Name: Fundamentals of Financial Accounting 5Th Canadian Edition By Fred Phillips -Test Bank - Eazyquizes
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Fundamentals of Financial Accounting 5Th Canadian Edition By Fred Phillips -Test Bank

Sample Questions

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Chapter 02

The Balance Sheet

True / False Questions

A “classified” balance sheet is one that contains privileged information.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 02-04 Prepare a trail balance and classified balance sheet.
Topic: 02-10 Preparing a Trial Balance and Balance Sheet

All liabilities require that the company to pay or settle the amount owed at some time in the future.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 02-01 Identify financial effects of common business activities that impact the balance sheet.
Topic: 02-01 Building a Balance Sheet

A chart of accounts is a list of account titles used to record financial transactions.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

A summary of account names and account numbers is kept by a company in the table of contents of its annual report.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

A transaction is an exchange or event that directly affects the assets, liabilities, or shareholders’ equity of a company.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 02-01 Identify financial effects of common business activities that impact the balance sheet.
Topic: 02-02 Transactions and Other Activities

A vitamin manufacturer combines ingredients when making its vitamin pills. This is an observable internal event.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-01 Identify financial effects of common business activities that impact the balance sheet.
Topic: 02-02 Transactions and Other Activities

A transaction can cause only one account on the balance sheet to change.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

If a company uses $100 million in cash to pay off debt, its shareholders’ equity will increase by $100 million.
FALSE

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

General Motors (GM) signs a new labour agreement agreeing to give its workers a 5% wage increase next year. This transaction will affect GM’s financial statements in the current year.
FALSE

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 02-01 Identify financial effects of common business activities that impact the balance sheet.
Topic: 02-02 Transactions and Other Activities

The basic accounting equation must always balance for each transaction.
TRUE

All of a company’s business activities have a direct economic effect on the company.
FALSE

If total assets increase, then either liabilities or shareholders’ equity also must increase.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

Assets are typically listed on the balance sheet in order of how soon they are used or quickly they can be turned into cash.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 02-04 Prepare a trail balance and classified balance sheet.
Topic: 02-10 Preparing a Trial Balance and Balance Sheet

Facebook issues new stock worth $40 million for cash. This would not affect the shareholders’ equity on the balance sheet because as new shares are sold the value of existing shares will decline by the same amount.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

The current ratio is used to assess a company’s ability to pay its current liabilities.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 02-05 Interpret the balance sheet using the current ratio and an understanding of related concepts.
Topic: 02-11 Assessing the Ability to Pay

Any item on a balance sheet labelled payable is a liability of that company.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-04 Prepare a trail balance and classified balance sheet.
Topic: 02-10 Preparing a Trial Balance and Balance Sheet

A credit to an asset account will cause a decrease in assets on the financial statements.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 02-03 Use journal entries and T-accounts to show how transactions affect the balance sheet.
Topic: 02-05 The Debit/Credit Framework

Across all accounts, the total value of all debits must equal the total value of all credits.
TRUE

The total value of all debits to a particular account must equal the total value of all credits to that account.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-03 Use journal entries and T-accounts to show how transactions affect the balance sheet.
Topic: 02-05 The Debit/Credit Framework

Within a journal entry, credits are written first and debits are written beneath them indented to the right.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 02-03 Use journal entries and T-accounts to show how transactions affect the balance sheet.
Topic: 02-07 Step 2: Recording Journal Entries

You are pleasantly surprised to discover that a popular actress appears on The Tonight Show wearing your company’s jeans. As a result of that your company’s sales increase by $500,000. When the actress appeared on TV, you would have recorded an asset because the TV appearance was expected to bring future economic benefits to your company.
FALSE

Accessibility: Keyboard Navigation
Blooms: Evaluate
Difficulty: Hard
Learning Objective: 02-01 Identify financial effects of common business activities that impact the balance sheet.
Topic: 02-02 Transactions and Other Activities

If the total dollar value of credits to an account exceed the total dollar value of debits to that account, the ending balance of the account will be a debit balance.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Hard
Learning Objective: 02-03 Use journal entries and T-accounts to show how transactions affect the balance sheet.
Topic: 02-05 The Debit/Credit Framework

Posting journal entries involves copying the dollar amounts from the journal into the ledger.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 02-03 Use journal entries and T-accounts to show how transactions affect the balance sheet.
Topic: 02-05 The Debit/Credit Framework

If a $100 debit is erroneously posted to an account as a $100 credit, the accounts will be out of balance by $100.
FALSE

The accounting equation will still balance if a $5,000 liability is misclassified as shareholders’ equity.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

A company buys land for $5 million dollars in 1983. The land is now worth $15 million. The company should increase the book value of this asset on its balance sheet to reflect its current value.
FALSE

All events affecting the current value of a company are reported on the statement of financial position.
FALSE

According to the cost principle, assets are valued at their replacement cost.
FALSE

Double-entry accounting always captures what the company receives, while at the same time capturing what it gives.
TRUE

Under IFRS, a public company has a choice as to how the company’s statement of financial position is prepared.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-04 Prepare a trail balance and classified balance sheet.
Topic: 02-01 Building a Balance Sheet

Signing a rental agreement results in an activity that has a direct and measurable financial effect on the company.
FALSE

The duality of effects in transaction analysis implies that every transaction has two effects on the basic accounting equation.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

To maintain consistency, the accounting profession requires companies to use the same chart of accounts, whether operating under IFRS or ASPE.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

The current ratio will remain unaffected for a company that has simply declared a cash dividend (as opposed to paying it out).
FALSE

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: Hard
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

Debits equaling credits in a Trial Balance provides a check to ensure transactions have been recorded correctly.
FALSE

Under the rules governing ASPE and IFRS, companies must list assets in order of liquidity.
FALSE

Under the rules governing ASPE and IFRS, companies must list liabilities in order of maturity.
FALSE

A public company following IFRS is entitled to set aside the cost principle.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 02-04 Prepare a trail balance and classified balance sheet.
Topic: 02-01 Building a Balance Sheet

It is possible for a firm to have a negative balance in the retained earnings account.
TRUE

A creditor’s claim on a company’s assets will always take precedence over the owners of the company.
TRUE

An exchange containing a promise is never considered an accounting transaction.
FALSE

Multiple Choice Questions

Which of the following would be listed as a noncurrent asset?
A.Cash.
B. Supplies.
C. Buildings and equipment.
D. Total assets.

Which of the following would be listed as a current liability?
A.Cash in the bank.
B. Notes payable due in two years.
C. Bank loan due in 10 years.
D. Accounts payable.

A long-term liability is one that the company:
A.has owed for over one year.
B. has owed for over five years.
C. will not pay off for at least over one year.
D. will not pay off for at least over five years.

A current asset is one that:
A.the company has owned for over one year.
B. the company will use up or convert into cash in five years or more.
C. the company will use up or convert into cash in one year or less.
D. the company will use up or convert into cash in more than one year.

At the start of the first year of operations, a company’s retained earnings on the balance sheet would be:
A.equal to zero.
B. equal to contributed capital.
C. equal to shareholders’ equity.
D. equal to the negative of liabilities.

Which of the following is not true. Account names in the chart of accounts have to be:
A.sufficiently descriptive to enable users to quickly understand items.
B. consistent throughout the financial statements and records.
C. linked to account numbers.
D. general purpose and do not have to indicate the nature of the account.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

The local branch of the Universal Bank System (UBS) receives money from some of its customers as deposits and lends it to other customers as loans. Which of the following would be true about UBS’s financial statements?
A.UBS reports customers’ deposits as assets and customers’ loans as liabilities.
B. UBS reports both customers’ deposits and customers’ loans as assets.
C. UBS reports customers’ deposits as liabilities and customers’ loans as assets.
D. UBS reports both customers’ deposits and customers’ loans as liabilities.

Which of the following is not an example of an asset?
A.Notes receivable.
B. Supplies.
C. Prepaid Insurance.
D. Deferred revenues.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Hard
Learning Objective: 02-04 Prepare a trail balance and classified balance sheet.
Topic: 02-10 Preparing a Trial Balance and Balance Sheet

If a company borrows money from a bank and signs an agreement to repay the loan several years from now, in which account would the company report the amount borrowed?
A.Contributed Capital
B. Accounts Payable
C. Notes Payable
D. Bonds Payable

The Sweet Smell of Success Fragrance Company borrowed $60,000 from the bank and used all of the money to re-design its new store. Sweet Smell’s balance sheet would show this as:
A.$60,000 under Property, Plant & Equipment and $60,000 under Notes Payable.
B. $60,000 under Supplies and $60,000 under Accounts Payable.
C. $60,000 under Prepaid Expenses and $60,000 under Accrued Liabilities.
D. $60,000 under Other Assets and $60,000 under Other Liabilities.

The Buddy Burger Corporation owes $1.5 million to the Alberta Wholesale Meat Company from whom Buddy Burger buys its burger meat. Which account would Buddy Burger use to report the amount owed?
A.Deferred Revenue
B. Accounts Payable
C. Supplies
D. Accounts Receivable

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

Which of the following describes the classification and normal balance of the retained earnings account?
A.Asset, debit
B. Shareholders’ equity, credit
C. Liability, credit
D. Shareholders’ equity, debit

If a company is paid $20,000 on accounts receivable and uses the money to pay $20,000 on accounts payable then:
A.assets would increase by $20,000 while liabilities would decrease by $20,000.
B. liabilities would decrease by $20,000 while shareholders’ equity would increase by $20,000.
C. Both assets and liabilities would decrease by $20,000.
D. Both assets and shareholders’ equity would decrease by $20,000.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

In 2012, the Denim Company bought land that cost $15,000. In 2018, a similar piece of land was bought for $28,000 and the company’s existing land was estimated to be worth $18,000. On the balance sheet at the end of 2018, the land that was purchased in 2012 would be reported at:
A.$15,000.
B. $28,000.
C. $18,000.
D. the average of the three prices.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-04 Prepare a trail balance and classified balance sheet.
Topic: 02-01 Building a Balance Sheet

What is the minimum number of ways that a transaction could effect the basic accounting equation?
A.One.
B. Two.
C. Three.
D. No minimum.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

Transactions include which two types of events?
A.Direct events and indirect events.
B. Monetary events and production events.
C. External exchanges and internal events.
D. Current events and future events.

A company disposes of $1 million of its assets. Which of the following could not be true about its effects on the basic accounting equation?
A.Assets remain the same, and liabilities and shareholders’ equity both decrease by $1 million.
B. Assets decrease by $1 million, liabilities decrease by $1 million, and shareholders’ equity is unchanged.
C. Assets, liabilities, and shareholders’ equity all remain the same.
D. Assets decrease by $1 million, and liabilities and shareholders’ equity both decrease by $500,000.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Hard
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

Your company orders and broadcasts a 30 second advertisement during the Super Bowl for $1.2 million. It is legally obligated to pay for this service but has not yet done so.
A.This is an internal unobservable event so it does not affect the balance sheet.
B. This is an external unobservable event so it does not affect the balance sheet.
C. This is an internal observable event that affects the balance sheet.
D. This is an external observable event that affects the balance sheet.

In part, a transaction affects the accounting equation as follows: Which of the following must be true for this transaction to keep the accounting equation in balance?
A.If other assets remain the same, shareholders’ equity must increase.
B. If other assets remain the same, shareholders’ equity must remain the same.
C. If shareholders’ equity remains the same, another asset must decrease.
D. If shareholders’ equity remains the same, all other assets must remain the same.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

A company buys equipment for $500,000 and signs a promissory note for the full amount. How does this transaction affect the accounting equation?
A.Assets: Property and equipment, ¯ Cash; Liabilities: no change; Shareholders’ Equity: no change.
B. Assets: Property and equipment; Liabilities: Notes payable; Shareholders’ Equity; no change.
C. Assets: Property and equipment; Liabilities: no change; Shareholders’ Equity: ¯ Retained earnings.
D. Assets: Property and equipment; Liabilities: no change; Shareholders’ Equity: ¯ Contributed capital.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

Your company pays back $2 million on a loan it had received earlier from a bank. How does this transaction affect the accounting equation?
A.Assets are unchanged, liabilities and shareholders’ equity both increase by $2 million.
B. Assets decrease by $2 million, liabilities decrease by $2 million, shareholders’ equity is unchanged.
C. Assets are unchanged, liabilities increase by $2 million, contributed capital decreases by $2 million.
D. Assets decrease by $2 million, liabilities are unchanged, contributed capital decreases by $2 million.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

A company issues $20 million in new stock. It later uses this money to pay off promissory notes. How many different accounts and which account names are affected by these two transactions?
A.3 accounts are affected: contributed capital, cash, and notes payable.
B. 4 accounts are affected: contributed capital, cash, liabilities, and accounts payable.
C. 3 accounts are affected: cash, assets, and accounts payable.
D. 3 accounts are affected: contributed capital, investments, and accounts payable.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

A company borrows $2 million from its bank. It then uses this money to buy equipment. How does this transaction affect the accounting equation?
A.Assets and Liabilities both rise $2 million.
B. Assets and Shareholders’ Equity both fall $2 million.
C. Assets, Liabilities, and Shareholders’ Equity are unchanged.
D. Shareholders’ Equity rises $2 million and Liabilities fall $2 million.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

A company receives $10 million cash from investors in exchange for new common stock. Several weeks later, the company buys a $25 million machinery using all of the cash from the stock issue and signing a promissory note for the remainder. The accounts involved in these two transactions are:
A.Long-term Investments; Cash; Equipment; and Accounts Payable.
B. Shareholders’ Equity; Cash; Long-term Investments; and Notes Payable.
C. Contributed Capital; Cash; Equipment; and Notes Payable.
D. Retained Earnings; Equipment; and Notes Payable.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Hard
Learning Objective: 02-02 Apply transaction analysis to accounting transactions.
Topic: 02-03 Step 1: Analyze Transactions

Chapter 04

Adjustments, Financial Statements, and Financial Results

True / False Questions

An accrual adjustment that increases an asset will include an increase in an expense.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-03 Accrual Adjustments

Adjustments are needed to ensure that the accounting system records all of the revenues and expenses that relate to that period.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-01 Why Adjustments are Needed

A deferral adjustment that decreases an asset will include an increase in an expense.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-02 Deferral Adjustments

Adjustments ensure that the related accounts on the balance sheet are up to date and complete.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-01 Why Adjustments are Needed

As a company uses supplies, an adjustment should be made to decrease an asset account and increase an expense account as it represents the use of a resource (asset).
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-01 Why Adjustments are Needed

Prior to calculating income tax expense, adjustments to all revenue and expense accounts have to be made.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-05 Adjustment Analysis, Recording, and Summarizing

A contra account is added to the account it offsets.
FALSE

Adjustments are only made if cash has been received or paid during the period.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-01 Why Adjustments are Needed

Depreciation expense represents the use of part of the value of an asset until it has no remaining market value.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-05 Adjustment Analysis, Recording, and Summarizing

Adjusting journal entries never affect the cash account.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-06 Additional Comments

The amount charged for a good or service provided to a customer on account is posted to a revenue account only after the payment is received.
FALSE

The carrying value of an asset is an approximation of the asset’s market value.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-05 Adjustment Analysis, Recording, and Summarizing

In general, adjusting journal entries improve the usefulness of the financial reports.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-01 Why Adjustments are Needed

All real accounts will have zero balances when the closing process is complete.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-03 Prepare an adjusted trial balance.
Topic: 04-12 Closing Temporary Accounts

You mistakenly include a contra account of $20,000 in the same column of your trial balance as the account it offsets. All other things equal, your debit and credit column totals will differ by $40,000.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 04-03 Prepare an adjusted trial balance.
Topic: 04-08 Adjusted Trial Balance

Trial balances are prepared after the financial statements to verify that the numbers are accurate.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-03 Prepare an adjusted trial balance.
Topic: 04-08 Adjusted Trial Balance

Corporate income taxes have to be calculated before all other adjustments are made.
FALSE

The primary purpose of the adjusted trial balance is to see whether revenues are greater than expenses.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-03 Prepare an adjusted trial balance.
Topic: 04-08 Adjusted Trial Balance

The adjusted trial balance shows the end-of-year balance for Retained Earnings.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-03 Prepare an adjusted trial balance.
Topic: 04-08 Adjusted Trial Balance

If a company has a net loss during the current accounting period, then the post-closing retained earnings will be smaller than the pre-closing retained earnings.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 04-05 Explain the closing process.
Topic: 04-12 Closing Temporary Accounts

Revenue and expense accounts are permanent accounts because they always appear on the income statement.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-05 Explain the closing process.
Topic: 04-12 Closing Temporary Accounts

Financial statements are prepared only after the trial balance has shown that debits equal credits.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-06 Additional Comments

An adjusted trial balance presents account balances in the same level of detail as the financial statements.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 04-03 Prepare an adjusted trial balance.
Topic: 04-08 Adjusted Trial Balance

Closing journal entries are only recorded at the end of each accounting year.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-05 Explain the closing process.
Topic: 04-12 Closing Temporary Accounts

A post-closing trial balance should be prepared before temporary accounts are closed.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 04-05 Explain the closing process.
Topic: 04-14 Post-Closing Trial Balance

After closing entries are posted, the balances of the income statement accounts will be zero.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-05 Explain the closing process.
Topic: 04-12 Closing Temporary Accounts

When closing journal entries are prepared, retained earnings is credited if a company has a net loss.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 04-05 Explain the closing process.
Topic: 04-12 Closing Temporary Accounts

The amounts of all the accounts reported on the balance sheet can be taken from the adjusted trial balance.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 04-04 Prepare financial statements.
Topic: 04-10 Balance Sheet

Adjustments are entries made at the end of every accounting period to report revenues and expenses at the appropriate amounts and assets and liabilities in the appropriate period.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-01 Why Adjustments are Needed

Under IFRS and ASPE, companies are required to wait until the end of the accounting period to adjust their accounts.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-01 Why Adjustments are Needed

Determining the necessary adjustments to make to the accounting records is referred to as journalizing.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-04 Making Required Adjustments

The carrying value of an asset is known as net book value.
TRUE

Adjusting journal entries always include one balance sheet and one income statement account.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-06 Additional Comments

When closing out accounts, the amount debited to retained earnings should equal net loss on the income statement.
TRUE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 04-05 Explain the closing process.
Topic: 04-13 Closing Income Statement and Dividend Accounts

Accrual adjustments impact both an income and balance sheet account, whereas deferral adjustments impact multiple accounts on one financial statement.
FALSE

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-03 Accrual Adjustments

Deferral adjustments are needed when a company has earned revenue or incurred an expense in the current period but has not yet recorded it because the related cash will not be received or paid until a later period.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-02 Deferral Adjustments

Accrual adjustments impact an asset and revenue account, or a liability and expense account.
TRUE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-03 Accrual Adjustments

Deferral adjustments impact an asset and revenue account, or a liability and expense account.
FALSE

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-01 Explain why adjustments are needed.
Topic: 04-02 Deferral Adjustments

Multiple Choice Questions

If an expense has been incurred but will be paid later, then:
A.nothing is recorded on the financial statements.
B. a liability account is created or increased and an expense is recorded.
C. an asset account is decreased or eliminated and an expense is recorded.
D. a revenue and an expense are recorded.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-02 Deferral Adjustments
Topic: 04-05 Adjustment Analysis, Recording, and Summarizing

If certain assets are partially used up during the accounting period, then:
A.nothing is recorded on the financial statements until they are completely used up.
B. a liability account is decreased or eliminated and an expense is recorded.
C. an asset account is decreased or eliminated and an expense is recorded.
D. nothing is recorded on the financial statements until they are replaced or replenished.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-04 Making Required Adjustments

A company makes a deferral adjustment that reduces a liability. This must mean:
A.an asset account is decreasing by the same amount.
B. an expense account is increasing by the same amount.
C. a revenue account is increasing by the same amount.
D. a different liability account is decreasing by the same amount.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Hard
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-04 Making Required Adjustments

One major difference between deferral and accrual adjustments is:
A.deferral adjustments involve previously recorded transactions and accruals involve new transactions.
B. deferral adjustments are made after taxes and accrual adjustments are made before taxes.
C. deferral adjustments are made annually and accrual adjustments are made monthly.
D. deferral adjustments are influenced by estimates of future events and accrual adjustments are not.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-04 Making Required Adjustments

One major difference between deferral and accrual adjustments is:
A.accrual adjustments are influenced by estimates of future events and deferral adjustments are not.
B. deferral adjustments are made before taxes and accrual adjustments are made after taxes.
C. deferral adjustments are made monthly and accrual adjustments are made annually.
D. accounts affected by an accrual adjustment always go in the same direction (i.e., both accounts are increased or both accounts are decreased) and accounts affected by a deferral adjustment always go in opposite directions.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-04 Making Required Adjustments

The company uses up $5,000 of the book value of an existing asset. The company adjusts its accounts accordingly. Which of the following is a true statement?
A.This is an accrual adjustment.
B. This is a closing adjustment.
C. This is a deferral adjustment.
D. The adjustment should not have been made.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-04 Making Required Adjustments

Accrual adjustments link:
A.assets and revenues moving in the same direction or liabilities and expenses moving in the same direction.
B. assets and expenses moving in the same direction or liabilities and revenues moving in the same direction.
C. assets and revenues moving in the opposite direction or liabilities and expenses moving in the opposite direction.
D. assets and expenses moving in the opposite direction or liabilities and revenues moving in the opposite direction.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-04 Making Required Adjustments

At the end of the month, the adjusting journal entry to record the use of supplies would include:
A.A debit to supplies and a credit to expenses.
B. A credit to supplies and a debit to expenses.
C. A debit to supplies and a credit to revenue.
D. A credit to supplies and a debit to cash.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-04 Making Required Adjustments

A company owes rent at a rate of $6,000 per month. The company pays the rent owed on the tenth of each month for the previous month. At the end of each month, what kind of adjustment is required?
A.An accrual adjustment.
B. A comparative adjustment.
C. A deferral adjustment.
D. A matching adjustment.

Which of the following is not the value at which an asset is reported on a financial statement?
A.the carrying value.
B. the book value.
C. the net book value.
D. the depreciated Value.

When the future benefits of existing assets are used up in the ordinary course of business:
A.an expense is recorded.
B. a loss is recorded.
C. a credit to a liability is recorded.
D. a debit to assets is recorded.

During the month, a company uses up $4,000 of supplies. At the end of the month, the related adjusting journal entry would result in:
A.a decrease in an asset and an equal increase in liabilities.
B. an increase in liabilities and an equal decrease in shareholders’ equity.
C. a decrease in an asset and an equal increase in expenses.
D. an increase in liabilities and a loss of equal value.

On December 31, a decision is made to accrue an expense and report a current liability. How many accounts will be included in this journal entry?
A.None.
B. One.
C. Two.
D. Three.

An adjusting journal entry that includes an increase to a contra-asset account would include an increase in a(n):
A.related asset account.
B. liability account.
C. revenue account.
D. expense account.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-05 Adjustment Analysis, Recording, and Summarizing

To calculate the company’s income tax expense for the current period, it is necessary to know:
A.the company’s operating revenue and tax bill from prior periods.
B. the company’s income before income taxes and the company’s tax rate.
C. the company’s operating expenses and revenue.
D. the company’s net income from the previous period and the current tax rate.

Declared dividends:
A.are an expense of doing business.
B. are not a legal obligation that a company must pay.
C. are a way to distribute the company’s profits to its shareholders.
D. are not recorded as a liability because they are not an expense of doing business.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Medium
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-06 Additional Comments

Which of these accounts would normally not be affected by an adjustment?
A.Supplies.
B. Revenues.
C. Expenses.
D. Cash.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 04-02 Prepare adjustments needed at the end of the period.
Topic: 04-06 Additional Comments

Purrfect Pets had income before income tax of $164,000 last quarter and a 34% tax rate. Its net income should be reported as:
A.$55,760.
B. $108,240.
C. $(55,760).
D. $248,485.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Medium
Learning Objective: 04-04 Prepare financial statements.
Topic: 04-05 Adjustment Analysis, Recording, and Summarizing

Purrfect Pets had $6,000 of supplies at the end of October. During November, the company bought $2,000 of supplies. At the end of November, the company had $1,000 of supplies remaining. Which of the following statements is not true?
A.During November, the company used $7,000 of supplies.
B. The carrying value of supplies on November 30 should be $1,000.
C. An expense should be debited for $7,000 in November.
D. An expense should be debited for $1,000 in November.

6000 + 2000 – 1,000 = 7000 supplies used.

A company has an asset account, Prepaid Utilities, with a balance of $3,750 at the beginning of the month. The company used $980 of utilities during the month. Which of the following statements is true?
A.The company should credit Utility Expenses for $980 and debit Prepaid Utilities for $980.
B. Retained earnings and shareholders’ equity should decrease because of this transaction.
C. The company should credit Accrued Liabilities for $980 and debit Utility Expenses for $980.
D. Retained earnings and shareholders’ equity should be unchanged by this transaction.

A company has a loan that accrues interest at a rate of $20 a day. The company pays the interest once a quarter. Which of these would be an accurate adjustment for a month in which no payments are made?
A.Debit Interest Payable and credit Interest Expense.
B. Debit Loans Payable and credit Cash.
C. Debit Interest Expense and credit Interest Payable.
D. Debit Cash and credit Loans Payable.

Accumulated Depreciation:
A.is an expense account.
B. is a liability account.
C. is a regular asset account
D. is a contra-asset account.

A company pays wages every two weeks. Wages amount to $100 a day. On March 31, the company pays wages for the two weeks ending March 24. At the end of the month, the related adjusting journal entry will include a
A.debit to Retained Earnings for $700 and a credit to Cash for $700.
B. debit to Wage Expense for $700 and a credit to Wages Payable for $700.
C. debit to Wages Payable for $700 and a credit to Cash for $700.
D. debit to Retained Earnings for $700 and a credit to Wages Payable for $700.

Contra-accounts:
A.are used to increase the original value of the account they offset.
B. always appear in the same column of the trial balance as the account they offset.
C. always reduce the account they offset.
D. Always increase the account they offset.

Recording an adjusting journal entry to recognize depreciation would cause which of the following?
A.An increase in liabilities and expenses, and a decrease in shareholders’ equity.
B. A decrease in assets, and an increase in expenses.
C. A decrease in assets, an increase in liabilities, and an increase in expenses.
D. None of the answers are acceptable.

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