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Accounting 2 Chapter 9

True/False
Indicate whether the statement is true or false.
 

 1. 

Prepaid expenses may be recorded initially as expenses or as assets.
 

 2. 

Auxglaxie, Inc., signs a 90-day, 9% note for $4,000.00. The entry would be recorded in the cash payments journal.
 

 3. 

Companies reverse accrued salary entries so that they do not have to remember that the payroll liability accounts reflect an expense from the previous accounting period.
 

 4. 

The interest rate that banks charge their most creditworthy customers is called the prime rate.
 

 5. 

Corporations pay estimated federal income taxes quarterly. Any unpaid federal income tax is recorded as a prepaid expense.
 

 6. 

Perez Company signs a 180-day, 10% note for $8,000.00. The source document for this transaction is a receipt.
 

 7. 

If supplies are initially recorded as assets, the adjusting entry to record the use of supplies is a debit to Supplies and a credit to Supplies Expense.
 

 8. 

Accrued salary expense occurs when employees earn a salary in the current fiscal period that is not paid until the next fiscal period.
 

 9. 

Showing in accounting records all information needed to prepare the financial statements of a business is an application of the accounting concept Adequate Disclosure.
 

 10. 

Recording accrued payroll is an application of the accounting concept Matching Expenses with Revenue.
 

Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 

When a note is paid at maturity, the credit is to Cash. The debit(s) are to ____.
A.
Notes Payable for the maturity value of the note
B.
Notes Payable for the principal of the note and Interest Payable for the interest due on the note
C.
Notes Payable for the principal of the note and Interest Expense for the interest due on the note
D.
Notes Payable for the maturity value of the note and Interest Expense for the interest due on the note
 

 2. 

An entry that is the exact opposite of an adjusting entry is known as a(n) ____.
A.
closing entry
C.
opening entry
B.
general journal entry
D.
reversing entry
 

 3. 

The day a note is due is called the ____.
A.
date of a note
C.
maturity date of a note
B.
interest date of a note
D.
principal date of a note
 

 4. 

An amount paid for the use of money for a period of time is called ____.
A.
bank charges
C.
principal
B.
interest
D.
security
 

 5. 

The original amount of the note is called the ____.
A.
interest of a note
C.
original value of a note
B.
maturity value of a note
D.
principal of a note
 

 6. 

In order to recognize salary expense as a liability in the period in which employees provided their services, the company records accrued salary expense as a(n) ____.
A.
adjusting entry
C.
reversing entry
B.
closing entry
D.
work sheet entry
 

 7. 

The percentage of the principal that is paid for use of the money is called the ____.
A.
bank rate of a note
C.
prepaid interest on a note
B.
interest rate of a note
D.
principal rate of a note
 

 8. 

Adjusting entries are recorded so that the supplies used during a fiscal period are reported as expenses and the supplies not used are reported as assets. This is an application of which accounting concept?
A.
adequate disclosure
B.
historical cost
C.
matching expenses with revenue
D.
revenue recognition
 

 9. 

Notes payable due within the next year are classified as ____.
A.
current assets
C.
long-term assets
B.
current liabilities
D.
long-term liabilities
 

 10. 

To determine if a reversing entry is needed, accountants apply which of the following rules?
A.
If an adjusting entry creates a balance in an asset or liability account, the adjusting entry needs to be reversed.
B.
If a closing entry creates a balance in an asset or liability account, the closing entry needs to be reversed.
C.
If an adjusting entry creates a balance in an expense or revenue account, the adjusting entry needs to be reversed.
D.
If a closing entry creates a balance in an expense or revenue account, the closing entry needs to be reversed.
 

 11. 

Covedale Distributors signed a 90-day, 10% note for $2,000.00. The interest due at maturity is ____.
A.
$222.00
C.
$100.00
B.
$200.00
D.
$50.00
 

 12. 

The day a note is issued is called the ____.
A.
date of a note
C.
maturity date of a note
B.
interest date of a note
D.
principal date of a note
 

 13. 

Assume prepaid items are initially recorded as expenses. The reversing entry for prepaid interest includes a ____.
A.
debit to Interest Expense and a credit to Income Summary
B.
debit to Prepaid Interest and a credit to Income Summary
C.
debit to Prepaid Interest and a credit to Interest Expense
D.
debit to Interest Expense and a credit to Prepaid Interest
 

 14. 

A company pays 3 months rent on November 1. On January 1, the third month of the rent payment is a/an ____.
A.
accrued expense
C.
operating expense
B.
prepaid expense
D.
open expense
 

 15. 

The amount paid for the use of money for a period of time is ____.
A.
interest
C.
principal
B.
bank charges
D.
credit card fee expenses
 



 
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