Multiple Choice Questions
1. What effect does the adjusting entry in question 3-57 have on Bambis net income for February?
a. Increase by $200
b. Decrease by $200
c. Increase by $400
d. Decrease by $400
2. An adjusting entry recorded April salary expense that will be paid in May. Which statement best describes the effect of this adjusting entry on the companys accounting equation?
a. Assets are decreased, liabilities are increased, and stockholders equity is decreased.
b. Assets are not affected, liabilities are increased, and stockholders equity is decreased.
c. Assets are decreased, liabilities are not affected, and stockholders equity is decreased.
d. Assets are not affected, liabilities are increased, and stockholders equity is increased.
3. On April 1, 2010, Rural Insurance Company sold a one-year insurance policy covering the year ended April 1, 2011. Rural collected the full $2,700 on April 1, 2010. Rural made the following journal entry to record the receipt of cash in advance:

Nine months have passed, and Rural has made no adjusting entries. Based on these facts, the adjusting entry needed by Rural at December 31, 2010, is

4. The Unearned Revenue account of Super Incorporated began 2010 with a normal balance of $2,000 and ended 2010 with a normal balance of $17,000. During 2010, the Unearned Revenue account was credited for $26,000 that Super will earn later. Based on these facts, how much revenue did Super earn in 2010?
a. $11,000
b. $28,000
c. $2,000
d. $26,000
5. What is the effect on the financial statements of recording depreciation on equipment?
a. Net income is not affected, but assets and stockholders equity are decreased.
b. Net income and assets are decreased, but stockholders equity is not affected.
c. Net income, assets, and stockholders equity are all decreased.
d. Assets are decreased, but net income and stockholders equity are not affected.
6. For 2010, Matthews Company had revenues in excess of expenses. Which statement describes Matthews closing entries at the end of 2010?
a. Revenues will be credited, expenses will be debited, and retained earnings will be credited.
b. Revenues will be debited, expenses will be credited, and retained earnings will be debited.
c. Revenues will be credited, expenses will be debited, and retained earnings will be debited.
d. Revenues will be debited, expenses will be credited, and retained earnings will be credited.

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Journal Entry Date Accounts Debit Credit Apr 1 Cash 2,700 Unearned Revenue 2,700 a. Insurance Revenue b. Unearned Revenue c. Insurance Revenue 675 Unearned Revenue 675 2,025 Insurance Revenue 2,025 2,025 Unearned Revenue 2,025 d. Unearned Revenue 675 Insurance Revenue 675