1. What is the effect of the adjusting entry for Depreciation expense?
The entry increases total liabilities and increases total expenses.
The entry increases total assets and increases total expenses.
The entry decreases total assets and increases total expenses.
The entry decreases total liabilities and increases total expenses.
2. At the end of the current year, the accountant for Navistar Graphics forgot to make an adjusting entry to accrue Wages payable to the company’s employees for the last week in December. The wages will be paid to the employees in January. Which of the following is one of the effects of this error?
Net income is overstated.
Liabilities are overstated.
Net income is understated.
Expenses are overstated.
3. Which of the following statements MOST precisely describes a classified balance sheet?
Accounts are classified by their purchase dates.
Account balances are listed from the highest amount to the lowest amount.
Assets are listed in their order of liquidity.
Assets are listed in alphabetical order.
4. A business pays its insurance premium of $2,400 on November 1 of each year. On January 1 of the new (after December 31 adjustments), the Prepaid insurance account has a debit balance of:
$1,200.
$400.
$2,400.
$2,000.
None of these is correct
5. What is the key distinction between current and non-current assets?
Current assets will be used up or converted to cash within one year or one operating cycle.
Non-current assets are which do not lose their value over time.
Current assets always have lower balances than non-current assets.
Non-current assets will not be used until the future.
6. Which of the following is TRUE?
Accrual accounting is required by generally accepted accounting principles.
Accrual accounting records expenses when incurred. Cash-basis accounting records expenses when cash is paid.
Accrual accounting records revenue when services are rendered. Cash-basis accounting records revenue when cash is received.
All of the above are true.
7. Prepaid rent is an expense account.
True
False
8. Which of the following accounts will be closed by crediting the Income summary account?
Service revenue
Depreciation expense
Accounts payable
Accumulated depreciation
9. Which of the following accounts are temporary accounts that must be closed at the end of the year?
Assets, liabilities and withdrawals
Revenues, expenses and withdrawals
Assets, liabilities and capital
Revenues, expenses and capital
10. The purposes of the adjusting process are:
to adjust expenses and revenues to the proper accrual basis.
to adjust asset and liability balances to the proper accrual basis.
to adjust expenses and revenues as well as asset and liability balances to the proper accrual basis.
none of the above.
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