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Exam 3: Adjusting the Accounts

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Question 151

True/False

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An adjusting entry that increases an expense on the income statement and decreases an asset on the statement of financial position is the result of prepaid expenses that expire with the passage of time.

A) True
B) False

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Question 152

Multiple Choice

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Similarities between International Financial Reporting Standards (IFRS) and U.S. GAAP include all of the following except

A) Cash-basis accounting is not in accordance with either IFRS or U.S. GAAP.
B) Both IFRS and U.S. GAAP allow revaluation of item such as land and building to fair value.
C) Both IFRS and U.S. GAAP divide the economic life of companies into artificial time periods.
D) The form and content of financial statements are very similar under IFRS and U.S. GAAP.

E) B) and C)
F) All of the above

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Question 153

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Accrued expenses result in an adjustment to both the income statement and the statement of financial position.

Southwestern City College sold season tickets for the 2014 football season for $300,000. A total of 8 games will be played during September, October and November. Assuming all the games are played, the Unearned Ticket Revenue balance that will be reported on the December 31 statement of financial position will be

The periodicity assumption states

Which of the following statements concerning accrual-basis accounting is incorrect?

In accounting, _________________ results when different companies use the same accounting principles.

Which of the following statements related to the adjusted trial balance is incorrect?

The adjusted trial balance of the Neighborly Lane Paving Company includes the following statement of financial position accounts that frequently require adjustment. For each account, indicate (a) the type of adjusting entry (prepaid expenses, unearned revenues, accrued revenues, or accrued expenses) and (b) the related account in the adjusting entry.

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

Unearned revenue on the books of Chocolate Company, the landlord, can be a prepaid asset on the statement of financial position of its tenant, Cupcake, Inc.

You are visiting with a friend, Jim Bede, who wants to start a new business. During discussions on forming the business, Jim makes this statement: Our business will have accounts receivable and accounts payable. It will also acquire a substantial amount of computers and equipment. Will it be acceptable to use the cash basis of accounting? Prepare a response for Jim.

The expense recognition principle requires that efforts be matched with accomplishments.

Jackson Cement Corporation reported $35 million for sales when it only had $20 million of actual sales. Which of the following qualities of useful information has Jackson most likely violated?

Which of the following is a constraint in accounting?

Every adjusting entry affects one statement of financial position account and one income statement account.

Cara, Inc. purchased supplies costing ₤3,500 on January 1, 2014 and recorded the transaction by increasing assets. At the end of the year ₤1,300 of the supplies are still on hand. If Cara, Inc. does not make the appropriate adjusting entry, what is the impact on its statement of financial position at December 31, 2014?

Revenue received before it is earned and expenses paid before being used or consumed are both initially recorded as liabilities.

An accounting period that is one year in length is referred to as a ______________ year.

The adjusted trial balance of Wilcox Company at December 31, 2014 includes the following accounts: Retained Earnings $12,600; Dividends $6,000; Service Revenue $35,000; Salaries and Wages Expense $16,000; Insurance Expense $2,000; Rent Expense $3,500; Supplies Expense $500; and Depreciation Expense $1,000. Prepare a retained earnings statement for the year.