Chapter 3 Practice Questions
Rina Dhillon
Practice Questions
- Under accrual accounting:
a. revenues are recorded when they are received and expenses are recorded when they are paid b. revenues are recorded when they are received and expenses are recorded when they are incurred c. revenues are recorded when they are earned and expenses are recorded when they are incurred d. revenues are recorded when they are earned and expenses are recorded when they are paid - Revenues and expenses are recognised in the same accounting period that cash receipts and payments occur under the:
a. cash basis of accounting b. accrual basis of accounting c. adjusting method of accounting d. finance method of accounting - MoonTrack is a local package delivery service. Conceptually, MoonTrack should recognise revenue from its package delivery service at the date the:
a. customer places the order b. packages are delivered c. invoice is mailed to the customer d. customer’s payment is received - Which one of the following is an example of unearned revenue?
a. Sales made to customers on credit b. Revenue earned but not yet recorded c. Payments received prior to providing the services to customers d. Cash sales made to customers - Clarks Pty Ltd received advance payments from customers during January 2022 of $240000. At 30 June 2022, $20000 of the advance payments still had not been earned. After the adjustments are recorded and posted at 30 June 2022, the balances in the unearned service revenue and service revenue accounts will be:
a. Unearned service revenue: $20 000, Service revenue accounts: $220 000 b. Unearned service revenue: $220 000, Service revenue accounts: $20 000 c. Unearned service revenue: $0, Service revenue accounts: $240 000 d. Unearned service revenue: $240 000, Service revenue accounts: $0 - Adjusting journal entries are made at the end of the period when:
a. The cash basis of accounting is used for all accounting periods b. Cash receipts and payments occur before or after the point in time when revenues and expenses should be recognised under the accrual basis of accounting c. Management reports its adjustments on the statement of cash flows d. The company reports revenue in the same period cash is collected - What happens to the accounting equation when the adjustment is recorded to recognise earned revenue previously recorded as unearned revenue?
a. Assets increase and liabilities increase b. Liabilities decrease and shareholders’ equity increases c. Assets decrease and liabilities decrease d. Shareholders’ equity increases and decreases by the same amount - Dhillon Incorporated recorded salary expense of $120 000 in the 2022 financial year. However, additional salaries of $9000 had been earned, but not paid or recorded at 30 June 2022. After the adjustments are recorded and posted at 30 June 2022, the balances in the salaries expense and salaries payable accounts will be
a. Salaries expense: $129 000, Salaries payable $9000 b. Salaries expense: $120 000, Salaries payable $0 c. Salaries expense: $120 000, Salaries payable $9000 d. Salaries expense: $111 000, Salaries payable $0 - On 1 April 2022, Tesla paid $90000 rent in advance. The rent per month is $10000. If Tesla’s accounting period ends on 30 June 2022, what will be reported on the financial statements?
a. Prepaid rent of $60000 on its balance sheet at 30 June 2022 b. Prepaid rent of $90000 on its balance sheet at 30 June 2022 c. Rent expense of $90000 on its 2022 income statement d. Rent revenue of $60000 on its 2022 income statement - Which of the following adjusting entries involves the cash account?
a. Unearned revenues b. Accrued expenses c. Deferred liabilities d. None of these answers is correct - Which of the following does not occur during the closing process?
a. Journal entries are made to return the balance in all temporary accounts to zero b. Journal entries are made to transfer the net income or loss to retained earnings c. Journal entries are made to return the balance in all permanent accounts to zero d. Journal entries are made to transfer the dividends to retained earnings - Which of the following entries properly closes a temporary account?
a. Retained earnings 40000 Service revenue 40000
b. Dividends 400 Retained earnings 400
c. Depreciation expense 3200 Retained earnings 3200
d. Retained earnings 800 Salaries expense 800
- Hair and Nail Salon Pty Ltd sells six-month subscriptions to its monthly magazine. On 1 January, they receives a total of $600 for 10 subscriptions. To record this transaction, cash was debited for $600 and unearned subscription revenue was credited for $600. As of 31 January, the business has provided one month of magazines and has earned one month of revenue. What adjusting entry is necessary at 31 January?
a. Unearned subscription revenue 600 Subscription revenue 600
b. Subscription revenue 100 Unearned subscription revenue 100
c. Unearned subscription revenue 100 Subscription revenue 100
d. Subscription revenue 600 Unearned subscription revenue 600
- Ponds Corporation makes adjusting entries monthly. As of 31 March, the general ledger shows prepaid rent as a debit balance of $6000. Rent is charged at a rate of $1200. No entry for rent has been recorded in the month of March. What adjusting entry is necessary at 31 March?
a. Prepaid rent 5000 Cash 5000
b. Rent expense 1200 Cash 1200
c. Rent expense 1200 Prepaid rent 1200
d. Prepaid rent 6000 Rent expense 6000
- Suppose that a business purchases a six-month general liability insurance policy for $36000 on 1 January. To record this transaction, the company debits ‘prepaid insurance’ for $36000 and credits ‘cash’ for $36000. As of 31 January, the company has consumed one month of insurance. What adjusting entry is necessary at 31 January?
a. Insurance expense 3000 Prepaid insurance 3000
b. Insurance expense 6000 Cash 6000
c. Prepaid insurance 36000 Insurance expense 36000
d. Insurance expense 6000 Prepaid insurance 6000
Solutions: (1) c; (2) a; (3) b; (4) c; (5) a; (6) b; (7) b; (8) a; (9) a; (10) d; (11) c; (12) d; (13) c; (14) c; (15) d