HBS CORE - FINANCIAL ACCOUNTING - ADJUSTING
JOURNAL COMPREHESIVE EXAM ENTRIES WITH
COMPLETE SOLUTIONS
HBS CORE – FINANCIAL ACCOUNTING
COMPREHENSIVE FINAL EXAM: ADJUSTING JOURNAL ENTRIES
SECTION I – MULTIPLE CHOICE (3 points each – 45 points)
1. A company pays $120,000 on July 1 for 24 months of insurance. The adjusting
entry on December 31 includes a:
A) Debit to Insurance
Expense 30,000B)CredittoPrepaidInsurance30,000B)CredittoPrepaidInsurance60,0
00
C) Debit to Prepaid
Insurance 30,000D)CredittoInsuranceExpense30,000D)CredittoInsuranceExpense6
0,000
2. On November 1, a firm receives $36,000 for 12 months of maintenance
services. As of December 31, the adjusting entry should show:
A) Unearned Revenue decreased
by 6,000B)ServiceRevenueincreasedby6,000B)ServiceRevenueincreasedby6,000
C) Both A and B
D) No entry until services are complete
3. A company has a 5-day workweek, paid every Friday. Payroll is $60,000 per
week. December 31 is a Thursday. Last payday was December 27 (Friday). The
adjusting entry on December 31 is:
,A) Dr Salaries Expense 12,000/CrSalariesPayable12,000/CrSalariesPayable12,000
B) Dr Salaries Expense 48,000/CrCash48,000/CrCash48,000
C) Dr Salaries Expense 48,000/CrSalariesPayable48,000/CrSalariesPayable48,000
D) Dr Salaries Payable 48,000/CrSalariesExpense48,000/CrSalariesExpense48,000
4. A company fails to record accrued interest revenue. What is the effect on the
following ratios?
A) Current ratio understated, profit margin understated
B) Current ratio overstated, profit margin overstated
C) Current ratio understated, profit margin overstated
D) Current ratio unaffected, profit margin understated
5. Equipment cost 400,000,salvage400,000,salvage40,000, useful life 8 years,
straight-line. The asset was purchased on April 1. Depreciation for the year ended
December 31 is:
A) 45,000B)45,000B)37,500
C) 50,000D)50,000D)33,750
6. Which of the following adjusting entries will increase both a liability and an
expense?
A) Depreciation
B) Accrued salaries
C) Prepaid insurance expired
D) Unearned revenue earned
7. On December 31, a company performed services
worth 25,000buthasnotyetbilledtheclient.Theclientpaida25,000buthasnotyetbilled
,theclient.Theclientpaida10,000 deposit in November (recorded as Unearned
Revenue). The adjusting entry should include:
A) Debit Unearned
Revenue 10,000,CreditServiceRevenue10,000,CreditServiceRevenue10,000
B) Debit Accounts
Receivable 15,000,CreditServiceRevenue15,000,CreditServiceRevenue15,000
C) Both A and B
D) Debit Accounts
Receivable 25,000,CreditServiceRevenue25,000,CreditServiceRevenue25,000
8. Prepaid Rent beginning
balance: 7,000.Duringtheyear,paid7,000.Duringtheyear,paid24,000 for rent.
Ending prepaid rent is $5,000. Rent expense for the year is:
A) 26,000B)26,000B)22,000
C) 24,000D)24,000D)31,000
9. A company records depreciation using the double-declining balance method.
Which statement is true about the adjusting entry?
A) Depreciation expense decreases each year
B) Accumulated Depreciation is credited with the same amount each year
C) The adjusting entry debits Depreciation Expense and credits Equipment
D) The book value never reaches salvage value precisely without a final
adjustment
10. Unearned Revenue at the beginning of the year
was 15,000.Duringtheyear,15,000.Duringtheyear,80,000 cash was received from
customers, some for new work and some for previously unearned. At year end,
Unearned Revenue is $10,000. Revenue earned during the year is:
, A) 85,000B)85,000B)75,000
C) 80,000D)80,000D)90,000
11. A note payable of $500,000 at 8% annual interest was issued on September 1.
Interest is payable annually on August 31. The adjusting entry on December 31
includes:
A) Credit to Interest
Payable 13,333B)DebittoInterestExpense13,333B)DebittoInterestExpense40,000
C) Credit to
Cash 13,333D)DebittoInterestPayable13,333D)DebittoInterestPayable13,333
12. A company mistakenly recorded a prepaid expense as an expense
immediately. What is the correcting adjusting entry?
A) Debit Prepaid Asset, Credit Expense
B) Debit Expense, Credit Prepaid Asset
C) Debit Cash, Credit Expense
D) No entry needed
13. Which of the following is an accrued asset?
A) Prepaid rent
B) Unearned revenue
C) Interest receivable
D) Accounts payable
14. A company forgets to record depreciation for the year. The effect on the
statement of cash flows (indirect method) is:
A) Net income overstated, so operating cash flow understated
B) No effect because depreciation is a non-cash expense
JOURNAL COMPREHESIVE EXAM ENTRIES WITH
COMPLETE SOLUTIONS
HBS CORE – FINANCIAL ACCOUNTING
COMPREHENSIVE FINAL EXAM: ADJUSTING JOURNAL ENTRIES
SECTION I – MULTIPLE CHOICE (3 points each – 45 points)
1. A company pays $120,000 on July 1 for 24 months of insurance. The adjusting
entry on December 31 includes a:
A) Debit to Insurance
Expense 30,000B)CredittoPrepaidInsurance30,000B)CredittoPrepaidInsurance60,0
00
C) Debit to Prepaid
Insurance 30,000D)CredittoInsuranceExpense30,000D)CredittoInsuranceExpense6
0,000
2. On November 1, a firm receives $36,000 for 12 months of maintenance
services. As of December 31, the adjusting entry should show:
A) Unearned Revenue decreased
by 6,000B)ServiceRevenueincreasedby6,000B)ServiceRevenueincreasedby6,000
C) Both A and B
D) No entry until services are complete
3. A company has a 5-day workweek, paid every Friday. Payroll is $60,000 per
week. December 31 is a Thursday. Last payday was December 27 (Friday). The
adjusting entry on December 31 is:
,A) Dr Salaries Expense 12,000/CrSalariesPayable12,000/CrSalariesPayable12,000
B) Dr Salaries Expense 48,000/CrCash48,000/CrCash48,000
C) Dr Salaries Expense 48,000/CrSalariesPayable48,000/CrSalariesPayable48,000
D) Dr Salaries Payable 48,000/CrSalariesExpense48,000/CrSalariesExpense48,000
4. A company fails to record accrued interest revenue. What is the effect on the
following ratios?
A) Current ratio understated, profit margin understated
B) Current ratio overstated, profit margin overstated
C) Current ratio understated, profit margin overstated
D) Current ratio unaffected, profit margin understated
5. Equipment cost 400,000,salvage400,000,salvage40,000, useful life 8 years,
straight-line. The asset was purchased on April 1. Depreciation for the year ended
December 31 is:
A) 45,000B)45,000B)37,500
C) 50,000D)50,000D)33,750
6. Which of the following adjusting entries will increase both a liability and an
expense?
A) Depreciation
B) Accrued salaries
C) Prepaid insurance expired
D) Unearned revenue earned
7. On December 31, a company performed services
worth 25,000buthasnotyetbilledtheclient.Theclientpaida25,000buthasnotyetbilled
,theclient.Theclientpaida10,000 deposit in November (recorded as Unearned
Revenue). The adjusting entry should include:
A) Debit Unearned
Revenue 10,000,CreditServiceRevenue10,000,CreditServiceRevenue10,000
B) Debit Accounts
Receivable 15,000,CreditServiceRevenue15,000,CreditServiceRevenue15,000
C) Both A and B
D) Debit Accounts
Receivable 25,000,CreditServiceRevenue25,000,CreditServiceRevenue25,000
8. Prepaid Rent beginning
balance: 7,000.Duringtheyear,paid7,000.Duringtheyear,paid24,000 for rent.
Ending prepaid rent is $5,000. Rent expense for the year is:
A) 26,000B)26,000B)22,000
C) 24,000D)24,000D)31,000
9. A company records depreciation using the double-declining balance method.
Which statement is true about the adjusting entry?
A) Depreciation expense decreases each year
B) Accumulated Depreciation is credited with the same amount each year
C) The adjusting entry debits Depreciation Expense and credits Equipment
D) The book value never reaches salvage value precisely without a final
adjustment
10. Unearned Revenue at the beginning of the year
was 15,000.Duringtheyear,15,000.Duringtheyear,80,000 cash was received from
customers, some for new work and some for previously unearned. At year end,
Unearned Revenue is $10,000. Revenue earned during the year is:
, A) 85,000B)85,000B)75,000
C) 80,000D)80,000D)90,000
11. A note payable of $500,000 at 8% annual interest was issued on September 1.
Interest is payable annually on August 31. The adjusting entry on December 31
includes:
A) Credit to Interest
Payable 13,333B)DebittoInterestExpense13,333B)DebittoInterestExpense40,000
C) Credit to
Cash 13,333D)DebittoInterestPayable13,333D)DebittoInterestPayable13,333
12. A company mistakenly recorded a prepaid expense as an expense
immediately. What is the correcting adjusting entry?
A) Debit Prepaid Asset, Credit Expense
B) Debit Expense, Credit Prepaid Asset
C) Debit Cash, Credit Expense
D) No entry needed
13. Which of the following is an accrued asset?
A) Prepaid rent
B) Unearned revenue
C) Interest receivable
D) Accounts payable
14. A company forgets to record depreciation for the year. The effect on the
statement of cash flows (indirect method) is:
A) Net income overstated, so operating cash flow understated
B) No effect because depreciation is a non-cash expense
