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Exam 3: Adjusting the Accounts

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Question 1

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Which statement is correct?

A) As long as a company consistently uses the cash basis of accounting, IFRS allow its use.
B) The use of the cash basis of accounting violates both the revenue recognition and expense recognition 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.

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

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Question 2

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A contra account found on the statement of financial position behaves contrary to accounting rules by being debited on the right and credited on the left.

A) True
B) False

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Question 3

Multiple Choice

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On January 1, 2011, Masters and Masters Company purchased equipment for € 30,000.The company is depreciating the equipment at the rate of € 700 per month.The book value of the equipment at December 31, 2011 is

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

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

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

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

Hardwood Supplies Inc.purchased a 12-month insurance policy on March 1, 2011 for ₤ 900.At March 31, 2011, the adjusting journal entry to record expiration of this asset will include a

Unearned revenue is reported on the income statement whereas deferred revenue is reported on the statement of financial position.

The fiscal year of a business is usually determined by

Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger.

Cara, Inc.purchased supplies costing ₤2,500 on January 1, 2011 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, 2011?

Accrued revenues are

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

Which of the following would not result in unearned revenue?

Expenses paid and recorded in an asset account before they are used or consumed are called ______________.Revenue received and recorded as a liability before it is earned is referred to as ______________.

A flower 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 flower shop follows IFRS and applies the revenue recognition principle.When is the $1,000 considered to be earned?

Bread Basket provides baking supplies to restaurants and grocery stores.During December 2011, Bread Basket's employees worked 2,400 hours at an average rate of €10 per hour.At December 31, 2011, Bread Basket has paid €11,000 of salary expense.If Bread Basket fails to make the appropriate adjusting entry, which of the following is true regarding its December 31, 2011 statement of financial position?

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

Niagara Corporation purchased a one-year insurance policy in January 2011 for $54,000.The insurance policy is in effect from March 2011 through February 2012.If the company neglects to make the proper year-end adjustment for the expired insurance