Test 2 - Chapters 3/4 A

Question 1 of 30

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The time period assumption states that

Select one of the following:

  • a transaction can only affect one period of time

  • estimates should not be made if a transaction affects more than one time period

  • adjustments to the enterprise's accounts can only be made in the time period when the business terminates operations

  • the economic life of a business can be divided into artificial time period periods

Question 2 of 30

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In general, the shorter the time period, the difficulty of making the proper adjustments to accounts

Select one of the following:

  • is increased

  • is decreased

  • is unaffected

  • depends on if there is a profit or a loss

Question 3 of 30

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The fiscal year of a business is usually determined by

Select one of the following:

  • the Canada Customs and Revenue Agency

  • the Tax Act

  • the business

  • provincial securities and exchange commissions

Question 4 of 30

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Moishe's Tune-Up Shop follows the revenue recognition principle. Moishe services a car on July 31. The customer picks up the vehicle August 1st and mails the payment on August 5th. Moishe receives the cheque in the mail on August 6th. When should Moishe show the revenue was earned?

Select one of the following:

  • July 31

  • August 1

  • August 5

  • August 6

Question 5 of 30

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A company spends $10 million for an office building. Over what period should the cost be written off?

Select one of the following:

  • when the $10 million is expended in cash

  • all in the first year

  • over the useful life of the building

  • after $10 million in revenue is earned

Question 6 of 30

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The matching principle states that expenses should be matched with revenues. Another way of stating the principle is to say that

Select one of the following:

  • assets should be matched with liabilities

  • efforts should be matched with accomplishments

  • owner withdrawals should be matched with owner contribuions

  • cash payments should match cash receipts

Question 7 of 30

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A small company may be able to justify using the cash basis of accounting if they have

Select one of the following:

  • sales under $1 000 000

  • no accountants on staff

  • few receivables and payables

  • all sales and purchases accounts

Question 8 of 30

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Adjusting entries are

Select one of the following:

  • not necessary if the accounting system is operating properly

  • usually required before financial statements are prepared

  • made whenever management desires to change an account balance

  • made to balance sheet accounts only

Question 9 of 30

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Which one of the following is not a justification for adjusting entries?

Select one of the following:

  • adjusting entries are necessary to ensure that revenue recognition principles are followed

  • adjusting entries are necessary to ensure that the matching principle is followed

  • adjusting entries are necessary to enable financial statements to be in conformity with IFRS

  • adjusting entries are necessary to bring the ledger accounts in line with budget

Question 10 of 30

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An adjusting entry

Select one of the following:

  • affects two balance sheet accounts

  • affects two income statement accounts

  • affects a balance sheet account and an income statement account

  • is always a compound entry

Question 11 of 30

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If a resource has been consumed but a bill has not been received at the end of the accounting period, then

Select one of the following:

  • an expense should be recorded when the bill is received

  • an expense should be recorded when the cash is paid out

  • an adjusting entry should be made recognizing the expense

  • it is optional whether to record the expense before the bill is received

Question 12 of 30

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An asset-expense relationship exists with

Select one of the following:

  • liability accounts

  • revenue accounts

  • prepaid expense adjusting entries

  • accrued expense adjusting entries

Question 13 of 30

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A law firm received $2 000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Legal Fees. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause

Select one of the following:

  • expenses to be overstated

  • net income to be overstated

  • liabilities to be understated

  • revenues to be understated

Question 14 of 30

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Accrued revenues are

Select one of the following:

  • received and recorded as liabilities before they are earned

  • earned and recorded as liabilities before they are received

  • earned but not yet received or recorded

  • earned and already received and recorded

Question 15 of 30

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Prepaid expenses are

Select one of the following:

  • paid and recorded in an asset account before they are used or consumed

  • paid and recorded in an asset account after they are used or consumed

  • incurred but not yet paid or recorded

  • incurred and already paid and recorded

Question 16 of 30

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Accrued expenses are

Select one of the following:

  • paid and recorded in an asset account before they are used or consumed

  • paid and recorded in an asset account after they are used or consumed

  • incurred but not yet paid or recorded

  • incurred and already paid and recorded

Question 17 of 30

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Unearned revenues are

Select one of the following:

  • received and recorded as liabilities before they are earned

  • earned and recorded as liabilities before they are received

  • earned but not yet received or recorded

  • earned and already received and recorded

Question 18 of 30

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A liability-revenue relationship exists with

Select one of the following:

  • prepaid expense adjusting entries

  • accrued expense adjusting entries

  • unearned revenue adjusting entries

  • accrued revenue adjusting entries

Question 19 of 30

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Which of the following reflect the balances of prepayment accounts prior to adjustment?

Select one of the following:

  • Balance sheet accounts are understated and income statement accounts are understated

  • Balance sheet accounts are overstated and income statement accounts are overstated

  • Balance sheet accounts are understated and income statement accounts are overstated

  • Balance sheet accounts are overstated and income statement accounts are understated

Question 20 of 30

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Amortization of a capital asset is the process of

Select one of the following:

  • valuing a capital asset at its fair market value

  • increasing the cost of a capital asset over the periods the asset benefits

  • allocating the cost of a capital asset to an expense over the periods the asset benefits

  • writing down a capital asset to its real value each account period

Question 21 of 30

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An accumulated amortization account

Select one of the following:

  • is a contra-liability

  • increased on the debit side

  • is offset against total assets on the balance sheet

  • has a normal credit balance

Question 22 of 30

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The difference between the cost of a capital asset and its related accumulated amortization is referred to as the

Select one of the following:

  • market value

  • blue book value

  • net book value

  • amortized difference

Question 23 of 30

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If a business pays rent in advance and debit a prepaid rent account, the company receiving the rent payment will credit

Select one of the following:

  • cash

  • prepaid rent

  • unearned rent revenue

  • accrued rent revenue

Question 24 of 30

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Failure to prepare an adjusting entry at the end of the period to record an accrued expense would cause

Select one of the following:

  • net income to be understated

  • an overstatement of assets and an overstatement of liabilities

  • an understatement of expenses and an understatement of liabilities

  • an overstatement of expenses and an overstatement of liabilities

Question 25 of 30

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Failure to prepare a an adjusting entry at the end of the period to record an accrued revenue would cause

Select one of the following:

  • net income to be overstated

  • an understatement of assets and an understatement of revenues

  • an understatement of revenues and an understatement of liabilities

  • an understatement of revenues and an overstatement of liabilities

Question 26 of 30

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Closing entries are made

Select one of the following:

  • in order to terminate the business as an operating entity

  • so that all assets, liabilities, and owner's capital accounts will have zero balances when the next accounting period starts

  • in order to transfer net income/loss and owner's drawings to the capital account

  • so that financial statements can be prepared

Question 27 of 30

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The owner's capital account

Select one of the following:

  • is a permanent account

  • appears on the cash flow statement

  • appears on the income statement

  • is a temporary account

Question 28 of 30

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The purpose of a post-closing trial balance is to

Select one of the following:

  • prove that no mistakes were made

  • prove the equality of the balance sheet account balances that are carried forward into the next accounting period

  • prove the equality of the income statement account balances that are carried forward into the next accounting period

  • list all the balance sheet accounts in alpha order for easy reference

Question 29 of 30

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After closing entries are posted, the balance in the owner's capital account in the ledger is equal to

Select one of the following:

  • the beginning owner's capital reported on the statement of OE

  • the amount of the owner's capital reported on the balance sheet

  • zero

  • the net income for the period

Question 30 of 30

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Reversing entries are required for

Select one of the following:

  • prepayment adjustments

  • accrual adjustments

  • estimate adjustments

  • prepayment and accrual adjustments

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Test 2 - Chapters 3/4 A

Claudia Voin
Quiz by , created over 1 year ago

Grade 12 Accounting Midterm Prep

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Claudia Voin
Created by Claudia Voin over 1 year ago
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