches a. customers with businesses. b. expenses with revenues. c. assets with liabilities. d. creditors with businesses. Downloaded by K60 Nguy?n Huy?n Trang (k60.2112450092@ftu.edu.vn) lOMoARcPSD|12688101 Adjusting the Accounts 3-9 52. Ken's Tune-up Shop follows the revenue recognition principle. Ken services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Ken on August 5. Ken receives the check in the mail on August 6. When should Ken show that the revenue was earned? a. July 31 b. August 1 c. August 5 d. August 6 53. A company spends $10 million dollars for an office building. Over what period should the cost be written off? a. When the $10 million is expended in cash b. All in the first year c. Over the useful life of the building d. After $10 million in revenue is earned 54. The matching principle states that expenses should be matched with revenues. Another way of stating the principle is to say that a. assets should be matched with liabilities. b. efforts should be matched with accomplishments. c. owner withdrawals should be matched with owner contributions. d. cash payments should be matched with cash receipts. 55. A dress shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The dress shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be earned? a. December 5 b. December 10 c. November 30 d. December 1 56. A furniture factory's employees work overtime to finish an order that is sold on February 28. The office sends a statement to the customer in early March and payment is received by mid-March. The overtime wages should be expensed in a. February. b. March. c. the period when the workers receive their checks. d. either in February or March depending on when the pay period ends. 57. Expenses sometimes make their contribution to revenue in a different period than when the expense is paid. When wages are incurred in one period and paid in the next period, this often leads to which account appearing on the balance sheet at the end of the time period? a. Due from Employees b. Due to Employer c. Wages Payable d. Wages Expense Downloaded by K60 Nguy?n Huy?n Trang (k60.2112450092@ftu.edu.vn) lOMoARcPSD|12688101 3 - 10 Test Bank for Accounting Principles, Eighth Edition 58. Under accrual-basis accounting a. cash must be received before revenue is recognized. b. net income is calculated by matching cash outflows against cash inflows. c. events that change a company's financial statements are recognized in the period they occur rather than in the period in which cash is paid or received. d. the ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles. 59. Adjusting entries are required a. yearly. b. quarterly. c. monthly. d. every time financial statements are prepared. 60. Which is not an application of revenue recognition? a. Recording revenue as an adjusting entry on the last day of the accounting period. b. Accepting cash from an established customer for services to be performed over the next three months. c. Billing customers on June 30 for services completed during June. d. Receiving cash for services performed. 61. Which statement is correct? a. As long as a company consistently uses the cash basis of accounting, generally accepted accounting principles allow its use. b. The use of the cash basis of accounting violates both the revenue recognition and matching principles. c. The cash basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received. d. As long as management is ethical, there are no problems with using the cash basis of accounting. 62. The following is selected information from J Corporation for the fiscal year ending October 31, 2008. Cash received from customers Revenue earned Cash paid for expenses Cash paid for computers on November 1, 2007 that will be used for 3 years (annual depreciation is $16,000) Expenses incurred, not including any depreciation Proceeds from a bank loan, part of which was used to pay for the computers $300,000 350,000 170,000 48,000 200,000 100,000 Based on the accrual basis of accounting, what is J Corporation’s net income for the year ending October 31, 2008? a. $114,000 b. $134,000 350000-200000-16000 c. $82,000 d. $15