1. A company purchased office supplies costing $3,000 and debited Office Supplies for the full amount. At the end of the accounting period, a physical count of office supplies revealed $600 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be:
- debit Office Supplies Expense, $3,600; credit Office Supplies, $3,600.
- debit Office Supplies, $600; credit Office Supplies Expense, $600.
- debit Office Supplies Expense, $2,400; credit Office Supplies, $2,400.
- debit Office Supplies, $2,400; credit Office Supplies Expense, $2,400.
2. If total liabilities decreased by $4,000, then
- stockholders' equity must have decreased by $4,000.
- assets must have decreased by $4,000, or stockholders' equity must have increased by $4,000.
- assets and stockholders' equity each increased by $2,000.
- assets must have increased by $4,000.
3. The Vintage Laundry Company purchased $6,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $2,000 on hand. The adjusting entry that should be made by the company on June 30 is:
- debit Laundry Supplies Expense, $2,000; credit Laundry Supplies, $2,000.
- debit Laundry Supplies, $4,500; credit Laundry Supplies Expense, $4,500.
- debit Laundry Supplies, $2,000; credit Laundry Supplies Expense, $2,000.
- debit Laundry Supplies Expense, $4,500; credit Laundry Supplies, $4,500.
4. If a company fails to adjust a Prepaid Rent account for rent that has expired, what effect will this have on that month's financial statements?
- Failure to make an adjustment does not affect the financial statements.
- Expenses will be overstated and net income and stockholders' equity will be under- stated.
- Assets will be overstated and net income and stockholders' equity will be understated.
- Assets will be overstated and net income and stockholders' equity will be overstated.
5. Which of the following accounts has a normal credit balance?
- Prepaid Rent
- Notes Receivable
- Rent Revenue
- Rent Expense
6. On October 1, 2012, Metz Industries had an Accounts Payable balance of $60,000. During the month, the company made purchases on account of $50,000 and made payments on account of $80,000. At October 31, 2012, the Accounts Payable balance is
- $60,000 debit
- $20,000 credit
- $30,000 credit
- $80,000 credit
7. Adjusting entries are:
- not necessary if the accounting system is operating properly.
- usually required before financial statements are prepared.
- made whenever management desires to change an account balance.
- made to balance sheet accounts only.
8. When a company receives a utility bill but will not pay it right away, it should
- debit Utilities Expense and credit Accounts Receivable.
- debit Utilities Expense and credit Accounts Payable.
- debit Accounts Payable and credit Utilities Expense.
- make no entry until the bill is paid.
9. For the basic accounting equation to stay in balance, each transaction recorded must
- affect two or less accounts.
- affect two or more accounts.
- always affect exactly two accounts.
- affect the same number of asset and liability accounts.
10. On March 1, 2012, Freeze Company hires a new employee who will start to work on March 6. The employee will be paid on the last day of each month. Should a journal entry be made on March 6? Why or why not?
- Yes, the company is now obligated to pay the employee, thus that event must be recorded.
- No, hiring an employee is an important event; however, it is not an economic event that should be recorded.
- Yes, failure to record the event would cause the financial statements to be misleading.
- No, the financial position of the company has been changed; however, the dollar amount of the transaction is not yet known.