(Multiple Choice)
Questions 1€“3 are based on the following facts: Fred Harris began a music business in July 2012. Harris prepares monthly financial statements and uses the accrual basis of accounting. The following transactions are Harris Company€™s only activities during July through October:

1. In which month should Harris record the cost of the music as an expense?
a. July
b. August
c. September
d. October
2. In which month should Harris report the $40 revenue on its income statement?
a. July
b. August
c. September
d. October
3. If Harris Company uses the cash basis of accounting instead of the accrual basis, in what month will Harris report revenue and in what month will it report expense?
Revenue ..... Expense
a. August ...... August
b. September ...... July
c. September ... October
d. August ..... October
4. In which month should revenue be recorded?
a. In the month that the invoice is mailed to the customer
b. In the month that goods are ordered by the customer
c. In the month that cash is collected from the customer
d. In the month that goods are shipped to the customer
5. On January 1 of the current year, Alladin Company paid $2,100 rent to cover six months (January€“June). Alladin recorded this transaction as follows:

Alladin adjusts the accounts at the end of each month. Based on these facts, the adjusting entry at the end of January should include
a. a credit to Prepaid Rent for $350.
b. a credit to Prepaid Rent for $1,750.
c. a debit to Prepaid Rent for $350.
d. a debit to Prepaid Rent for $1,750.
6. Assume the same facts as in question 3-52. Alladin€™s adjusting entry at the end of February should include a debit to Rent Expense in the amount of
a. $0.
b. $350.
c. $700.
d. $1,750.

7. What effect does the adjusting entry in question 3-53 have on Alladin€™s net income for February?
a. Increase by $350
b. Decrease by $350
c. Decrease by $700
d. Increase by $700

8. An adjusting entry recorded June salary expense that will be paid in July. Which statement best describes the effect of this adjusting entry on the company€™s accounting equation?
a. Assets are not affected, liabilities are increased, and stockholders€™ equity is decreased.
b. Assets are decreased, 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.

9. On April 1, 2012, Residential Insurance Company sold a one-year insurance policy covering the year ended March 31, 2013. Residential collected the full $3,000 on April 1, 2012. Residential made the following journal entry to record the receipt of cash in advance:

Nine months have passed, and Residential has made no adjusting entries. Based on these facts, the adjusting entry needed by Residential at December 31, 2012,is

Jul 14 Aug 3 Sep 16 Bought music on account for $25, with payment to the supplier due in 90 days. Performed a job on account for Jimmy Jones for $40, collectible from Jones in 30 days. Used up all the music purchased on July 14. Collected the S40 receivable from Jones. Paid the $25 owed to the supplier from the July 14 transaction. Oct 22 Journal Entry Date Accounts Debit Credit Jan 1 Prepaid Rent 2,100 Cash 2,100 Journal Entry Date Accounts Debit Credit Apr 1 Cash 3,000 Unearned Revenue 3,000