Human Resource Management: Strategy and Practice, 8th Edition Alan Nankervis, Marian Baird, Dr Jane Coffey, John Shields solutions manual and test bank
Chapter 2 – The context of human resource management
TRUE/FALSE
1. The essence of strategic human resource management (SHRM) is to adopt a flexible and strategic perspective when dealing with external environments, and to ensure a fit between HR strategies and business strategies.
ANS: T PTS: 1 DIF: Easy TOP: Introduction
2. The term ‘globalisation’ is used to describe a state of increased social, economic and cultural connection between different countries.
ANS: T PTS: 1 DIF: Easy TOP: The global economic context
3. Globalisation is characterised by an expansion of markets and increased competition between companies and countries.
ANS: T PTS: 1 DIF: Easy TOP: The global economic context
4. The most recent global financial crisis brought about heightened awareness of executive pay systems around the world.
ANS: T PTS: 1 DIF: Easy TOP: The global economic context
5. Many multinational organisations are leveraging on strong emerging economies, including China, India and other countries in the Asia-Pacific region.
ANS: T PTS: 1 DIF: Moderate TOP: The global economic context
6. Australian industry may be less significantly threatened in its increasingly competitive region by the rise of what some consider a new regionalism in East Asia.
ANS: F PTS: 1 DIF: Moderate TOP: The global economic context
7. In June 2013, Australian inflation was at 2.4 per cent, and expecting to rise.
ANS: F PTS: 1 DIF: Easy TOP: The Australian economy
8. In June 2013, approximately 58 per cent of Australians were either employed or actively looking for work, compared to 61 per cent in Japan.
ANS: F PTS: 1 DIF: Easy TOP: The Australian economy
9. Australia’s rate of structural change has been lower than the average for a selection of 15 OECD countries.
ANS: F PTS: 1 DIF: Easy TOP: The Australian economy
10. According to the Australian Bureau of Statistics, the services sector is a slow-growth, medium-sized component of Australia’s economy in terms of staff numbers and number of businesses involved.
ANS: F PTS: 1 DIF: Moderate TOP: Changes in the workforce and the nature of employment
11. In 2001, 12 per cent of Australia’s population was over the age of 65, and it is estimated that by 2020, this figure will rise to 18 per cent.
ANS: T PTS: 1 DIF: Moderate TOP: Changes in the workforce and the nature of employment
12. By 2002, the ‘male breadwinner model’ had emerged as the most common family model in Australia.
ANS: F PTS: 1 DIF: Moderate TOP: Women and work
13. According to Bardoel (1998), family-friendly benefits are more likely to be provided by small- to medium-sized organisations with positive track records in HRM.
ANS: F PTS: 1 DIF: Moderate TOP: Women and work
14. One reason for the apparent poor take-up of work–family and work–life policies in Australia is a clash between the traditional values held by many organisations and the changed expectations of employees.
ANS: T PTS: 1 DIF: Moderate TOP: Women and work
15. HR strategies may include the introduction of family-friendly policies without necessarily attempting to increase the efficiency of employees.
ANS: F PTS: 1 DIF: Moderate TOP: Women and work
16. Until very recently, Australia and the United States were the only two OECD countries that did not have paid maternity leave schemes for working women.
ANS: T PTS: 1 DIF: Moderate TOP: Maternity and parental leave in Australia
17. In addition to there being increased female participation rates in the workforce, women now fill a large percentage of critical decision-making roles in organisations.
ANS: F PTS: 1 DIF: Easy TOP: Women in management and on boards
18. For the work status of women to improve, the assumptions underlying the division of work do not need to be questioned; the systemic barriers to the advancement of women in organisations, on the other hand, must be analysed.
ANS: F PTS: 1 DIF: Easy TOP: Women in management and on boards
19. HR professionals need to focus on career planning for women, with an emphasis on retention and advancement opportunities in the workplace.
ANS: T PTS: 1 DIF: Easy TOP: Women in management and on boards
20. In the past, the gap between men’s and women’s wages in Australian workplaces was deregulated by our centralised wage-fixing system.
ANS: F PTS: 1 DIF: Moderate TOP: Women in management and on boards
21. For human resource practitioners, the issue of gender-based pay inequity is specifically related to job evaluation systems not giving adequate recognition to gendered distribution of work.
ANS: T PTS: 1 DIF: Moderate TOP: Women in management and on boards
22. Perceptive HR specialists realise that they must focus on mid- to long-term objectives, and that the issue of ascertaining the future needs of an organisation and its employees falls beyond the realm of human resource management alone.
ANS: T PTS: 1 DIF: Easy TOP: Rising education levels
23. Changes in the work patterns of Australian employees have little or no impact on human resource management.
ANS: F PTS: 1 DIF: Easy TOP: Changes in work and employment patterns
24. Atkinson’s ’flexible firm model’ distinguishes between core and peripheral employees.
ANS: T PTS: 1 DIF: Moderate TOP: Flexibility
25. Peripheral workers in a flexible organisation are increasingly employed on a casual or contractual basis.
ANS: T PTS: 1 DIF: Moderate TOP: Flexibility
26. Core workers typically have limited access to all of an organisation’s valuable human resource policies.
ANS: F PTS: 1 DIF: Moderate TOP: Flexibility
27. Assessments regarding the configuration of an organisation’s workforce are peripheral to human resource planning, job design and work organisation.
ANS: F PTS: 1 DIF: Easy TOP: Flexibility
28. Australian employers have pursued three main forms of flexibility: numerical, functional and preferential.
ANS: F PTS: 1 DIF: Moderate TOP: Flexibility
29. One criticism of the 35–40-hour average working week in Australia is that it fails to take into account that employees increasingly work from their cars or homes, due to improved information and communication technology improvements.
ANS: T PTS: 1 DIF: Easy TOP: Working hours
30. The implementation of the 12-hour shift within wholesale and retail trades has resulted in an increase in extended hours of operation.
ANS: T PTS: 1 DIF: Moderate TOP: Working hours
31. There is universal agreement that the increased flexibility of working hours has led to decreased work pressure and lower stress levels in the homes and families of employees.
ANS: F PTS: 1 DIF: Easy TOP: Working hours
32. According to a 2004 report by the Chifley Research Centre, the increasing trend of casualisation in Australia is reflected in the fact that one in 12 Australians is now employed on a casual basis.
ANS: F PTS: 1 DIF: Moderate TOP: Non-standard employment
33. Long-term casual employees in ongoing jobs receive the same forms of leave and other employment entitlements as permanent employees in Australia.
ANS: F PTS: 1 DIF: Moderate TOP: Non-standard employment
34. Today, employment contracts consider a number of previously assured entitlements, such as long-term careers and promotions based on loyalty, as negotiable terms.
ANS: T PTS: 1 DIF: Moderate TOP: The new employment contract
35. Government and employer demands for greater productivity and higher flexibility in the hiring and allocation of labour have resulted in significant changes in the employer–employee relationship.
ANS: T PTS: 1 DIF: Moderate TOP: The new employment contract
36. More recent employer–employee contracts have tended to de-emphasise job security and the maintenance of standard hours of work.
ANS: T PTS: 1 DIF: Moderate TOP: The new employment contract
37. Organisational restructuring has typically involved both macro- and micro-level economic reforms designed to achieve enhanced productivity, efficiency and quality.
ANS: F PTS: 1 DIF: Moderate TOP: The political context
38. Achieving greater levels of national and organisational productivity requires major revamping of the overall culture of Australian organisations.
ANS: T PTS: 1 DIF: Easy TOP: The political context
39. Law in Australia originates from two main sources: common law and industrial law.
ANS: F PTS: 1 DIF: Easy TOP: The legal context
40. For approximately one-third of the Australian workforce, the terms and conditions of work are determined by awards, enterprise agreements or individual workplace agreements.
ANS: F PTS: 1 DIF: Difficult TOP: The legal context
41. The two main areas of common law pertinent to employment are equity law and constitutional law.
ANS: F PTS: 1 DIF: Easy TOP: Common law
42. According to contract law, decisions about whether a person is or is not in an employment relationship is based on concepts of control and mutual trust.
ANS: T PTS: 1 DIF: Moderate TOP: Common law
43. In the area of negligence, a reasonable employer is not expected to ensure the safety of his or her employees.
ANS: F PTS: 1 DIF: Easy TOP: Common law
44. A common law claim for damages allows injured employees to sue employers for loss, even if the loss is minor or fanciful.
ANS: F PTS: 1 DIF: Moderate TOP: Common law
45. Workplace health and safety is covered by employment statute law; although these laws are generally standard among most states, they do vary in some circumstances.
ANS: T PTS: 1 DIF: Difficult TOP: Statute law
46. Legislation passed by the British government in 1906, known as strict liability, ensures that an employer is not required to pay compensation to an injured worker if the injury arose due to the employee’s carelessness.
ANS: F PTS: 1 DIF: Difficult TOP: Workers’ compensation
47. Typically, workers’ compensation claims can only be made by employees, not independent contractors.
ANS: F PTS: 1 DIF: Moderate TOP: Workers’ compensation
48. Industrial diseases are diseases identified as having been caused by work-related activities involving certain processes, or by dealing with certain materials, such as asbestos.
ANS: T PTS: 1 DIF: Easy TOP: Workers’ compensation
49. According to duty-of-care legislation, employers, employees, owners of premises and manufacturers of work-related machinery and equipment can face significant criminal penalties for activities that have the potential to harm health or safety at places of work.
ANS: T PTS: 1 DIF: Moderate TOP: Workplace health and safety
50. Workplace health and safety legislation, also known as duty-of-care legislation, necessarily requires a person to be injured or harmed in order for a breach to occur.
ANS: F PTS: 1 DIF: Moderate TOP: Workplace health and safety
51. WHS representatives are appointed by their fellow employees to represent the employees’ issues and concerns.
ANS: T PTS: 1 DIF: Easy TOP: Workplace health and safety
52. In Australia, each state and territory provides two months of paid leave to employees after 15 years of service.
ANS: F PTS: 1 DIF: Easy TOP: Long service leave
53. State legislation allows for portability of long service leave in the construction industry, even if the employee only works for that employer for a short period.
ANS: T PTS: 1 DIF: Moderate TOP: Long service leave
54. Various agreements may alter standard long service leave entitlements; however, these agreements are not legally binding.
ANS: F PTS: 1 DIF: Easy TOP: Long service leave
55. In some circumstances, a pro-rata amount of long service leave may be available after 10 years.
ANS: T PTS: 1 DIF: Moderate TOP: Long service leave
MULTIPLE CHOICE
1. SHRM emphasises the need for HR plans and strategies to be:
| A. | created using input from senior management only. |
| B. | developed using only short-term aims and objectives. |
| C. | receptive only to internal alterations to the organisation’s environment. |
| D. | responsive to the organisation’s external environment. |
ANS: D PTS: 1 DIF: Moderate TOP: Introduction
2. Globalisation is characterised by a(n):
| A. | expansion of markets, but a decrease in competition between companies and countries. |
| B. | expansion of markets and an increase in competition between companies and countries. |
| C. | contraction of markets, and a decrease in competition between companies and countries. |
| D. | contraction of markets, but an increase in competition between companies and countries. |
ANS: B PTS: 1 DIF: Easy TOP: The global economic context
3. The 2008–2009 GFC brought about changes in the Australasian workplace, wherein:
| A. | a survey by the Australian Chamber of Commerce and Industry found that during those years, 30 per cent of its members had introduced changes reducing working hours and productivity. |
| B. | executive pay began to stagnate. |
| C. | negotiations on export and import agreements were halted. |
| D. | A, B and C are all incorrect. |
ANS: A PTS: 1 DIF: Moderate TOP: The global economic context
4. The issues of performance-based pay and senior executive remuneration are linked to:
| A. | corporate governance. |
| B. | the lack of diversity among board members. |
| C. | corporate restructuring and downsizing. |
| D. | A, B and C are all correct. |
ANS: D PTS: 1 DIF: Moderate TOP: The global economic context
5. During the GFC, GM Holden in Australia moved its car assembly operations to:
| A. | one shift every two days. |
| B. | four shifts per week. |
| C. | a single shift per day. |
| D. | a nine-day-per-fortnight roster. |
ANS: C PTS: 1 DIF: Moderate TOP: The global economic context
6. The recent GFC has brought about a new debate surrounding the finance and banking sector, particularly regarding:
| A. | government regulation v. deregulation. |
| B. | corporate regulation v. deregulation. |
| C. | senior executive pay and bonus schemes. |
| D. | corporate watchdogs and whistle-blowers. |
ANS: A PTS: 1 DIF: Easy TOP: The global economic context
7. Which global issue is a challenge for business communities?
| A. | Gender inequity |
| B. | Population expansion |
| C. | Climate change |
| D. | Pay inequity |
ANS: C PTS: 1 DIF: Moderate TOP: The global economic context
8. In July 2013, Australia’s unemployment rate sat at 5.3 per cent, which:
| A. | had increased, but was still lower than that of other advanced countries. |
| B. | had decreased since 2009, and was also lower than that of other advanced countries. |
| C. | had increased, but was higher than that of other advanced countries. |
| D. | had decreased, but was still higher than that of other advanced countries. |
ANS: B PTS: 1 DIF: Moderate TOP: The Australian economy
9. According to the Australian Bureau of Statistics, which sector is the largest component of the Australian economy in terms of number of businesses, gross value added and employment?
| A. | Agriculture |
| B. | Services |
| C. | Manufacturing |
| D. | Construction |
ANS: B PTS: 1 DIF: Moderate TOP: Changing industry and occupational structures
10. Work–life and diversity policies typically refer to which of the following HR policy initiatives?
| A. | The gendered construction of paid work |
| B. | Establishing a clear division between the spheres of work and home |
| C. | Legalising unpaid domestic work |
| D. | Organisational initiatives that facilitate employees’ balancing of work and family commitments |
ANS: D PTS: 1 DIF: Moderate TOP: Women and work
11. According to Hakim’s Preference Theory, in terms of their lifestyle preferences, approximately 60 per cent of women fall into which of the following categories?
| A. | Work-focused |
| B. | Rigid |
| C. | Intransigent |
| D. | Adaptive |
ANS: D PTS: 1 DIF: Moderate TOP: Women and work
12. Australian federal workplace relations law provides how many weeks of unpaid parental leave?
| A. | 52 |
| B. | 26 |
| C. | 10 |
| D. | A, B and C are all incorrect. |
ANS: A PTS: 1 DIF: Moderate TOP: Maternity and parental leave in Australia
13. From which date were 18 weeks’ paid parental leave made available to all Australians by the Federal Government?
| A. | January 2009 |
| B. | March 2009 |
| C. | January 2011 |
| D. | March 2010 |
ANS: C PTS: 1 DIF: Easy TOP: Maternity and parental leave in Australia
14. Which two countries are Australia behind in the area of the advancement of women in the workplace?
| A. | Canada and the United Kingdom |
| B. | The United States and the United Kingdom |
| C. | Canada and the United States |
| D. | The United States and Europe |
ANS: C PTS: 1 DIF: Moderate TOP: Women in management and on boards
15. To assist the advancement of women in the workplace, the _____________need(s) to be addressed.
| A. | underlying assumptions |
| B. | systemic organisational barriers |
| C. | career planning issues |
| D. | A, B and C are all correct. |
ANS: D PTS: 1 DIF: Moderate TOP: Women in management and on boards
16. Australia’s centralised wage fixing system assisted in:
| A. | regulating and enlarging the gap between male and female wages. |
| B. | regulating and diminishing the gap between male and female wages. |
| C. | deregulating and enlarging the gap between male and female wages. |
| D. | deregulating and diminishing the gap between male and female wages. |
ANS: B PTS: 1 DIF: Moderate TOP: Women in management and on boards
17. Which of the following are not classified as part of an organisation’s contingent workforce?
| A. | Permanent staff |
| B. | Temporary staff |
| C. | Consultants and contractors |
| D. | Outsourced service providers |
ANS: A PTS: 1 DIF: Moderate TOP: Flexibility
18. HR practitioners should account for which of the following factors when deciding on the configuration of the organisation’s workforce?
| A. | The business goals of the organisation |
| B. | The core and peripheral work functions of the organisation |
| C. | The availability of qualified labour in the market |
| D. | A, B and C are all correct. |
ANS: D PTS: 1 DIF: Moderate TOP: Flexibility
19. One method of achieving numerical flexibility is to:
| A. | decrease the amount of outsourced work. |
| B. | increase the proportion of casual employees. |
| C. | decrease the proportion of permanent employees. |
| D. | Both B and C are correct. |
ANS: D PTS: 1 DIF: Moderate TOP: Flexibility
20. Functional flexibility in organisations refers to the ability:
| A. | to change the number of employees per the business cycle. |
| B. | of employees to work in different functions per business needs. |
| C. | of employers to alter the standard working hours of employees. |
| D. | to change the ratio of in-house to outsourced projects. |
ANS: B PTS: 1 DIF: Moderate TOP: Flexibility
21. From an organisational perspective, work–life policies have had which of the following effects?
| A. | Reduced absenteeism |
| B. | Increased return of employees from parental leave |
| C. | Reduced employee turnover |
| D. | A, B and C are all correct |
ANS: D PTS: 1 DIF: Moderate TOP: Working hours
22. The increasing casualisation of the workforce is a result of increased numbers of women in the workforce, technological advancement, deregulation of the workplace and growth of the ________ sector.
| A. | communications |
| B. | industrial |
| C. | construction |
| D. | A, B and C are all incorrect. |
ANS: D PTS: 1 DIF: Moderate TOP: Non-standard employment
23. Which of the following is an outcome of the increased casualisation of the workforce?
| A. | A deteriorating skills base |
| B. | Higher turnover costs |
| C. | Lower workforce stability |
| D. | A, B and C are all correct. |
ANS: D PTS: 1 DIF: Moderate TOP: Non-standard employment
24. With respect to employment relationships, the emphasis of neo-liberal political philosophy has been on contractualism, choice, voluntarism and:
| A. | individualism. |
| B. | permanency of employment. |
| C. | collectivism. |
| D. | A, B and C are all correct. |
ANS: A PTS: 1 DIF: Difficult TOP: The political context
25. Significant changes in Australia’s industrial relations system have led to ________ diversity in employment arrangements and wage outcomes.
| A. | decreased |
| B. | unchanged |
| C. | increased |
| D. | A, B and C are all incorrect. |
ANS: C PTS: 1 DIF: Easy TOP: The political context
26. ________ law emanates from two main sources, and concerns itself with the terms and conditions of service.
| A. | Common |
| B. | Statute |
| C. | Employment |
| D. | Industrial |
ANS: C PTS: 1 DIF: Easy TOP: The legal context
27. The two main areas of common law that are pertinent to employment are contract law and:
| A. | civil law. |
| B. | corporate law. |
| C. | statute law. |
| D. | negligence. |
ANS: D PTS: 1 DIF: Difficult TOP: Common law
28. Employment statute law is the law that is made by:
| A. | courts. |
| B. | human resource practitioners. |
| C. | unions. |
| D. | Parliament. |
ANS: D PTS: 1 DIF: Difficult TOP: Statute law; The legal context
29. Arrangements related to workers compensation in Australia:
| A. | are the same for each state jurisdiction, but differ for federal jurisdiction. |
| B. | differ throughout all jurisdictions, both state and federal. |
| C. | do not cover federal government employees or seamen. |
| D. | A, B and C are all incorrect. |
ANS: B PTS: 1 DIF: Moderate TOP: Workers’ compensation
30. In some cases, long service leave can be issued:
| A. | after 15 years of service. |
| B. | after 10 years of service. |
| C. | after 7 years of service. |
| D. | A, B and C are all correct. |
ANS: D PTS: 1 DIF: Moderate TOP: Long service leave
SHORT ANSWER
1. Briefly discuss the following statement: ‘At the core of SHRM is the need to adopt a flexible but strategic perspective based on accurate analysis of the organisation’s internal and external environments.’
ANS:
Any response that indicates the student is aware that this statement is basically true.
Answers will require manual marking.
PTS: 1 DIF: Moderate REF: Introduction
2. Highlight the barriers to female advancement into higher levels of management.
ANS:
Responses should discuss the need to question underlying assumptions about the division of work and analyse the systemic organisational barriers to women’s advancement. Career planning, with a focus on the retention and advancement, is also paramount.
Answers will require manual marking.
PTS: 1 DIF: Moderate REF: Women and work
3. Briefly discuss the concept of age discrimination and its potential effects in the workplace.
ANS:
The Age Discrimination in Employment Act of 1967 (in Australia) and the Human Rights Act 1993 (in New Zealand) protect certain applicants and employees – usually those 40 years of age and older – from discrimination on the basis of age in hiring, promotion, discharge, compensation, or terms, conditions or privileges of employment. Not hiring a worker because of his or her age is considered age discrimination.
In situations where mature age workers are either forced out of work or underemployed because of unlawful age discrimination, the effect may be one of limiting both a nation’s productivity and the growth of its economy. Because of longer life expectancy rates in both Australia and New Zealand, governments in both countries are signalling that today, the expectation is that workers will work for longer. But are they able to?
It is vital to national productivity that all people who want, or need, to be in paid work are able to do so to the maximum of their skills, abilities and aspirations – regardless of their ages. Yet mature age workers remain an underutilised part of the labour force in Australia, in particular. The workforce participation rate for mature age workers in Australia is lower than in other key OECD countries, including Canada, the United Kingdom and New Zealand.
Answers will require manual marking.
PTS: 1 DIF: Moderate REF: Changes in the workforce and the nature of employment
4. Briefly outline and explain the types of law which have an impact on employment in Australia.
ANS:
Common law Law created by judges that is identified by reading the decisions of judges. These create precedents that are binding on judges and magistrates in lower courts.
Statute law – Law that is made by parliament. In Australia, there are six state parliaments, two territory parliaments and one Federal Parliament.
Employment law Emanates from both common and statute law, and is applicable in all the jurisdictions of statute law. It also concerns itself with the terms and conditions of work.
Contract law Decisions about who is or is not in an employment relationship is determined by the courts, based on precedent cases.
Answers will require manual marking.
PTS: 1 DIF: Easy TOP: The legal context
ESSAY
1. Major changes in the working lives of Australian employees have occurred over the last two to three decades. Briefly describe the three main areas of these changes, and the ramifications of each for HRM.
ANS:
The three main areas, according to Nankervis, Compton and Baird, are jobs, hours of work and wages. A good answer will highlight that the driving force for all such changes is the need for workplace flexibility, reflecting developments such as increased competition in the business environment.
Responses for jobs will mention key points, including: numerical, functional and hours/working time flexibility; increased casualisation and outsourcing of work; and the increasing trend of inculcating self-control among workers. The impacts of these changes on employees – such as job insecurity, and HR policies such as increased hiring and firing flexibility – should also be mentioned.
Responses for hours of work should highlight work–life balance and the emerging trends in this area. Ramifications for HR practitioners and employers include the need to introduce diversity policies, such as flexible work hours, childcare and leave provisions, and their ability to alter standard work hours and rostering arrangements and to extend the lengths of shifts for example.
Responses for wages will indicate that the student understands that centralised wage fixing is now on the decline, particularly in light of the WorkChoices legislation,; that, more and more,wage fixing is being determined through individual employment contracts and enterprise bargaining; and that there is now a greater emphasis on individuals rather than dependence on awards.
Answers will require manual marking.
PTS: 1 DIF: Difficult REF: Changes in the workforce and the nature of employment
2. ‘No company should be forced to compulsorily pay parental leave for a six-month holiday for working mothers just because they got pregnant.’ Analyse and discuss this statement, giving reasons, with supporting evidence, for why you either agree or disagree with it.
Responses should analyse whether companies do, in fact, compulsorily pay for parental leave. In Australia and New Zealand, some companies and other organisations – government departments and universities, for example – have their own voluntary schemes. Government schemes are taxpayer-funded. As a result, a student may argue that, as a taxpayer, they are paying for a six-month holiday for women who get pregnant.
Responses should highlight the pros and cons of the argument. In support of it, a student could say, ‘I strongly agree, because becoming pregnant is a personal choice; it is not the responsibility of either an employer or the taxpayer.’ They could argue, with supporting evidence, ‘If I choose to get breast implants, a facelift or a full body tattoo, my employer, or the taxpayer, is not going to pay for the time that these activities take. If your employer chooses to offer maternity leave as an "extra", or offers an insurance plan to pay for it, then that is their choice. Obliging an employer, or the taxpayer, to pay because an employee decides, "It's time," discriminates against those who choose not to have children.’
On the other hand, students could make an argument like the following, put forward by the Australian Institute of Mining and Metallurgy in favour of paid maternity leave: ‘The attraction and retention of women is increasingly viewed by organisations as a key strategy for addressing skills shortages.’ (https://www.ausimm.com.au/content/docs/submission_parental_leave.pdf, accesses 13/08/2013)
Similarly, this argument, put forward by the Australia Institute in 2009, could be used: ‘Women who have access to paid parental leave spend longer in the paid workforce than women who do not. Consequently, paid parental leave will pay for itself over the course of a woman’s working life, because the extra tax revenue associated with the increased workforce participation of these women is estimated to be significantly greater than the cost of their parental leave payments. The long-run supply side effects of the increased participation by women in the workforce should increase GDP by around $2.5 billion and generate additional tax revenue of $625 million.’ (Australian Institute, Policy Brief No.1, April 2009)
Answers will require manual marking.
PTS: 1 DIF: Difficult REF: Women and parental leave in Australia
Financial Accounting, 3e (Kemp/Waybright)
Chapter 3 Adjusting and Closing Entries
3.1 Questions
1) Under accrual accounting, the most important GAAP concepts to remember are the recognition principle for expenses and the matching principle for revenues.
Answer: FALSE
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
2) Accounts Receivable and Accounts Payable are examples of accruals.
Answer: TRUE
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
3) Recording office supplies as an asset after paying for them would be considered a deferral.
Answer: TRUE
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
4) Because inventories are high, Wal-Mart should end its fiscal year in either November or December.
Answer: FALSE
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
5) It does not matter when a fiscal year starts as long as it is twelve consecutive months long.
Answer: TRUE
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
6) Accounting for revenue on an accrual basis means that no entry of revenue is made until the cash is actually received.
Answer: FALSE
Diff: 2
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
7) GAAP requires the use of accrual accounting.
Answer: TRUE
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
8) If revenues are recognized and recorded when earned, the company is using the:
A) cash basis of accounting.
B) accrual basis of accounting.
C) adjustment basis of accounting.
D) the expense basis of accounting.
Answer: B
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
9) If Bloom company records revenue when cash is received, they are using the:
A) cash basis of accounting.
B) accrual basis of accounting.
C) adjustment basis of accounting.
D) expense basis of accounting.
Answer: A
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
10) If Blue company records expenses in the time period when incurred, they are using the:
A) cash basis of accounting.
B) accrual basis of accounting.
C) adjustment basis of accounting.
D) expense basis of accounting.
Answer: B
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
11) If a business records expenses when paid, the company is using the:
A) cash basis of accounting.
B) accrual basis of accounting.
C) adjustment basis of accounting.
D) the expense basis of accounting.
Answer: A
Diff: 1
LO: 3-1
EOC Ref: Discussion Question 1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
12) The matching principle in accounting requires the matching of:
A) revenue earned with the assets used to produce the revenue.
B) revenue earned with the assets used less the liabilities incurred.
C) revenue earned with the liabilities used to produce the revenue.
D) revenue earned with the expenses incurred to produce the revenue.
Answer: D
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
13) Part of accrual accounting depends upon recording ________ entries at the end of the fiscal year.
A) expense
B) revenue
C) adjusting
D) debit
Answer: C
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
14) At the end of the period, which is prepared first?
A) Income Statement
B) Balance sheet
C) Adjusting entries
D) Unadjusted trial balance
Answer: D
Diff: 1
LO: 3-1
EOC Ref: Comprehensive Problem
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
15) Item costs that have been incurred, but not yet paid, are called:
A) referrals.
B) deferrals.
C) accruals.
D) non-cash items.
Answer: C
Diff: 1
LO: 3-1
EOC Ref: Vocabulary
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
16) Items for which we have received payment, but have not yet delivered the service, are called:
A) referrals.
B) deferrals.
C) accruals.
D) non-cash items.
Answer: B
Diff: 1
LO: 3-1
EOC Ref: Vocabulary
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
17) The type of accounting required by GAAP is:
A) modified cash.
B) hybrid cash.
C) cash.
D) accrual.
Answer: D
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
18) The majority of businesses normally end their fiscal year on:
A) June 30.
B) September 30.
C) December 31.
D) some other date.
Answer: C
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
19) It is necessary to post:
A) asset and liability entries.
B) revenue and expense entries.
C) adjusting entries.
D) all journal entries.
Answer: D
Diff: 1
LO: 3-1
EOC Ref: S3-1
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
20) A period of time, such as a month or quarter, could be considered a(n):
A) fiscal year.
B) accounting period.
C) revenue period.
D) income period.
Answer: B
Diff: 1
LO: 3-0
EOC Ref: Vocabulary
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
3.2 Questions
1) Adjusting entries are used to update accounts at the end of an accounting period.
Answer: TRUE
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
2) An example of a contra-account would be Accumulated Depreciation.
Answer: TRUE
Diff: 1
LO: 3-2
EOC Ref: Vocabulary
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
3) Adjusting entries are made only for accrued revenues and accrued expenses.
Answer: FALSE
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
4) Unearned Ticket Revenue must be adjusted to show how much of the deferred revenue has been earned during the period.
Answer: TRUE
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
5) The Supplies account must be adjusted to reflect the supplies that were used during the period.
Answer: TRUE
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
6) Land must be adjusted for depreciation at the end of the period.
Answer: FALSE
Diff: 1
LO: 3-2
EOC Ref: Vocabulary
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
7) Wages that have been accrued need to be recorded so that the matching principle is reflected in Wages Expense.
Answer: TRUE
Diff: 1
LO: 3-2
EOC Ref: S3-8
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
8) Adjusting entries are completed before the unadjusted trial balance is prepared.
Answer: FALSE
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
9) Accumulated Depreciation is recorded in the Liabilities section of the Balance Sheet.
Answer: FALSE
Diff: 1
LO: 3-2
EOC Ref: S3-2
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
10) Adjusting entries always include a debit or credit to Cash.
Answer: FALSE
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
11) Recording Interest Receivable would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
Answer: D
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
12) Recording Income Taxes Payable would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
Answer: C
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
13) Recording Prepaid Rent would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
Answer: A
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
14) Recording Unearned Subscriptions Revenue would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
Answer: B
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
15) Recording Accounts Receivable would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
Answer: D
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
16) Recording Wages Payable would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
Answer: C
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
17) Recording Social Security Taxes Payable would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
Answer: C
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
18) Recording the collection of three months of advance rent from a client in an unearned account would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
Answer: B
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
19) Recording the purchase of supplies in a prepaid account would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
Answer: A
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
20) The recording of depreciation is related to a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
Answer: A
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
21) Recording season ticket monies received in advance as unearned revenue would be an example of a(n):
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
Answer: B
Diff: 1
LO: 3-2
EOC Ref: S3-3
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
22) The value of an asset after all allowable depreciation has been taken is called:
A) depreciable value.
B) market value.
C) salvage value.
D) trade-in value.
Answer: C
Diff: 2
LO: 3-2
EOC Ref: Vocabulary
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
23) At the beginning of the period, the Supplies account has a balance of $500. At the end of the period, the balance in the account was $275. The adjusting entry would be:
A) debit Supplies Expense, $275; credit Supplies, $275.
B) debit Supplies, $275; credit Supplies Expense, $275.
C) debit Supplies Expense, $225; credit Supplies, $225.
D) debit Supplies, $225; credit Supplies Expense, $225.
Answer: C
Diff: 2
LO: 3-2
EOC Ref: S3-5
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
24) A piece of equipment cost $1,000 and has a salvage value of $200. If it has an 8-year life, the annual depreciation expense under straight-line depreciation would be:
A) $125.
B) $100.
C) $200.
D) $800.
Answer: B
Diff: 2
LO: 3-2
EOC Ref: E3-16A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
25) Adjusting entries for Supplies and Prepaid Rent would be adjustments for:
A) deferred expense.
B) deferred revenue.
C) accrued expense.
D) accrued revenue.
Answer: A
Diff: 1
LO: 3-2
EOC Ref: E3-16A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
26) During a recent week, incurred wages were $700. However, $280 of the wages had not been paid. The adjusting entry for wages would be:
A) debit Wages Payable, $280; credit Wages Expense, $280.
B) debit Wages Expense, $280; credit Wages Payable, $280.
C) debit Wages Payable, 420; credit Wages Expense, $420.
D) debit Wages Expense, $420; credit Wages Payable, $420.
Answer: B
Diff: 2
LO: 3-2
EOC Ref: E3-16A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
27) Allied, Inc. bought a 2-year insurance policy on August 1 for $3,600. The adjusting entry on December 31 would be:
A) debit Insurance Expense, $150; credit Prepaid Insurance, $150.
B) debit Prepaid Insurance, $150; credit Insurance Expense, $150.
C) debit Insurance Expense, $750; credit Prepaid Insurance, $750.
D) debit Prepaid Insurance, $750; credit Insurance Expense, $750.
Answer: C
Diff: 2
LO: 3-2
EOC Ref: E3-17A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
28) A machine with a salvage value of $4,000 and a cost of $36,000 was purchased on January 1, 2012. What is the depreciation expense for 2012 if the company uses straight-line depreciation for 10 years?
A) $36,000
B) $32,000
C) $3,600
D) $3,200
Answer: D
Diff: 2
LO: 3-2
EOC Ref: E3-17A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
29) Supplies on hand were $900 at the start of the year. At the end of the year, it was determined that $350 of supplies had been used. What is the adjusting entry for supplies?
A) debit Supplies, $350; credit Supplies Expense, $350
B) debit Supplies, $550; credit Supplies Expense, $550
C) debit Supplies Expense, $350; credit Supplies, $350
D) debit Supplies Expense, $550; credit Supplies, $550
Answer: C
Diff: 2
LO: 3-2
EOC Ref: E3-17A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
30) Which of the following accounts would NOT be debited or credited in an adjusting entry?
A) Supplies Expense
B) Office Equipment
C) Wages Expense
D) Wages Payable
Answer: B
Diff: 2
LO: 3-2
EOC Ref: E3-17A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
31) Which of the following accounts would NOT be adjusted?
A) Accumulated Depreciation
B) Cash
C) Depreciation Expense
D) Wages
Answer: B
Diff: 2
LO: 3-2
EOC Ref: E3-17A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
32) Fixed assets that are depreciated are sometimes called:
A) Accounts Payable.
B) current assets.
C) long-term assets.
D) long-term liabilities.
Answer: C
Diff: 2
LO: 3-2
EOC Ref: Vocabulary
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
33) Which of the following accounts is NOT affected by an accrued expense?
A) Sales Tax Payable
B) Supplies
C) Interest Expense
D) Wages Payable
Answer: B
Diff: 2
LO: 3-2
EOC Ref: E3-17A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
34) Which of the following accounts would never be adjusted in a journal entry?
A) Prepaid Rent
B) Supplies
C) Inventory
D) Cash
Answer: D
Diff: 2
LO: 3-2
EOC Ref: E3-17A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
35) The difference between the cost of office equipment and accumulated depreciation–office equipment is called:
A) market value.
B) salvage value.
C) book value.
D) original value.
Answer: C
Diff: 2
LO: 3-2
EOC Ref: S3-2
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
36) The total dollars in an Accumulated Depreciation account are:
A) added to the corresponding asset account.
B) divided into the corresponding asset account.
C) subtracted from the corresponding asset account.
D) subtracted from the corresponding liability account.
Answer: C
Diff: 2
LO: 3-2
EOC Ref: S3-2
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
37) If a piece of equipment was purchased on September 1, it would have ________ months depreciation included in the adjusting entry for the calendar year.
A) 12
B) 8
C) 4
D) 6
Answer: C
Diff: 1
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
38) A 20-month insurance policy was purchased for $1,500 on May 1. How much insurance will be expensed on December 31?
A) $1,500
B) $75
C) $300
D) $600
Answer: D
Diff: 1
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
39) A machine with a cost of $15,000, a salvage value of $3,000 and expected life of 20 years was purchased on September 1. For a calendar year company, the journal entry to record depreciation expense for the first year would be to:
A) debit Depreciation Expense, $50; credit Accumulated Depreciation, $50.
B) debit Depreciation Expense, $250; credit Accumulated Depreciation, $250.
C) debit Depreciation Expense, $200; credit Accumulated Depreciation, $200.
D) debit Depreciation Expense, $150; credit Accumulated Depreciation, $150.
Answer: C
Diff: 1
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
40) Supplies on hand were $777 of the original $1,034. The adjusting amount for supplies for the year would be:
A) $1,034.
B) $777.
C) $257.
D) some other number.
Answer: C
Diff: 1
LO: 3-2
EOC Ref: E3-17A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
41) Another name for "book value" is:
A) Accumulated Depreciation.
B) carrying value.
C) market value.
D) Depreciation Expense.
Answer: B
Diff: 1
LO: 3-2
EOC Ref: Vocabulary
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Reflective Thinking
42) A machine costing $45,000 has a life of 12 years. The salvage value is $10,000. It was purchased on February 1. The depreciation expense for the calendar year is:
A) $312.50.
B) $3,437.50.
C) $243.06.
D) $2,673.61.
Answer: D
Diff: 2
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
43) The adjusting entry to record $785 of revenues that have been earned but not yet recorded would be to:
A) debit Cash, $785; credit Service Revenue, $785.
B) debit Unearned Revenue, $785; credit Service Revenue, $785.
C) debit Service Revenue, $785; credit Accounts Receivable, $785.
D) debit Accounts Receivable, $785; credit Service Revenue, $785.
Answer: D
Diff: 1
LO: 3-2
EOC Ref: S3-8
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
44) Salary expense is $975 per day, Monday through Friday, and the business pays employees each Friday. If December 31 falls on a Wednesday, the amount of the adjusting entry to record accrued salaries would be:
A) $2,925.
B) $975.
C) $1,950.
D) $4,875.
Answer: A
Diff: 1
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
45) The journal entry to record $2,750 of depreciation expense for the year would be to:
A) debit Depreciation Expense, $2,750; credit Equipment, $2,750.
B) debit Accumulated Depreciation, $2,750; credit Depreciation Expense, $2,750.
C) debit Accumulated Depreciation, $2,750; credit Equipment, $2,750.
D) debit Depreciation Expense, $2,750; credit Accumulated Depreciation, $2,750.
Answer: D
Diff: 1
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
46) Salary expense is $2,200 per day, Monday through Friday, and the business pays employees each Friday. If December 31 falls on a Tuesday, the adjusting entry to record accrued salaries would be to:
A) debit Salaries Payable, $2,200; credit Salaries Expense, $2,200.
B) debit Salaries Expense, $4,400; credit Salaries Payable, $4,400.
C) debit Salaries Expense, $2,200; credit Salaries Payable, $2,200.
D) debit Salaries Payable, $4,400; credit Salaries Expense, $4,400.
Answer: B
Diff: 1
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
47) The balance in Unearned Revenues prior to adjustment was $2,750. If the amount still unearned as of the end of the period is $1,100, the adjusting entry needed would be to:
A) debit Cash, $2,750; credit Unearned Service Revenue, $785.
B) debit Unearned Service Revenue, $1,100; credit Service Revenue, $1,100.
C) debit Unearned Service Revenue, $1,650; credit Service Revenue, $1,650.
D) debit Service Revenue, $1,650; credit Unearned Service Revenue, $1,650.
Answer: C
Diff: 1
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
48) A company started the year with no supplies. During this year they bought $200 worth of supplies on account and later paid $150 of this debt. If there were $40 supplies left at the end of this year, what was the supply expense for the period?
A) $160
B) $50
C) $40
D) $10
Answer: A
Diff: 2
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
49) Which of the following is a TRUE statement regarding the Unearned Revenue account?
A) Unearned Revenue is accrued as the business provides goods or services.
B) Unearned Revenue is expensed as the business provides goods or services.
C) Unearned Revenue decreases as the business provides goods or services.
D) Unearned Revenue increases as the business provides goods or services.
Answer: C
Diff: 2
LO: 3-2
EOC Ref: E3-14A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
50) Prepaid expenses are also called:
A) accrued expenses.
B) deferred expenses.
C) both A and B.
D) neither A or B.
Answer: B
Diff: 1
LO: 3-2
EOC Ref: Vocabulary
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
51) On January 1 Corporate Condos, Inc received $96,000 for one year's rent for building A. What would the adjusting entry be on March 31?
A) Debit Rent Expense $8,000, credit Prepaid Rent $8,000
B) Debit unearned rent revenue $8,000, credit rent revenue $8,000
C) Debit Rent Expense $24,000, credit Prepaid Rent $24,000
D) Debit unearned rent revenue $24,000, credit rent revenue $24,000
Answer: D
Diff: 1
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
52) On January 1, Daisy Company paid $5,400 for six months rent. What would the adjusting entry be on March 31?
A) Debit Rent Expense $900, credit Prepaid Rent $900
B) Debit Rent Expense $900, credit Cash $900
C) Debit Rent Expense $2,700, credit Prepaid Rent $2,700
D) Debit Rent Expense $2,700, credit Cash $2,700
Answer: C
Diff: 1
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
53) Annual depreciation on equipment at Charmed, Inc.is $1,200. The adjusting entry to record one month's worth of depreciation would be:
A) Debit Depreciation Expense $100, credit Cash $100
B) Debit Depreciation Expense $100, credit Accumulated Depreciation $100
C) Debit Depreciation Expense $1,200, credit Cash $1,200
D) Debit Depreciation Expense $1,200, credit Accumulated Depreciation $1,200
Answer: B
Diff: 1
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
54) Safety First Supply Company purchased a 2-year insurance policy for $2,500. What would the adjusting entry be at the end of the first year?
A) Debit Insurance Expense $2,500, credit Prepaid Insurance $2,500
B) Debit Insurance Expense $2,500, credit Cash $2,500
C) Debit Insurance Expense $1,250, credit Prepaid Insurance $1,250
D) Debit Insurance Expense $1,250, credit Cash $1,250
Answer: C
Diff: 1
LO: 3-2
EOC Ref: E3-18A
AACSB: Analytical Thinking
3.3 Questions
1) The adjusted trial balance is prepared before the adjusting entries are completed and posted.
Answer: FALSE
Diff: 1
LO: 3-3
EOC Ref: S3-2
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
2) After preparing the adjusted trial balance, those figures are used to complete the Balance Sheet only.
Answer: FALSE
Diff: 1
LO: 3-3
EOC Ref: S3-2
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
3) The balance of Retained Earnings on the adjusted trial balance does not represent the final Retained Earnings balance on the Balance Sheet.
Answer: TRUE
Diff: 1
LO: 3-3
EOC Ref: S3-11
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
4) Net income or net loss can be determined by the adjusted trial balance figures.
Answer: TRUE
Diff: 1
LO: 3-3
EOC Ref: S3-2
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
5) On the Income Statement, expenses are always listed in descending order from the largest to the smallest amount.
Answer: FALSE
Diff: 1
LO: 3-3
EOC Ref: E3-20A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
6) Using the adjusted trial balance, the first financial statement to prepare is the Income Statement.
Answer: TRUE
Diff: 1
LO: 3-3
EOC Ref: S3-11
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
7) Dividends are not included on an adjusted trial balance.
Answer: FALSE
Diff: 1
LO: 3-3
EOC Ref: E3-23A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
8) Expenses are always listed in alphabetical order on the Income Statement.
Answer: FALSE
Diff: 1
LO: 3-3
EOC Ref: E3-23A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
9) Of the following, which are reported on the Balance Sheet?
A) Assets
B) Revenues
C) Expenses
D) Net income or net loss
Answer: A
Diff: 1
LO: 3-3
EOC Ref: E3-23A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
10) Of the following, which is NOT reported on the Balance Sheet?
A) cash
B) equipment
C) Depreciation Expense
D) account payable
Answer: C
Diff: 1
LO: 3-3
EOC Ref: E3-23A
AACSB: Analytical Thinking
11) Of the following, which would be reported on the Income Statement?
A) Rent Expense
B) rent revenue
C) Prepaid Rent
D) both A and B
Answer: D
Diff: 1
LO: 3-3
EOC Ref: E3-23A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
12) The adjusted trial balance is the basis for the preparation of:
A) the Statement of Retained Earnings.
B) the Income Statement.
C) the Balance Sheet.
D) all financial statements.
Answer: D
Diff: 1
LO: 3-3
EOC Ref: E3-23A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
13) Which of the following accounts does NOT go onto the Income Statement from the adjusted trial balance?
A) Sales
B) Insurance Expense
C) Accounts Receivable
D) Rent Expense
Answer: C
Diff: 1
LO: 3-3
EOC Ref: E3-23A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
14) Which of the following does NOT go onto the Balance Sheet from the adjusted trial balance?
A) Dividends
B) Accounts Payable
C) Land
D) Cash
Answer: A
Diff: 1
LO: 3-3
EOC Ref: E3-23A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
15) The adjusted trial balance will directly show the:
A) amount of the adjustments made to expense accounts only.
B) final balance in the Retained Earnings account.
C) amount of the adjustment made to each account.
D) adjusted balances for every account affected by an adjusting entry.
Answer: A
Diff: 1
LO: 3-3
EOC Ref: E3-23A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
16) The adjusted trial balance shows:
A) accounts that may still be out of balance.
B) revenues and expense amounts only.
C) numbers ready to be transferred to the financial statements.
D) assets, liabilities and Stockholders' Equity amounts only.
Answer: C
Diff: 1
LO: 3-3
EOC Ref: E3-23A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
17) The adjusted trial balance total:
A) is equal to the unadjusted trial balance total.
B) is greater than the unadjusted trial balance total.
C) is less than the unadjusted trial balance total.
D) has no direct relationship to the unadjusted trial balance total.
Answer: B
Diff: 2
LO: 3-3
EOC Ref: P3-43A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
18) The balance in the Depreciation Expense account on the adjusted trial balance:
A) is generally equal to the balance on the unadjusted trial balance.
B) is generally greater than the balance on the unadjusted trial balance.
C) is generally less than the balance on the unadjusted trial balance.
D) has no relationship to the balance on the unadjusted trial balance.
Answer: B
Diff: 2
LO: 3-3
EOC Ref: P3-43A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
19) The balance in the Supplies account on the adjusted trial balance:
A) is generally equal to the balance on the unadjusted trial balance.
B) is generally greater than the balance on the unadjusted trial balance.
C) is generally less than the balance on the unadjusted trial balance.
D) has no relationship to the balance on the unadjusted trial balance.
Answer: C
Diff: 2
LO: 3-3
EOC Ref: P3-43A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
20) The balance in the Accumulated Depreciation account on the adjusted trial balance:
A) is equal to the balance on the unadjusted trial balance.
B) is greater than the balance on the unadjusted trial balance.
C) is less than the balance on the unadjusted trial balance.
D) has no relationship to the balance on the unadjusted trial balance.
Answer: B
Diff: 2
LO: 3-3
EOC Ref: P3-43A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
21) The balance for the Land account on the adjusted trial balance:
A) must be equal to the balance on the unadjusted trial balance.
B) must be greater than the balance on the unadjusted trial balance.
C) must be less than the balance on the unadjusted trial balance.
D) has no relationship to the balance on the unadjusted trial balance.
Answer: A
Diff: 2
LO: 3-3
EOC Ref: P3-43A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
22) The Income Statement that is prepared from the adjusted trial balance begins with the:
A) first asset account listed on the adjusted trial balance.
B) first liability account listed on the adjusted trial balance.
C) first revenue account listed on the adjusted trial balance.
D) first expense account listed on the adjusted trial balance.
Answer: C
Diff: 2
LO: 3-3
EOC Ref: P3-46A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
23) The Statement of Retained Earnings that is prepared from the adjusted trial balance begins with the:
A) first stock account listed on the adjusted trial balance.
B) Retained Earnings balance on the adjusted trial balance.
C) first dividend account listed on the adjusted trial balance.
D) net income listed on the adjusted trial balance.
Answer: B
Diff: 2
LO: 3-3
EOC Ref: P3-46A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
24) All financial statements must have, in order, the:
A) title of financial statement and specific date.
B) title of financial statement, name of company, and specific date.
C) name of company, title of financial statement, and specific date.
D) name of company, title of financial statement, and a specific date or period.
Answer: D
Diff: 1
LO: 3-3
EOC Ref: P3-46A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
25) The adjusted trial balance proves that:
A) all adjusting entries have been recorded correctly.
B) debit totals equal credit totals.
C) no adjusting entry has been entered twice.
D) the balance of the adjusted trial balance is correct.
Answer: B
Diff: 1
LO: 3-3
EOC Ref: E3-19A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
26) The unadjusted trial balance for Supplies shows a $434 balance. If $132 of supplies were used during the period, the adjusted balance for Supplies would be a:
A) $302 credit.
B) $302 debit.
C) $132 debit.
D) $132 credit.
Answer: B
Diff: 2
LO: 3-3
EOC Ref: E3-19A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
27) The unadjusted trial balance for Prepaid Insurance shows a $1,350 balance. $500 of the balance was unexpired at year's end. On the adjusted trial balance, the balance for Prepaid Insurance is a:
A) $500 debit.
B) $500 credit.
C) $850 debit.
D) $850 credit.
Answer: A
Diff: 2
LO: 3-3
EOC Ref: E3-19A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
28) The unadjusted trial balance shows a $780 balance for Depreciation Expense. Depreciation of $235 was recorded for the period. The adjusted trial balance figure for Depreciation Expense is now a:
A) $545 debit.
B) $545 credit.
C) $1,015 debit.
D) $1,015 credit.
Answer: C
Diff: 2
LO: 3-3
EOC Ref: E3-19A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
29) The unadjusted trial balance shows a $12,000 balance for Prepaid Rent. At the end of the year, $7,000 of the rent had been used. The adjusted trial balance reflects a balance for Prepaid Rent of:
A) $5,000 debit.
B) $5,000 credit.
C) $7,000 debit.
D) $7,000 credit.
Answer: A
Diff: 2
LO: 3-3
EOC Ref: E3-19A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
30) The unadjusted trial balance lists Supplies with a $678 balance. After taking an inventory of supplies, it was found that $390 were on hand. The adjustment to Supplies Expense is a:
A) $390 debit.
B) $390 credit.
C) $288 debit.
D) $288 credit.
Answer: C
Diff: 2
LO: 3-3
EOC Ref: E3-19A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
31) The unadjusted trial balance shows Accumulated Depreciation–Computer with a credit balance of $190. After determining depreciation expense is $45, the adjusted balance in the Accumulated Depreciation account for the computer will be a:
A) $45 debit.
B) $190 credit.
C) $235 credit.
D) $145 debit.
Answer: C
Diff: 2
LO: 3-3
EOC Ref: E3-19A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
32) The unadjusted trial balance reflects a normal balance for Wages Expense of $750. Accrued wages for the period are $1,045. The adjusted balance for Wages Expense is now a:
A) $295 debit.
B) $295 credit.
C) $1,795 debit.
D) $1,795 credit.
Answer: C
Diff: 2
LO: 3-3
EOC Ref: E3-19A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
33) Unearned Ticket Revenue is $5,034 on the unadjusted trial balance. During the period, $3,309 of that money has now been earned. The adjusted balance for Unearned Ticket Revenue is a:
A) $3,309 debit.
B) $3,309 credit.
C) $1,725 debit.
D) $1,725 credit.
Answer: D
Diff: 1
LO: 3-3
EOC Ref: E3-19A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
34) The adjusted balance for Prepaid Insurance is a $724 debit. Insurance Expense for the period was $1,136. What was the balance for Prepaid Insurance on the unadjusted trial balance?
A) $412 debit
B) $412 credit
C) $1,860 debit
D) $1,136 debit
Answer: C
Diff: 2
LO: 3-3
EOC Ref: E3-19A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
35) The adjusted balance for Supplies was $333. The unadjusted balance for Supplies was $509. The amount of supplies expense would be recorded as a:
A) $333 debit.
B) $176 debit.
C) $176 credit.
D) $509 debit.
Answer: B
Diff: 2
LO: 3-3
EOC Ref: E3-19A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
36) Interest Expense had an adjusted balance of $1,178. The adjusting entry for accrued interest was for $382. The unadjusted balance for Interest Expense was a:
A) $382 debit.
B) $1,560 debit.
C) $1,560 credit.
D) $796 debit.
Answer: D
Diff: 2
LO: 3-3
EOC Ref: E3-19A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
37) It is possible to determine the net income or loss for the period by:
A) taking adjusted trial balance amounts and subtracting expenses from revenues.
B) looking at the bottom line on the Income Statement.
C) taking post-closing trial balance amounts and subtracting expenses from revenues.
D) both A and B, which describe correct ways to determine the net income or loss for the period.
Answer: D
Diff: 1
LO: 3-3
EOC Ref: S3-11
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
38) Acme, Inc. washed 100 cars this past month. They charge $7 per car for a wash. The company's only expenses during this month were $83 utilities/water, $300 wages and $31 for soap. The wages were paid during the month, but the utility bill and soap bills were not. What is Acme's income or loss for this month?
A) It is impossible to calculate from the given information, because the amount of revenue received in cash is not known.
B) $400 net income
C) $317 net income
D) $286 net income
Answer: D
Diff: 2
LO: 3-3
EOC Ref: P3-45A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
39) Dogs R' Us walked 15 dogs a week this past month. They charge $10 per walk. The company's only expenses incurred during the month were $150 wages, $22 for waste bags, and $15 to repair a broken leash. The wages and leash replacement were paid during the month, but the waste bags were not.
What is Dogs R' Us' net income or loss for the month?
A) It is impossible to determine from the given information.
B) $37 net loss
C) $413 net income
D) $450 net income
Answer: C
Diff: 2
LO: 3-3
EOC Ref: P3-45A
AACSB: Analytical Thinking
40) Express Barber gave 400 haircuts this past month. They charge $18 per haircut. Expenses incurred during the month were $3500 wages, $288 utilities/water, and $350 shampoo/styling products. $2500 in wages were paid during the month, the rest of the wages—along with the utilities and shampoo/styling products were not paid during the month. What is Express Barber's net income or loss for the month?
A) Not enough information provided to calculate net income or loss
B) $3,062 net income
C) $3,988 net income
D) $4,700 net income
Answer: B
Diff: 2
LO: 3-3
EOC Ref: P3-45A
AACSB: Analytical Thinking
3.4 Questions
1) To prove the equality of the debit and credit balances in the general ledger accounts after the closing entries have been journalized and posted, prepare the adjustments.
Answer: FALSE
Diff: 1
LO: 3-4
EOC Ref: S3-13
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
2) Revenues, expenses and Dividends are called permanent accounts.
Answer: FALSE
Diff: 1
LO: 3-4
EOC Ref: S3-13
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
3) Assets, Liabilities and Retained Earnings are permanent accounts that are NOT closed at the end of the accounting period.
Answer: TRUE
Diff: 1
LO: 3-4
EOC Ref: S3-13
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
4) The post-closing trial balance is a listing of the general ledger accounts that have balances at the end of the accounting period.
Answer: TRUE
Diff: 1
LO: 3-4
EOC Ref: S3-13
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
5) Revenue accounts are closed by crediting them and debiting Retained Earnings.
Answer: FALSE
Diff: 1
LO: 3-4
EOC Ref: E3-24A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
6) Expense accounts are closed by crediting them and debiting Retained Earnings.
Answer: TRUE
Diff: 1
LO: 3-4
EOC Ref: E3-24A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
7) Dividend accounts are closed by crediting them and debiting Retained Earnings.
Answer: TRUE
Diff: 1
LO: 3-4
EOC Ref: E3-24A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
8) The account to which revenue and expenses are closed is called:
A) Cash.
B) Retained Earnings.
C) Common Stock.
D) Sales.
Answer: B
Diff: 1
LO: 3-4
EOC Ref: E3-24A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
9) The account to which dividends are closed is called:
A) Cash.
B) Retained Earnings.
C) Common Stock.
D) Sales.
Answer: B
Diff: 1
LO: 3-4
EOC Ref: E3-24A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
10) Preparing the post-closing trial balance is the ________ step in the accounting cycle.
A) first
B) second
C) third
D) last
Answer: D
Diff: 1
LO: 3-4
EOC Ref: E3-26A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
11) The accounts that are NOT closed are:
A) Assets, Liabilities, and Revenues.
B) Assets, Liabilities, and Stockholders' Equity.
C) Assets, Liabilities, and Expenses.
D) revenues, expenses and dividends.
Answer: B
Diff: 1
LO: 3-4
EOC Ref: E3-26A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
12) Dividends paid and net losses are:
A) additions to Retained Earnings.
B) subtractions from Retained Earnings.
C) additions to net income.
D) subtractions from net income.
Answer: B
Diff: 1
LO: 3-4
EOC Ref: E3-25A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
13) Revenues are:
A) additions to Retained Earnings.
B) subtractions from Retained Earnings.
C) additions to dividends.
D) subtractions from net income.
Answer: A
Diff: 1
LO: 3-4
EOC Ref: E3-25A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
14) Respectively, Cash, Rent Expense and Accounts Payable are:
A) all permanent accounts.
B) permanent, temporary, and temporary accounts.
C) temporary, permanent, and temporary accounts.
D) permanent, temporary, and permanent accounts.
Answer: D
Diff: 1
LO: 3-4
EOC Ref: S3-10
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
15) Respectively, dividends, revenues, and expenses are:
A) temporary, permanent, and temporary accounts.
B) temporary, temporary, and permanent accounts.
C) all temporary accounts.
D) all permanent accounts.
Answer: C
Diff: 1
LO: 3-4
EOC Ref: S3-10
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
16) Respectively, Inventory, Accounts Receivable, and Accounts Payable are:
A) temporary, permanent, and temporary accounts.
B) temporary, temporary, and permanent accounts.
C) all temporary accounts.
D) all permanent accounts.
Answer: D
Diff: 1
LO: 3-4
EOC Ref: S3-10
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
17) The closing entries show a debit to Retained Earnings of $350, and a credit to Retained Earnings of $750. There was also a credit to Dividends Payable of $100. This company had a:
A) net loss of $400.
B) net income of $400.
C) net loss of $500.
D) net income of $500.
Answer: B
Diff: 2
LO: 3-4
EOC Ref: E3-21A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
18) The total revenues of $6,500, total expenses of $3,500 and dividends of $500 were recorded in the closing entries. The net income for the month was:
A) $6,000.
B) $3,000.
C) $2,500.
D) $3,500.
Answer: B
Diff: 2
LO: 3-4
EOC Ref: E3-21A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
19) The total revenues of $6,500, total expenses of $3,500 and dividends of $500 were recorded in the closing entries. The net change in Retained Earnings for the month was:
A) $6,000.
B) $3,000.
C) $2,500.
D) $3,500.
Answer: C
Diff: 2
LO: 3-4
EOC Ref: E3-21A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
20) Closing entries included debits to revenues for a total of $5,000, credits to expenses for a total of $3,000, and a credit to dividends for $1,000. The net income for the month was:
A) $1,000.
B) $2,000.
C) $3,000.
D) $4,000.
Answer: B
Diff: 2
LO: 3-4
EOC Ref: E3-21A
AACSB: Analytical Thinking
21) Closing entries included debits to revenues for a total of $5,000, credits to expenses for a total of $3,000, and a credit to dividends for $1,000. The net change in Retained Earnings for the month was:
A) $1,000.
B) $2,000.
C) $3,000.
D) $4,000.
Answer: A
Diff: 2
LO: 3-4
EOC Ref: E3-21A
AACSB: Analytical Thinking
22) Closing entries included debits to revenues for a total of $8,000, credits to expenses for a total of $4,000, and a credit to dividends for $650. The net change in Retained Earnings for the month was:
A) cannot be calculated with the information provided.
B) $3,350.
C) $4,000.
D) $4,650.
Answer: B
Diff: 2
LO: 3-4
EOC Ref: E3-21A
AACSB: Analytical Thinking
23) Which of the following accounts are NOT closed?
A) Rent Expense
B) rent revenue
C) Prepaid Rent
D) both A and B
Answer: C
Diff: 2
LO: 3-4
EOC Ref: E3-24A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
24) The post-closing accounting equation is:
A) assets = liabilities + common stock + Retained Earnings - dividends.
B) assets = liabilities + common stock + Retained Earnings.
C) assets = liabilities + Retained Earnings + revenues - expenses.
D) assets = liabilities + Retained Earnings - dividends.
Answer: B
Diff: 2
LO: 3-4
EOC Ref: E3-26A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
25) Closing the revenue, expense, and dividend accounts:
A) yields the amount of net income or net loss for the period.
B) yields the change in Retained Earnings for the period.
C) yields the change in the permanent accounts for the period.
D) yields the final balance in Stockholders' Equity for the period.
Answer: B
Diff: 2
LO: 3-4
EOC Ref: E3-21A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
26) ________ entries transfer net income or net loss and dividends to the Retained Earnings account.
A) Adjusting
B) Closing
C) General
D) Timely
Answer: B
Diff: 2
LO: 3-4
EOC Ref: E3-21A
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Decision Modeling
27) Closing entries are prepared for which of the following reasons?
A) To get the accounts ready for the next accounting period
B) To get the worksheet ready for the next accounting period
C) To get the journal ready for the next accounting period
D) To get the financial statements ready for the next accounting period
Answer: A
Diff: 2
LO: 3-4
EOC Ref: S3-13
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
28) Which of the following do NOT appear on the post-closing trial balance?
A) Dividends
B) Inventory
C) Land
D) Dividends Payable
Answer: A
Diff: 2
LO: 3-4
EOC Ref: S3-13
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
29) Which of the following accounts appear on the post-closing trial balance?
A) Rent Expense
B) Sales Revenue
C) Cash
D) Dividends
Answer: C
Diff: 2
LO: 3-4
EOC Ref: S3-13
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
30) Which of the following accounts would NOT appear on a post-closing trial balance?
A) Common Stock
B) Dividends
C) Sales tax Payable
D) Accounts Receivable
Answer: B
Diff: 2
LO: 3-4
EOC Ref: S3-13
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
31) The account balances on the post-closing trial balance should match the balances in the:
A) general journal.
B) Income Statement.
C) general ledger.
D) Statement of Retained Earnings.
Answer: C
Diff: 2
LO: 3-4
EOC Ref: S3-13
AACSB: Reflective Thinking (Able to understand oneself in the context of society)
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
32) The entry to close the revenue accounts includes:
A) a debit to Retained Earnings and credits to the respective revenue accounts.
B) a debit to Dividends and credits to the respective revenue accounts.
C) debits to the respective revenue accounts and a credit to Retained Earnings.
D) debits to the respective revenue accounts and a credit to Dividends.
Answer: C
Diff: 1
LO: 3-4
EOC Ref: S3-12
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
33) The entry to close the expense accounts includes:
A) a debit to Retained Earnings and credits to the respective expense accounts.
B) a debit to Dividends and credits to the respective expense accounts.
C) debits to the respective expense accounts and a credit to Retained Earnings.
D) debits to the respective expense accounts and a credit to Dividends.
Answer: A
Diff: 1
LO: 3-4
EOC Ref: S3-12
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
34) The entry to close the Dividend account includes:
A) a debit to Common Stock and a credit to Dividends.
B) a debit to Dividends and a credit to Retained Earnings.
C) a debit to Dividends and a credit to Common Stock.
D) a debit to Retained Earnings and a credit to Dividends.
Answer: D
Diff: 1
LO: 3-4
EOC Ref: S3-12
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
35) A company had a normal $50,000 cash balance on their adjusted trial balance. If revenues, expenses and dividends respectively were $90,000; $18,000 and $2,000 what amount of cash will be found on the post-closing trial balance?
A) $122,000 normal balance
B) $50,000 normal balance
C) $120,000 normal balance
D) $160,000 normal balance
Answer: B
Diff: 1
LO: 3-4
EOC Ref: E3-26A
AACSB: Analytical Thinking
AICPA Business: Strategic/Critical Thinking
AICPA Functional: Measurement and Reporting
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