Question 1

What is the effect on the financial statements when a company fails to accrue wages expense at year-end?

Accepted Answer

A)  Net income is overstated and liabilities are understated.
B)  Expenses are understated and stockholders' equity is understated.
C)  Expenses and liabilities are both overstated.
D)  Net income is overstated and liabilities are properly reporteD.Salary expenses that are not accrued result in expenses and liabilities being under-stated.Understated expenses result in overstated net income.

Question 2

Which of the following statements regarding earnings per share is not correct?

Accepted Answer

A)  Earnings per share can be reported on the income statement.
B)  The numerator is net income.
C)  The denominator is the average number of shares of common stock outstanding.
D)  Earnings per share does not have to be disclosed on the income statement or the notes to the financial statements.

Question 3

The declaration of a $5,000 dividend by JLH Company would be reported on which of JLH's financial statements?

Accepted Answer

A)  The income statement only.
B)  The statement of stockholders' equity.
C)  The balance sheet only.
D)  The statement of cash flows.

Question 4

Which of the following journal entries is created to adjust for a previously recorded accrual?

Accepted Answer

A)   
B)   
C)   
D)

Question 5

Income taxes incurred but not yet paid at the end of the accounting period is an example of an accrued expense.

Accepted Answer

A) True 
 B)False

Question 6

An accrued expense is incurred and also paid for in the current period.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following does not correctly describe an adjusting journal entry that debits depreciation expense and credits accumulated depreciation?

Accepted Answer

A)  The entry increases expenses and increases assets.
B)  The entry decreases net income and decreases assets.
C)  The entry increases expenses and decreases retained earnings.
D)  The entry decreases assets and decreases net income.

Question 8

What is the effect on the financial statements when a company fails to record depreciation expense at year-end?

Accepted Answer

A)  Net income is overstated and stockholders' equity is understated.
B)  Expenses are understated and stockholders' equity is understated.
C)  Expenses are understated and liabilities are overstated.
D)  Net income is overstated and assets are overstateD.Failure to record depreciation results in expenses being too low, net income being overstated and assets being overstated.Not recording depreciation expense fails to increase accumulated depreciation that, as a contra-asset, fails to decrease assets.

Question 9

The total asset turnover ratio is computed by dividing sales revenue by average total assets.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following does not correctly describe an adjusting journal entry that debits supplies expense and credits supplies?

Accepted Answer

A)  The entry increases expenses and decreases assets.
B)  The entry decreases net income and decreases assets.
C)  The entry increases expenses and increases retained earnings.
D)  The entry decreases net income and decreases stockholders' equity.

Question 11

Which of the following correctly describes the effects of initially recording prepaid insurance expense when cash is paid to purchase an insurance policy?

Accepted Answer

A)  Total assets do not change.
B)  Net income decreases.
C)  Liabilities are decreased.
D)  Stockholders' equity increases.

Question 12

Which of the following correctly describes the closing entry process?

Accepted Answer

A)  The closing process reduces the balances in the permanent accounts to zero at the end of each period.
B)  The closing entries are usually prepared prior to the adjusted trial balance.
C)  The closing process creates a zero balance in all temporary accounts at the end of each period.
D)  The closing process creates a zero balance at the end of each period for all accounts on the year-end trial balance.

Question 13

Which of the following adjusting journal entries is not created as the result of an accrual?

Accepted Answer

A)   
B)   
C)   
D)

Question 14

The journal entry to adjust the prepaid rent account for rent used during the period results in an increase in expenses and a decrease in stockholders' equity.

Accepted Answer

A) True 
 B)False

Question 15

Modern Mother Magazine (MMM) has received cash subscriptions on April 1, 2016 in the amount of $3,600,000 for the next three years. The year-end for MMM is December 31, 2016. Magazine delivery occurs monthly and started on April 1, 2016. These were the only subscription sales for the year.
Required:
Answer the following questions for the year ended December 31, 2016.
A.What amount of cash should be reported for the year on the statement of cash flows?
B.What amount of subscriptions revenue should be reported on the income statement?
C.What amount would be reported as unearned subscriptions revenue on the balance sheet as of December 31, 2016?

Accepted Answer

A. $3,600,000.
B. $9...

Question 16

Under accrual accounting, interest expense would be recognized on the income statement when the interest has accrued with the passage of time even though cash has not been paid.

Accepted Answer

A) True 
 B)False

Question 17

What is the effect on the financial statements when a company fails to accrue interest expense at year-end?

Accepted Answer

A)  Net income is overstated and assets are overstated.
B)  Expenses are understated and liabilities are understated.
C)  Expenses are understated and stockholders' equity is understated.
D)  Net income is overstated and liabilities are overstateD.Failure to accrue interest expense results in expenses being understated and the resulting interest payable is not increased to reflect the obligation to pay this expense.

Question 18

Which of the following does not correctly describe the following adjusting journal entry?

Accepted Answer

A)  Total assets increase.
B)  The transaction is an example of an accrual.
C)  Stockholders' equity decreases.
D)  Net income increases.

Question 19

At the end of the accounting period, the balances in the nominal accounts are closed while the balances in the real accounts are carried forward to the next accounting period.

Accepted Answer

A) True 
 B)False

Question 20

A deferred expense such as prepaid insurance is created when cash is paid in advance of the expense incurred, and is reduced when the expense is actually incurred.

Accepted Answer

A) True 
 B)False

Exam 4: Adjustments, Financial Statements, and the Quality of Earnings

The declaration of a $5,000 dividend by JLH Company would be reported on which of JLH's financial statements?

Correct Answer
verified

What is the effect on the financial statements when a company fails to record depreciation expense at year-end?

Correct Answer
verified

An accrued expense is incurred and also paid for in the current period.

Correct Answer
verified

What is the effect on the financial statements when a company fails to accrue interest expense at year-end?

Correct Answer
verified

Which of the following does not correctly describe the following adjusting journal entry?

Correct Answer
verified

The journal entry to adjust the prepaid rent account for rent used during the period results in an increase in expenses and a decrease in stockholders' equity.

Correct Answer
verified

Which of the following correctly describes the effects of initially recording prepaid insurance expense when cash is paid to purchase an insurance policy?

Correct Answer
verified

Income taxes incurred but not yet paid at the end of the accounting period is an example of an accrued expense.

Correct Answer
verified

The total asset turnover ratio is computed by dividing sales revenue by average total assets.

Correct Answer
verified

Which of the following does not correctly describe an adjusting journal entry that debits depreciation expense and credits accumulated depreciation?

Correct Answer
verified

Which of the following journal entries is created to adjust for a previously recorded accrual?

Correct Answer
verified

Which of the following statements regarding earnings per share is not correct?

Correct Answer
verified

A deferred expense such as prepaid insurance is created when cash is paid in advance of the expense incurred, and is reduced when the expense is actually incurred.

Correct Answer
verified

What is the effect on the financial statements when a company fails to accrue wages expense at year-end?

Correct Answer
verified

Which of the following does not correctly describe an adjusting journal entry that debits supplies expense and credits supplies?

Correct Answer
verified

Which of the following adjusting journal entries is not created as the result of an accrual?

Correct Answer
verified

Under accrual accounting, interest expense would be recognized on the income statement when the interest has accrued with the passage of time even though cash has not been paid.

Correct Answer
verified

Correct Answer
verified
A. $3,600,000.
B. $9...
View Answer

At the end of the accounting period, the balances in the nominal accounts are closed while the balances in the real accounts are carried forward to the next accounting period.

Correct Answer
verified

Which of the following correctly describes the closing entry process?

Correct Answer
verified

Exam 4: Adjustments, Financial Statements, and the Quality of Earnings

The declaration of a $5,000 dividend by JLH Company would be reported on which of JLH's financial statements?

Correct AnswerverifiedShow Answer

What is the effect on the financial statements when a company fails to record depreciation expense at year-end?

Correct AnswerverifiedShow Answer

An accrued expense is incurred and also paid for in the current period.

Correct AnswerverifiedShow Answer

What is the effect on the financial statements when a company fails to accrue interest expense at year-end?

Correct AnswerverifiedShow Answer

Which of the following does not correctly describe the following adjusting journal entry?

Correct AnswerverifiedShow Answer

The journal entry to adjust the prepaid rent account for rent used during the period results in an increase in expenses and a decrease in stockholders' equity.

Correct AnswerverifiedShow Answer

Which of the following correctly describes the effects of initially recording prepaid insurance expense when cash is paid to purchase an insurance policy?

Correct AnswerverifiedShow Answer

Income taxes incurred but not yet paid at the end of the accounting period is an example of an accrued expense.

Correct AnswerverifiedShow Answer

The total asset turnover ratio is computed by dividing sales revenue by average total assets.

Correct AnswerverifiedShow Answer

Which of the following does not correctly describe an adjusting journal entry that debits depreciation expense and credits accumulated depreciation?

Correct AnswerverifiedShow Answer

Which of the following journal entries is created to adjust for a previously recorded accrual?

Correct AnswerverifiedShow Answer

Which of the following statements regarding earnings per share is not correct?

Correct AnswerverifiedShow Answer

A deferred expense such as prepaid insurance is created when cash is paid in advance of the expense incurred, and is reduced when the expense is actually incurred.

Correct AnswerverifiedShow Answer

What is the effect on the financial statements when a company fails to accrue wages expense at year-end?

Correct AnswerverifiedShow Answer

Which of the following does not correctly describe an adjusting journal entry that debits supplies expense and credits supplies?

Correct AnswerverifiedShow Answer

Which of the following adjusting journal entries is not created as the result of an accrual?

Correct AnswerverifiedShow Answer

Under accrual accounting, interest expense would be recognized on the income statement when the interest has accrued with the passage of time even though cash has not been paid.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA. $3,600,000.B. $9...View AnswerShow Answer

At the end of the accounting period, the balances in the nominal accounts are closed while the balances in the real accounts are carried forward to the next accounting period.

Correct AnswerverifiedShow Answer

Which of the following correctly describes the closing entry process?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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A. $3,600,000.
B. $9...
View Answer

Correct Answer
verified

Correct Answer
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