MAE FINAL EXAM

A chart of accounts lists accounts in the following order . . .

income, expense, asset, liability and owners’ equity accounts.
asset, income, expense, liability and owners’ equity accounts.
asset, income, owners’ equity, expense and liability accounts.
asset, liability, owners’ equity, income and expense accounts.

On which of the following accounts do we normally not record depreciation?

Inventory
Equipment
Furniture
Building

Interest earned on a money market account and credited to your company’s bank account but not recorded on your books . . .

is recorded on your books with a normal transaction entry.
is recorded on your books with an adjusting entry.
is recorded on your books with both a transaction entry and an adjusting entry.
requires no entry in your books.

Which of the following dates is appropriate for a profit and loss statement?

as of June 30, 20XX
June 30, 20XX
for the Quarter Ended June 30, 20XX
All of the above are appropriate.

Total debits must equal total credits. This is the basis of . . .

an income statement.
an earnings statement.
a profit and loss statement.
double-entry bookkeeping.

Which of the following accounts might be included in an adjusting entry?

Cash
Buildings
Insurance Expense
all of the above

Which of the following is an asset?

Payables
Unearned Revenue
Receivables
Revenue

On the accrual basis, revenue is recorded when it is …

received.
earned.
incurred.
paid.

On the cash basis, expenses are recorded when they are …

received.
earned.
incurred.
paid.

Your company gets $5,000 in December to paint a house. The work is done in January. How much revenue is reported on a cash basis in December and January, respectively?

$2,500 and $2,500
$5,000 and $0
$0 and $5,000
$2,000 and $3,000

You receive $80,000 before you do work for a customer. The journal entry to record this transaction is . . .

Cash 80,000

Unearned Revenue 80,000

To record cash received
Cash 80,000

Accounts Receivable 80,000

To record cash received
Cash 80,000

Accounts Payable 80,000

To record cash received
Unearned Revenue 80,000

Cash 80,000

To record cash received

When are adjusting entries prepared?

beginning of the accounting period
end of the accounting period
middle of the accounting period
time of the transaction

Your company holds a 90-day note receivable of $10,000 from a customer. The note is dated October 31 and has a 12% interest rate. Your company’s year ends on December 31. How much interest revenue do you accrue on December 31?

$1,200
$300
$200
$0

The journal entry to accrue interest revenue is . . .

Cash

Interest Revenue

To accrue interest
Interest Revenue

Cash

To accrue interest
Interest Receivable

Interest Revenue

To accrue interest
Interest Revenue

Interest Receivable

To accrue interest

Your company sells a product for another company and receives a commission of 10% on sales. By the end of your company’s fiscal year, your company had sales of $200,000 and received $8,000, which was credited to Revenue. How much additional revenue must be recorded this fiscal year?

$20,000
$12,000
$8,000
$0

When revenue is accrued, what is the effect on assets and income, respectively?

Both increase.
Both decrease.
Assets increase; income decreases.
Assets decrease; income increases.

Which of the following is an accurate description of accrued revenue?

It is unearned.
It has been received in cash.
It is earned and received in cash.
It has not yet been received in cash.

The balance in Allowance For Doubtful Accounts is important to the calculation of bad debt when bad debt is calculated . . .

as a percentage of credit sales.
as a percentage of accounts receivable that will not be collected.
under the direct write-off method.
none of the above.

A company with a 5-day workweek pays employees on Friday. Its accounting period ends on Thursday. Gross salary for the week is $10,000. How much salary expense is accrued at year end?

$10,000
$8,000
$2,000
$0

Which of the following journal entries accrues interest expense?

Interest Expense

Interest Payable

To accrue interest expense
Interest Payable

Interest Expense

To accrue interest expense
Interest Expense

Cash

To accrue interest expense
Cash

Interest Expense

To accrue interest expense

A firm with a 6-day workweek pays employees on Saturday. If the firm’s year ends on a Saturday, and gross salary for that week is $12,000, how much salary expense is accrued at year end?

$12,000
$8,000
$6,000
$0

Your company’s year ends on May 31. On May 1, it borrowed $50,000 for 1 year at 12% interest. How much interest expense has it accrued on May 31?

$6,000
$5,000
$500
$0

With accrued expenses, cash payment follows recording the expense.

True
False

What type of account is Deferred Commissions?

expense
asset
liability
revenue

Your company pays expenses of $50,000 during the year and accrues expenses of $5,000 at year end. What are your company’s total expenses for the year?

$55,000
$50,000
$45,000
$5,000

The following information relates to questions 26, 27, and 28:
Rehabilitation, Inc. uses accrual basis accounting. It collects $10,000 in December for a painting job and credits revenue. By the end of December, its year end, the company has completed 30% of the job.

How much cash did Rehabilitation, Inc. collect in December?

$10,000
$7,000
$3,000
$0

The following information relates to questions 26, 27, and 28:
Rehabilitation, Inc. uses accrual basis accounting. It collects $10,000 in December for a painting job and credits revenue. By the end of December, its year end, the company has completed 30% of the job.

How much revenue has Rehabilitation, Inc. earned in December?

$10,000
$7,000
$3,000
$0

The following information relates to questions 26, 27, and 28:
Rehabilitation, Inc. uses accrual basis accounting. It collects $10,000 in December for a painting job and credits revenue. By the end of December, its year end, the company has completed 30% of the job.

The adjusting journal entry on December 31 (omitting dollars) is . . .

Unearned Revenue

Cash

To reflect unearned revenue
Unearned Revenue

Revenue

To reflect unearned revenue
Revenue

Unearned Revenue

To reflect unearned revenue
Cash

Revenue

To reflect unearned revenue

Unearned revenue is also known as . . .

deferred expense.
deferred revenue.
earned revenue.
cash paid.

The Cash ledger account is not used in adjusting entries.

True
False

The following information relates to questions 31 and 32:
CBA Co. uses accrual basis accounting. It collects $20,000 in December for a job and credits unearned revenue. By the end of December, its year end, CBA has completed 40% of the work.

How much revenue has CBA earned in December?

$20,000
$12,000
$8,000
$0

The following information relates to questions 31 and 32:
CBA Co. uses accrual basis accounting. It collects $20,000 in December for a job and credits unearned revenue. By the end of December, its year end, CBA has completed 40% of the work.

Which accounts does CBA debit and credit in the adjusting journal entry on December 31?

Unearned Revenue

Cash

To reflect revenue earned
Unearned Revenue

Revenue

To reflect revenue earned
Revenue

Unearned Revenue

To reflect revenue earned
Cash

Revenue

To reflect revenue earned

When revenue is credited, it increases revenue.

True
False

Unearned Revenue is what type of account?

asset
liability
revenue
expense

In accrual basis accounting, “recognized” would mean . . .

paid.
received.
incurred.
recorded.

With prepaid supplies, cash payment follows recording of the expense.

True
False

The following information relates to questions 37, 38, and 39:
DEF Co. uses accrual basis accounting. It pays $15,000 to cover a 3-year insurance premium and debits “insurance expense.” One (1) year has elapsed.

How much insurance expense has DEF Co. incurred this year?

$15,000
$10,000
$5,000
$0

The following information relates to questions 37, 38, and 39:
DEF Co. uses accrual basis accounting. It pays $15,000 to cover a 3-year insurance premium and debits “insurance expense.” One (1) year has elapsed.

How much has DEF Co. paid for insurance this year?

$15,000
$10,000
$5,000
$0

The following information relates to questions 37, 38, and 39:
DEF Co. uses accrual basis accounting. It pays $15,000 to cover a 3-year insurance premium and debits “insurance expense.” One (1) year has elapsed.

What is the adjusting journal entry (omitting dollars) after 1 year?

Insurance Expense

Cash

To record prepaid insurance
Insurance Expense

Prepaid Insurance

To record prepaid insurance
Prepaid Insurance

Insurance Expense

To record prepaid insurance
Prepaid Insurance

Cash

To record prepaid insurance

What type of account is Prepaid Insurance?

asset
liability
revenue
expense

Your company buys office supplies and debits Supplies On Hand for $10,000. At year end, you estimate that you used $4,000 of these supplies. What is the expense for supplies used?

$10,000
$6,000
$4,000
$0

Generally, an adjusting journal entry . . .

is used in both accrual basis and cash basis accounting.
affects both the income statement and the balance sheet.
affects only the income statement.
affects only the balance sheet.

Your company, which uses accrual basis accounting, pays $18,000 in advance to cover a 3-year insurance premium and debits Prepaid Insurance. How much insurance expense has your company incurred after 1 year has elapsed?

$18,000
$12,000
$6,000
$0

If bad debt is estimated as 1% of credit sales, the adjusting entry for bad debt expense includes a debit for . . .

$14,000
$10,000
$6,000
$0

If your company estimates that it will not collect 5% of its accounts receivable, the year-end adjustment to Allowance For Doubtful Accounts will be . . .

a credit of $1,000.
a credit of $5,000.
a debit of $1,000.
a debit of $5,000.

If December 1, your company opens for business and leases space in a building for $1,000 per month and pays 3 months’ rent in advance. On December 31, the balance in Rent Expense is $3,000, it means that the advance payment for rent was recorded in . . .

Prepaid Rent, which must now be credited for $1,000.
Rent Expense, which must now be credited for $2,000.
Prepaid Rent, which must now be debited for $1,000.
Rent Expense, which must now be debited for $2,000.

Your company accrued $20,000 of salary expense at the end of Year 1, then paid $30,000 of salaries early in Year 2. How much salary expense applies to Years 1 and 2, respectively?

$30,000 and $0
$0 and $30,000
$10,000 and $20,000
$20,000 and $10,000

Use the following information to answer Questions 48–50:

If the partial adjustment shown for Utilities Expense is correct, what would be the adjusted trial balance amount for Utilities Payable?

$1,000 debit
$4,000 credit
$6,000 debit
$7,000 credit

Use the following information to answer Questions 48–50:

If the adjustment shown for Supplies Expense is correct, what is the adjusted trial balance amount for Supplies on Hand?

$800
$1,600
$2,400
$0

Use the following information to answer Questions 48–50:

If the company estimates that it will not be able to collect 3% of accounts receivable, the debit to Bad Debt Expense in the adjustments column is . . .

$3,200
$2,000
$1,200
$0

Cash		80,000
	Accounts Receivable		80,000
To record cash received

Cash		80,000
	Accounts Payable		80,000
To record cash received

Cash
	Revenue
To reflect unearned revenue

Cash
	Revenue
To reflect revenue earned

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