61. The accountant for the Grassroots Company forgot to make an adjusting entry to record revenue earned but not yet billed to customers. The effect of this error is:
A. An overstatement of assets and of net income offset by an understatement of owners' equity.
B. An overstatement of net income and an understatement of assets.
C. An understatement of assets, net income, and owners' equity.
D. An overstatement of liabilities offset by an understatement of owners' equity.
62. Recently, The Bon Appetite Café contracted and paid for a relatively expensive advertisement in Haute Cuisine magazine. Despite the fact that the ad will appear in Haute Cuisine three months after the end of Bon Appetite Café's current fiscal year, the Cafe's accountant recorded the advertising expense when the payment was made. If no adjusting entry is made, how will this year's financial statements of Bon Appetite Café be affected?
A. Net income will be overstated and total assets will be understated.
B. Net income will be overstated and total assets will be overstated.
C. Net income will be understated and total assets will be understated
D. Net income will be understated and total assets will be overstated.
63. An adjusting entry involving recognition of accrued revenue is necessary at the end of March in which of the following situations?
A. Midwood Consultants received payment in February for consulting services rendered in March.
B. Midwood Consultants began working for a client on March 15; bills will be sent monthly beginning April 15.
C. Midwood Consultants made payment in January for office rent for the first three months of the year.
D. On March 31, a major customer paid his bill for a consulting job completed in February.
64. An example of a contra-asset account is:
A. Depreciation Expense.
B. Accumulated Depreciation.
C. Prepaid expenses.
D. Unearned revenue.
65. Which of the following entries causes an immediate decrease in assets and in net income?
A. The entry to record depreciation expense.
B. The entry to record revenue earned but not yet received.
C. The entry to record the earned portion of rent received in advance.
D. The entry to record accrued wages payable.
66. Which of the following is not considered an end-of-period adjusting entry?
A. The entry to record the portion of unexpired insurance which has become expense during the period.
B. An entry to record revenue which has been earned but has not yet been billed to customers.
C. The entry to record depreciation expense.
D. An entry to record repayment of a bank loan and to recognize related interest expense.
67. Which of the following is the accounting principle that governs the timing of revenue recognition?
A. Realization principle
B. Materiality.
C. Matching.
D. Depreciation.
68. Which of the following statements concerning materiality is true?
A. Generally accepted accounting principles are violated if estimates are used in end-of-period adjustments.
B. Each year the Financial Accounting Standards Board (FASB) publishes the dollar amount considered "material" for each industry.
C. Immaterial items should be handled in the most expedient manner, even if resulting financial statements are not completely precise.
D. Accountants should not waste time and money in recording transactions involving small dollar amounts.
69. The concept of materiality:
A. Treats as material only those items that are greater than 2% or 3% of net income.
B. Justifies ignoring the matching principle or the realization principle in certain circumstances.
C. Affects only items reported in the income statement.
D. Results in financial statements that are less useful to decision makers because many details have been omitted.
70. Which of the following would not be a proper application of the concept of materiality by Millridge Corporation?
A. Transactions involving small dollar amounts are not recorded in Millridge's accounting records.
B. Estimates of supplies on hand are used to determine the supplies expense for the period.
C. On a monthly basis, utility bills are expensed in the month paid, rather than in the month in which services are used.
D. Immaterial items are ignored in making end-of-period adjusting entries.