ADJUSTING ENTRIES

Exercises
Accruals

1. An expense has not been paid and has not yet been recognized in the accounts by a routine entry.
To properly adhere to the Matching Principle, which of the following is required:
a. Capital Stock entry
b. Deferral entry
c. Accrual entry
d. Inventory entry

2. Warren, Inc. has wages that have been earned but not paid at the end of the accounting period.
The entry to properly accrue Wages Expense includes:
a. Wages Payable, debit; Wages Income, credit
b. Wages Income, debit; Wages Payable, credit
c. Wages Payable, debit; Wages Expense, credit
d. Wages Expense, debit; Wages Payable, credit

3. Warren, Inc. neglects to make the required adjusting entry for wages at the end of the accounting
period. Which of the following statements reflect the impact of this oversight?
a. Salary Expense for the year is overstated.
b. Liabilities at the end of the year are understated.
c. Assets at the end of the year are understated.
d. Owner's equity at the end of the year is understated.

4. Accrued Expenses usually appear on the Balance Sheet as:

a. Cash
b. Liabilities
c. Assets
d. Capital Stock

5. Accrued Revenue is recorded when:

a. Services have already been earned and recorded.
b. Services have already been paid for in cash and are expected to be earned in the upcoming
accounting period.
c. Services have already been paid for in cash.
d. Services have been earned but have not yet been recorded.

6. Accrued Revenue usually appears on the Balance Sheet as:

a. Cash
b. Liabilities
c. Assets
d. Capital Stock
7. At December 31, 2002, interest expense of $960 is owed on a two-year bank note that will not be
paid until July 2003, what is the appropriate accrual at the end of 2002?
a. Interest Expense .................. 960
Cash ..........................…….. 960
b. Interest Payable .................. 960
Interest Expense ................. 960
c. Cash .............................. …. 960
Interest Expense ..............… 960
d. Interest Expense .................. 960
Interest Payable ..............… 960

8. Scott's Lawn Service borrowed $10,000 from 3rd National Bank on November 1, 2001. The loan
is for a term of three years and carries a 10% rate of interest. Interest is due at the maturity of the loan.
The entry to properly accrue 2001 Interest Expense should include:
a. A debit to Interest Expense and a credit to Interest Payable.
b. A debit to Interest Expense and a credit to Cash.
c. A debit to Interest Expense and a credit to Accounts Receivable.
d. A debit to Interest Expense and a credit to Loan Receivable.

9. Scott's Lawn Service borrowed $10,000 from 3rd National Bank on November 1, 2001. The loan
is for a term of three years and carries a 10% rate of interest. Interest is due at the maturity of the loan. To
properly accrue interest expense in 2001, Scott should:
a. Do nothing as the loan is not due until November 2004.
b. Recognize Interest Expense for 2 of the loan's 36-month term.
c. Recognize Interest Expense for 12 of the loan's 36-month term.
d. Recognize Interest Expense for 10 of the loan's 36-month term.

10. Scott's Lawn Service borrowed $10,000 from 3rd National Bank on November 1, 2001. The loan
is for a term of three years and carries a 15% rate of interest. Interest is due at the maturity of the loan. To
properly accrue interest expense in 2001, Scott should debit Interest Expense and credit Interest Payable
for:
a. $1,500
b. $1,000
c. $ 500
d. $ 250

11. Scott's Lawn Service borrowed $10,000 from 3rd National Bank on November 1, 2001. The loan
is for a term of three years and carries a 15% rate of interest. Interest is due at the maturity of the loan. To
properly accrue interest expense in 2002, Scott should debit Interest Expense and credit Interest Payable
for:
a. $1,500
b. $1,000
c. $ 500
d. $ 250

12. Sandra's Styling Salon, a Sole Proprietorship, pays weekly salaries of $5,000 each Friday for a
five-day week ending on that day. The accrual required for a fiscal period ending on Thursday is:
a. Debit Salaries Payable, $4,000; credit Cash, $4,000
b. Debit Salary Expense, $4,000; credit Drawing, $4,000
c. Debit Salary Expense, $4,000; credit Salaries Payable, $4,000
d. Debit Drawing, $4,000; credit Cash, $4,000
13. Sandra's Styling Salon, a Sole Proprietorship, pays weekly salaries of $8,000 each Friday for a
five-day week ending on that day. The accrual required for a fiscal period ending on a Tuesday includes a
debit to Salaries Expense and a credit to Salaries Payable for:
a. $1,600
b. $2,000
c. $3,000
d. $3,200

14. Sandra's Styling Salon, a Sole Proprietorship, pays weekly salaries of $5,000 each Friday for a
five-day week ending on that day. If $4,000 is accrued as Salaries Payable in the current fiscal period, the
payment of salaries on the first Friday of the next fiscal period will include a:
a. Debit to Salaries Expense for $4,000.
b. Debit to Salaries Expense for $5,000.
c. Debit to Salaries Payable for $5,000.
d. Debit to Salaries Payable for $4,000.

15. Pace's Hardware, a Corporation, pays its employees each Friday for a five-day total workweek.
The payroll is $12,000 per week. If the end of the accounting period occurs on a Wednesday, the
adjusting entry to record Salaries Payable would include a:
a. Debit to Salary Expense of $4,800.
b. Debit to Salary Expense of $6,000.
c. Credit to Salaries Payable of $2,400.
d. Credit to Salaries Payable of $7,200.

16. Rental Services, Inc. earned $2,000 of Rental Revenue in December 2001, but does not expect
payment until January 2002. What is the appropriate accrual entry at December 31, 2001?
a. Debit Rent Receivable; credit Cash.
b. Debit Rent Receivable; credit Rent Revenue.
c. Debit Rent Revenue; credit Rent Receivable
d. Debit Cash; credit Rent Revenue

17. Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of
its calendar year. This process reveals that:

 2,000 of Accounts Receivable outstanding at the beginning of December has been collected and
recorded.
 The December utility bill has not yet been paid. A phone call to the provider reveals that the
invoice will total $1,200 and will be mailed on January 4, 2002.
 Billing of $25,000 has been issued for the month.
 Services of $5,000 to Construction Experts were completed on December 30, 2001, but billing
will not be rendered until January 3, 2002.
If Rental Services takes no action on any of the above items:
a. Expenses for 2001 will be overstated by $1,200.
b. Expenses for 2001 will be understated by $5,000.
c. Expenses for 2002 will be overstated by $1,200.
d. Expenses for 2002 will be understated by $5,000.
18. Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of
its calendar year. This process reveals that:
 $2,000 of Accounts Receivable outstanding at the beginning of December has been collected and
recorded.
 The December utility bill has not yet been paid. A phone call to the provider reveals that the
invoice will total $1,200 and will be mailed on January 4, 2002.
 Billing of $25,000 has been issued for the month.
 Services of $5,000 to Construction Experts were completed on December 30, 2001, but billing
will not be rendered until January 3, 2002.

If Rental Services takes no action on any of the above items:

a. Revenues for 2001 will be overstated by $1,200.
b. Revenues for 2001 will be understated by $5,000.
c. Revenues for 2002 will be overstated by $1,200.
d. Revenues for 2002 will be understated by $5,000.

19. Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of
its calendar year. This process reveals that:
 $2,000 of Accounts Receivable outstanding at the beginning of December has been collected and
recorded.
 The December utility bill has not yet been paid. A phone call to the provider reveals that the
invoice will total $1,200 and will be mailed on January 4, 2002.
 Billing of $25,000 has been issued for the month.
 Services of $5,000 to Construction Experts were completed on December 30, 2001, but billing
will not be rendered until January 3, 2002.

If Rental Services takes no action on any of the above items:

a. Assets for 2001 will be overstated by $1,200.
b. Assets for 2001 will be understated by $5,000.
c. Liabilities for 2001 will be overstated by $1,200.
d. Liabilities for 2001 will be understated by $5,000.

20. Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of
its calendar year. This process reveals that:
 $2,000 of Accounts Receivable outstanding at the beginning of December has been collected and
recorded.
 The December utility bill has not yet been paid. A phone call to the provider reveals that the
invoice will total $1,200 and will be mailed on January 4, 2002.
 Billing of $25,000 has been issued for the month.
 Services of $5,000 to Construction Experts were completed on December 30, 2001, but billing
will not be rendered until January 3, 2002.

Rental Services makes all appropriate accrual entries resulting from the above information. Revenues and
expenses for the month of December, 2001 total:
a. Revenues: $25,000; Expenses: $ -0-
b. Revenues: $30,000; Expenses: $ 1,200
c. Revenues: $25,000; Expenses: $ 1,200
d. Revenues: $30,000; Expenses: $ -0-
21. Tony's Landscaping Service borrowed $5,000 from a bank by signing a 12%, one-year note on
October 1, 2000. What is the amount of interest expense recognized on December 31, 2000?
a. $600
b. $150
c. $200
d. $0

22. Tony's Landscaping Service borrowed $5,000 from a bank by signing a 12%, one-year note on
October 1, 2000. Interest is accrued on December 31, 2000, by:
a. Crediting Interest Expense; debiting Cash
b. Debiting Interest Expense; crediting Interest Payable
c. Debiting Interest Expense; crediting Notes Payable
d. Debiting Interest Expense; crediting Cash

23. Tony's Landscaping Service borrowed $5,000 from a bank by signing a 12%, one-year note on
October 1, 2000. The total amount (including interest) of cash paid on October 1, 2001, to the bank is:
a. $5,600
b. $5,000
c. $6,200
d. $5,450

24. Tony's Landscaping Service borrowed $5,000 from a bank by signing a 12%, one-year note on
October 1, 2000. The note and the interest are paid on October 1, 2001. However, interest for 2000 was
accrued on December 31, 2000. When the note is repaid on October 1, 2001, Interest Expense is debited
by:
a. $0
b. $600
c. $450
d. $150

25. A company pays its employees every Friday. The amount paid every week is $120 per day.
September 30, 2000, is a Tuesday. The amount of salary accrued on September 30, 2000, is:
a. $0
b. $240
c. $360
d. $600

26. A company pays its employees every Friday. The amount paid every week is $600.
September 30, 2000, is a Tuesday. The amount of salary paid on October 3, 2000 is:
a. $0
b. $240
c. $360
d. $600

27. A company pays its employees every Friday. The amount paid every week is $600. September
30, 2000, is a Tuesday. Assume that salaries for September were accrued on September 30. The amount
of salaries expense recognized on October 3, 2000 is:
a. $0
b. $240
c. $360
d. $600
28. A company pays its employees every Friday. The amount paid every week is $600. September
30, 2000, is a Tuesday. Which of the following statements is true about the entry prepared on September
30, 2000?
a. Salaries payable must be debited by $240
b. Salaries Payable must be credited by $240
c. Salaries Payable must be debited by $360
d. Salaries Payable must be credited by $360

29. A company pays its employees every Friday. The amount paid every week is $600. September
30, 2000, is a Tuesday. Assume that salaries for September were accrued on September 30. Which of the
following statements is true about the entry prepared on October 3, 2000?
a. Salaries payable must be debited by $240
b. Salaries Payable must be credited by $240
c. Salaries Payable must be debited by $360
d. Salaries Payable must be credited by $360

30. Accrued expenses occur when:

a. Cash is paid before an expense is recognized
b. Cash is paid after an expense is recognized
c. An expense is recognized at the same time as the cash payment
d. A liability is decreased when the expense is recognized

Deferrals

1. Rental Services, Inc. (RSI) records all advance rental receipts in the liability account, Unearned
Rent. What entry does RSI make to record the receipt of these advance receipts?
a. Debit: Unearned Rent; Credit: Rent Revenue
b. Debit: Cash; Credit: Unearned Rent
c. Debit: Unearned Rent; Credit: Rent Expense
d. Debit: Rent Expense; Credit: Cash

2. Advance payments for services are called:

a. Unrecorded Revenues
b. Unrecorded Expenses
c. Prepaid Expenses
d. Unearned Revenues

3. The adjusting entry required to record depreciation on a building for the fiscal period consists of:
a. Debit: Depreciation Expense; Credit: Building
b. Debit: Depreciation Expense; Credit: Accumulated Depreciation
c. Debit: Accumulated Depreciation; Credit: Depreciation Expense
d. Debit: Building; Credit: Depreciation

4. Depreciation Expense and Accumulated Depreciation are classified, respectively, as:

a. Depreciation Expense: Expense; Accumulated Depreciation: Contra Asset
b. Depreciation Expense: Asset Deferral; Accumulated Depreciation: Contra Asset
c. Depreciation Expense: Expense; Accumulated Depreciation: Asset
d. Depreciation Expense: Contra Asset; Accumulated Depreciation: Expense
5. Caldwell Rentals receives rent for January 2002 from a tenant in December 2001. This payment
will be:
a. A 2001 Revenue
b. A 2002 Expense
c. A 2001 Expense
d. A 2001 Liability

6. Rental Services, Inc. (RSI) pays $5,700 for three years' rent on its Office Building on August 1,
2001. The entry to record this transaction involves which of the following account titles and
classifications?
a. Debit: Prepaid Rent, Asset; Credit: Cash, Asset
b. Debit: Cash, Asset; Credit: Unearned Rent, Asset
c. Debit: Rent Expense, Expense; Credit: Cash, Asset
d. Debit: Unearned Rent, Asset; Credit: Cash, Asset

7. Rental Services, Inc. (RSI) pays $7,500 for four years' rent on its Office Building on August 1,
2001. The adjusting entry required at December 31, 2001 is:
a. Debit: Prepaid Rent; Credit: Cash
b. Debit: Rent Expense; Credit: Unearned Rent
c. Debit: Rent Expense; Credit: Prepaid Rent
d. Debit: Unearned Rent; Credit: Cash <br>

8. Rental Services, Inc. (RSI) pays $10,800 for three years' rent on its Office Building on August 1,
2001. The dollar amount of the adjusting entry required at December 31, 2001 and 2002 is:
a. December 21, 2001: $1,500; December 31, 2002: $3,600
b. December 21, 2001: $1,800; December 31, 2002: $1,800
c. December 21, 2001: $1,800; December 31, 2002: $3,600
d. December 21, 2001: $3,600; December 31, 2002: $3,600

9. Karl Company, a Sole Proprietorship, signed a two-year rental agreement on October 1, 2001, for
$9,600. The agreement covers its building for the next two years. Karl debited Prepaid Rent to record the
payment. The December 31, 2001 adjusting entry includes a credit to:
a. Rent Expense of $1,200
b. Rent Expense of $8,400
c. Prepaid Rent of $1,200
d. Prepaid Rent of $8,400

10. At the beginning of the year, the Unearned Rent account has a balance of $30,000. The Unearned
Rent account balance at the end of the year is $6,000. Given this information, Rent Revenue for the
current year must be:
a. $30,000
b. $24,000
c. $12,000
d. $ 6,000
11. The asset account, Supplies, has a balance of $1,950 at the beginning of the year and was debited
during the year for $5,600, representing the total of supplies purchased during the year. If $1,500 of
supplies is on hand at the end of the year, Supplies Expense reported on the income statement for the year
is:
a. $1,500
b. $1,900
c. $5,600
d. $6,050

12. At the beginning of the period, Stenger, Inc. had $3,600 in the asset account, Supplies. During the
period, it purchased $1,400 of additional items, debiting the Supplies asset account. At the end of the
period, Stenger determined that only $1,200 of supplies were still on hand. What adjusting entry should
Stenger, Inc. make at the end of the period?
a. Debit: Supplies .......................... 1,200
Credit: Supplies Expense ................ 1,200
b. Debit: Supplies .......................... 3,400
Credit: Supplies Expense ................ 3,400
c. Debit: Supplies Expense .................. 3,800
Credit: Supplies ........................ 3,800

d. Debit: Supplies Expense .................. 1,200

Credit: Supplies ........................ 1,200

13. The Unearned Revenue account before adjustment at the end of the month has a credit balance of
$2,400, representing an advance payment received on the first day of the month. If $1,600 of Revenue is
earned during the month, the balance in the Unearned Revenue at the end of the month, after adjustments,
is:
a. $ 800 credit
b. $1,600 credit
c. $2,400 credit
d. $4,000 credit

14. The Unearned Rent account has a beginning credit balance of $15,000. After adjusting entries at
the end of the accounting period, $5,000 of the $15,000 is unearned. The adjusting entry required at the
end of the period is:
a. Debit: Unearned Rent; Credit: Rent Revenue
b. Debit: Cash; Credit: Unearned Rent
c. Debit: Unearned Rent; Credit: Rent Expense
d. Debit: Rent Expense; Credit: Cash

15. The Unearned Rent account has a beginning credit balance of $15,000. After adjusting entries at
the end of the accounting period, $5,000 of the $15,000 is unearned. The amount of the adjusting entry
required at the end of the period is:
a. $15,000
b. $10,000
c. $ 5,000
d. $ -0-
16. Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of
its calendar year. This process reveals that:
 2,000 of Accounts Receivable outstanding at the beginning of December has been collected and
recorded.
 The December bills have all been paid. Expenses total $15,500.
 Billing for December services amounted to $25,000.
 The adjusted balance in the Unearned Revenue account at the end of the month should be a
$10,000 credit. Its balance prior to adjustments was $18,000.
Rental Services, Inc.'s Revenues for December, 2001 are:<BR>
a. $25,000
b. $33,000
c. $35,000
d. $43,000

17. Failing to adjust an Unearned Revenue that has been partially earned and was originally recorded
as a credit to Unearned Revenue will usually result in an:
a. Overstatement of Revenues and an overstatement of Liabilities
b. Overstatement of Revenues and an understatement of Liabilities
c. Understatement of Revenues and an understatement of Liabilities
d. Understatement of Revenues and an overstatement of Liabilities <br>

18. Copko Computer Services, a Sole Proprietorship, purchased new Computer Equipment for
$52,000 on January 1, 2001. Copko assigned it a four-year life and a $6,000 salvage value. Depreciation
Expense for 2001 amounts to:
a. $11,500
b. $13,000
c. $14,500
d. $15,000

19. Copko Computer Services, a Sole Proprietorship, purchased new Computer Equipment for
$52,000 on January 1, 2001. Copko assigned it a four-year life and a $6,000 salvage value. Book Value
at the end of 2001 is:
a. $46,500
b. $40,500
c. $34,500
d. $34,000

20. Copko Computer Services, a Sole Proprietorship, purchased new Computer Equipment for
$52,000 on January 1, 2001. Copko assigned it a four-year life and a $6,000 salvage value. Depreciation
Expense for 2003 and Accumulated Depreciation at the end of 2003 are:
a. Depreciation Expense: $11,500; Accumulated Depreciation: $11,500
b. Depreciation Expense: $23,000; Accumulated Depreciation: $23,000
c. Depreciation Expense: $11,500; Accumulated Depreciation: $34,500
d. Depreciation Expense: $23,000; Accumulated Depreciation: $34,500

21. A company purchased furniture for $2,800 on January 1, 1998. The useful life of the
furniture is estimated to be seven years. The depreciation expense for 2000 is:
a. $400
b. $1,200
c. $800
d. $1,600
22. A company purchased furniture for $2,800 on January 1, 1998. The useful life of the furniture is
estimated to be seven years. The balance in accumulated depreciation after posting the adjustments for
2000 is:
a. $400
b. $1,200
c. $800
d. $1,600

23. A company purchased furniture for $2,800 on January 1, 1998. The useful life of the
furniture is estimated to be seven years. The book value of the furniture after posting the
adjustments for 2000 is:
a. $400
b. $1,200
c. $800
d. $1,600

24. A company pays rent of $1,800 for three months in advance on November 1, 2000. Which of the
following statements is true for the journal entry prepared on November 1?
a. Rent Expense is debited
b. Prepaid Rent is debited
c. Prepaid Rent is credited
d. Cash is debited

25. A company pays rent of $1,800 for three months in advance on November 1, 2000. Which of the
following statements is true for the journal entry prepared on December 31?
a. Rent Expense is debited
b. Prepaid Rent is debited
c. Rent Expense is credited
d. Cash is credited

26. The balance in the Supplies account of a company on January 1, 2000 was $250. Supplies were
purchased for $650 in 2000. The balance in the Supplies account on December 31, 2000, was $350. The
Supplies Expense for 2000 was:
a. $750
b. $550
c. $350
d. $650

27. The balance in the Supplies account of a company on January 1, 2000 was $250. Supplies were
purchased for $650 in 2000. The balance in the Supplies account on December 31, 2000, was $350. The
Supplies Expense is recorded by:
a. Debiting Supplies Expense; crediting Cash
b. Debiting Supplies; crediting Cash
c. Debiting Supplies Expense; crediting Supplies
d. Debiting Supplies; crediting Supplies Expense
28. A company sold subscriptions for six months on October 1, 2000. $600 was collected in advance
from customers. Which of the following statements is true about the entry prepared on October 1?
a. Revenue is credited
b. Cash is credited
c. Unearned Revenue is credited
d. Unearned Revenue is debited

29. A company collected $600 on October 1, 2000, from customers for magazine subscriptions for
six months from that date. An adjusting entry is prepared on December 31, 2000, by:
a. Debiting Unearned Revenue; crediting Cash
b. Debiting Unearned Revenue; crediting Revenue
c. Debiting Revenue; crediting Unearned Revenue
d. Debiting Accounts Receivable; crediting Revenue

30. Which of the following statements is true about deferred revenues?

a. A liability is increased when cash is collected in advance
b. A liability is decreased when cash is collected in advance
c. A liability is increased when revenue is recognized
d. Revenue is recognized when cash is collected