Chapter 8 Adjusting Entries

MULTIPLE CHOICE
1. The portion of the cost of a fixed asset that is charged as expense during the period.
a. depreciation expense c. fixed cost
b. freight-out d. expense cost

2. Income that has been earned but not yet collected.

a. accrued income c. unearned income
b. prepaid income d. all of these

3. If the debit amount of an adjusting entry adjusts an income statement account, the credit
amount of the adjusting entry must adjust a (an)
a. balance sheet account. c. nominal account.
b. income statement account. d. a or b

4. If the credit amount of an adjusting entry adjusts an asset account, the debit amount of the
adjusting entry must adjust a (an)
a. real account c. income account
b. liability account d. expense account

5. If the balance of the prepaid supplies account on January 1 was ₱500, supplies purchased during
the year were ₱1,750 (initially recorded as asset), and the supplies on hand at December 31 (per
physical count) were ₱300, the amount for the appropriate adjusting entry at December 31 is
a. ₱200. c. ₱1,950.
b. ₱1,550. d. ₱300.

6. The prepaid insurance account has a debit balance of ₱3,600 at the end of the year. If unexpired
insurance at the end of the year is ₱2,800, the amount of insurance expense that should be
reported on the income statement is
a. ₱800. c. ₱6,400.
b. ₱2,800. d. ₱1,200.

7. An analysis and updating of the accounts when financial statements are prepared is called the
a. journalizing process. c. adjusting process.
b. posting process. d. closing process.

8. Items that have been initially recorded as liabilities but are expected to become revenues over
time or through the normal operations of the business are called
a. prepaid assets or prepaid expenses.
b. unearned revenues or unearned income.
c. accrued income.
d. accrued expenses.

9. This account is credited when recording depreciation of a fixed asset.

a. depreciation expense c. fixed asset.
b. accumulated depreciation d. all of these

10. This account is debited for the amount of accrued interest expense at the end of the period.
a. interest payable c. interest receivable
b. interest expense d. interest income

11. This account is credited for the amount of prepaid rent that has expired during the period.
 a. prepaid rent c. rent payable
b. rent expense d. unearned rent

12. This account is debited for the amount of depreciation on equipment during the period.
a. depreciation expense c. fixed asset.
b. accumulated depreciation d. depreciation payable.

13. This account is credited for the amount of accrued service fees at the end of the period.
a. service fees c. accounts payable
b. unearned income d. accounts receivable

14. It is the liability created by collecting income in advance.

a. advanced income c. prepaid income
b. unearned income d. all of these

15. Under the asset method of initial recording of prepayments of items of expenses, rent that is
prepaid for several months in advance is debited to:
a. an expense account c. a liability account
b. an owner’s equity account d. an asset account

16. An adjusting entry would necessarily include a debit or a credit to

a. a statement of financial position account.
b. a statement of comprehensive income account.
c. a and b
d. a or b

17. These entries bring the accounts up to date at the end of the accounting period.
a. adjusting entries c. reversing entries
b. closing entries d. compound entries

18. Items that have been initially recorded as assets but are expected to become expenses over time
or through the normal operations of the business are called
a. deferred expenses. c. utilities expenses.
b. accrued expenses. d. all of these

19. Expenses that have been incurred but not yet paid.
a. prepaid expenses c. accrued expenses
b. insurance expenses d. accounts payable

20. This account is debited for the amount of prepaid advertising expense expired during the
period.
a. prepaid asset c. advertising payable
b. accrued expense d. advertising expense

21. This account is credited for the amount of depreciation of equipment during the period.
a. allowance for bad debts c. depreciation expense
b. bad debts expense d. accumulated depreciation

22. An entity initially records advance collections of income using the liability method. At the end of
the period, the entity makes an adjusting entry to recognize the income earned during the period
by debiting which of the following accounts?
a. unearned income c. earned income account
b. income account d. receivable account
23. This account is credited for taxes accrued at the end of the period.
a. tax expense c. accounts payable
b. taxes payable d. any of these

24. If the balance of the prepaid supplies account on January 1 is ₱2,500, supplies purchased during
the year were ₱10,000 (debited to an asset account), and the supplies on hand at December 31
were ₱1,800, the amount for the appropriate adjusting entry at December 31 is
a. ₱10,700 debit to prepaid supplies
b. ₱1,800 credit to supplies expense
c. ₱1,800 debit to prepaid supplies
d. ₱10,700 debit to supplies expense

25. The prepaid insurance account has a debit balance of ₱1,200 at the end of the year. If unexpired
insurance at the end of the year is ₱800, the amount of prepaid insurance that should be reported
on the end-of-year balance sheet is
a. ₱400 c. ₱800
b. ₱1,200 d. ₱0

26. Physical resources that are owned and used by a business and are permanent or have a long life
are referred to as
a. fixed assets c. property, plant and equipment
b. capital assets d. all of these

27. The portion of the cost of a fixed asset that is recorded as an expense each year of its useful life
is called
a. accumulated depreciation c. repairs and maintenance
b. depreciation d. bad debts

28. The difference between the cost of a fixed asset and its accumulated depreciation is called the
asset’s
a. book value c. depreciation
b. carrying amount d. a or b

29. The profit reported on the income statement is ₱90,000. However, adjusting entries have not
been made at the end of the period for insurance expense of ₱550 and accrued salaries of ₱750.
The correct profit should have been
a. ₱90,000 c. ₱91,300
b. ₱88,700 d. ₱90,200

30. This trial balance is prepared after all the adjusting entries have been posted.
a. post-closing c. unadjusted
b. adjusted d. income statement