MULTIPLE CHOICE QUESTIONS CHAPTER 3

1. Which of the following is a nominal account?
a. Prepaid Insurance
b. Unearned Revenue
c. Insurance Expense
d. Interest Receivable

2. Which of the following errors will cause an imbalance in the trial balance?
a. Omission of a transaction in the journal
b. Posting an entire journal entry twice to the ledger
c. Posting a credit of $ 720 to Accounts Payable as a credit of $ 720 to Accounts Receivable.
d. Listing the balance of an account with a debit balance in the credit column of the trial balance.

3. Which of the following statements is associated with the accrual basis of accounting?
a. The timing of cash receipts and disbursements is emphasized.
b. A minimum amount of record keeping is required.
c. This method is used less frequently by businesses than the cash method of accounting.
d. Revenues are recognized in the period they are earned, regardless of the time period the cash is received.

4. An accrued expense is an expense that:
a. Has been incurred but has not been paid.
b. Has been paid but has not been incurred.
c. Has been incurred for which payment is to be made in installments.
d. Will never be paid.

5. In reviewing some adjusting entries, you observe an entry which contains a debit to Prepaid Insurance and a credit to Insurance Expense. The purpose of this journal entry is to record a(n):
a. Accrued expense
b. Deferred expense
c. Expired Cost
d. Prepaid Revenue

6. An adjusting entry to record an accrued expense involves a debit to a (n):
a. Expense account and a credit to a prepaid account
b. Expense account and a credit to cash.
c. Expense account and a credit to a liability account
d. Liability account and a credit to an expense account.

7. The failure to properly record an adjusting entry to accrue an expense will result in an:
a. Understatement of expenses and an understatement of liabilities
b. Understatement of expenses and an overstatement of liabilities
c. Understatement of expenses and an overstatement of assets
d. Overstatement of expenses and an understatement of assets.

8. Which of the following properly describes a deferral?
a. Cash is received after revenue is earned.
b. Cash is received before revenue is earned.
c. Cash is paid after expense is incurred
d. Cash is paid in the same period that an expense is incurred. 9. An adjusting entry to allocate a previously recorded asset to expense involves a debit to an:
a. Asset account and a credit to cash.
b. Expense account and a credit to cash
c. Expense account and a credit to an asset account.
d. Asset account and a credit to an expense account.

10. Which of the following adjusting entries will cause an increase in revenues and a decrease in liabilities?
a. Entry to record an accrued expense
b. Entry to record an accrued revenue
c. Entry to record the consumed portion of an expense paid in advance and initially recorded as an asset.
d. Entry to record the earned portion of revenue received in advance and initially recorded as unearned revenue.

11. The failure to properly record an adjusting entry to accrue a revenue item will result in an:
a. Understatement of revenues and an understatement of liabilities
b. Overstatement of revenues and an overstatement of liabilities
c. Overstatement of revenues and an overstatement of assets.
d. Understatement of revenues and an understatement of assets.

12. The failure to properly record an adjusting entry for the expiration of insurance coverage will result in an (assume the account Prepaid Insurance) was charged when the premiums were paid.):
a. Overstatement of assets and an overstatement of owners’ equity.
b. Understatement of assets and an understatement of owners’equity.
c. Overstatement of assets and an overstatement of liabilities
d. Overstatement of liabilities and an understatement of owners’equity.

13. The omission of the adjusting