Accounting Cycle Exercises

UNIVERSITY OF SANTO TOMAS
DEPARTMENT OF NUTRITION AND DIETETICS
MODULE 4: Accounting Cycle Exercises
1. Under accrual-basis accounting, revenues are always recognized when

a. Earned
b. Cash is received
c. The manufacture of the product to be sold is completed
d. The selling price is firmly established
ANS: A PTS: 1 DIF: Easy OBJ: 4.1

NAT: AACSB Reflective Thinking | AICPA FN Measurement
2. The idea that all expenses incurred in generating revenues should be recognized in
the same period as those revenues is called the
a. Time period concept
b. Realization concept
c. Matching principle
d. Revenue recognition principle
ANS: C PTS: 1 DIF: Easy OBJ: 4.1

3. In accrual basis accounting, when are expenses usually recognized?

a. When cash is paid
b. When assets are purchased
c. When incurred
d. When assets are ordered

4. The matching principle requires that

a. Cash outflows be matched with cash inflows
b. Expenses incurred be matched with revenues earned
c. Assets be matched with liabilities
d. Assets be matched with equity
ANS: B PTS: 1 DIF: Easy OBJ: 4.1

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5. A twelve-month accounting period ending on December 31 is known as a
a. Calendar year
b. Reporting period
c. Fiscal year
d. All of these are correct
ANS: D PTS: 1 DIF: Easy OBJ: 4.1

6. The idea that a company's life can be divided into distinct time periods so that
accounting information can be reported on a timely basis is the
a. Accrual basis accounting
b. Time period concept
c. Fiscal year concept
d. Revenue recognition concept

7. A system of accounting in which revenues and expenses are recorded as they are
earned and incurred, is called
a. Revenue recognition accounting
b. Accrual-basis accounting
c. Realization accounting
d. Cash-basis accounting

8. A system of accounting in which revenues and expenses are recorded only when
cash is received or paid, is called
a. Revenue recognition accounting
b. Accrual-basis accounting
c. Realization accounting
d. Cash-basis accounting

9. Under accrual-basis accounting, revenue is recognized
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a. When cash is received without regard to when the services are rendered
b. When the services are rendered without regard to when cash is received
c. When cash is received before the time services are rendered
d. If cash is received after the services are rendered

10. Under accrual-basis accounting, expenses are recognized

a. When they are incurred, whether or not cash is paid
b. When they are incurred and paid at the same time
c. If they are paid before they are incurred
d. If they are paid after they are incurred

11. Which of the following is true about accrual-basis accounting?

a. Income is generally larger with accrual-basis accounting.
b. Accrual-basis accounting provides a better measure of performance.
c. Accrual-basis accounting is not required by GAAP.
d. Accrual-basis accounting and cash-basis accounting always produce the same results.

12. During 2017, Rumbo Corporation had cash and credit sales of $21,760 and
$15,225, respectively. The company also collected accounts receivable of $9,765 and incurred
operating expenses of $27,700, 80 percent of which were paid during the year. In addition,
Rumbo paid $4,500 for an 18-month advertising campaign that began on September 30. Rumbo's
accrual-basis net income (loss) for 2017 was
a. $9,285
b. $8,535
c. $14,075
d. $(775)
ANS: B
Net income: $21,760 + $15,225 - $27,700 - $750* = $8,535
*$4,500 * 3/18 = $750
PTS: 1 DIF: Medium OBJ: 4.1
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NAT: AACSB Analytic | AICPA FN Measurement
13. The 2017 accrual-basis statement of comprehensive income for Razorri

Corporation reports services revenue of $81,000. The related balance sheet accounts for the
beginning and end of the year were
Jan. 1, 2017 Dec. 31, 2017

Unearned Services Revenue 0 $29,250
Accounts Receivable 6,750 2,250
Based on this information, the amount of cash collected during 2016 from Razorri's customers
was
a. $81,000
b. $119,250
c. $114,750
d. $99,000
ANS: C
Cash collected: $81,000 + $29,250 + $6,750 - $2,250 = $114,750

14. Nona Corporation, a calendar-year company, had the following transactions

during 2017:
• Rented an office building to Erma Company. On September 1, Erma paid $27,000 for the
year ending August 31, 2018.
• Received notice that a $1,200 dividend would be paid on January 2, 2017, by Leslie
Corporation.
• Received a check for $13,000 from a client on December 31 for services that will be
performed during 2018.
Assuming cash-basis accounting for Nona Corporation, how much income should be reported on
its 2017 statement of comprehensive income?
a. $21,000
b. $27,000
c. $40,000
d. $41,200
ANS: C
Income reported: $27,000 + $13,000 = $40,000
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PTS: 1 DIF: Medium OBJ: 4.1 NAT: AACSB Analytic | AICPA FN
Measurement
15. Adjusting entries are

a. Recorded on a daily basis as transactions occur
b. Not posted to the general ledger
c. Made at the end of an accounting period
d. Not required under accrual-basis accounting

16. Which of the following are usually NOT directly affected by adjusting entries?
a. Asset accounts
b. Liability accounts
c. Revenue accounts
d. Capital stock accounts

17. Which of the following statements about adjusting entries is NOT true?
a. They are recorded on a daily basis as transactions occur.
b. They are posted at the end of an accounting period.
c. They do not affect the cash account.
d. They are not based on transactions.

18. In analyzing accounts to determine which adjusting entries are necessary,

accountants should determine
a. Whether the amounts recorded for all assets and liabilities are correct
b. What revenue or expense adjustment is required
c. What accounts need debits or credits
d. All of these are correct

19. Each adjusting entry will always affect

a. Only balance sheet accounts
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b. At least one statement of comprehensive income account and one retained earnings
statement account
c. At least one balance sheet account and one statement of comprehensive income account
d. Only statement of comprehensive income accounts

20. Which of the following types of accounts will always be debited to adjust for an
unrecorded receivable?
a. Liabilities
b. Revenues
c. Receivables
d. Expenses

21. Revenue items that are earned but have NOT been collected or recognized are
called
a. Unearned receivables
b. Deferred revenues
c. Unrecorded receivables
d. Prepaid revenues

22. Which of the following will occur if an adjusting entry to record an unrecorded
receivable is NOT made?
a. Both revenues and assets will be understated.
b. Both revenues and assets will be overstated.
c. Revenues will be understated, but assets will be overstated.
d. Assets will be understated, but revenues will be overstated.

23. What is the effect on account balances when an adjusting entry to record an
unrecorded receivable is made?
a. Both revenues and assets will be increased.
b. Both revenues and assets will be decreased.
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c. Revenues will be increased, but assets will be decreased.
d. Assets will be increased, but revenues will be decreased.

24. If rent revenue of $5,000 is earned in 2017 but will NOT be received until 2017,
what is the appropriate adjusting entry at December 31, 2017?
a. Rent Receivable 5,000
Cash 5,000
b. Cash 5,000
Rent Revenue 5,000
c. Rent Revenue 5,000
Rent Receivable 5,000
d. Rent Receivable 5,000
Rent Revenue 5,000
ANS: D PTS: 1 DIF: Medium OBJ: 4.2

25. On October 1, Doe Hunting Supplies, a calendar-year company, provided services

for $100,000. The customer signed a six-month, 10 percent note in payment. On December 31,
Woods should
a. Debit Interest Receivable for $2,500
b. Debit Interest Revenue for $2,500
c. Credit Interest Revenue for $10,000
d. Debit Interest Receivable for $10,000
ANS: A
Interest Receivable: $100,000 10% 3/12 = $2,500

26. On October 1, Mathis Company entered into a six-month contract with Lewis
Company to provide custodial services on a daily basis. The terms of the contract state that the
cost will be $3,000 per month and Mathis will bill Lewis at the end of every two months. If
Mathis is a calendar year company, what is the appropriate adjusting entry at December 31?
a. Cash 3,000
Services Revenue 3,000
b. Accounts Receivable 3,000
Services Revenue 3,000
c. Services Revenue 3,000
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Accounts Receivable 3,000
d. Accounts Receivable 3,000
Cash 3,000
ANS: B PTS: 1 DIF: Medium OBJ: 4.2

27. Which of the following types of accounts will always be debited to adjust for an
unrecorded liability?
a. Liabilities
b. Revenues
c. Receivables
d. Expenses

28. Which of the following will occur if an adjusting entry to record an accrued but
unrecorded liability is NOT made?
a. Both expenses and liabilities will be understated.
b. Both expenses and liabilities will be overstated.
c. Expenses will be understated, but liabilities will be overstated.
d. Liabilities will be understated, but expenses will be overstated.

29. Unrecognized interest expense on a note is an example of a(n)

a. Unrecorded receivable
b. Unearned revenue
c. Unrecorded liability
d. Prepaid expense

30. An adjusting entry to record an unrecorded liability usually includes a credit to

a. A liability account
b. An asset account
c. A revenue account
d. An expense account
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31. For which of the following types of adjusting entries is there no original entry?
a. Prepaid expenses
b. Unearned revenues
c. Unrecorded liabilities
d. None of these are correct

32. If on December 31, 2017, interest expense of $600 is owed on a bank note that
will NOT be paid until July 2018, what is the appropriate adjusting entry at the end of 2017?
a. Interest Expense 600
Cash 600
b. Interest Expense 600
Interest Payable 600
c. Cash 600
Interest Expense 600
d. Interest Payable 600
Interest Expense 600
ANS: B PTS: 1 DIF: Medium OBJ: 4.2

33. Bay Graphics pays its employees each Friday for a five-day total workweek. The
payroll is $9,000 per week. If the end of the accounting period occurs on a Wednesday, what is
the adjusting entry to record wages payable?
a. Salaries Payable 5,400
Cash 5,400
b. Salary Expense 5,400
Salaries Payable 5,400
c. Salaries Payable 5,400
Salary Expense 5,400
d. Salaries Payable 9,000
Salary Expense 9,000
ANS: B
Wages payable: $9,000 3/5 = $5,400
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34. Boudin Corporation, a calendar-year company, obtained a $15,000, one-year, 10

percent bank loan on October 31 of the current year. Interest is payable at the end of the loan
term. The adjusting entry needed on December 31 is
a. A debit to Interest Expense of $1,500 and a credit to Interest Payable of $1,500
b. A debit to Interest Payable of $1,500 and a credit to Interest Expense of 1,500
c. A debit to Interest Expense of $250 and a credit to Interest Payable of $250
d. A debit to Interest Expense of $250 and a credit to Cash of $250
ANS: C
Interest payable Dec. 31: $10,000 * 15% * 2/12 = $250

35. Bay Graphics pays its employees each Friday for a five-day total workweek. The
payroll is $9,000 per week. If the end of the accounting period occurs on a Wednesday, the
adjusting entry to record wages payable would include a
a. Debit to Salary Expense of $3,600
b. Debit to Salary Expense of $5,400
c. Credit to Cash of $5,400
d. Credit to Salaries Payable of $3,600
ANS: B
Wages payable: $9,000 * 3/5 = $5,400

36. Which of the following types of accounts will always be credited when a prepaid
expense account is adjusted?
a. Assets
b. Liabilities
c. Revenues
d. Expenses

37. Prepaid expense accounts are usually classified as

a. Assets
b. Liabilities
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c. Expenses
d. Revenues

38. The failure to adjust a prepaid expense that has partially expired and was
originally recorded by debiting a prepaid expense for the entire amount will usually result in an
a. Understatement of assets and an understatement of expenses
b. Overstatement of assets and an overstatement of expenses
c. Understatement of assets and an overstatement of expenses
d. Overstatement of assets and an understatement of expenses

39. An expired asset is called a(n)

a. Revenue
b. Expense
c. Retained earning
d. Cost

40. An adjusting entry to record the expired portion of a prepaid expense that was
originally debited to a prepaid expense account always includes
a. A debit to an asset
b. A credit to cash
c. A debit to an expense
d. A credit to an expense

41. The original entry to record a prepaid expense will usually include
a. A debit to an asset account and a credit to another asset account
b. A debit to an asset account and a credit to an expense account
c. A debit to an expense account and a credit to an asset account
d. None of these are correct
11 | P a g e
42. On April 1, Ciaunna Company paid $48,000 for two years rent and recorded the
entire amount as a debit to Prepaid Rent. The adjusting entry on December 31 of that year would
include a
a. Credit to Rent Expense of $18,000
b. Credit to Prepaid Rent of $24,000
c. Debit to Rent Expense of $24,000
d. Debit to Rent Expense of $18,000
ANS: D
Prepaid rent adjustment: $48,000 * 9/24 = $18,000

43. On June 30, 2017, Sinise Co. purchased a three-year fire insurance policy at a cost
of $27,000 and debited Prepaid Insurance for the entire amount. The policy covers the period
July 1, 2017, to June 30, 2020. The adjusting entry needed on December 31, 2017, includes a
credit to
a. Insurance Expense for $9,000
b. Insurance Expense for $4,500
c. Prepaid Insurance for $4,500
d. Prepaid Insurance for $9,000
ANS: C
Prepaid insurance adjustment: $27,000 * 6/36 = $4,500

44. On August 1, 2017, Base Line Realty purchased a two-year insurance policy for
$15,000. On that date, the company debited Prepaid Insurance for $15,000. The adjusting entry
on December 31, 2017, would include a debit to
a. Prepaid Insurance for $2,500
b. Prepaid Insurance for $3,125
c. Insurance Expense for $3,125
d. Insurance Expense for $2,500
ANS: C
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Prepaid insurance adjustment: $15,000 * 5/24 = $3,125

45. Kim Company purchased a two-year insurance policy on October 1, 2017, for
$6,000. The policy covers its buildings for the next two years. If Kim debited Prepaid Insurance
to record the purchase of the policy, the adjusting entry on December 31, 2017 (year-end) would
include a credit to
a. Insurance Expense of $750
b. Insurance Expense of $3,000
c. Prepaid Insurance of $750
d. Prepaid Insurance of $3,000
ANS: C
Prepaid insurance adjustment: $6,000 * 3/24 = $750

46. At the beginning of the period, Hann Corporation had $4,000 of supplies on hand.
During the period, it purchased $1,300 of supplies and debited supplies for the same amount. At
the end of the period, Hann Corporation determined that only $1,000 of supplies were still on
hand. What adjusting entry should Hann Corporation make at the end of the period?
a. Supplies 4,300
Supplies Expense 4,300
b. Supplies 1,300
Supplies Expense 1,300
c. Supplies Expense 1,300
Supplies 1,300
d. Supplies Expense 4,300
Supplies 4,300
ANS: D
Supplies used: $4,000 + $1,300 - $1,000 = $4,300

47. Scully Corporation purchased a three-year insurance policy on November 1 for

$3,600. Assuming that Scully Corporation recorded the original transaction by debiting Prepaid
Insurance, the adjusting entry on December 31 will include a
a. Debit to Insurance Expense for $200
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b. Credit to Prepaid Insurance for $100
c. Debit to Prepaid Insurance for $100
d. Credit to Cash for $200
ANS: A
Prepaid insurance adjustment: $3,600 * 2/36 = $200

48. Given the following data, what is the amount in the supplies account to be shown
as an asset on the balance sheet at the end of the period?
Supplies at beginning of period $500

Supplies purchased during period 425
Supplies used during period 375
a. $350
b. $550
c. $375
d. $425
ANS: B
Supplies balance at end of period: $500 + $425 - $375 = $550

49. From the following data, determine the amount of supplies on hand at the
beginning of the period.
Supplies on hand, end of period $1,025

Supplies expense for period 425
Supplies purchased during period 800
a. $650
b. $600
c. $1,450
d. $375
ANS: A
Supplies at beginning of period: $1,025 - $800 + $425 = $650
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50. Brooklynne Company paid $25,400 in insurance premiums during 2016.

Brooklynne showed $6,800 in prepaid insurance on its December 31, 2016, balance sheet and
$4,600 on December 31, 2017. The insurance expense on the statement of comprehensive
income for 2017 was
a. $18,600
b. $27,600
c. $23,200
d. $30,000
ANS: B
Insurance expense 2017: $25,400 + $6,800 - $4,600 = $27,600

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Accounting Cycle Exercises

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UNIVERSITY OF SANTO TOMAS

DEPARTMENT OF NUTRITION AND DIETETICS

MODULE 4: Accounting Cycle Exercises

1. Under accrual-basis accounting, revenues are always recognized when

ANS: A PTS: 1 DIF: Easy OBJ: 4.1

ANS: C PTS: 1 DIF: Easy OBJ: 4.1

3. In accrual basis accounting, when are expenses usually recognized?

ANS: C PTS: 1 DIF: Easy OBJ: 4.1

4. The matching principle requires that

ANS: B PTS: 1 DIF: Easy OBJ: 4.1

ANS: D PTS: 1 DIF: Easy OBJ: 4.1

ANS: B PTS: 1 DIF: Easy OBJ: 4.1

ANS: B PTS: 1 DIF: Easy OBJ: 4.1

ANS: D PTS: 1 DIF: Easy OBJ: 4.1

9. Under accrual-basis accounting, revenue is recognized

ANS: B PTS: 1 DIF: Easy OBJ: 4.1

10. Under accrual-basis accounting, expenses are recognized

ANS: A PTS: 1 DIF: Easy OBJ: 4.1

11. Which of the following is true about accrual-basis accounting?

ANS: B PTS: 1 DIF: Easy OBJ: 4.1

PTS: 1 DIF: Medium OBJ: 4.1

13. The 2017 accrual-basis statement of comprehensive income for Razorri

Jan. 1, 2017 Dec. 31, 2017

PTS: 1 DIF: Medium OBJ: 4.1

14. Nona Corporation, a calendar-year company, had the following transactions

15. Adjusting entries are

ANS: C PTS: 1 DIF: Easy OBJ: 4.2

ANS: D PTS: 1 DIF: Easy OBJ: 4.2

ANS: A PTS: 1 DIF: Easy OBJ: 4.2

18. In analyzing accounts to determine which adjusting entries are necessary,

ANS: D PTS: 1 DIF: Easy OBJ: 4.2

19. Each adjusting entry will always affect

ANS: C PTS: 1 DIF: Easy OBJ: 4.2

ANS: C PTS: 1 DIF: Easy OBJ: 4.2

ANS: C PTS: 1 DIF: Easy OBJ: 4.2

ANS: A PTS: 1 DIF: Easy OBJ: 4.2

ANS: A PTS: 1 DIF: Easy OBJ: 4.2

ANS: D PTS: 1 DIF: Medium OBJ: 4.2

25. On October 1, Doe Hunting Supplies, a calendar-year company, provided services

PTS: 1 DIF: Medium OBJ: 4.2

ANS: B PTS: 1 DIF: Medium OBJ: 4.2

ANS: D PTS: 1 DIF: Easy OBJ: 4.2

ANS: A PTS: 1 DIF: Easy OBJ: 4.2

29. Unrecognized interest expense on a note is an example of a(n)

ANS: C PTS: 1 DIF: Easy OBJ: 4.2

30. An adjusting entry to record an unrecorded liability usually includes a credit to

ANS: C PTS: 1 DIF: Easy OBJ: 4.2

ANS: B PTS: 1 DIF: Medium OBJ: 4.2

PTS: 1 DIF: Medium OBJ: 4.2

34. Boudin Corporation, a calendar-year company, obtained a $15,000, one-year, 10

PTS: 1 DIF: Medium OBJ: 4.2

PTS: 1 DIF: Medium OBJ: 4.2

ANS: A PTS: 1 DIF: Easy OBJ: 4.2

37. Prepaid expense accounts are usually classified as

ANS: A PTS: 1 DIF: Easy OBJ: 4.2

ANS: D PTS: 1 DIF: Easy OBJ: 4.2

39. An expired asset is called a(n)

ANS: B PTS: 1 DIF: Easy OBJ: 4.2

ANS: C PTS: 1 DIF: Easy OBJ: 4.2

PTS: 1 DIF: Medium OBJ: 4.2

PTS: 1 DIF: Medium OBJ: 4.2

PTS: 1 DIF: Medium OBJ: 4.2