1) What is the liability called that arises from an expense that the business ha
ID: 2338389 • Letter: 1
Question
1) What is the liability called that arises from an expense that the business has incurred but has not yet paid?
A.It is called a prepaid expense.
B.It is referred to as an accrued expense.
C.It is called a deferred expense.
D.It is known as an unearned expense.
2) Which of the following combinations of ratios is preferable?
A. a low current ratio and a low debt ratio
B.a low current ratio and a high debt ratio
C.a high current ratio and a low debt ratio
D.a high current ratio and a high debt ratio
3) Prepaid expenses are often referred to as deferrals because the recording of the expense is deferred until after cash is paid.
True
False
4) What will be the result if the adjusting entry to record the current period's depreciation on equipment is not recorded?
A.The net income for the period will not be affected
B.The net income for the period will be understated.
C.The net income for the period will be overstated.
D.The assets for the period will be understated.
5)Shaftebury Ltd. began operations and purchased $15,900 of supplies. By year end, $8,800 of supplies were still on hand. The adjusting entry at year end would include a:
A.debit to Supplies for $8,800
B.credit to Supplies Expense for $7,100
C.credit to Supplies Expense for $8,800
D.debit to Supplies Expense for $7,100
6) What effect does an accrued expense adjustment have on the financial statements?
A.The adjustment increases expenses and increases liabilities.
B.The adjustment increases expenses and increases net income.
C.The adjustment increases expenses and decreases assets.
D.The adjustment decreases expenses and increases liabilities.
7) An improvement in the proportion of a company's assets that are financed with debt would be shown by:
A. a decrease in the current ratio
B. a decrease in the debt ratio
C. an increase in the current ratio
D. an increase in the debt ratio
8) What will be the result if no adjusting entry is made to record revenue earned during the current period when the cash was received in the last accounting period?
A. The liabilities will be overstated.
B. The assets will be understated.
C. The assets will be overstated.
D. The liabilities will be understated.
Explanation / Answer
1) Answer : B
=> It is referred to as an accrued expenses.
Accrued expenses means an expenses incurred in current year but not paid till end of current financial year.
2). Answer : C
=> a high Current Ratio and a low Debt Ratio.
Current Ratio = ( Current Assets / Current Liabilities ).
Current Assets should be more than the Current Liabilities.
Debt Ratio = ( Total Liabilities / Total Assets )
Liabilites should be less than the Assets.
3) Answer : True.
=> Prepaid expenses means an expenses of following year incurred in current year.
This Expenses should be deferred to following year.
4) Answer : C.
=> The Net Income for the period will be Overstated.
Depreciation is an expenses. If we omit expenses Net Income will be Overstated.
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