The time period assumption states that

31. 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.

32. 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.

33. 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.

34. Management usually desires _________ financial statements and the Canada Customs and Revenue Agency requires all businesses to file __________ tax returns.

a. annual, annual

b. monthly, annual

c. quarterly, monthly

d. monthly, monthly

35. Companies use the time period assumption to prepare financial statements for all the following reasons except:

a. management often requires monthly financial statements to facilitate decision making.

b. investors need current financial information to assist in investment decisions.

c. the Canada Customs and Revenue Agency requires that annual financial statements be filed with tax returns .

d. the Department of Industry, Trade and Technology requires that annual financial statements be prepared for all businesses operating in Canada.

36. 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.

37. 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

38. Which of the following time periods would not be referred to as an interim period?

a. Monthly

b. Quarterly

c. Semi-annually

d. Annually

39. The fiscal year of a business is usually determined by

a. the Canada Customs and Revenue Agency.

b. the Tax Act.

c. the business.

d. provincial securities and exchange commissions.

40. 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.

41. 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.

42. The matching principle matches

a. customers with businesses.

b. expenses with revenues.

c. assets with liabilities.

d. creditors with businesses.

43. Moishe's Tune-up Shop follows the revenue recognition principle. Moishe services a car on July 31. The customer picks up the vehicle on August 1 and mails the payment to Moishe on August 5. Moishe receives the cheque in the mail on August 6. When should Moishe show that the revenue was earned?

a. July 31

b. August 1

c. August 5

d. August 6

44. 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

45. 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.

46. A dress shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a cheque 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

47. 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 cheques.

d. either in February or March depending on when the pay period ends.

48. 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. Unearned Wages

c. Wages Payable

d. Wages Expense

49. Under the accrual basis of 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.

50. A small company may be able to justify using a cash basis of accounting if they have

a. sales under $1,000,000.

b. no accountants on staff.

c. few receivables and payables.

d. all sales and purchases on account.

51. Accounts often need to be adjusted because

a. there are never enough accounts to record all the transactions.

b. many transactions affect more than one time period.

c. there are always errors made in recording transactions.

d. management can't decide what they want to report.

52. Adjusting entries are

a. not necessary if the accounting system is operating properly.

b. usually required before financial statements are prepared.

c. made whenever management desires to change an account balance.

d. made to balance sheet accounts only.

53. Adjusting entries are required

a. because some costs expire with the passage of time and have not yet been journalized.

b. when the company's profits are below the budget.

c. when expenses are recorded in the period in which they are earned.

d. when revenues are recorded in the period in which they are earned.

54. Which one of the following is not a justification for adjusting entries?

a. Adjusting entries are necessary to ensure that revenue recognition principles are followed.

b. Adjusting entries are necessary to ensure that the matching principle is followed.

c. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP.

d. Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

55. An adjusting entry

a. affects two balance sheet accounts.

b. affects two income statement accounts.

c. affects a balance sheet account and an income statement account.

d. is always a compound entry.

56. The preparation of adjusting entries is

a. straight forward because the accounts that need adjustment will be out of balance.

b. often an involved process requiring the skills of a professional.

c. only required for accounts that do not have a normal balance.

d. optional when financial statements are prepared.

57. If a resource has been consumed but a bill has not been received at the end of the accounting period, then

a. an expense should be recorded when the bill is received.

b. an expense should be recorded when the cash is paid out.

c. an adjusting entry should be made recognizing the expense.

d. it is optional whether to record the expense before the bill is received.

58. An asset—expense relationship exists with

a. liability accounts.

b. revenue accounts.

c. prepaid expense adjusting entries.

d. accrued expense adjusting entries.

59. Ng Company purchased office supplies costing $4,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $1,600 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be

a. Debit Office Supplies Expense, $1,600; Credit Office Supplies, $1,600.

b. Debit Office Supplies, $2,400; Credit Office Supplies Expense, $2,400.

c. Debit Office Supplies Expense, $2,400; Credit Office Supplies, $2,400.

d. Debit Office Supplies, $1,600; Credit Office Supplies Expense, $1,600.

60. A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Legal Fees. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause

a. expenses to be overstated.

b. net income to be overstated.

c. liabilities to be understated.

d. revenues to be understated.

61. Adjusting entries can be classified as

a. postponements and advances.

b. accruals, prepayments, and estimates (amortization).

c. prepayments and postponements.

d. accruals and advances.

62. Accrued revenues are

a. received and recorded as liabilities before they are earned.

b. earned and recorded as liabilities before they are received.

c. earned but not yet received or recorded.

d. earned and already received and recorded.

63. Prepaid expenses are

a. paid and recorded in an asset account before they are used or consumed.

b. paid and recorded in an asset account after they are used or consumed.

c. incurred but not yet paid or recorded.

d. incurred and already paid or recorded.

64. Accrued expenses are

a. paid and recorded in an asset account before they are used or consumed.

b. paid and recorded in an asset account after they are used or consumed.

c. incurred but not yet paid or recorded.

d. incurred and already paid or recorded.

65. Unearned revenues are

a. received and recorded as liabilities before they are earned.

b. earned and recorded as liabilities before they are received.

c. earned but not yet received or recorded.

d. earned and already received and recorded.

66. A liability-revenue relationship exists with

a. prepaid expense adjusting entries.

b. accrued expense adjusting entries.

c. unearned revenue adjusting entries.

d. accrued revenue adjusting entries.

67. Which of the following reflect the balances of prepayment accounts prior to adjustment?

a. Balance sheet accounts are understated and income statement accounts are understated.

b. Balance sheet accounts are overstated and income statement accounts are overstated.

c. Balance sheet accounts are overstated and income statement accounts are understated.

d. Balance sheet accounts are understated and income statement accounts are overstated.

68. The Village Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $3,000 on hand. The adjusting entry that should be made by the company on June 30 is

a. Debit Laundry Supplies Expense, $3,000; Credit Laundry Supplies, $3,000.

b. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,000.

c. Debit Laundry Supplies, $3,500; Credit Laundry Supplies Expense, $3,500.

d. Debit Laundry Supplies Expense, $3,500; Credit Laundry Supplies, $3,500.

69. On July 1 the Winter Shoe Store paid $6,000 to Ace Realty for 4 months rent beginning July 1. Prepaid Rent was debited for the full amount. If financial statements are prepared on July 31, the adjusting entry to be made by the Winter Shoe Store is

a. Debit Rent Expense, $6,000; Credit Prepaid Rent, $1,000.

b. Debit Prepaid Rent, $1,500; Credit Rent Expense, $1,500.

c. Debit Rent Expense, $1,500; Credit Prepaid Rent, $1,500.

d. Debit Rent Expense, $6,000; Credit Prepaid Rent, $6,000.

70. Amortization expense for a period can be calculated by taking the

a. original cost of a capital asset – accumulated amortization.

b. capital cost ÷ amortization rate.

c. cost of the capital asset ÷ useful life.

d. market value of the asset ÷ useful life.

71. Accumulated Amortization is

a. an expense account.

b. an owner's equity account.

c. a liability account.

d. a contra asset account.

72. Singh Company purchased a microcomputer for $3,000 on December 1. It is estimated that annual amortization on the computer will be $1,200. If financial statements are to be prepared on December 31, the company should make the following adjusting entry:

a. Debit Amortization Expense, $600; Credit Accumulated Amortization, $600.

b. Debit Amortization Expense, $100; Credit Accumulated Amortization, $100.

c. Debit Amortization Expense, $2,400; Credit Accumulated Amortization, $2,400.

d. Debit Office Equipment, $3,000; Credit Accumulated Amortization, $3,000.

73. McCloud Realty Company received a cheque for $21,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $21,000. Financial statements will be prepared on July 31. McCloud Realty should make the following adjusting entry on July 31:

a. Debit Unearned Rent, $3,500; Credit Rental Revenue, $3,500.

b. Debit Rental Revenue, $3,500; Credit Unearned Rent, $3,500.

c. Debit Unearned Rent, $21,000; Credit Rental Revenue, $21,000.

d. Debit Cash, $21,000; Credit Rental Revenue, $21,000.

74. As prepaid expenses expire with the passage of time, the correct adjusting entry will be a

a. debit to an asset account and a credit to an expense account.

b. debit to an expense account and a credit to an asset account.

c. debit to an asset account and a credit to an asset account.

d. debit to an expense account and a credit to an expense account.

75 . A company usually determines the amount of supplies used during a period by

a. adding the supplies on hand to the balance of the Supplies account.

b. summing the amount of supplies purchased during the period.

c. taking the difference between the supplies purchased and the supplies paid for during the period.

d. taking the difference between the balance of the Supplies account and the cost of supplies on hand.

76. If a company fails to make an adjusting entry to record supplies expense, then

a. owner's equity will be understated.

b. expense will be understated.

c. assets will be understated.

d. net income will be understated.

77. If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect will this have on that month's financial statements?

a. Failure to make an adjustment does not affect the financial statements.

b. Expenses will be overstated and net income and owner's equity will be understated.

c. Assets will be overstated and net income and owner's equity will be understated.

d. Assets will be overstated and net income and owner's equity will be overstated.

78. At December 31, 2001, before any year-end adjustments, Lindgren Company's Insurance Expense account had a balance of $725 and its Prepaid Insurance account had a balance of $1,900. It was determined that $1,500 of the Prepaid Insurance had expired. The adjusted balance for Insurance Expense for the year would be

a. $1,500.

b. $725.

c. $2,225.

d. $1,125.

79. Amortization of a capital asset is the process of

a. valuing a capital asset at its fair market value.

b. increasing the cost of a capital asset over the periods the asset benefits.

c. allocating the cost of a capital asset to an expense over the periods the asset benefits.

d. writing down a capital asset to its real value each accounting period.

80. A new accountant working for Metcalf Company records $800 Amortization Expense on store equipment as follows:

Dr. Amortization Expense ............................................... 800

Cr. Cash ................................................................. 800

The effect of this entry is to

a. adjust the accounts to their proper amounts on December 31.

b. understate total assets on the balance sheet as of December 31.

c. overstate the net book value of the capital assets at December 31.

d. understate the net book value of the capital assets as of December 31.

81. From an accounting standpoint, the acquisition of productive facilities can be thought of as a long-term

a. accrual of expense.

b. accrual of revenue.

c. accrual of unearned revenue.

d. prepayment for services.

82. In calculating amortization, the number of years of useful life of the asset is

a. known with certainty.

b. an estimate.

c. always fixed at 5 years.

d. always fixed at 3 years.

83. An accumulated amortization account

a. is a contra-liability account.

b. increases on the debit side.

c. is offset against total assets on the balance sheet.

d. has a normal credit balance.

84. The difference between the cost of a capital asset and its related accumulated amortization is referred to as the

a. market value of the capital asset.

b. blue book value of the capital asset.

c. net book value of the capital asset.

d. amortized difference of the capital asset.

85. If a business has several types of capital assets such as equipment, buildings, and trucks,

a. there should be only one accumulated amortization account.

b. there should be separate accumulated amortization accounts for each type of capital asset.

c. all the capital asset accounts will be recorded in one general ledger account.

d. there won't be a need for an accumulated amortization account.

86. Which of the following would not result in unearned revenue?

a. Rent collected in advance from tenants

b. Services performed on account

c. Sale of season tickets to hockey games

d. Sale of two-year magazine subscriptions

87. If a business pays rent in advance and debits a Prepaid Rent account, the company receiving the rent payment will credit

a. cash.

b. prepaid rent.

c. unearned rent revenue.

d. accrued rent revenue.

88. Unearned revenue is classified as

a. an asset account.

b. a revenue account.

c. a contra-revenue account.

d. a liability.

89. If a business has received cash in advance of services performed and credits a liability account, the adjusting entry needed after the services are performed will be

a. debit Unearned Revenue and credit Cash.

b. debit Unearned Revenue and credit Revenue Earned.

c. debit Unearned Revenue and credit Prepaid Expense.

d. debit Unearned Revenue and credit Accounts Receivable.

90. The accounts of a business before an adjusting entry is made to record an accrued revenue reflect an

a. understated liability and an overstated owner's capital.

b. overstated asset and an understated revenue.

c. understated expense and an overstated revenue.

d. understated asset and an understated revenue.

91. Von Trapp Guitar Company borrowed $10,000 from the bank signing a 6%, 3-month note on September 1. Principal and interest are payable to the bank on December 1. If the company prepares monthly financial statements and uses months rather than days to calculate interest, the adjusting entry that the company should make for interest on September 30, would be

a. debit Interest Expense, $600; credit Interest Payable, $600.

b. debit Interest Expense, $50; credit Interest Payable, $50.

c. debit Note Payable, $600; credit Cash, $600.

d. debit Cash, $150; credit Interest Payable, $150.

92. Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause

a. net income to be understated.

b. an overstatement of assets and an overstatement of liabilities.

c. an understatement of expenses and an understatement of liabilities.

d. an overstatement of expenses and an overstatement of liabilities.

93. Failure to prepare an adjusting entry at the end of a period to record an accrued revenue would cause

a. net income to be overstated.

b. an understatement of assets and an understatement of revenues.

c. an understatement of revenues and an understatement of liabilities.

d. an understatement of revenues and an overstatement of liabilities.

94. Jane Richards has performed $500 of accounting services for a client but has not billed the client as of the end of the accounting period. What adjusting entry must Jane make?

a. Debit Cash and credit Unearned Revenue

b. Debit Accounts Receivable and credit Unearned Revenue

c. Debit Accounts Receivable and credit Service Revenue

d. Debit Unearned Revenue and credit Service Revenue

95. Jane Richards, CGA, has billed her clients for services performed. She subsequently receives payments from her clients. What entry will she make upon receipt of the payments?

a. Debit Unearned Revenue and credit Service Revenue

b. Debit Cash and credit Accounts Receivable

c. Debit Accounts Receivable and credit Service Revenue

d. Debit Cash and credit Service Revenue

96. Ames Real Estate signed a four-month note payable in the amount of $8,000 on September 1. The note requires interest at an annual rate of 6%. The amount of interest to be accrued at the end of September is

a. $160.

b. $40.

c. $480.

d. $800.

97. A gift shop signs a three-month note payable to help finance increases in inventory for the Christmas shopping season. The note is signed on November 1 in the amount of $40,000 with annual interest of 6%. What is the adjusting entry to be made on December 31 for the interest expense accrued to that date, if no entries have been made previously for the interest?

a. Interest Expense ................................................................... 400

Interest Payable ........................................................... 400

b. Interest Expense ................................................................... 2,400

Interest Payable ........................................................... 2,400

c. Interest Expense ................................................................... 600

Cash ............................................................................. 600

d. Interest Expense ................................................................... 400

Note Payable ............................................................... 400

98. Snell Tables paid employee wages on and through Friday, January 22, and the next payroll will be paid February 5. There are five more working days in January (25–29). Employees work 5 days a week and the company pays $800 a day in wages. What will be the adjusting entry to accrue wages expense at the end of January?

a. Wages Expense .................................................................... 800

Wages Payable ............................................................ 800

b. Wages Expense .................................................................... 7,200

Wages Payable ............................................................ 7,200

c. Wages Expense .................................................................... 4,000

Wages Payable ............................................................ 4,000

d. No adjusting entry is required.

99. A company shows a balance in Salaries Payable of $40,000 at the end of the month. The next payroll amounting to $50,000 is to be paid in the following month. What will be the journal entry to record the payment of salaries?

a. Salaries Expense .................................................................. 50,000

Salaries Payable .......................................................... 50,000

b. Salaries Expense .................................................................. 50,000

Cash ............................................................................. 50,000

c. Salaries Expense .................................................................. 10,000

Cash ............................................................................. 10,000

d. Salaries Expense .................................................................. 10,000

Salaries Payable ................................................................... 40,000

Cash ............................................................................. 50,000

100. An adjusted trial balance

a. is prepared after the financial statements are completed.

b. proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.

c. is a required financial statement under generally accepted accounting principles.

d. cannot be used to prepare financial statements.

101. Which of the statements below is not true?

a. An adjusted trial balance should show ledger account balances.

b. An adjusted trial balance can be used to prepare financial statements.

c. An adjusted trial balance proves the mathematical equality of debits and credits in the ledger.

d. An adjusted trial balance is prepared before all transactions have been journalized.

*102. Lee is a barber who does his own accounting for his shop. When he buys supplies he routinely debits Supplies Expense. Lee purchased $1,500 of supplies in January and his inventory at the end of January shows $600 of supplies remaining. What adjusting entry should Lee make on January 31?

a. Supplies Expense ................................................................. 600

Supplies ....................................................................... 600

b. Supplies Expense ................................................................. 1,500

Cash ............................................................................. 1,500

c. Supplies ................................................................................ 600

Supplies Expense ........................................................ 600

d. Supplies Expense ................................................................. 900

Supplies ....................................................................... 900

*103. Bill is a lawyer who requires that his clients pay him in advance of legal services rendered. Bill routinely credits Legal Fee Revenue when his clients pay him in advance. In June, Bill collected $8,000 in advance fees and completed 75% of the work related to these fees. What adjusting entry is required by Bill's firm at the end of June?

a. Unearned Revenue............................................................... 6,000

Legal Fee Revenue...................................................... 6,000

b. Unearned Revenue .............................................................. 2,000

Legal Fee Revenue...................................................... 2,000

c. Cash ...................................................................................... 8,000

Legal Fee Revenue...................................................... 8,000

d. Legal Fee Revenue............................................................... 2,000

Unearned Revenue...................................................... 2,000

*104. If prepaid expenses are initially recorded in expense accounts and have not all been used at the end of the accounting period, then failure to make an adjusting entry will cause

a. assets to be understated.

b. assets to be overstated.

c. expenses to be understated.

d. contra-expenses to be overstated.

*105. If unearned revenues are initially recorded in revenue accounts and have not all been earned at the end of the accounting period, then failure to make an adjusting entry will cause

a. liabilities to be overstated.

b. revenues to be understated.

c. revenues to be overstated.

d. accounts receivable to be overstated.

*106. On January 2, 2002, Metropolitan Savings and Loan purchased a general liability insurance policy for $1,800 for coverage for the calendar year. The entire $1,800 was charged to Insurance Expense on January 2, 2002. If the firm prepares monthly financial statements, the proper adjusting entry on January 31, 2002, will be:

a. Insurance Expense ............................................................... 1,650

Prepaid Insurance ........................................................ 1,650

b. Prepaid Insurance ................................................................. 1,650

Insurance Expense ...................................................... 1,650

c. Insurance Expense ............................................................... 150

Prepaid Insurance ........................................................ 150

d. Prepaid Insurance ................................................................. 150

Insurance Expense ...................................................... 150