• Question 1. The revenue recognition principle dictates that revenue is recognized in the period in which the cash is received.
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  True. False.

• Question 2.  The matching principle requires that expenses be recognized in the same period that they are paid.
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  True. False.

• Question 3. The cash basis of accounting is in accordance with generally accepted accounting principles.
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  True. False.

• Question 4. Book value is equal to cost minus accumulated amortization.
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  True. False.

• Question 5.  Accrued expenses represent expenses that have already been paid.
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  True. False.

PART TWO: MULTIPLE CHOICE

• Question 6. A company receives its electricity bill on May 20, closes its books on May 31, sends a cheque in payment of the bill on June 5, and verifies the electric company received the cheque on June 11. Under the matching principle, the expense should be recognized on
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  May 20. May 31. June 5. June 11.

• Question 7. If revenues are recognized only when a customer pays, what method of accounting is being used?
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  Accrual basis. Recognition basis. Cash basis. Matching basis.

• Question 8. Which of the following is not a type of adjusting entry?
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  Prepaid expenses. Earned revenues. Accrued revenues. Accrued expenses.

• Question 9. Which of the following is not a typical example of a prepaid expense?
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  Supplies. Insurance. Rent. Wages.

• Question 10. The difference between an asset's cost and its accumulated amortization is called:
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  Market value. Fair value. Book value. Real value.

• Question 11. Payments received in advance of services provided are recorded as:
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  Revenues. Equity. Expenses. Liabilities.

• Question 12. Which of the following is not a typical example of an accrued expense?
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  Amortization. Wages. Interest. Taxes.

• Question 13. If the adjusting entry is not made to recognize unearned revenues the result will be to:
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  Overstate assets and understate liabilities. Overstate liabilities and understate revenues. Understate net earnings and overstate retained earning. Understate retained earnings and overstate revenues.

• Question 14. Medina Company purchased office supplies costing $5,000 and debited Office Supplies (an asset account reflecting supplies on hand) for the full amount. Supplies on hand at the end of the accounting period were $1,300. The appropriate adjusting journal entry to be made would be:
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  Debit Office Supplies $3,700; credit Office Supplies Expense $3,700. Debit Office Supplies Expense $1,300; credit Office Supplies $1,300. Debit Office Supplies Expense $3,700; credit Office Supplies $3,700. Debit Office Supplies $1,300; credit Office Supplies Expense $4,000.

• Question 15. On September 1, the Mini-Mite Store paid $12,000 to the Maxi-Mall Co. for 3 months rent beginning September 1. Prepaid rent was debited for the payment. If financial statements are prepared on September 30, the appropriate adjusting journal entry to make on September 30 would be:
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  Debit Rent Expense $4,000; credit Prepaid Rent $4,000. Debit Prepaid Rent $9,000; credit Rent Expense $9,000. Debit Rent Expense $9,000; credit Prepaid Rent $9,000. Debit Prepaid Rent $4,000; credit Rent Expense $4,000.

• Question 16. On August 1, the Hwang Co. purchased a photocopy machine for $8,000. The estimated annual amortization on the machine is $1,680. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 would be:
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  Debit Amortization Expense $140; credit Accumulated Amortization $140. Debit Amortization Expense $1,680; credit Accumulated Amortization $1,680. Debit Amortization Expense $700; credit Accumulated Amortization $700. Debit Amortization Expense $700; credit Office Equipment $700.

• Question 17. Redlands Property Management Co. received a cheque for $30,000 on October 1, which represents a one year advance payment of rent on an office it rents to a client. Unearned Rental Revenue was credited for the full $30,000. Financial statements are prepared on December 31. The appropriate adjusting journal entry to make on December 31 would be:
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  Debit Rental Revenue $2,500; credit Unearned Rental Revenue $2,500. Debit Unearned Rental Revenue $7,500; credit Rental Revenue $7,500. Debit Unearned Rental Revenue $22,500; credit Rental Revenue $22,500. Debit Rental Revenue $22,500; credit Unearned Rental Revenue $22,500.

• Question 18. On July 1, East Lake, Inc. purchased a 3-year insurance policy for $12,600. Prepaid Insurance was debited for the entire amount. On December 31, when the annual financial statements are prepared, the appropriate adjusting journal entry would be: a. debit Prepaid Insurance $2,100; credit Insurance Expense $2,100.
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  Debit Prepaid Insurance $2,100; credit Insurance Expense $2,100. Debit Insurance Expense $10,500; Credit Prepaid Insurance $10,500. Debit Prepaid Insurance $10,500; credit Insurance Expense $10,500. Debit Insurance Expense $2,100; credit Prepaid Insurance $2,100.

• Question 19.  On August 1, Hacienda Corporation signed a $30,000, 14%, 2-year note to help finance some renovations they were making to the corporation headquarters. Assuming interest is accrued only when the year ends on December 31, the appropriate journal entry would be:
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  Debit Interest Expense $1,750; credit Interest Payable $1,750. Debit Interest Expense $4,200; credit Notes Payable $4,200. Debit Interest Expense $1,750; credit Notes Payable $1,750. Debit Interest Expense $4,200; credit Interest Payable $4,200.

• Question 20. Employees at the Topanga Taco House were paid on Friday, December 27 for the five days ending on December 27. The next payday is Friday, January 3. Employees work 5 days a week. The weekly payroll amounts to $3,800. The appropriate adjusting journal entry on December 31 would be credit Wages Payable for:
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  $760. $1,520. $2,280. $3,800.