Adjusting Entry Quiz

I. Multiple Choice
1. In a service-type business, revenue is considered earned
a. At the end of the month
b. At the end of the year
c. When the service is performed
d. When cash is received
2. Under accrual-basis accounting
a. Cash must be received before revenue is recognized
b. Net income is calculated by matching cash outflows against cash inflows
c. Events that change a company’s financial statements are recognized in the
period they occur rather than in the period in which cash is paid or
received
d. The ledger accounts must be adjusted to reflect a cash basis of
accounting before financial statements are prepared under generally
accepted accounting principle
3. An adjusting entry
a. Affects two balance sheet accounts
b. Affects two income statement accounts
c. Affects a balance sheet account and an income statement account
d. Is always a compound entry
4. Accrued revenues are
a. Received and recorded as liabilities before they are earned
b. Earned and recorded as liabilities before they are received
c. Earned but not yet received or recorded
d. Earned and already received and recorded
5. Prepaid expenses are
a. Paid and recorded in an asset account before they are used or consumed
b. Paid and recorded in an asset account after they are used or consumed
c. Incurred but not yet paid or recorded
d. Incurred and already paid or recorded
6. Accrued expenses are
a. Paid and recorded in an asset account before they are used or consumed
b. Paid and recorded in an asset account after they are used or consumed
c. Incurred but not yet paid
d. Incurred and already paid or recorded
7. Unearned revenues are
a. Received and recorded as liabilities before they are earned
b. Earned and recorded as liabilities before they are received
c. Earned but not yet received or recorded
d. Earned and already received and recorded
8. Failure to record the entry for accrued salaries results in
a. Salaries payable being overstated
b. Profit being understated
c. Salaries expense being understated
d. Total assets being understated
e. Total assets being overstated
9. Which of the following is an example of a deferral?
a. Legal fees already earned but not yet collected
b. The accumulation of interest in a bank account
c. The purchase of a company vehicle
d. Property taxes accrued but not yet paid
 10. A business received cash of P30,000 in advance for revenue that will
be earned later. The cash receipt entry debit cash and credited unearned
revenue for P30,000. At the end of the period, P11,000 is still unearned.
The adjusting entry for this situation will
a. Debit unearned revenues and credit revenues for P11,000
b. Debit revenues and credit unearned revenues for P19,000
c. Debit revenues and credit unearned revenues for P11,000
d. Debit unearned revenues and credit revenues for P19,000
11. At the beginning of 2018, a company purchased a fire insurance policy
covering a property for a period of two years. The P5,600 cost of the policy
was paid in cash. At the end of 2018, the company will decrease Prepaid
Insurance for this policy by
a. P0
b. P467
c. P5,600
d. 2,800
12. If a company fails to adjust a Prepaid Rent account that has expired,
what effect will this have on that month’s Financial Statements?
a. Failure to make an adjustment does not affect the financial statements
b. Expenses will be overstated and net income and owner’s equity will be
understated
c. Assets will be overstated and net income and owner’s equity will be
understated
d. Assets will be overstated and net income and owner’s equity will be
overstated
13. Unearned revenue is classified as
a. An asset account
b. A revenue account
c. A contra-revenue account
d. A liability
14. If business pays rent in advance and debits a Prepaid Rent account,
the company receiving the rent payment will credit
a. Cash
b. Prepaid rent
c. Unearned rent revenue
d. Accrued rent revenue
15. A company’s weekly payroll of P5,000 is paid on Fridays. Assume that
the last day of the month falls on Wednesday. Which of the following is the
required adjusting entry?
a. Debit Salaries Expense P3,000 and credit Salaries Payable P3,000Debit
b. Salaries Expense P2,000 and credit Salaries Payable P2,000
c. Debit Unpaid Salaries P3,000 and credit Salaries Payable P3,000
d. Debit Salaries Payable P3,000 and credit Salaries Expense P3,000
II. Prepare the adjusting entries of the following:
1. Unpaid salaries as of December 31, 2018 amounted to P12,000.00
2. Office supplies bought amounting to P4,000 was recorded using the asset
account Supplies on Hand. At the end of the accounting period, the supplies
on hand per count amounted to P1,800.00
3. The business rented a space on December 20, 2018 for P16,000 payable after
one month.
4. Supplies on hand was debited at the time of purchases amounting to
P6,000.00. Per inventory count on December 31, 2015, unused supplies
amounted to P2,300.00.
5. Interest earned on notes receivable amounting to P2,000.00 was not yet
collected.
6. The inventory count revealed that unused office supplies still on hand
amounted to P2,800.00. The business charged P6,000.00 upon purchase to
Supplies Expense.
7. Prepaid insurance account has balance of P90,000.00 as of December 31, 2018.
An amount of P30,000.00 applies for 2019.
8. At the beginning of the year, the company has debited Rent Expense amounting
to P180,000.00 for three years advance rental starting January 1, 2018.
9. The prepaid rent of P270,000.00 includes P90,000.00 that expired in 2018.
10. The unearned advertising of P120,000.00 includes realized revenue of
40,000.00 in 2018.