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MCQ Adjusting Entries

This document contains true/false and multiple choice questions about accounting concepts and principles. Some key points covered include: - Accrual basis accounting involves recording revenues when earned and expenses when incurred. - Adjusting entries are made before financial statements are prepared to ensure account balances are accurate. - Prepaid expenses involve prepayment of an asset before the related expense is incurred. The questions cover additional topics like unearned revenues, accounting objectives and users, the revenue recognition principle, and adjusting entry examples.

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Mara Clara
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710 views7 pages

MCQ Adjusting Entries

This document contains true/false and multiple choice questions about accounting concepts and principles. Some key points covered include: - Accrual basis accounting involves recording revenues when earned and expenses when incurred. - Adjusting entries are made before financial statements are prepared to ensure account balances are accurate. - Prepaid expenses involve prepayment of an asset before the related expense is incurred. The questions cover additional topics like unearned revenues, accounting objectives and users, the revenue recognition principle, and adjusting entry examples.

Uploaded by

Mara Clara
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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True or False.

1. Accrual-basis accounting involves recording revenues when earned and recording


expenses with their related revenues.
2. Adjusting entries should be prepared after financial statements are prepared.
3. Prepaid expenses involve payment of cash (or an obligation to pay cash) for the
purchase of an asset before the expense is incurred.
4. Unearned revenues occur when cash is received after the revenue is earned.
5. An adjusting entry can never record a transaction that exchanges one asset for
another asset.
6. The accrual basis of accounting recognizes revenues when cash is received from
customers.
7. Prior to recording adjusting entries at the end of an accounting period, some
accounts may not show correct balances even though all transactions were properly
recorded.
8. Prepaid expenses, such as prepaid rent and prepaid insurance, represent
liabilities for a business until they are used.
9. When a company receives cash in advance from a customer, it should debit Cash
and credit Accounts Receivable.
10. The cost of a long-term asset, such as equipment, is transferred to expense as
it is used during its life.

Multiple Choice.

1. Which of the following items has no effect on owner’s equity?


A. Expense
B. Owner’s Withdrawal
C. Purchase of Land
D. Revenue

2. The asset created by a business when it makes a sale on account is termed


A. Accounts payable
B. Accounts receivable
C. Prepaid expense
D. Unearned Revenue

3. All of the following describe accounting, except


A. A service activity
B. An information system
C. An exact science rather than an art
D. A universal language of business

4. The overall objective of accounting is


A. To provide the information that the managers of an entity need to control the
operations
B. To provide information that the creditors can use in deciding whether to make
additional loans
C. To measure the periodic income of the entity
D. To provide quantitative financial information about an entity that is useful in
making economic decisions

5. These users require information on risk and return on investments


A. Creditors
B. Investors
C. Lenders
D. Customers

6. Using accrual accounting, revenue is recorded and reported only


A. If cash is received after the services
B. When cash is received at the time services are rendered
C. When cash is received without regard to when the services are rendered
D. When the services are rendered without regard to when cash is received

7. Equipment with an estimated market value of P50,000 is offered for sale at


P110,000. The equipment is acquired in P30,000 in cash and a note payable of
P50,000 due in 20 days. The amount used in buyer’s accounting records to record
the acquisition is
A. P110,000
B. P50,000
C. P80,000
D. P30,000

8. On January 1, 2021, Percy Jackson Company bought a building for P2,750,000 to


serve as the Company’s office. It was estimated that the said building will be useful
for 20 years. After the end of its useful life, the building can still be sold for P250,000.
What is the amount of depreciation expense that should be recognized by Percy
Jackson Company on December 31, 2021?
A. P135,000
B. P125,000
C. P150,000
D. P175,000

9. Which of the following entries records the receipt of a utility bill from the water
company
A. debit Accounts Payable, credit Cash
B. debit Accounts Payable, credit Utilities Payable
C. debit Utilities Expense, credit Accounts Payable
D. debit Utilities Payable, credit Accounts Receivable

10. A post--closing trial balance is prepared before


A. Preparing financial statements
B. Reversing the accounts
C. Adjusting and closing the books
D. Preparing a worksheet
11. The revenue recognition concept
A. Determines when revenue is credited to a revenue account
B. States that revenue is not recorded until the cash is received
C. Controls all revenue reporting for the cash basis of accounting
D. Is in conflict with accrual accounting

12. The matching principle


A. Addresses the relationship between the journal and the ledger
B. Determines the normal balance of an account
C. Requires that expenses related to the revenue and revenue be reported at the
same time
D. Requires that the peso amount of debits equal the peso amounts of credits in a
journal entry

13. The primary difference between deferred and accrued expenses is that deferred
expenses have
A. Been recorded and accrued expenses have not been incurred
B. Been incurred and accrued expenses have not
C. Not been incurred and accrued expenses have been incurred
D. Not been recorded and accrued expenses have been incurred

14. Adjusting entries affect at least one:


A. Revenue annd one expense account
B. Asset and one liabilty account
C. Revenue and one stockholder’s equit account
D. Income statement and one balance sheet account

15. The year-end balance in the prepaid rent account before adjustment is P18,000,
representing three months’ rent paid on December 1. The adjusting entry required
on December 31 is:
a) Debit Rent Expense, P6,000; credit Prepaid Rent, P6,000
b) Debit Prepaid Rent, P6,000; credit Rent Expense, P6,000
c) Debit Rent expense, P12,000; credit Prepaid Rent, P12,000
d) Debit Prepaid Rent, P12,000; credit Rent expense, P12,000

16. What is the proper adjusting entry at June 30, the end of the fiscal year, based on
a supplies account balance before adjustment, P7,200, and supplies inventory on
June 30, P1,200?
a) Debit Supplies, P1,200; credit Supplies Expense, P1,200
b) Debit Supplies Expense, P1,200; credit Supplies, P1,200
c) Debit Supplies Expense, P6,000; credit Supplies, P6,000
d) Debit Supplies, P6,000; credit Supplies Expense, P6,000

17. A business enterprise pays weekly salaries of P45,000 on Friday for a five-day
week ending on that day. The adjusting entry necessary at the end of the fiscal
period ending on Thursday is:
a) Debit Salaries Payable, P36,000; credit Cash, P36,000
b) Debit Salary Expense, P36,000; credit Dividends, P36,000
c) Debit Salary Expense, P36,000; credit Salaries Payable, P36,000
d) Debit Dividends, P36,000; credit Cash, P36,000

18. At the end of the fiscal year, Grover Company omitted the usual adjusting entry
for depreciation on equipment. Which of the following statements is true?
a) Total assets will be understated at the end of the current year.
b) The balance sheet, income statement, and retained earnings statement will be
misstated for the current year.
c) Expenses will be overstated at the end of the current year.
d) Net income will be understated for the current year.

19. Data for an adjusting entry described as “accrued wages, P800” means to debit:
a) Capital Stock and credit Wages Payable
b) Wages Expense and credit Wages Payable
c) Wages Payable and credit Wages Expense
d) Accounts Receivable and credit Wages Expense

20. If cash is received in advance from a customer, then


a) Assets will decrease.
b) Retained earnings will increase.
c) Liabilities will increase.
d) Stockholders’ equity will decrease.

21. If the adjusting entry is not made for unearned revenues the result will be to
a) Overstate assets and understate liabilities.
b) Overstate liabilities and understate revenues.
c) Understate net income and overstate retained earnings
d) Understate retained earnings and overstate revenues.

22. Annabeth Company received a check for P30,000 on October 1 which represents
a one year advance payment of rent on an office it rents to a client. Unearned Rental
Revenue was credited for the full P30,000. Financial statements are prepared on
December 31. The appropriate adjusting journal entry to make on December 31
would be
a) Debit Rental Revenue P2,500; credit Unearned Rental Revenue P2,500.
b) Debit Unearned Rental Revenue P7,500; credit Rental Revenue P7,500
c) Debit Unearned Rental Revenue P22,500; credit Rental Revenue P22,500
d) Debit Rental Revenue P22,500; credit Unearned Rental Revenue P22,500

23. If revenues are recognized only when a customer pays, what method of
accounting is being used?
a) Accrual basis
b) Recognition basis
c) Cash basis
d) Matching basis
24. Using accrual accounting, expenses are recorded only:
a) When they are incurred and paid at the same time
b) If they are paid before they are incurred
c) If they are paid after they are incurred
d) When they are incurred, whether or not cash is paid

25. What is the law regulating the practice of accountancy in the Philippines?
A. R.A No. 9289
B. R.A No. 9198
C. R.A No. 9928
D. R.A No. 9298

For Nos 26-30.

Luke Company provided the following financial information as of year-end, August


31.
a) Supplies on hand on August 31 P800
b) Depreciation of equipment during the year P3,400
c) Rent expired during the year P11,000
d) Wages accrued, but not paid at August 31 P2,500
e) Unearned fees at August 31 P1,500
f) Unbilled fees at August 31 P5,260
Unadjusted Balance
Debit Credit
Accounts Receivable 12,350
Supplies 1,980
Prepaid Rent 20,000
Equipment 75,800
Accumulated Depreciation -Equipment 24,700
Luke’s OE 20,480
Unearned Fees 7,500
Fees Earned 99,650
Wages Expense 42,200

26. What is the Accounts Receivable’s balance after the adjustment


A. P12,350
B. P17,610
A. P19,110
B. P21,610

27. What is the Supplies’ after the adjustment?


A. P1,980
B. P 800
C. P1,180
D. P2,780
28. What is the Prepaid Rent’s balance after the adjustment?
A. P 11,000
B. P 9,000
C. P 20,000
D. NOTA

29. What is the depreciation expense for the year?


A. P3,400
B. P1,133
C. P2,267
D. NOTA

30. What is the adjusted balance?


A. P162,690
B. P163,490
C. P152,490
D. P154,490

For Nos 31-35.

Error Revenues Expenses Assets Liabilities Equity. Complete the table using a "+" for
overstatements, a "-" for understatements, and a "0" for no effect.

Revenues Expenses Assets Liabilities Equity


31. Did not record
depreciation for this
period

32. Did not record


unpaid telephone bill

33. Did not adjust


unearned revenue
account for revenue
earned this period
34. Did not adjust
shop supplies for
supplies used this
period

35. Did not accrue


employee salaries
for this period
For Nos 36-39.

At the end of December 31, the following selected data were taken from the
financial statements of Chiron Company:

Net Income for December P88,450


Total Assets at December 31 276,000
Total Liabilities at December 31 77,800
Total Equity at December 31 198,200

The following adjusting entries were omitted during the year:


a. Unbilled fees earned at December 31 P2,200
b. Supplies used during December 31 P1,800
c. Depreciation of equipment for the year P7,500
d. Accrued wages at December 31 P1,500

36.What is the correct Net Income after adjustments?


A. P90,650
B. P92,450
C. P83,150
D. P79,850

37. What is the correct Total Assets after adjustments?


A. P268,900
B. P287,500
C. P272,500
D. P268,100

38. What is the correct Total Liabilities after adjustments?


A. P77,800
B. P79,300
C. P76,300
D. P74,800

39. What is the correct Equity after adjustments?


A. P193,200
B. P208,200
C. P189,600
D. P188,800

40. Which of the following is not a correct valuation of the expanded accounting
equation?
A. Assets = Liabilities + Equity + Income - Expenses
B. Assets - Liabilities = Equity + Income - Expenses
C. Assets + Expenses = Liabilities + Equity + Income
D. Assets = Liabilities + Equity - Income + Expense

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