Final Accounting Assignment, Quiz Example

True/False

Indicate whether the statement is true or false.

1. Businesses typically use the accrual basis of measurement of revenues and expenses TRUE.
2. If a firm fails to record accrued revenue, its net income and assets will be understated. TRUE
3. In accounting, the term recognition means “recorded in the accounting system.” FALSE
4. If a fiscal period ends during the middle of a pay period, the amount earned by employees, but not yet paid to them by the company during the fiscal period should be recognized as an expense. TRUE
5. Prepaid insurance is considered a liability. FALSE
6. Accrued revenues and expenses occur when revenues and expenses are recognized before cash is received or paid. TRUE
7. The cost of plant equipment is normally charged to an expense in the year of purchase. FALSE
8. Adjusting the books is the last step in the accounting cycle. FALSE
9. Adjusting entries are necessary to ensure the correct account balances are reported for a particular fiscal period. TRUE
10. Assets and liabilities accounts are considered permanent accounts. FALSE

Multiple Choice

Identify the choice that best completes the statement or answers the question.

• The sale of merchandise on credit requires an entry in which two accounts?

• On December 31, 2007, Sean counted the office supplies on hand that amounted to $2,500. The firm had $1,900 of supplies on hand on January 1, 2007 and had purchased $6,000 of supplies during the year. What was the total supplies expense for the year?

• The bookkeeper at the Happy Holly Ranch forgot to record the expiration of prepaid insurance during 2007. The result of this error is that:

• During December, Francesca was hired. She earned $2,600 for the month. By December 31, $2,000 of these wages had been paid with the remainder to be paid during January. How will this information appear on the balance sheet and income statement at December 31?

Balance Sheet                    Income Statement

• Doctor’s, Inc. subscribes to three magazines and pays $140, $90 and $76, respectively, on July 1, 2007 The subscriptions are for one year and are recorded in Prepaid Subscriptions when paid. At December 31, 2007, which of the following entries should be made?

Magazine Expense       Prepaid Subscriptions