Q: A company pays $3,600 for a one-year insurance policy on May 1. What is the correct adjusting entry on May 31?

$$\text{Insurance Expense} \quad 300$$ $$\text{Prepaid Insurance} \quad 300$$

Q: Hunter Environmental Consulting purchased office supplies for $$1,500. At month-end, 1$$,000 of supplies remain. What is the adjusting entry?

$$\text{Supplies Expense} \quad 500$$ $$\text{Office Supplies} \quad 500$$

Q: A company receives $3,000 in advance for a 30-day project starting May 20. By May 31, one-third of the project is complete. What is the correct adjusting entry?

$$\text{Unearned Service Revenue} \quad 1,000$$ $$\text{Service Revenue} \quad 1,000$$

Q: What is the formula for calculating straight-line amortization expense for an asset?

$$\text{Amortization Expense} = \frac{\text{Cost} - \text{Residual Value}}{\text{Useful Life}}$$

Q: A company provides services worth $3,000 from May 15 to May 30, but will not receive payment until June 15. What is the adjusting entry on May 31?

$$\text{Accounts Receivable} \quad 1,500$$ $$\text{Service Revenue} \quad 1,500$$

Question 1

Which of the following best describes the purpose of adjusting entries in the accounting cycle?

Accepted Answer

To update the balances of asset and liability accounts and ensure revenues and expenses are recognized in the correct period.

Question 2

A company pays $3,600 for a one-year insurance policy on May 1. What is the correct adjusting entry on May 31?

Accepted Answer

$$	ext{Insurance Expense} \quad 300$$  
$$	ext{Prepaid Insurance} \quad 300$$

Question 3

Which of the following is an example of an accrued expense?

Accepted Answer

Salaries earned by employees but not yet paid at period end.

Question 4

Hunter Environmental Consulting purchased office supplies for $$1,500. At month-end, 1$$,000 of supplies remain. What is the adjusting entry?

Accepted Answer

$$	ext{Supplies Expense} \quad 500$$  
$$	ext{Office Supplies} \quad 500$$

Question 5

Which of the following statements about the accrual basis of accounting is correct?

Accepted Answer

Revenues are recorded when earned and expenses are recorded when incurred, regardless of cash flow.

Question 6

A company receives $3,000 in advance for a 30-day project starting May 20. By May 31, one-third of the project is complete. What is the correct adjusting entry?

Accepted Answer

$$	ext{Unearned Service Revenue} \quad 1,000$$  
$$	ext{Service Revenue} \quad 1,000$$

Question 7

Which of the following accounts would NOT require an adjusting entry at period end?

Accepted Answer

Cash

Question 8

What is the formula for calculating straight-line amortization expense for an asset?

Accepted Answer

$$	ext{Amortization Expense} = \frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Useful Life}}$$

Question 9

Which of the following best illustrates the matching principle?

Accepted Answer

Recording expenses in the same period as the revenues they help generate.

Question 10

A company provides services worth $3,000 from May 15 to May 30, but will not receive payment until June 15. What is the adjusting entry on May 31?

Accepted Answer

$$	ext{Accounts Receivable} \quad 1,500$$  
$$	ext{Service Revenue} \quad 1,500$$

Question 11

Which of the following is the correct order for preparing financial statements after the adjusted trial balance?

Accepted Answer

Income statement, statement of owner's equity, balance sheet

Question 12

If a company fails to record an adjusting entry for accrued salaries at year-end, what is the effect on the financial statements?

Accepted Answer

Expenses are understated and net income is overstated.

Question 13

Which of the following is true regarding unearned revenue?

Accepted Answer

It is a liability until the service is performed or the product is delivered.

Question 14

Which adjusting entry is required for the amortization of furniture costing $45,000 with a 5-year useful life and no residual value, using straight-line amortization?

Accepted Answer

$$	ext{Amortization Expense—Furniture} \quad 750$$  
$$	ext{Accumulated Amortization—Furniture} \quad 750$$

Question 15

Which of the following best describes the relationship among the three main financial statements?

Accepted Answer

The income statement's net income is transferred to the statement of owner's equity, which then updates the capital balance on the balance sheet.

Question 16

Which of the following is NOT a type of adjusting entry?

Accepted Answer

Inventory purchase

Question 17

A company pays its employees $4,000 on the 15th and last day of each month. If May 31 is a Saturday and payment is made on June 2, what is the adjusting entry on May 31?

Accepted Answer

$$	ext{Salaries Expense} \quad 4,000$$  
$$	ext{Salaries Payable} \quad 4,000$$

Question 18

Which of the following best explains why adjusting entries are necessary under accrual accounting?

Accepted Answer

To assign revenues and expenses to the correct accounting period, regardless of cash flow.

Measuring Business Income: The Adjusting Process in Financial Accounting

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