1)
In 2011, Company Y has received a prepayment of $2,000 for the
service to be done in 2012. In 2012, Company Y has rendered the
service for an amount of $1,500 but failed to record any adjusting
entry. What happens to Company Y's net income in 2012?
a) Net income would be overstated by $1,500.
b) Net income would be overstated by $500.
c) Net income would be understated by $500.
d) Net income would be understated by $1,500.
e) None of the choices listed.
2) On January 1, a company received advanced membership
payments of $300 from a customer for the next 6 months. The
membership is in effect immediately. By how much would the
company's equity have changed by March 31?
a) $50
b) $300
c) $0
d) $150
e) None of the choices listed
3) Revenue recoginition results in:
a) an increase in loans.
b) an increase in capital assets.
c) an increase in equity.
d) a decrease in expenses.
e) None of the choices listed.
4) Which of the following is the correct journal entey to
record one month of expired prepaid insurance?
a) Increase prepaid insurance and decrease cash
b) Increase insurance expense and decrease cash
c) Increase prepaid insurance and decrease insurance
expense
d) Increase insurance expense and decrease prepaid
insurance
e) None of the choices listed
5) When prepaid rent is recognized as an expense, which of the
following is true?
a) Prepaid rent decrease, rent expense on the income statement
increases and equity increases
b) Cash decreases and equity decreases
c) Prepaid rent decrease, rent expense of the balance sheet
increases and equity decreases.
d) Prepaid rent decrease, rent expense on the income statement
increases and equity decreases
e) None of the choices listed
6) Recognizing prepaid expense would cause equity to:
a) increase
b) decrease
c) no effect
d) not enough information
e) None of the choices listed
7) Extreme Cruise Inc. prepaid $4,500 for 3 months rent on
July 1, 2010. What would be the balance of the Prepaid Rent account
on September 1, 2010?
a) $4,500
b) $3,000
c) $1,500
d) $0
e) None of the choices listed
8) Which of the following statements is correct regarding
adjustments?
a) Adjustments are optional
b) All adjustments are made at the beginning of the accounting
period
c) Adjustments will correctly allocate cash to revenue or
expenses
d) Adjustments update assets, liabilities, and owner's
equity
e) None of the choices listed
9) A trial balance proves that:
a) each journal entry has been posted only once
b) all transactions have been recorded
c) toal debits equals total credits
d) there are no errors in the accounting records
e) None of the choices listed
10) Which of the following statements about posting to the
general ledger is true?
a) It normally occurs before entering transactions into a
journal
b) It involves the transfer of journal entries to the ledger
accounts
c) It involves the transfer of transactions from the trial
balance to the general ledger
d) All of the choices
e) None of the choices listed