Quiz 2 - ACC

The accrual basis of accounting: 

• Is generally accepted for external reporting because it is more useful than cash basis for most business decisions.

• Is flawed because it gives complete information about cash flows.

• Recognizes revenues when received in cash.

• Eliminates the need for adjusting entries at the end of each period

An adjusting entry could be made for each of the following except: 

• Prepaid expenses.

• Depreciation.

• Owner withdrawals.

• Unearned revenues.
  
  

Which of the following statements is incorrect? 

• Adjustments to prepaid expenses, depreciation, and unearned revenues involve previously recorded assets and liabilities.

• Adjusting entries can be used to record both accrued expenses and accrued revenues.

• Prepaid expenses, depreciation, and unearned revenues often require adjusting entries to record the effects of the passage of time.

• Adjusting entries affect the cash account.

A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would: 

• Understate net income by $28,000.

• Overstate net income by $28,000.

• Have no effect on net income.

• Overstate assets by $28,000.

If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show: 

• Assets overstated and equity understated.
  
  

• Assets overstated, net income understated, and equity overstated.
  
  

• Assets, net income, and equity understated.

• Assets, net income, and equity overstated.

If a company failed to make the end-of-period adjustment to remove from the Unearned Management Fees account the amount of management fees that were earned, this omission would cause: 

• An overstatement of net income.

• An overstatement of liabilities.

• An overstatement of equity.

• An understatement of liabilities.

On June 30, 2009, Apricot Co. paid $7,500 cash for management services to be performed over a two-year period. On June 30, 2009 Apricot should record: 

• A credit to an expense for $7,500.

• A debit to an expense for $7,500.

• A debit to a prepaid expense for $7,500.

• A debit to Cash for $7,500.

 On June 30, 2009, Apricot Co. paid $7,500 cash for management services to be performed over a two-year period. The adjusting entry on December 31, 2009 for Apricot would include: 

• A debit to a prepaid expense for $5,625.

• A debit to an expense for $1,875.
  
  

• A debit to a prepaid expense for $1,875.

• A credit to a liability for $1,875.

An account linked with another account that has an opposite normal balance and that is subtracted from the balance of the related account is a(n): 

• Accrued expense.

• Contra account.

• Accrued revenue.

• Adjusting account.

Prior to recording adjusting entries, the Office Supplies account had a $359 debit balance. A physical count of the supplies showed $105 of unused supplies available. The required adjusting entry is: 

• Debit Office Supplies $105 and credit Office Supplies Expense $105.
  
  

• Debit Office Supplies Expense $105 and credit Office Supplies $105.
  
  

• Debit Office Supplies Expense $254 and credit Office Supplies $254.

• Debit Office Supplies $254 and credit Office Supplies Expense $254.