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59. Which one of the following is not a justification for adjusting entries? a. Adjusting entries are necessary to ensure that revenue recognition principles are followed. b. Adjusting entries are necessary to ensure that the matching principle is followed. c. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP. d. Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

60. 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.

61. The preparation of adjusting entries is a. straight forward because the accounts that need adjustment will be out of balance. b. often an involved process requiring the skills of a professional. c. only required for accounts that do not have a normal balance. d. optional when financial statements are prepared.

62. If a resource has been consumed but a bill has not been received at the end of the accounting period, then a. an expense should be recorded when the bill is received. b. an expense should be recorded when the cash is paid out. c. an adjusting entry should be made recognizing the expense. d. it is optional whether to record the expense before the bill is received.

63. Accounts often need to be adjusted because a. there are never enough accounts to record all the transactions. b. many transactions affect more than one time period. c. there are always errors made in recording transactions. d. management can't decide what they want to report.

64. Adjusting entries are a. not necessary if the accounting system is operating properly. b. usually required before financial statements are prepared. c. made whenever management desires to change an account balance. d. made to balance sheet accounts only.

65. A law firm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to the liability account Unearned Legal Fees. If the legal services have been rendered at the end of the accounting period and no adjusting entry is made, this would cause a. expenses to be overstated. b. net income to be overstated. c. liabilities to be understated. d. revenues to be understated.

66. Adjusting entries can be classified as a. postponements and advances. b. accruals and prepayments. c. prepayments and postponements. d. accruals and advances. 67. 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.

68. 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.

69. 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 or recorded. d. incurred and already paid or recorded.

70. 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.

71. A liability-revenue relationship exists with a. prepaid expense adjusting entries. b. accrued expense adjusting entries. c. unearned revenue adjusting entries. d. accrued revenue adjusting entries.

72. Which of the following reflect the balances of prepayment accounts prior to adjustment? a. Balance sheet accounts are understated and income statement accounts are understated. b. Balance sheet accounts are overstated and income statement accounts are overstated. c. Balance sheet accounts are overstated and income statement accounts are understated. d. Balance sheet accounts are understated and income statement accounts are overstated.

73. An asset—expense relationship exists with a. liability accounts. b. revenue accounts. c. prepaid expense adjusting entries. d. accrued expense adjusting entries.

74. Quirk 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 $1,200 still on hand. The appropriate adjusting journal entry to be made at the end of the period would be a. Debit Office Supplies Expense, $1,200; Credit Office Supplies, $1,200. b. Debit Office Supplies, $1,800; Credit Office Supplies Expense, $1,800. c. Debit Office Supplies Expense, $1,800; Credit Office Supplies, $1,800. d. Debit Office Supplies, $1,200; Credit Office Supplies Expense, $1,200.

75. Depreciation expense for a period is computed by taking the a. original cost of an asset – accumulated depreciation. b. depreciable cost ÷ depreciation rate. c. cost of the asset ÷ useful life. d. market value of the asset ÷ useful life.

76. Accumulated Depreciation is a. an expense account. b. an owner's equity account. c. a liability account. d. a contra asset account.

77. Hardy Company purchased a computer for $3,000 on December 1. It is estimated that annual depreciation on the computer will be $600. If financial statements are to be prepared on December 31, the company should make the following adjusting entry: a. Debit Depreciation Expense, $600; Credit Accumulated Depreciation, $600. b. Debit Depreciation Expense, $50; Credit Accumulated Depreciation, $50. c. Debit Depreciation Expense, $2,400; Credit Accumulated Depreciation, $2,400. d. Debit Office Equipment, $3,000; Credit Accumulated Depreciation, $3,000.

78. Nance Realty Company received a check for $15,000 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent was credited for the full $15,000. Financial statements will be prepared on July 31. Nance Realty should make the following adjusting entry on July 31: a. Debit Unearned Rent, $2,500; Credit Rental Revenue, $2,500. b. Debit Rental Revenue, $2,500; Credit Unearned Rent, $2,500. c. Debit Unearned Rent, $15,000; Credit Rental Revenue, $15,000. d. Debit Cash, $15,000; Credit Rental Revenue, $15,000.

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