chap004 - Chapter 004: Adjustments, Financial Statements,...

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Chapter 004: Adjustments, Financial Statements, and the Quality of Earnings True / False Questions 1. The ledger (T-accounts) contains information which has been posted from the journal. TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 1 2. The trial balance, prepared immediately after all transactions of the period have been recorded and posted, should show all account balances that are in the ledger (T-accounts). TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 1 3. Deferred expenses are previously unrecorded expenses that need to be recorded at the end of the accounting period to reflect the amount incurred and its related payable. FALSE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 2 4. Income taxes incurred but not yet paid at the end of the accounting period is an example of an accrued expense adjusting entry. TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 2 4-1
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Chapter 004: Adjustments, Financial Statements, and the Quality of Earnings 5. When an adjustment decreases prepaid insurance and increases insurance expense for the portion expired, that is an example of a prepaid expense adjusting entry. TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 2 6. Adjusting entries are used to update income statement accounts and balance sheet accounts. TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 2 7. Unearned rent revenue is an example of a liability account that will usually not be satisfied by payment of cash but rather by allowing the tenant to occupy the premises for which they have prepaid. TRUE AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 2 8. Rent of $4,000 collected in advance was recorded as unearned rent revenue. At the end of the accounting period, half the rent was earned. The related adjusting entry should be a credit to rent revenue for $2,000 and a debit to unearned rent revenue for $2,000. TRUE AACSB Tag: Analytic Difficulty: Medium L.O.: 2 4-2
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9. Adjusting entries are recorded in the journal (i.e., journalized) and then they are posted to the ledger (T-accounts). TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 2 10. Both the adjusting entries and the closing entries usually are dated as of the last day of the accounting period. TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 2 11. Depreciation expense is an estimated allocation of the cost of long-lived assets and is recorded in a contra asset, accumulated depreciation, because it is only an estimated amount and not known with certainty. TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 2 12. The statement of cash flows is designed to explain the causes of changes in the cash account during the period that resulted from the inflows and outflows of cash. TRUE
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chap004 - Chapter 004: Adjustments, Financial Statements,...

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