Reference no: EM133103905

Question 1 - Use the following information about Fit Corporation to answer the next four questions.

On December 1, 2021, Fit Corporation received $60,000 cash from customers as two-year membership dues to its gym facility. The service period started December 1, 2021. Fit Corporation earns the revenue from the membership fees evenly each month. The company records adjusting entries only at year end and fiscal year ends Dec. 31, 2021.

Q1. What balance is shown for Service Revenue on Fit Corporation's fiscal year 2021 Income Statement?

1. $2,500

2. $27,500

3. $30,000

4. $57,500

5. $60,000

Q2. What balance is shown for Unearned Revenue on Fit Corporation's December 31, 2021 Balance Sheet?

1. $2,500

2. $27,500

3. $30,000

4. $57,500

5. $60,000

Q3. What balance is shown for Service Revenue on Fit Corporation's fiscal year 2022 Income Statement?

1. $2,500

2. $27,500

3. $30,000

4. $57,500

5. $60,000

Q4. What balance is shown for Unearned Revenue on Fit Corporation's December 31, 2022 Balance Sheet?

1. $2,500

2. $27,500

3. $30,000

4. $57,500

5. $60,000

Question 2 - If a company fails to make an adjusting entry at the end of the period for income tax expense incurred but not yet paid during that period, this will result in:

1. Total Assets being understated on the Balance Sheet.

2. Total Assets being overstated on the Balance Sheet.

3. Total Liabilities being understated on the Balance Sheet.

4. Total Liabilities being overstated on the Balance Sheet.

Question 3 - The adjusting entry for the expiration of prepaid advertising, originally recorded as an asset, is:

1. Debit Prepaid Advertising; and Credit Advertising Expense

2. Debit Advertising Expense; and Credit Prepaid Advertising

3. Debit Prepaid Advertising; and Credit Cash

4. Debit Advertising Expense; and Credit Cash

Question 4 - Which of the following statements is FALSE under accrual accounting?

1. Revenue is equal to the cash received by a company during an accounting period.

2. Net income = Revenues - Expenses.

3. Accrual accounting follows the revenue recognition principle.

4. Accrual accounting is an application of the matching rule.

Question 5 - The recording of an expense could result in a corresponding increase in:

1. an asset.

2. stockholders' equity.

3. revenue.

4. a liability.

Question 6 - Failure to record an adjusting entry at the end of the period for supplies used up during the period will result in:

1. overstatement of net income.

2. overstatement of liabilities.

3. understatement of assets.

4. understatement of stockholders' equity.

Question 7 - Which of the following is an application of accrual accounting?

1. Expensing a machine's cost in the period when the machine is purchased.

2. Recording revenue at the time cash payment is received.

3. Recording utilities expense in the accounting period covered by the monthly bill.

4. Depreciating a building as quickly as allowed by income tax regulations.