Adjustment & Depreciation MCQs
Which of the following is an example of a prepaid expense that requires adjustment at the end of an accounting period?
A) Office supplies purchased during the period
B) Rent paid for the next three months
C) Salary accrued but not yet paid
D) Utilities bill received and paid promptly
Answer: B
Accrued revenues are revenues that have been:
A) Collected in advance
B) Earned but not yet received
C) Earned and received in cash
D) Accrued but not yet earned
Answer: B
Which of the following statements is true regarding accrued expenses?
A) They are paid in advance before being incurred
B) They are recognized when cash is received
C) They are expenses that have been incurred but not yet paid
D) They are recorded only at the end of the fiscal year
Answer: C
An adjusting entry is necessary to record:
A) A purchase of equipment
B) A sale of goods on credit
C) An accrual of interest income
D) A cash payment to suppliers
Answer: C
Which of the following is a contra account to depreciation expense?
A) Accumulated depreciation
B) Prepaid expense
C) Unearned revenue
D) Bad debt expense
Answer: A
The adjusting entry to record accrued salaries payable would include a:
A) Debit to salaries expense, credit to cash
B) Debit to salaries payable, credit to salaries expense
C) Debit to cash, credit to salaries payable
D) Debit to salaries expense, credit to salaries payable
Answer: D
Depreciation is the process of allocating the cost of:
A) Intangible assets over their useful lives
B) Current assets over their productive lives
C) Long-term assets over their useful lives
D) Deferred expenses over a specified period
Answer: C
Which depreciation method allocates an equal amount of depreciation expense each year of the asset’s useful life?
A) Double-declining balance method
B) Units-of-production method
C) Straight-line method
D) Sum-of-the-years’-digits method
Answer: C
The accumulated depreciation account is a:
A) Contra asset account
B) Liability account
C) Revenue account
D) Expense account
Answer: A
Which of the following assets is typically depreciated?
A) Land
B) Inventory
C) Buildings
D) Investments
Answer: C
Under the double-declining balance method, depreciation expense in a given year is calculated using which fraction of the asset’s book value?
A) 1/5
B) 1/10
C) 1/2
D) 2/5
Answer: C
Accrued expenses are reported on the balance sheet as:
A) Assets
B) Liabilities
C) Equity
D) Revenues
Answer: B
Which of the following statements regarding adjusting entries is correct?
A) Adjusting entries are made at the end of an accounting period to update account balances.
B) Adjusting entries are optional and not required by generally accepted accounting principles (GAAP).
C) Adjusting entries are made only if there are errors in previous entries.
D) Adjusting entries are made at the beginning of an accounting period to estimate future expenses.
Answer: A
The purpose of recording depreciation expense is to:
A) Reduce the market value of the asset
B) Show the increase in market value of the asset
C) Allocate the cost of the asset over its useful life
D) Increase the asset’s book value
Answer: C
Which of the following is NOT a method of calculating depreciation?
A) Straight-line method
B) Declining balance method
C) Double-entry method
D) Units-of-production method
Answer: C
An adjusting entry to record accrued interest payable would include a:
A) Debit to interest expense, credit to cash
B) Debit to interest payable, credit to interest expense
C) Debit to cash, credit to interest payable
D) Debit to interest expense, credit to interest payable
Answer: D
Which depreciation method allocates a higher amount of depreciation expense in the earlier years of an asset’s life?
A) Units-of-production method
B) Straight-line method
C) Double-declining balance method
D) Sum-of-the-years’-digits method
Answer: C
Accrued revenues are recorded to:
A) Decrease assets
B) Increase assets
C) Decrease liabilities
D) Increase liabilities
Answer: B
Which of the following is NOT an example of an adjusting entry?
A) Recording accrued interest income
B) Recording depreciation expense
C) Recording a sale of goods on credit
D) Recording prepaid insurance expense
Answer: C
The process of adjusting entries at the end of an accounting period ensures that:
A) Liabilities are overstated
B) Expenses are understated
C) Assets are overstated
D) Revenues are understated
Answer: DWhich of the following is an example of an accrued expense?
A) Prepaid rent
B) Utilities paid in advance
C) Salaries owed but not yet paid
D) Equipment purchased on credit
Answer: C
Accrued expenses are recorded to:
A) Decrease liabilities
B) Increase assets
C) Increase liabilities
D) Decrease assets
Answer: C
Which of the following is NOT typically considered a prepaid expense?
A) Insurance paid for the next six months
B) Rent paid for the current month
C) Advertising costs paid in advance
D) Taxes paid in arrears
Answer: D
An adjusting entry for a prepaid expense would include:
A) A debit to an expense account
B) A credit to a liability account
C) A debit to an asset account
D) A credit to an equity account
Answer: A
Which of the following accounts would NOT appear on the income statement?
A) Depreciation expense
B) Accumulated depreciation
C) Rent expense
D) Salaries payable
Answer: B
The adjusting entry to record accrued interest receivable would include a:
A) Debit to interest receivable, credit to interest income
B) Debit to cash, credit to interest receivable
C) Debit to interest income, credit to interest receivable
D) Debit to interest receivable, credit to cash
Answer: A
Which of the following statements about depreciation is true?
A) Depreciation reduces the book value of an asset to zero.
B) Depreciation is a process of valuation, not allocation.
C) Depreciation is recorded as an expense on the income statement.
D) Depreciation is not applicable to intangible assets.
Answer: C
Which depreciation method allocates depreciation expense based on actual usage of the asset?
A) Straight-line method
B) Declining balance method
C) Units-of-production method
D) Sum-of-the-years’-digits method
Answer: C
Accumulated depreciation is reported on the balance sheet as a:
A) Liability
B) Contra asset
C) Revenue
D) Contra liability
Answer: B
Which of the following is an example of a contra account related to depreciation?
A) Depreciation expense
B) Accumulated depreciation
C) Prepaid expense
D) Unearned revenue
Answer: B
The adjusting entry to record accrued salaries payable would include a:
A) Debit to salaries payable, credit to salaries expense
B) Debit to cash, credit to salaries payable
C) Debit to salaries expense, credit to cash
D) Debit to salaries expense, credit to salaries payable
Answer: D
Under the double-declining balance method, depreciation expense is calculated using which fraction of the asset’s book value?
A) 1/5
B) 1/10
C) 1/2
D) 2/5
Answer: C
Which of the following is an example of a deferred expense?
A) Rent paid in advance
B) Wages accrued but not yet paid
C) Office supplies used during the period
D) Equipment purchased on credit
Answer: A
An adjusting entry to record accrued interest payable would include a:
A) Debit to interest expense, credit to cash
B) Debit to interest payable, credit to interest expense
C) Debit to cash, credit to interest payable
D) Debit to interest expense, credit to interest payable
Answer: D
Which of the following methods allocates a higher amount of depreciation expense in the earlier years of an asset’s life?
A) Straight-line method
B) Units-of-production method
C) Double-declining balance method
D) Sum-of-the-years’-digits method
Answer: C
Which of the following is NOT an example of an adjusting entry?
A) Recording accrued interest income
B) Recording depreciation expense
C) Recording a sale of goods on credit
D) Recording prepaid insurance expense
Answer: C
The adjusting entry for an unearned revenue would include:
A) A debit to a liability account
B) A credit to a revenue account
C) A credit to an asset account
D) A debit to an equity account
Answer: A
Which of the following best describes the purpose of an adjusting entry?
A) To correct errors in previous financial statements
B) To record transactions that have not been previously recorded
C) To adjust account balances at the end of an accounting period
D) To prepare financial statements for external use
Answer: C
Which depreciation method allocates an equal amount of depreciation expense each year of the asset’s useful life?
A) Double-declining balance method
B) Units-of-production method
C) Straight-line method
D) Sum-of-the-years’-digits method
Answer: C
An adjusting entry for prepaid rent would include:
A) A debit to rent expense, credit to prepaid rent
B) A debit to prepaid rent, credit to rent expense
C) A debit to cash, credit to prepaid rent
D) A debit to prepaid rent, credit to cash
Answer: A