On July 1, 2021, Charlie Co. paid $18,000 to Rent-An-Office for rent covering 18 months from July 2021

On July 1, 2021, Charlie Co. paid $18,000 to Rent-An-Office for rent covering 18 months from July 2021 through December 2022. What adjusting entry should Charlie Co. record on December 31, 2021?

A) Debit Rent Expense and credit Cash for $18,000.

B) Debit Rent Expense and credit Prepaid Rent for $18,000.

C) Debit Prepaid Rent and credit Rent Expense for $6,000.

D) Debit Rent Expense and credit Prepaid Rent for $6,000.

Answer: D

Adjusting entries:

A) Often include the Cash account.

B) Usually are recorded at the beginning of the accounting period.

C) Always involve at least one income statement account and one balance sheet account.

D) Adjust the balance of revenue and expense accounts to zero.

Answer: C

The adjusting entry required to record accrued expenses includes:

A) A credit to Cash.

B) A debit to an asset.

C) A credit to an asset.

D) A credit to liability.

Answer: D

The adjusting entry required when goods and services are provided to customer for amounts previously recorded

The adjusting entry required when goods and services are provided to customer for amounts previously recorded as deferred revenues includes:

A) A debit to a liability.

B) A debit to an asset.

C) A credit to a liability.

D) A credit to an asset.

Answer: A

An example of an adjusting entry would not include:

A) Recording interest earned on bank account balances.

B) Recording the expiration of prepaid rent.

C) Recording unpaid salaries.

D) Recording the purchase of office supplies.

Answer: D

Providing goods or services to customers on account is an example of a(n):

A) Accrued expense.

B) Accrued revenue.

C) Prepaid expense.

D) Deferred revenue.

Answer: B

A gym offers one-year memberships for $99 and requires customers to pay the full amount of cash at the beginning of the membership period

A gym offers one-year memberships for $99 and requires customers to pay the full amount of cash at the beginning of the membership period. For the gym, this is an example of a(n):

A) Accrued expense.

B) Accrued revenue.

C) Prepaid expense.

D) Deferred revenue.

Answer: D

Making rent payments in advance is an example of a(n):

A) Accrued revenue.

B) Accrued expense.

C) Deferred revenue.

D) Prepaid expense.

Answer: D

Receiving a utility bill for costs in the current period but delaying payment until the following period is an example of a(n):

A) Accrued expense.

B) Accrued revenue.

C) Prepaid expense.

D) Deferred revenue.

Answer: A

An accrued expense occurs when:

A) Cash payment (or an obligation to pay cash) occurs before the expense recognition.

B) An expense is recorded at the same time as the cash payment.

C) The expense is recognized before the payment of cash.

D) Cash is paid but an expense is never recorded.

Answer: C

An accrued revenue represents:

A) Customers paying cash in advance of the good or service to be provided.

B) Revenue being recorded prior to cash collection from the customer.

C) Revenue being recorded at the same time the cash is collected from the customer.

D) Cash being collected from the customer prior to the revenue being recorded.

Answer: B

Deferred revenues refer to:

A) Customers paying cash in advance of the good or service to be provided.

B) Revenue being recorded prior to cash collection from the customer.

C) Revenue being recorded at the same time the cash is collected from the customer.

D) Cash being collected from the customer after the revenue is recorded.

Answer: A

Making insurance payments in advance is an example of:

A) A prepaid expense transaction.

B) A deferred revenue transaction.

C) An accrued expense transaction.

D) An accrued revenue transaction.

Answer: A

Prepayments occur when:

A) Cash payment (or an obligation to pay cash) occurs before the expense recognition.

B) Sales are delayed pending credit approval.

C) Customers are unable to pay the full amount due when goods are delivered.

D) Cash payment occurs after the expense is incurred and liability is recorded.

Answer: A

Which of the following is true about adjusting entries?

A) Entries are necessary due to the conservatism principle.

B) Entries can be done at the beginning or end of the accounting period.

C) They zero the balance of all income statement accounts.

D) They are a necessary part of accrual-basis accounting.

Answer: D

Examples of adjusting entries could include all of the following except:

A) Recording interest earned on bank account balances.

B) Recording the expiration of prepaid insurance.

C) Recording unpaid taxes.

D) Recording the purchase of office supplies.

Answer: D

Which of the following regarding adjusting entries is correct?

A) Adjusting entries are recorded for all external transactions.

B) Adjusting entries are recorded to make sure all cash inflows and outflows are recorded in the current period.

C) Adjusting entries are needed because we use accrual-basis accounting.

D) After adjusting entries, all temporary accounts should have a balance of zero.

Answer: C

Adjusting entries are primarily needed for:

A) Cash-basis accounting.

B) Accrual-basis accounting.

C) Current value accounting.

D) Manual accounting systems.

Answer: B

Consider the following events for Sophia Incorporated:April 5 Sophia purchases volleyballs for $200 on account.

Consider the following events for Sophia Incorporated:

April 5 Sophia purchases volleyballs for $200 on account.

April 6 Sophia advertises a sand volleyball camp for $20 a person.

April 12 Thirty people sign up for the camp paying a total of $600.

April 21 Sophia hosts the sand volleyball camp.

April 23 Sophia pays for the volleyballs purchased on April 5.

Under cash-basis accounting, what is the appropriate day to record the revenues related to the sand volleyball camp?

A) April 5.

B) April 12.

C) April 21.

D) April 23.

Answer: B

Which one of the following best describes the characteristics of adjusting entries?

A) Adjusting entries reduce the balance of revenue, expense, and dividend accounts to zero.

B) Adjusting entries update balances for the recognition of cash flows.

C) Adjusting entries update balances for the recognition of investments from and distributions to stockholders.

D) Adjusting entries update balances for the recognition of revenue and expenses.

Answer: D

Consider the following events for Sophia Incorporated:

April 5 Sophia purchases volleyballs for $200 on account.

April 6 Sophia advertises a sand volleyball camp for $20 a person.

April 12 Thirty people sign up for the camp paying a total of $600.

April 21 Sophia hosts the sand volleyball camp.

April 23 Sophia pays for the volleyballs purchased on April 5.

Under cash-basis accounting, what is the appropriate day to record the expenses related to the sand volleyball camp?

A) April 5.

B) April 12.

C) April 21.

D) April 23.

Answer: D