Question

1. Which of the following statements related to U.S. GAAP and IFRS is not true?

Multiple Choice

• Both U.S. GAAP and IFRS include guidance for adjusting entries.

• Both U.S. GAAP and IFRS prepare the same four financial statements.

• U.S. GAAP does not require items to be separated by current and noncurrent classifications on the balance sheet.

• U.S. GAAP balance sheets report current items first.

• IFRS balance sheets normally present noncurrent items first.

2. A company records the fees for legal services paid in advance by its clients in an account called Unearned Legal Fees. If the company fails to make the end-of-period adjusting entry to move the portion of these fees that has been earned to a revenue account, one effect will be:

Multiple Choice

• An overstatement of equity.

• An understatement of equity.

• An understatement of assets.

• An understatement of liabilities.

• An overstatement of assets.

3. Which of the following is not true regarding unearned revenues?

Multiple Choice

• They are payments received in advance of services performed.

• The adjusting entry for unearned revenues increases assets and increases revenues.

• The adjusting entry for unearned revenues increases revenues and decreases liabilities.

• They are liabilities.

• As they are earned, they become revenues.

Answer 1

1

U.S. GAAP does not require items to be separated by current and noncurrent classifications on the balance sheet is not true

U.S. GAAP requires items to be separated by current and noncurrent classifications with current classifications being reported first.

Option C is correct

2

An understatement of equity and An overstatement of liabilities.

Option B is correct

3

The adjusting entry for unearned revenues increases assets and increases revenues is not true

The adjusting entry for unearned revenues decreases liabilities and increases revenues.

Option B is correct