Chapter 3 Quiz

1. Which of the following describes the information reported in the income statement?

1. All accounts and account balances are shown.
2. Net income for the period is calculated by subtracting expenses from revenues.
3. Total assets equal total liabilities plus stockholders’ equity.
4. Changes in stockholders’ equity are shown through changes in common stock and retained earnings.

2.  Which of the following is a characteristic of adjusting entries?

1. Used in cash-basis accounting.
2. Allows for proper application of the revenue recognition principle (revenues) or expenses recognition.
3. Reduces the balances of revenue accounts to zero.
4. Recorded at the beginning of the accounting period.

3. Which of the following describes the information reported in the statement of cash flows?

1. Net income for the period calculated as revenues minus expenses.
2. Net cash flows from operating, investing, and financing activities.
3. Equality of total assets with total liabilities plus stockholders’ equity.
4. Changes in stockholders’ equity through changes in common stock and retained earnings.

4. Which of the following is an example of a prepaid expense?

1. Rent has been purchased in advance.
2. Service was provided to a customer but not yet billed.
3. Interest is incurred through the passage of time.
4. Utilities have been incurred but not yet paid.

5. The balance of retained earnings in the adjusted trial balance:

1. Is the amount shown for retained earnings in the balance sheet.
2. Equals the balance of retained earnings after closing entries.
3. Is not shown.
4. Equals the balance of retained earnings at the beginning of the accounting period.

6. Which of the following describes the information reported in the balance sheet?

1. Net income for the period is calculated by subtracting expenses from revenues.
2. Changes in stockholders’ equity are shown through changes in common stock and retained earnings.
3. Total assets equal total liabilities plus stockholders’ equity.
4. All accounts and account balances are shown and all debits equal all credits.

7. The revenue recognition principle states that companies typically record revenue:

1. In the period in which we received cash from customers for goods and services.
2. In the period in which customers order goods and services.
3. In the period in which goods and services are prepared to be sold to customers.
4. In the period in which we provide goods and services to customers.

8. On December 10, a company pays $500 for advertising to appear on December 20. On which date should the expense be recorded under accrual-basis accounting?

1. One-half on each date.
2. December 20.
3. December 10.
4. Neither.

9. Financial statements are prepared from which of the following trial balances?

1. Adjusted trial balance.
2. Unadjusted trial balance.
3. Financial trial balance.
4. Post-closing trial balance.

10. After the closing entries are posted to the accounts, all temporary accounts:

1. Have balances equal to the amounts shown in the adjusted trial balance.
2. Have balances equal to the amounts shown in the unadjusted trial balance.
3. Have zero balances.
4. Are open.

11. The adjusting entry to record interest earned during the period includes a:

1. Debit to Interest Expense.
2. Credit to Cash.
3. Debit to Cash.
4. Credit to Interest Revenue.

12. The adjusting entry to record supplies used during the period includes a:

1. Credit to Service Revenue
2. Debit to Supplies Expense
3. Debit to Supplies.
4. Credit to Cash

13. On March 4, Tonkawa Law asks Green Lawn Services for basic lawn maintenance totaling $200. Green Lawn provides maintenance on March 8, and Tonkawa pays for the lawn maintenance on March 12. Using cash-basis accounting, on which date should Tonkawa record lawn maintenance expense?

1. March 12 (date of cash payment).
2. March 8 (date of lawn maintenance service).
3. March 4 (date of request).
4. Evenly over the three dates.

14. On November 15, Meier Company received $3,000 cash from a customer for services that were performed on November 1. On which date should the revenue be recorded under cash-basis accounting?

1. November 1.
2. One-half on each date.
3. November 15.
4. Neither.

15. On September 9, Clearmore Services receives a request for services from a customer. The service is scheduled for September 15. On September 15, the service is provided, and the customer pays one week later on September 22. Using accrual-basis accounting, on which date should Clearmore Services record service revenue?

1. Evenly over the three dates.
2. September 15 (date of service).
3. September 22 (date of cash receipt).
4. September 9 (date of service request).

16. Which of the following describes the closing process?

1. Record activities that have occurred but that have not been recorded by the end of the accounting period.
2. Store all source documents used to record transactions throughout the period.
3. Record external events for the period so that financial statements can be prepared.
4. Transfer the balances of temporary accounts (revenues, expenses, and dividends) to retained earnings.

17. Under cash-basis accounting, companies typically report expenses:

1. In the same period as the revenue they help to generate.
2. In the same period in which an asset is purchased.
3. In the same period in which a divided is paid.
4. In the same period in which cash is paid.

18. In December 10, a company pays $500 for advertising to appear on December 20. On which date should the expense be recorded under cash-basis accounting?

1. One-half on each date.
2. December 20.
3. December 10.
4. Neither.

19. Which of the following accounts is not listed in a post-closing trial balance?

1. Equipment.
2. Interest Payable.
3. Service Revenue.
4. Accounts Receivable.

20. Under accrual-basis accounting, companies typically report expenses:

1. In the same period in which cash is paid.
2. In the same period in which an asset is purchased.
3. In the same period as the revenue they help to generate.
4. In the same period in which a liability is paid.

21. On March 4, Tonkawa Law asks Green Lawn Services for basic lawn maintenance totaling $200. Green Lawn provides maintenance on March 8, and Tonkawa pays for the lawn maintenance on March 12. Under accrual-basis accounting, on which date should Tonkawa record lawn maintenance expense?

1. March 8 (date of lawn maintenance service).
2. Evenly over the three dates.
3. March 12 (date of cash payment).
4. March 4 (date of request).

22. On September 9, Clearmore Services receives a request for services from a customer. The service is scheduled for September 15. On September 15, the service is provided, and the customer pays one week later on September 22. Using cash-basis accounting, on which date should Clearmore Services record service revenue?

1. September 9 (date of service request).
2. Evenly over the three dates.
3. September 22 (date of cash receipt).
4. September 15 (date of service).

23. Under cash-basis accounting, companies typically record revenue:

1. In the period in which goods and services are prepared to be sold to customers.
2. In the period in which we provide goods and services to customers.
3. In the period in which we received cash from customers for goods and services.
4. In the period in which customers order goods and services.

24 The entry to close the expense accounts includes:

1. A debit to all expense accounts.
2. A debit to Retained Earnings.
3. A debit to all expense accounts and a credit to Retained Earnings.
4. A credit to Retained Earnings.

25. Which of the following is an example of an accrued revenue?

1. Providing services to a customer without having yet collected the cash.
2. Delaying the payment of interest on an outstanding loan until next year.
3. Prepaying insurance coverage for the next 12 months.
4. Receiving cash in advance of a service to be provided to a customer.

26. Recording salaries owed to employees that will not be paid by the company until the following accounting period is an example of a(n):

1. Accrued revenue.
2. Unearned revenue.
3. Prepaid expense.
4. Accrued expense.

27. On November 15, Meier Company received $3,000 cash from a customer for services that were performed on November 1. According to the Revenue Recognition Principle, on which date should the revenue be recorded?

1. November 1.
2. One-half on each date.
3. Neither.
4. November 15.

28. Which of the following accounts is listed in a post-closing trial balance?

1. Advertising Expense.
2. Salaries Payable.
3. Service Revenue.
4. Dividends.