Question

Under GAAP, the Expense Recognition Principle (also called the matching rule) states a Expenses are recorded when paid b. Expenses are recorded in the period when the company earns the related revenue Expenses are recorded when approved for payment d Expenses are recorded only if you receive a bill for the expense The adjusted trial balance is prepared a before the trial balance. b. after financial statements are prepared to prove the equality of total assets and total liabilities d after adjusting entries have been journalized and posted CR The balance in Income Summary account after closing all revenues and expenses was follows: DR INCOME SUMMARY Totals $25,000 $100,000 The net income or loss for the period is: a $100.000 net income. b. $25.000 net loss. C. $75,000 net income. d. $75,000 net loss before the senue, when we will inclu 9. A Service Company receives cash before the service is performed and records this as follows: Debit Cash and Credit to Unearned Revenue. When the service is performed and the revenue is earned, the adjusting entry to record the revenue will include: a DR Revenue b. DR Unearned Revenue c. CR Unearned Revenue 10. All of the following are most likely to be property, plant, and equipment except a. land. b.machinery. c.Accounts Receivable d. buildings. On July 1, 2020, Charlie Co borrows $100,000 by signing a 5 year note payble. The annual interest rate on the note is 12%. Charlie Co has a December 31. year end and has not paid nor recorded any interest expense on this note. What is the interest expense for the note for 2020.(the amount of the December 31, 2020 adjusting entry) a. $12,000 b. $20,000 c. $6,000 d. $100,000 12. Under GAAP, in a service-type business, revenue is considered earned a. when cash is received. b. at the end of the month. c. when the service is performed. d. at the end of the year. A Post Closing Trial Balance is prepared because: a. we want to make sure all the DR(debits) equal the CR (credits) b. We want to make sure only permanent accounts have balances c. Both A and B d. Neither A nor B

Answer 1

Solution:

6. Correct option is (b) Expenses are recorded in the period when the company earns the related revenue.

Reason: It is necessary to match 'revenues' of the period with the 'expenses' of that period to determine correct profit or loss for the accounting period.

7. Correct option is (d) after adjusting entries have been journalized and posted.

Reason: Adjusted trial balance is prepared after adjusting entries but before financial statement preparation.

8. Correct option is (c) $75,000 Net Income

Reason: Since, the credit balance is in excess of $75,000 than that of the debit balance.

9. Correct option is (b) DR Unearned Revenue

Reason: Adjusting entry to record the revenue is (Debit) Unearned Revenue and (Credit) Revenue Earned.

10. Correct option is (c) Accounts Receivable

Reason: Accounts Receivable is a Current Asset i.e. it is in more liquid form as compared to other properties.

11. Correct option is (c) $6,000

Reason: Interest payable is for 6 months on notes payable and is calculated as ($100,000 * 12% * 6 / 12).

12. Correct option is (c) Both A and B

Reason: Post closing trail balance eliminate all temporary accounts and disclose only permanent account balance. It also makes sure that there is no difference between debit and credit balances.