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1. Which of the following is a correct statement about the unadjusted trial balance? 11. On January 1, 2009, Ryan Company paid the premium in advance on a three-year
insurance policy on equipment in the amount of $6,000. At that time, the full amount
A. It provides a listing of the balance sheet accounts only.
paid was recorded as prepaid insurance. On December 31, 2009, the end of the
B. It provides data in a convenient form for preparing the adjusting entries and FS
accounting year, Hammond Company would be required to record an adjusting entry
C. It provides a check of the equality of the debits and credits of the ledger accounts
that would include a
after transactions have been journalized and posted.
A. $6,000 credit to prepaid insurance. B. $2,000 debit to insurance expense. C.
D. Both B and C are correct.
$2,000 debit to prepaid insurance. D. $6,000 debit to insurance expense.
2. Morgan Company purchased supplies inventory for $2,000. Due to an error in
12. On January 1, 2009, Ryan Company paid the premium in advance on a three-year
posting, the inventory account was debited for only $200 when accounts payable was
insurance policy on equipment in the amount of $6,000. At that time, the full amount
credited for $2,000. During which phase of the accounting cycle would this error be
paid was recorded as prepaid insurance. After recording the adjusting entry for the
discovered?
insurance policy on December 31, 2009, Ryan Company's records would reflect a
A. Recording the transaction in the journal.
balance in the prepaid insurance account of
B. Preparation of the financial statements.
A. $1,000. B. $2,000. C. $3,000. D. $4,000.
C. Preparation of the trial balance.
D. Analysis of each transaction. 13. On October 1, 2009, Ethan Company borrowed $20,000 on a 6-month note with an
annual interest rate of 10 percent. How much interest expense should be reported for
3. Which is the correct order of the steps in the accounting cycle during the accounting
the year ended December 31, 2009?
period?
A. Transaction analysis, journal entries, trial balance A. $ 333. B. $ 500. C. $2,000. D. $ -0-.
B. Transaction analysis, posting to the ledger, journal entries
14. Failure to make an adjusting entry to recognize accrued wages payable would
C. Transaction analysis, posting to the ledger, adjusting the accounts
cause an
D. Transaction analysis, journal entries, posting to the ledger
A. understatement of expenses, liabilities and stockholders' equity.
4. Which is the correct order of the steps in the accounting cycle at the end of the B. overstatement of expenses and liabilities.
accounting period? C. understatement of expenses and liabilities and an overstatement of stockholders'
A. Prepare financial statements, journalize and post adjusting entries, journalize and equity.
post the closing entries, and prepare a post-closing trial balance D. understatement of assets and stockholders' equity.
B. Prepare an unadjusted trial balance, journalize and post adjusting entries, journalize
15. Failure to make an adjusting entry to recognize rent revenue receivable would
and post the closing entries, and prepare financial statements
cause
C. Journalize and post adjusting entries, journalize and post the closing entries, prepare
A. an understatement of assets, net income, and stockholders' equity.
financial statements, and prepare an adjusted trial balance
B. an overstatement of assets and stockholders' equity and an understatement of net
D. Prepare an unadjusted trial balance, journalize and post adjusting entries prepare
income.
financial statements, and journalize and post the closing entries
C. no effect on assets, liabilities, net income, nor stockholders' equity.
5. The following is an example of an error that will not be discovered on the trial D. an overstatement of assets, net income, and stockholders' equity.
balance:
16. The essential difference between an unadjusted trial balance and an adjusted trial
A. An entry was journalized and posted as a debit to cash for $500 and credit to
balance is that an
accounts receivable for $5,000.
A. unadjusted trial balance is prepared at the start of the accounting year, while an
B. An entry was journalized and posted as a debit to cash for $500 and a credit to sales
adjusted trial balance is prepared at the end of the year.
revenue $500 when payment was received on a customer's account.
B. unadjusted trial balance is prepared by companies that make adjusting entries, while
C. An entry was journalized and posted as a debit to wages expense for $20,000 and a
an adjusted trial balance is prepared by companies that do not make adjusting entries.
debit to wages payable for $20,000.
C. unadjusted trial balance is prepared before the adjusting entries are reflected, while
D. An entry was journalized and posted as a debit to cash for $1,110 and a credit to
an adjusted trial balance is prepared after the adjusting entries are reflected.
sales for $1,101.
D. unadjusted trial balance is prepared after the post-closing trial balance.
6. On April 1, 2007, the premium on a one-year insurance policy on equipment was paid
17. The difference between the equipment account balance and the accumulated
amounting to $3,000 with the insurance starting on that date. At the end of December
depreciation, equipment account balance is called
31, 2007 (end of the accounting period), the financial statements for 2007, would report
A. market value. B. acquisition cost.
A. Insurance expense, $3,000; Prepaid insurance $0.
C. book value. D. net realizable value.
B. Insurance expense, $0; Prepaid insurance $3,000.
C. Insurance expense, $750; Prepaid insurance $2,250. 18. Which of the following would most likely lead to a deferred adjustment?
D. Insurance expense, $2,250; Prepaid insurance $750. A. Wages payable B. Income taxes payable
C. Unearned revenue D. Interest expense
7. An income statement reports
A. revenues, expenses, assets, and liabilities during an accounting period. 19. Because of its complexity and susceptibility to errors, which step in the process do
B. resources, liabilities, and stockholders' equity of a business at a point in time. independent auditors (CPAs) examine most closely?
C. net income of a business at a point in time. A. financial statement preparation B. tax reports
D. net income of a business for a period of time. C. deferred and accrued adjustments D. closing entries

8. On July 1, 2009, Canine Company signed a two-year $50,000 note payable with 8 20. Which of the following accounts would most likely lead to an adjusting entry?
percent interest. At due date, July 1, 2011, the principal and interest will be paid in full. A. Office supplies B. Wages expense
Interest expense should be reported on the income statement for the year ended C. Common stock D. Accounts receivable
December 31, 2009, in the amount of
21. Which of the following would most likely lead to an accrued adjusting entry?
A. $ 2,000. B. $ 2,250. C. $ 4,000. D. $ 0.
A. Interest revenue earned and collected
9. On July 1, 2009, Gerdin Company borrowed $100,000. The company signed a note B. Wages incurred as an expense and paid
payable with interest at 6 percent per year. The note and interest are due on December C. Rent owed to the company and not yet received
31, 2009. On December 31, 2009, Goode paid $103,000 to settle the debt in full. D. Supplies purchased but not used
Assuming no accruals for interest have been made during the year, transaction analysis
22. Which of the following would most likely not lead to a deferred adjusting entry?
of the $103,000 cash payment on December 31, 2009, should reflect the following:
A. Unearned subscriptions revenue B. Office supplies
A. decrease assets, $103,000; decrease liabilities, $103,000.
C. Utilities payable D. Prepaid rent
B. decrease assets, $100,000; decrease stockholders' equity, $3,000; and decrease
liabilities, $103,000. 23. The primary purpose of the statement of cash flows is to report
C. decrease stockholders' equity, $100,000; decrease liabilities, $3,000; and decrease A. income earned and dividends paid during the period.
assets, $103,000. B. all inflows and outflows of cash during the period.
D. decrease liabilities, $100,000; decrease stockholders' equity, $3,000; and decrease C. assets owned and claims against those assets at the end of the period.
assets, $103,000. D. liability changes made by the finance department of the company during the period.
10. Assume Idaho Company recorded the following adjusting entry at year-end: If the
24. For the year 2009, Tally Corporation reported $120,000 pretax income (average
beginning balance in prepaid insurance was $500 and $2,500 was paid for an insurance
annual income tax rate of 30%). The after tax income was
premium during the year, the ending balance in the prepaid insurance account (after the
A. $36,000. B. $56,000. C. $70,000. D. $84,000.
above adjusting entry) would be
A. $1,200 debit. B. $ 700 debit. C. $2,200 debit. D. $1,000 debit.
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25. An income statement reports

A. revenues, expenses, assets, and liabilities during an accounting period.
B. resources, liabilities, and stockholders' equity of a business at a point in time.
C. net income of a business at a point in time.
D. net income of a business for a period of time.

26. One of the sections on the statement of cash flows is

A. financing activities. B. inventing activities.
C. business activities. D. borrowing activities.

27. A calendar year reporting company preparing its annual financial statements should
use the phrase "At December 31, 2009" in the heading of
A. all of the required financial statements it prepares.
B. none of the required financial statements it prepares.
C. the income statement and balance sheet, but not the statement of cash flows.
D. the balance sheet only.

28. The statement of cash flows is important because

A. of the three required financial statements, it is the only one which reports changes
which took place during an accounting period.
B. it indicates the asset and liability position of a company by reflecting the amounts and
types of its assets and liabilities at the beginning and end of the period.
C. it summarizes the information already reported in the I/S and B/S
D. it explains the sources and uses of cash during the period.

29. The basic financial statements prepared for external users include all of the
following except
A. the balance sheet. B. the income statement.
C. the sales statement. D. the statement of cash flows.

30. Both the depreciation expense account and the accumulated depreciation account
at the end of the first year of operations
A. are closed.
B. appear in an adjusted trial balance prepared after the adjusting entries but before the
closing entries.
C. are not closed at the end of the accounting period.
D. appear in a trial balance prepared prior to the adjusting and closing entries.