Exam (elaborations) Test Bank For Financial Accounting Fundamentals 6th Edition By Wild

Test Bank For Financial Accounting Fundamentals 6th Edition By Wild Chapter 03 - Adjusting Accounts and Preparing Financial Statements Chapter 03 Adjusting Accounts and Preparing Financial Statements True / False Questions [Question] 1. A company's fiscal year must correspond with the calendar year. Answer: FALSE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-C1 [Question] 2. The time period principle assumes that an organization's activities can be divided into specific time periods. Answer: TRUE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-C1 3-1 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 3. Interim statements report a company's business activities for a 1-year period. Answer: FALSE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C1 [Question] 4. Adjusting entries are made after the preparation of financial statements. Answer: FALSE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-C2 3-2 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 5. Adjusting entries result in a better matching of revenues and expenses. Answer: TRUE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-C2 3-3 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 6. The matching principle and the full closure principle are the two main accounting principles used in accrual accounting. Answer: FALSE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-C2 [Question] 7. Adjusting entries are used to record the effects of internal economic (financial) transactions and events. TRUE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C2 3-4 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 8. The matching principle requires that revenue not be assigned to the accounting period in which it is earned. Answer: FALSE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C2 3-5 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 9. The revenue recognition principle is the basis for making adjusting entries that pertain to unearned and accrued revenues. Answer: TRUE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C2 [Question] 10. Under the cash basis of accounting, no adjustments are made for prepaid, unearned and accrued items. Answer: TRUE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C2 3-6 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 11. Since the revenue recognition principle requires that revenues be earned, there are no unearned revenues in accrual accounting. Answer: FALSE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C2 [Question] 12. The matching principle requires that expenses get recorded in the same accounting period as the revenues that are earned as a result of the expenses, not when cash is paid. Answer: TRUE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C2 3-7 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 13. The cash basis of accounting is an accounting system in which revenues are reported when cash is received and expenses are reported when cash is paid. Answer: TRUE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C2 3-8 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 14. The cash basis of accounting requires that revenues be recognized when cash payments from customers are received. Answer: TRUE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C2 [Question] 15. The accrual basis of accounting is an accounting system in which revenues are reported as earned when cash is received. Answer: FALSE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C2 3-9 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 16. Recording revenues before they are earned overstates current-period income; recording revenues in periods after they have been earned understates the recording period’s income. Answer: TRUE Bloom’s Taxonomy: Analyze AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C2 [Question] 17. Prior to recording adjusting entries at the end of an accounting period, some accounts may not show proper financial statement amounts even though all transactions were correctly recorded. Answer: TRUE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Hard Learning Objective: 03-C2 3-10 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 18. A company paid $6,000 for a six-month insurance policy. The policy coverage began on February 1. On February 28, $100 of insurance expense must be recorded. Answer: FALSE Feedback: Expense = $6,000/6 = $1,000 Bloom’s Taxonomy: Analyze AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Hard Learning Objective: 03-C2 [Question] 19. On October 15, a company received $15,000 cash as a down payment on a consulting contract. The amount was credited to Unearned Consulting Revenue. By October 31, 10% of the services required by the contract were completed. The company will record consulting revenue of $1,500 from this contract for October. Answer: TRUE Feedback: Revenue = $15,000 x 10% = $1,500 Bloom’s Taxonomy: Analyze AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Hard Learning Objective: 03-C2 3-11 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 20. The accrual basis of accounting is a system of accounting in which the adjustments are needed to assign revenues to periods in which they are earned and to match expenses with revenues. Answer: TRUE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Hard Learning Objective: 03-C2 3-12 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 21. The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing an unadjusted trial balance and recording adjusting entries. Answer: TRUE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C3 [Question] 22. The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements and recording closing and adjusting entries. Answer: FALSE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Hard Learning Objective: 03-C3 3-13 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 23. A classified balance sheet organizes assets and liabilities into important subgroups that are not found on an unclassified balance sheet. Answer: TRUE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-C4 3-14 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 24. Current assets and current liabilities are expected to be used up or come due within one year or the company's operating cycle whichever is longer. Answer: TRUE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-C4 [Question] 25. Intangible assets are long-term resources that benefit business operations, usually lack physical form and have uncertain benefits. Answer: TRUE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-C4 3-15 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 26. Plant assets and intangible assets are usually long-term assets that are used to produce or sell products and services. Answer: TRUE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C4 [Question] 27. Current liabilities include accounts receivable, unearned revenues and salaries payable. Answer: FALSE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C4 3-16 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 28. For a corporation, the equity section is divided into two main accounts: Common Stock and Retained Earnings. Answer: TRUE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-C4 3-17 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 29. Before an adjusting entry is made to recognize insurance expired, Prepaid Insurance and Insurance Expense are both overstated. Answer: FALSE Bloom’s Taxonomy: Analyze AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-A1 [Question] 30. Before an adjusting entry is made to accrue employee salaries, Salaries Expense and Salaries Payable are both understated. Answer: TRUE Bloom’s Taxonomy: Analyze AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-A1 3-18 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 31. Failure to record depreciation expense will overstate the asset and understate the expense. Answer: TRUE Bloom’s Taxonomy: Analyze AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Hard Learning Objective: 03-A1 [Question] 32. Profit margin can also be called return on sales. Answer: TRUE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-A2 3-19 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 33. Profit margin is calculated by dividing net sales by net income. Answer: FALSE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-A2 [Question] 34. Ben and Jerry's had total assets of $149,501,000, net income of $6,242,000 and net sales of $209,203,000. Its profit margin was 2.98%. Answer: TRUE Feedback: $6,242,000/$209,203,000 = 2.98% Bloom’s Taxonomy: Analyze AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Hard Learning Objective: 03-A2 3-20 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 35. The current ratio is computed by dividing current liabilities by current assets. Answer: FALSE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-A3 [Question] 36. A contra account is an account linked with another account; it is added to that account to show the proper amount for the item recorded in the associated account. Answer: FALSE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-P1 3-21 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 37. Accumulated depreciation is shown on the balance sheet as a subtraction from the cost of an asset. Answer: TRUE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-P1 [Question] 38. In accrual accounting, accrued revenues are recorded as liabilities. Answer: FALSE Bloom’s Taxonomy: Apply AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-P1 3-22 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 39. Depreciation expense is an example of an accrued expense. Answer: FALSE Bloom’s Taxonomy: Apply AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-P1 [Question] 40. Earned but uncollected revenues that are recorded during the adjusting process with a credit to a revenue account and a debit to an expense account are referred to as accrued expenses. Answer: FALSE Bloom’s Taxonomy: Apply AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-P1 3-23 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 41. Net income for a period will be overstated if accrued salaries are not recorded at the end of the accounting period. Answer: TRUE Bloom’s Taxonomy: Analyze AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-P1 [Question] 42. An unadjusted trial balance is a listing of accounts and their balances prepared before adjustments are recorded. Answer: TRUE Bloom’s Taxonomy: Remember AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-P2 3-24 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 43. The account form of the balance sheet matches the accounting equation. That is, assets are on the left side of the statement and liabilities and equity are on the right side of the statement. Answer: TRUE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-P3 [Question] 44. In preparing statements from the adjusted trial balance, the balance sheet must be prepared first. Answer: FALSE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-P3 3-25 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 45. An expense account is normally closed by debiting Income Summary and crediting the expense account. Answer: TRUE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Easy Learning Objective: 03-P4 [Question] 46. The dividends account is normally closed by debiting it. Answer: FALSE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-P4 3-26 Chapter 03 - Adjusting Accounts and Preparing Financial Statements [Question] 47. The Income Summary account is closed to the retained earnings account. Answer: TRUE Bloom’s Taxonomy: Understand AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-P4 [Question] 48. When expenses exceed revenues, there is a net loss and the Income Summary account would have a credit balance. Answer: FALSE Bloom’s Taxonomy: Apply AACSB: Communication AICPA BB: Critical Thinking AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting AICPA FN: Research Difficulty: Medium Learning Objective: 03-P4 3-27 Chapter