Test Bank for Accounting, 27th Edition, Carl S. Warren, James M. Reeve Jonathan Duchac

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Test Bank for Accounting, 27th Edition, Carl S. Warren, James M. Reeve Jonathan Duchac

Chapter 3 – The Adjusting Process

 

True / False

1. Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis of accounting.

  a.  True

  b.  False

ANSWER:   True

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

2. Generally accepted accounting principles require the accrual basis of accounting.

  a.  True

  b.  False

ANSWER:   True

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

3. The revenue recognition principle states that revenue should be recorded in the same period as the cash is received.

  a.  True

  b.  False

ANSWER:   False

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

4. The system of accounting where revenues are recorded when they are earned and expenses are recorded when they are incurred is called the cash basis of accounting.

  a.  True

  b.  False

ANSWER:   False

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

5. The matching principle requires expenses be recorded in the same period that the related revenue is recorded.

  a.  True

  b.  False

ANSWER:   True

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

6. For most large businesses, the cash basis of accounting will provide accurate financial statements for user needs.

  a.  True

  b.  False

ANSWER:   False

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.09 – Financial Statements
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

7. An example of deferred revenue is Unearned Rent.

  a.  True

  b.  False

ANSWER:   True

DIFFICULTY:   Easy
Bloom’s: Understanding

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

8. Accruals are needed when an unrecorded expense has been incurred or an unrecorded revenue has been earned.

  a.  True

  b.  False

ANSWER:   True

DIFFICULTY:   Moderate
Bloom’s: Understanding

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

9. If the debit portion of an adjusting entry is to an asset account, then the credit portion must be to a liability account.

  a.  True

  b.  False

ANSWER:   False

DIFFICULTY:   Moderate
Bloom’s: Understanding

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

10. The revenue recognition principle requires that the reporting of revenue be included in the period when cash for the service is received.

  a.  True

  b.  False

ANSWER:   False

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

11. Revenues and expenses should be recorded in the same period to which they relate.

  a.  True

  b.  False

ANSWER:   True

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP
ACCT.ACBSP.APC.04 – Cash vs. Accrual
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

12. The matching principle supports matching expenses with the related revenues.

  a.  True

  b.  False

ANSWER:   True

DIFFICULTY:   Easy
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.02 – GAAP
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

13. The updating of accounts when financial statements are prepared is called the adjusting process.

  a.  True

  b.  False

ANSWER:   True

DIFFICULTY:   Easy
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.06 – Recording Transactions
ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

14. Adjusting entries affect balance sheet accounts to the exclusion of income statement accounts.

  a.  True

  b.  False

ANSWER:   False

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

15. Adjusting entries affect only expense and asset accounts.

  a.  True

  b.  False

ANSWER:   False

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

16. An adjusting entry would adjust revenue so it is reported when earned and not when cash is received.

  a.  True

  b.  False

ANSWER:   True

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

17. An adjusting entry would adjust an expense account so the expense is reported when incurred.

  a.  True

  b.  False

ANSWER:   True

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

18. An adjusting entry to accrue an incurred expense will affect total liabilities.

  a.  True

  b.  False

ANSWER:   True

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

19. The difference between deferred revenue and accrued revenue is that accrued revenue has been recorded and needs

adjusting and deferred revenue has never been recorded.

  a.  True

  b.  False

ANSWER:   False

DIFFICULTY:   Moderate
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual
ACCT.ACBSP.APC.07 – Adjusting Entries
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

20. Deferrals are recorded transactions that delay the recognition of an expense or revenue.

  a.  True

  b.  False

ANSWER:   True

DIFFICULTY:   Easy
Bloom’s: Remembering

LEARNING OBJECTIVES:   ACCT.WARD.18.03-01 – 03-01

ACCREDITING STANDARDS:   ACCT.ACBSP.APC.04 – Cash vs. Accrual
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic

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