Chapter 004 Completing the Accounting Cycle
Chapter 004 Completing the Accounting Cycle
Summary of Questions by Difficulty Level (DL) and Learning
Objective (LO)
True/False
ItemDLLOItemDLLOItemDLLO
1. EasyC122. EasyC343. MedP1
2. EasyC123. MedC344. MedP1
3. EasyC124. MedC345. MedP1
4. EasyC125. MedC346. MedP1
5. EasyC126. MedC347. MedP1
6. MedC127. MedC348. MedP1
7. MedC128. MedC349. MedP1
8. MedC129. EasyC350. EasyP2
9. MedC130. EasyA151. MedP2
10. MedC131. EasyA152. MedP2
11. MedC132. MedA153. MedP2
12. MedC133. MedA154. MedP2
13. MedC134. HardA155. MedP2
14. HardC135. EasyP156. MedP2
15. EasyC236. EasyP157. HardP2
16. EasyC237. EasyP158. HardP2
17. MedC238. EasyP159. EasyP3
18. HardC239. EasyP160. EasyP3
19. EasyC340. MedP161. MedP3
20. EasyC341. MedP162. EasyP4
21. EasyC342. MedP163. EasyP4
Multiple Choice
ItemDLLOItemDLLOItemDLLO
64. EasyC181. Hard A198. MedP2
65. EasyC182. EasyP199. MedP2
66. MedC183. MedP1100. MedP2
67. MedC184. MedP1101. MedP2
68. MedC185. MedP1102. Hard P2
69. MedC186. MedP1103. Med P2
70. MedC187. MedP1104. Hard P2
71. MedC188. MedP1105. Hard P2
72. MedC189. MedP1106. Hard P2
73. Med C290. MedP1107. MedP3
74. Med C291. MedP1108. Med P3
75. Easy C392. MedP1109. Med P3
76. Easy C393. Med P1110. Med P3
77. MedC394. Hard P1111. Med P4
78. MedC395. MedP2112. Med P4
79. MedC396. MedP2113. Med P4
80. MedA197. Med P2114. Med P4
Matching
ItemDLLOItemDLLOItemDLLO
115. MedC1,C2116. MedC1-C3 117. MedC3
P1-P3A1
Short Essay
ItemDLLOItemDLLOItemDLLO
118. MedC1122. MedA1126. MedP2
119. MedC1123. MedP1127. Med P3
120. MedC2124. HardP1 128. Hard P4
121. MedC3125. MedP2
Problems
ItemDLLOItemDLLOItemDLLO
129. MedC1136. HardP1143. MedP2
130. MedC1137. HardP1144. HardP2,P3
131. MedC2138. HardP1145. HardP2,P3
132. HardC3139. EasyP2146. EasyP4
133. HardC3,A1140. MedP2147. MedP4
134. MedA1141. MedP2
135. MedP1142. MedP2
Completion Problems
ItemDLLOItemDLLOItemDLLO
148. EasyC1152. EasyC2156. EasyP1
149. EasyC1153. MedC3157. MedP3
150.EasyC1154. MedC3 158. HardP4
151. EasyC1155. MedA1
Problems
ItemDLLOItemDLLOItemDLLO
159. HardP1161. HardC3, A1163. HardP4
160. HardC3162. HardP4
True / False Questions
1.Accounts that appear in the balance sheet are often called
temporary (nominal) accounts.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C12.Income Summary is a
temporary account only used for the closing process.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C13.Revenue accounts
should begin each accounting period with zero balances.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C14.Closing revenue and
expense accounts at the end of the accounting period serves to make
the revenue and expense accounts ready for use in the next
period.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C1
5.The closing process takes place after financial statements
have been prepared.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C16.Revenue and expense
accounts are permanent (real) accounts and should not be closed at
the end of the accounting period.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C17.Closing entries
result in revenues and expenses being reflected in the owner's
capital account.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C18.The closing process
is a step in the accounting cycle that prepares accounts for the
next accounting period.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C1
9.The closing process is a two-step process. First revenue,
expense, and withdrawals are set to a zero balance. Second, the
process summarizes a period's assets and expenses.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C110.Closing entries
are required at the end of each accounting period to close all
ledger accounts.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C111.Closing entries
are designed to transfer the end-of-period balances in the revenue
accounts, the expense accounts, and the withdrawals account to
owner's capital.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C112.The Income Summary
account is a permanent account that will be carried forward period
after period.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C1
13.Closing entries are necessary so that owner's capital will
begin each period with a zero balance.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C114.Permanent accounts
carry their balances into the next accounting period. Moreover,
asset, liability and revenue accounts are not closed as long as a
company continues in business.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: HardLearning Objective: C115.The first step in
the accounting cycle is to analyze transactions and events to
prepare for journalizing.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C216.The accounting cycle
refers to the sequence of steps in preparing the work
sheet.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C2
17.The first five steps in the accounting cycle include
analyzing transactions, journalizing, posting, preparing an
unadjusted trial balance, and recording adjusting entries.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C218.The last four
steps in the accounting cycle include preparing the adjusted trial
balance, preparing financial statements and recording closing and
adjusting entries.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: HardLearning Objective: C219.A classified balance
sheet organizes assets and liabilities into important subgroups
that provide more information to decision makers.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: EasyLearning Objective: C320.An unclassified
balance sheet provides more information to users than a classified
balance sheet.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: EasyLearning Objective: C3
21.Current assets and current liabilities are expected to be
used up or come due within one year or the company's operating
cycle whichever is longer.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: EasyLearning Objective: C322.Intangible assets
are long-term resources that benefit business operations that
usually lack physical form and have uncertain benefits.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: EasyLearning Objective: C323.Assets are often
classified into current assets, long-term investments, plant
assets, and intangible assets.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: MediumLearning Objective: C324.Current
liabilities are cash and other resources that are expected to be
sold, collected or used within one year or the company's operating
cycle whichever is longer.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: MediumLearning Objective: C3
25.Long-term investments can include land held for future
expansion.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: MediumLearning Objective: C326.Plant assets
and intangible assets are usually long-term assets used to produce
or sell products and services.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: MediumLearning Objective: C327.Current
liabilities include accounts receivable, unearned revenues, and
salaries payable.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: MediumLearning Objective: C328.Cash and office
supplies are both classified as current assets.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: MediumLearning Objective: C3
29.Plant assets are also called fixed assets or property, plant,
and equipment.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: EasyLearning Objective: C330.The current ratio
is used to help assess a company's ability to pay its debts in the
near future.TRUE
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Risk
AnalysisDifficulty: EasyLearning Objective: A131.The current ratio
is computed by dividing current liabilities by current
assets.FALSE
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Risk
AnalysisDifficulty: EasyLearning Objective: A132.Harley-Davidson's
current assets are $400 million and its current liabilities are
$250 million. Its current ratio is 0.63.FALSE
$400/$250 = 1.6
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Risk
AnalysisDifficulty: MediumLearning Objective: A1
33.A company has current assets of $15,000 and current
liabilities of $9,500. Its current ratio is 1.6TRUE
$15,000/$9,500 = 1.6
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Risk
AnalysisDifficulty: MediumLearning Objective:
A134.Harley-Davidson's current ratio is 1.3. The industry average
for the current ratio is 1.2. This indicates that Harley-Davidson
can cover its short term liabilities with its short term
assets.TRUE
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Risk
AnalysisDifficulty: HardLearning Objective: A135.A work sheet is a
tool to help bring together information needed in adjusting the
accounts and preparing the financial statements.TRUE
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: EasyLearning Objective: P1
36.Adjustments must be entered in the journal and posted to the
ledger after the work sheet is prepared.TRUE
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: EasyLearning Objective: P137.The work sheet
is a book of original entry used to record transactions and events
as they occur.FALSE
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: EasyLearning Objective: P138.The work sheet
is a required financial statement.FALSE
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: EasyLearning Objective: P139.A work sheet is
a substitute for the set of financial statements.FALSE
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: EasyLearning Objective: P1
40.All necessary numbers to prepare the income statement can be
taken from the income statement columns of the work sheet,
including the net income or net loss.TRUE
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P141.On a work
sheet, a loss is indicated if the total of the Income Statement
Debit column exceeds the total of the Income Statement Credit
column.TRUE
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P142.If all columns
balance upon completion of a work sheet, you can be sure that no
errors were made in preparing the work sheet.FALSE
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P143.Closing
entries are normally entered in the general journal and then posted
to the work sheet.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P1
44.Adjusting entries are normally entered in the general journal
before they are posted to the work sheet.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P145.On a work sheet,
the adjusted balances of revenues and expenses are sorted to the
Income Statement columns of the work sheet.TRUE
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P146.On the work
sheet, net income is entered in the Income Statement Credit column
as well as the Balance Sheet or Statement of Owner's Equity Debit
column.FALSE
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P147.All necessary
numbers to prepare the balance sheet can be found in the balance
sheet columns of the work sheet including ending owner's
capital.FALSE
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P1
48.A worksheet can be helpful in showing the effects of proposed
or "what if" transactions, as well as being useful in helping to
prepare end-of-period financial statements.TRUE
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P149.Since it is an
important financial statement, the trial balance must be prepared
according to specified accounting procedures.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: MediumLearning Objective: P150.An expense
account is normally closed by debiting Income Summary and crediting
the expense account.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: P251.The withdrawals
account is normally closed by debiting it.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P2
52.After posting the entries to close all revenue accounts and
all expense accounts, the Income Summary account of Waif Services
has a $4,000 debit balance. This result implies that Waif Services
earned a net income of $4,000.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P253.After posting the
entries to close all revenue and expense accounts, Hatfield
Company's Income Summary account has a credit balance of $6,000,
and its Hatfield, Withdrawals account has a debit balance of
$2,500. These balances indicate that net income for the current
accounting period amounted to $3,500.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P254.The Income Summary
account is closed to the owner's capital account.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P255.When expenses
exceed revenues, there is a net loss and the Income Summary account
would have a credit balance.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P2
56.The Income Summary account is used to close the permanent
accounts at the end of an accounting period.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P257.The steps in the
closing process are (1) close credit balances in revenue accounts
to Income Summary; (2) close credit balances in expense accounts to
Income Summary; (3) close Income Summary to Owner's Capital; (4)
close Withdrawals to Owner's Capital.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: HardLearning Objective: P258.The usual third
closing entry is to close Owner's Capital to the Owner's
Withdrawals account.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: HardLearning Objective: P259.A post-closing trial
balance is a list of permanent accounts and their balances from the
ledger after all closing entries are journalized and
posted.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: P3
60.The aim of a post-closing trial balance is to verify that (1)
total debits equal total credits for temporary accounts, and (2)
all temporary accounts have zero balances.FALSE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: P361.A company's
post-closing trial balance has a debit total of $40,350 and a
credit total of $40,650. Accordingly, the company should review for
errors in the closing process.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P362.Reversing entries
are optional.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: P463.Reversing entries
adjust the accrued assets and accrued liabilities that were created
by adjusting entries at the end of the prior accounting
period.TRUE
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: P4
Multiple Choice Questions
64.Another name for temporary accounts is:A.Real
accounts.B.Contra accounts.C.Accrued accounts.D.Balance column
accounts.E.Nominal accounts.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C165.When closing entries
are made:A.All ledger accounts are closed to start the new
accounting period.B.All temporary accounts are closed but not the
permanent accounts.C.All real accounts are closed but not the
nominal accounts.D.All permanent accounts are closed but not the
nominal accounts.E.All balance sheet accounts are closed.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C166.Revenues, expenses,
and withdrawals accounts, which are closed at the end of each
accounting period are:A.Real accounts.B.Temporary
accounts.C.Closing accounts.D.Permanent accounts.E.Balance sheet
accounts.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C1
67.Which of the following statements is incorrect?A.Permanent
accounts is another name for nominal accounts.B.Temporary accounts
carry a zero balance at the beginning of each accounting
period.C.The Income Summary account is a temporary account.D.Real
accounts remain open as long as the asset, liability, or equity
items recorded in the accounts continue in existence.E.The closing
process applies only to temporary accounts.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C168.Assets,
liabilities, and equity accounts are not closed; these accounts are
called:A.Nominal accounts.B.Temporary accounts.C.Permanent
accounts.D.Contra accounts.E.Accrued accounts.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C169.Closing the
temporary accounts at the end of each accounting period:A.Serves to
transfer the effects of these accounts to the owner's capital
account on the balance sheet.B.Prepares the withdrawals account for
use in the next period.C.Gives the revenue and expense accounts
zero balances.D.Causes owner's capital to reflect increases from
revenues and decreases from expenses and withdrawals.E.All of
these.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C1
70.Journal entries recorded at the end of each accounting period
to prepare the revenue, expense, and withdrawals accounts for the
upcoming period and to update the owner's capital account for the
events of the period just finished are referred to as:A.Adjusting
entries.B.Closing entries.C.Final entries.D.Work sheet
entries.E.Updating entries.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C171.The closing
process is necessary in order to:A.calculate net income or net loss
for an accounting period.B.ensure that all permanent accounts are
closed to zero at the end of each accounting period.C.ensure that
the company complies with state laws.D.ensure that net income or
net loss and owner withdrawals for the period are closed into the
owner's capital account.E.ensure that management is aware of how
well the company is operating.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C172.Closing entries
are required:A.if management has decided to cease operating the
business.B.only if the company adheres to the accrual method of
accounting.C.if a company's bookkeeper forgets to prepare reversing
entries.D.if the temporary accounts are to reflect correct amounts
for each accounting period.E.in order to satisfy the Internal
Revenue Service.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C1
73.The recurring steps performed each reporting period, starting
with analyzing and recording transactions in the journal and
continuing through the post-closing trial balance, is referred to
as the:A.Accounting period.B.Operating cycle.C.Accounting
cycle.D.Closing cycle.E.Natural business year.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C274.Which of the
following is the usual final step in the accounting
cycle?A.Journalizing transactions.B.Preparing an adjusted trial
balance.C.Preparing a post-closing trial balance.D.Preparing the
financial statements.E.Preparing a work sheet.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C275.A classified
balance sheet:A.Measures a company's ability to pay its bills on
time.B.Organizes assets and liabilities into important
subgroups.C.Presents revenues, expenses, and net income.D.Reports
operating, investing, and financing activities.E.Reports the effect
of profit and withdrawals on owner's capital.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: EasyLearning Objective: C3
76.The assets section of a classified balance sheet usually
includes:A.Current assets, long-term investments, plant assets, and
intangible assets.B.Current assets, long-term assets, revenues, and
intangible assets.C.Current assets, long-term investments, plant
assets, and equity.D.Current liabilities, long-term investments,
plant assets, and intangible assets.E.Current assets, liabilities,
plant assets, and intangible assets.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: EasyLearning Objective: C377.The usual order
for the asset section of a classified balance sheet is:A.Current
assets, prepaid expenses, long-term investments, intangible
assets.B.Long-term investments, current assets, plant assets,
intangible assets.C.Current assets, long-term investments, plant
assets, intangible assets.D.Intangible assets, current assets,
long-term investments, plant assets.E.Plant assets, intangible
assets, long-term investments, current assets.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: MediumLearning Objective: C378.A classified
balance sheet differs from an unclassified balance sheet in thatA.a
unclassified balance sheet is never used by large companies.B.a
classified balance sheet normally includes only three subgroups.C.a
classified balance sheet presents information in a manner that
makes it easier to calculate a company's current ratio.D.a
classified balance sheet will include more accounts than an
unclassified balance sheet for the same company on the same
date.E.a classified balance sheet cannot be provided to outside
parties.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: MediumLearning Objective: C3
79.Two common subgroups for liabilities on a classified balance
sheet are:A.current liabilities and intangible
liabilities.B.present liabilities and operating
liabilities.C.general liabilities and specific
liabilities.D.intangible liabilities and long-term
liabilities.E.current liabilities and long-term liabilities.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: MediumLearning Objective: C380.The current
ratio:A.Is used to measure a company's profitability.B.Is used to
measure the relation between assets and long-term debt.C.Measures
the effect of operating income on profit.D.Is used to help evaluate
a company's ability to pay its debts in the near future.E.Is
calculated by dividing current assets by equity.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Risk
AnalysisDifficulty: MediumLearning Objective: A181.The current
ratio:A.Is calculated by dividing current assets by current
liabilities.B.Helps to assess a company's ability to pay its debts
in the near future.C.Can reveal problems in a company if it is less
than 1.D.Can affect a creditor's decision about whether to lend
money to a company.E.All of these.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Risk
AnalysisDifficulty: HardLearning Objective: A1
82.The Unadjusted Trial Balance columns of a company's work
sheet show the balance in the Office Supplies account as $750. The
Adjustments columns show that $425 of these supplies were used
during the period. The amount shown as Office Supplies in the
Balance Sheet columns of the work sheet is:A.$325 debit.B.$325
credit.C.$425 debit.D.$750 debit.E.$750 credit.
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: EasyLearning Objective: P183.A 10-column
spreadsheet used to draft a company's unadjusted trial balance,
adjusting entries, adjusted trial balance, and financial
statements, and which is an optional tool in the accounting process
is a(n) :A.Adjusted trial balance.B.Work sheet.C.Post-closing trial
balance.D.Unadjusted trial balance.E.General ledger.
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P1
84.Accumulated Depreciation, Accounts Receivable, and Service
Fees Earned would be sorted to which respective columns in
completing a work sheet?A.Balance Sheet or Statement of Owner's
Equity-Credit; Balance Sheet or Statement of Owner's Equity Debit;
and Income Statement-Credit.B.Balance Sheet or Statement of Owner's
Equity-Debit; Balance Sheet or Statement of Owner's Equity-Credit;
and Income Statement-Credit.C.Income Statement-Debit; Balance Sheet
or Statement of Owner's Equity-Debit; and Income
Statement-Credit.D.Income Statement-Debit; Income Statement-Debit;
and Balance Sheet or Statement of Owner's Equity-Credit.E.Balance
Sheet or Statement of Owner's Equity-Credit; Income
Statement-Debit; and Income Statement-Credit.
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P185.Which of the
following statements is incorrect?A.Working papers are useful aids
in the accounting process.B.On the work sheet, the effects of the
accounting adjustments are shown on the account balances.C.After
the work sheet is completed, it can be used to help prepare the
financial statements.D.On the work sheet, the adjusted amounts are
sorted into columns according to whether the accounts are used in
preparing the unadjusted trial balance or the adjusted trial
balance.E.A worksheet is not a substitute for financial
statements.
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P1
86.A company shows a $600 balance in Prepaid Insurance in the
Unadjusted Trial Balance columns of the work sheet. The Adjustments
columns show expired insurance of $200. This adjusting entry
results in:A.$200 decrease in net income.B.$200 increase in net
income.C.$200 difference between the debit and credit columns of
the Unadjusted Trial Balance.D.$200 of prepaid insurance.E.An error
in the financial statements.
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P187.Statements
that show the effects of proposed transactions as if the
transactions had already occurred are called:A.Pro forma
statements.B.Professional statements.C.Simplified
statements.D.Temporary statements.E.Interim statements.
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P1
88.If in preparing a work sheet an adjusted trial balance amount
is mistakenly sorted to the wrong work sheet column. The Balance
Sheet columns will balance on completing the work sheet but with
the wrong net income, if the amount sorted in error is:A.An expense
amount placed in the Balance Sheet Credit column.B.A revenue amount
placed in the Balance Sheet Debit column.C.A liability amount
placed in the Income Statement Credit column.D.An asset amount
placed in the Balance Sheet Credit column.E.A liability amount
placed in the Balance Sheet Debit column.
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P189.If the Balance
Sheet and Statement of Owner's Equity columns of a work sheet fail
to balance when the amount of the net income is added to the
Balance Sheet and Statement of Owner's Equity Credit column, the
cause could be:A.An expense amount entered in the Balance Sheet and
Statement of Owner's Equity Debit column.B.A revenue amount entered
in the Balance Sheet and Statement of Owner's Equity Credit
column.C.An asset amount entered in the Income Statement and
Statement of Owner's Equity Debit column.D.A liability amount
entered in the Income Statement and Statement of Owner's Equity
Credit column.E.An expense amount entered in the Balance Sheet and
Statement of Owner's Equity Credit column.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P1
90.The following items appeared on a company's December 31 work
sheet for the current period. Based on the following information,
what is net income for the current period?
A.$1,400.B.$1,855.C.$1,905.D.$2,060.E.$4,670.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P191.Which of the
following errors would cause the Balance Sheet and Statement of
Owner's Equity columns of a work sheet to be out of
balance?A.Entering an asset amount in the Income Statement Debit
column.B.Entering a liability amount in the Income Statement Credit
column.C.Entering an expense amount in the Balance Sheet and
Statement of Owner's Equity Debit column.D.Entering a revenue
amount in the Balance Sheet and Statement of Owner's Equity Debit
column.E.Entering a liability amount in the Balance Sheet and
Statement of Owner's Equity Credit column.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P1
92. The Unadjusted Trial Balance columns of a work sheet total
$84,000. The Adjustments columns contain entries for the following:
1. Office supplies used during the period, $1,200. 2. Expiration of
prepaid rent, $700. 3. Accrued salaries expense, $500. 4.
Depreciation expense, $800. 5. Accrued service fees receivable,
$400. The Adjusted Trial Balance columns total is: A. $80,400. B.
$84,000. C. $85,700. D. $85,900. E. $87,600.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P1
93.The balances in the unadjusted columns of a work sheet will
agree with:A.the balances reflected in the company's financial
statements.B.the balances reflected in the company's unadjusted
trial balance.C.whatever balances management has decided to
report.D.the balances in the company's post-closing trial
balance.E.the balances management budgeted for the accounting
period.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P194.In the process
of completing a work sheet, you determine that the Income Statement
debit column totals $83,000, while the Income Statement credit
column totals $65,000. To enter net income (or net loss) for the
period into the work sheet would require an entry toA.the
Adjustments debit column and the Adjustments credit column.B.the
Unadjusted Trial Balance debit column and the Adjustments credit
column.C.it is not practical to enter Net Income (or Net Loss) on
the work sheet.D.the Balance Sheet & Statement of Owner's
Equity debit column and the Income Statement credit column.E.the
Income Statement debit column and the Balance Sheet & Statement
of Owner's Equity credit column.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: HardLearning Objective: P1
95.The special account used only in the closing process to
temporarily hold the amounts of revenues and expenses before the
net difference is added to (or subtracted from) the owner's capital
account is the:A.Income Summary account.B.Closing account.C.Balance
column account.D.Contra account.E.Nominal account.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P296.J. Awn, the
proprietor of Awn Services, withdrew $8,700 from the business
during the current year. The entry to close the withdrawals account
at the end of the year, is:A.B.C.D.E.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P2
97.A company had revenues of $75,000 and expenses of $62,000 for
the accounting period. Which of the following entries could not be
a closing entry?A.B.C.D.E.All of these are possible closing
entries.
AACSB: AnalyticAICPA BB: IndustryAICPA FN:
MeasurementDifficulty: MediumLearning Objective: P298.The following
information is available for the Travis Travel Agency. After these
closing entries what will be the balance in the Jay Travis, Capital
account?
A.$ 65,000.B.$ 80,000.C.$130,000.D.$145,000.E.$280,000.
$80,000 + $125,000 - $60,000 - $15,000 = $130,000
AACSB: AnalyticAICPA BB: IndustryAICPA FN:
MeasurementDifficulty: MediumLearning Objective: P2
99.The J. Godfrey, Capital account has a credit balance of
$17,000 before closing entries are made. If total revenues for the
period are $55,200, total expenses are $39,800, and withdrawals are
$9,000, what is the ending balance in the J. Godfrey, Capital
account after all closing entries are made?A.$
8,000.B.$15,400.C.$23,400.D.$17,000.E.$32,400.
$17,000 + $55,200 - $39,800 - $9,000 = $23,400
AACSB: AnalyticAICPA BB: IndustryAICPA FN:
MeasurementDifficulty: MediumLearning Objective: P2100.The Income
Summary account is used:A.To adjust and update asset and liability
accounts.B.To close the revenue and expense accounts.C.To determine
the appropriate withdrawal amount.D.To replace the income statement
under certain circumstances.E.To replace the capital account in
some businesses.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P2
101.Dina Kader withdrew a total of $35,000 from her business
during the current year. The entry needed to close the withdrawals
account is:A.Debit Income Summary and credit Cash for
$35,000.B.Debit Dina Kader, Withdrawals and credit Cash for
$35,000.C.Debit Income Summary and credit Dina Kader, Withdrawals
for $35,000.D.Debit Dina Kader, Capital and credit Dina Kader,
Withdrawals for $35,000.E.Debit Dina Kader, Withdrawals and credit
Dina Kader, Capital for $35,000.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P2
102.A company's ledger accounts and their end-of-period balances
before closing entries are posted are shown below. What amount will
be posted to Tricia DeBarre, Capital in the process of closing the
Income Summary account? (Assume all accounts have normal
balances.)
A.$16,780 debit.B.$ 7,180 credit.C.$16,780 credit.D.$18,280
credit.E.$23,780 credit.
AACSB: AnalyticAICPA BB: IndustryAICPA FN:
MeasurementDifficulty: HardLearning Objective: P2
103.It is obvious that an error occurred in the preparation
and/or posting of closing entries if:A.all revenue and expense
accounts have zero balances.B.the owner's capital account is
debited for the amount of the net loss for the period.C.the income
summary account is debited for the amount of net income for the
period.D.all balance sheet accounts have zero balances.E.only
permanent accounts appear on the post-closing trial balance.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P2104.At the beginning
of 2009, a company's balance sheet reported the following balances:
Total Assets = $125,000; Total Liabilities = $75,000; and Owner's
Capital = $50,000. During 2009, the company reported revenues of
$46,000 and expenses of $30,000. In addition, owner's withdrawals
for the year totaled $20,000. Assuming no other changes to owner's
capital, the balance in the owner's capital account at the end of
2009 would be:A.$66,000.B.$86,000.C.$(4,000).D.$46,000.E.cannot be
determined from the information provided.
Owner's Capital = $50,000 at beginning of 2009. Add revenues of
$46,000 during 2009, subtract expenses of $30,000 during 2009 and
subtract owner withdrawals of $20,000 during 2009. The ending
balance in the owner's capital account at the end of 2009 would be
$46,000.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: HardLearning Objective: P2
105.At the beginning of 2009, Beta Company's balance sheet
reported Total Assets of $195,000 and Total Liabilities of $75,000.
During 2009, the company reported total revenues of $226,000 and
expenses of $175,000. Also, owner withdrawals during 2009 totaled
$48,000. Assuming no other changes to owner's capital, the balance
in the owner's capital account at the end of 2009 would
be:A.$174,000.B.$78,000.C.cannot be determined from the information
provided.D.$120,000.E.$123,000.
Owner's Capital at the beginning of 2009 is $120,000 (Total
Assets of $195,000 - Total Liabilities of $75,000). Add revenues of
$226,000 during 2009, subtract expenses of $175,000 and subtract
owner withdrawals of $48,000 and ending owner's capital at the end
of 2009 would be $123,000.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: HardLearning Objective: P2106.After preparing and
posting the closing entries to close revenues (and gains) and
expenses (and losses) into the income summary, the income summary
account has a debit balance of $33,000. The entry to close the
income summary account will include:A.a debit of $33,000 to owner
withdrawals.B.a credit of $33,000 to owner withdrawals.C.a debit of
$33,000 to income summary.D.a debit of $33,000 to owner capital.E.a
credit of $33,000 to owner capital.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: HardLearning Objective: P2
107.A trial balance prepared after the closing entries have been
journalized and posted is the:A.Unadjusted trial
balance.B.Post-closing trial balance.C.General ledger.D.Adjusted
trial balance.E.Work sheet.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P3108.An error is
indicated if the following account has a balance appearing on the
post-closing trial balance:A.Office Equipment.B.Accumulated
Depreciation-Office Equipment.C.Depreciation Expense-Office
Equipment.D.Ted Nash, Capital.E.Salaries Payable.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P3109.A post-closing
trial balance reports:A.All ledger accounts with balances, none of
which can be temporary accounts.B.All ledger accounts with
balances, none of which can be permanent accounts.C.All ledger
accounts with balances, which include some temporary and some
permanent accounts.D.Only revenue and expense accounts.E.Only asset
accounts.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P3
110.Which of the following statements is true?A.Owner's capital
must be closed each accounting period.B.A post-closing trial
balance should include only permanent accounts.C.Information on the
work sheet can be used in place of preparing financial
statements.D.By using a work sheet to prepare adjusting entries you
need not post these entries to the ledger accounts.E.Closing
entries are only necessary if errors have been made.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P3111.Reversing
entries:A.Are optional.B.Are mandatory.C.Correct errors in journal
entries.D.Are required by GAAP.E.Are prepared on the worksheet.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P4112.Reversing
entries:A.Are optional.B.Are linked to accrued assets and
liabilities that were created by adjusting entries at the end of
the previous accounting period.C.Are used to simplify a company's
recordkeeping.D.Are dated the first day of the new accounting
period.E.All of these.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P4
113.Reversing entries:A.are necessary when journal entries have
been incorrectly recorded.B.are a required step in the accounting
cycle.C.will often result in abnormal account balances in some
accounts.D.are required only if the company uses accounting
software to record journal entries.E.must be made before preparing
the post-closing trial balance.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P4114.The purpose of
reversing entries is to:A.simplify the recording of certain journal
entries in the future.B.correct an error made in a previous journal
entry.C.ensure that closing entries have been properly posted to
the ledger accounts.D.make certain that only permanent accounts are
carried forward into the next accounting period.E.complete a
required step in the accounting cycle.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P4
Matching Questions
115.Match the following terms with the appropriate
definition.
1.Temporary accountsAccounts that reflect on activities related
to one or more future periods; they include all balance sheet
accounts.7
2.Pro forma statementsRecurring steps performed each accounting
period, starting with analyzing and recording of transactions in
the journal and continuing through the post-closing trial balance
(or reversing entries).5
3.Closing entriesAccounts that are used to record transactions
and events for one accounting period only; they include revenues,
expenses, and withdrawals.1
4.Work sheetAnalyses and other informal reports prepared by
accountants when organizing the information presented in reports
and financial statements.10
5.Accounting cycleA temporary account used only in the closing
process and to where the balances of revenue and expense accounts
are transferred.9
6.Post-closing trial balanceA spreadsheet used to draft an
unadjusted trial balance, adjusting entries, adjusted trial
balance, and financial statements.4
7.Permanent accountsEntries recorded at the end of each
accounting period to transfer end-of-period balances in revenue,
expense, and withdrawals accounts to the permanent owner's capital
account.3
8.Operating cycle of a businessA list of permanent accounts and
their balances from the ledger after all closing entries are
journalized and posted.6
9.Income summaryThe time span from when cash is used to acquire
goods and services until cash is received from the sale of those
goods and services.8
10.Working papersStatements that show the effects of proposed
transactions as if the transactions had already occurred.2
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C1-C2Learning
Objective: P1-P3
116.Match the following terms with the appropriate
definition.
1.Current ratioTangible long-lived assets used to produce or
sell products or services.5
2.Owner's capitalThe owner's claim on the assets of a
company.2
3.Classified balance sheetA balance sheet that organizes the
assets and liabilities into important subgroups.3
4.Closing entriesLong-term assets used to produce or sell
products or services; these assets usually lack physical form and
their benefits are uncertain.9
5.Plant assetsA ratio that is used to help evaluate a company's
ability to pay its short-term obligations, calculated by dividing
current assets by current liabilities.1
6.Unclassified balance sheetEntries recorded at the end of each
accounting period to transfer end-of-period balances in revenue,
expense, and withdrawals accounts to the permanent owner's capital
account.4
7.Current liabilitiesDebts that are due to be paid or settled
within one year or the operating cycle of a business whichever is
longer.7
8.Current assetsAssets such as notes receivable or investments
in stocks which are held for the longer of one year or the
operating cycle of the company.10
9.Intangible assetsCash or other assets that are expected to be
sold, collected, or used within one year or the company's operating
cycle whichever is longer.8
10.Long-term investmentsA balance sheet that broadly groups
assets, liabilities and equity items.6
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: A1Learning Objective:
C1-C3
117.Classified balance sheets commonly include the following
categories.
a. Current assetsb. Long-term investmentsc. Plant assetsd.
Intangible assetse. Current liabilitiesf. Long-term liabilitiesg.
Equity.Indicate the typical classification of each item listed
below by placing the letter of the correct balance sheet category a
through g in the blank space next to the item.
1.Buildings used in business operationsc1
2.Office Suppliesa2
3.Cashb5
4.Accounts payable.f8
5.Land held for future plant expansiona12
6.Patents.g11
7.Prepaid insurancee4
8.Long-term note payablee9
9.Current portion of long-term debtd6
10.Wages payable.e10
11.Margarita Acosta, Capitala7
12.Accounts Receivablea3
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C3
Short Answer Questions
118.Explain why temporary accounts are closed each period.
Temporary accounts are closed at the end of each accounting
period for two main reasons. First, it prepares revenue, expense
and withdrawal accounts for the next reporting period by bringing
the balances in those accounts to zero. Second, the closing process
is used to update the owner's capital account to include the
increases from revenues and decreases from expenses and
withdrawals.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C1119.Explain the
difference between temporary and permanent accounts.
Temporary, or nominal, accounts accumulate data related to one
accounting period. They include all income statement accounts,
withdrawals, and Income Summary. Temporary accounts are closed at
the end of each accounting period. Permanent, or real, accounts, on
the other hand, report on activities related to one or more future
accounting periods. They carry their balances to the next period.
All balance sheet accounts are permanent accounts.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C1
120.List the steps in the accounting cycle.
The accounting cycle consists of ten steps: (1) analyze
transactions, (2) journalize entries, (3) post entries to the
ledgers, (4) prepare an unadjusted trial balance, (5) prepare
adjusting entries, (6) prepare an adjusted trial balance, (7)
prepare financial statements, (8) close the temporary accounts, (9)
prepare a post-closing trial balance, and (10) prepare reversing
entries (optional).
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C2121.How is a
classified balance sheet different from an unclassified balance
sheet? List the order of the usual classifications on a classified
balance sheet.
An unclassified balance sheet broadly groups assets,
liabilities, and equity. A classified balance sheet organizes
assets, liabilities, and equity into important subgroups that
provide more useful information to decisions makers. Classified
balance sheets usually report four groups of assets: current
assets, long-term investments, plant assets, and intangible assets.
Liabilities are usually divided into current and long-term. For
sole proprietorships and partnerships equity is reported under
capital accounts. For corporations, the equity section is divided
into capital stock and retained earnings.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C3
122.How is the current ratio calculated? How is it used to
evaluate a company?
The current ratio is current assets divided by current
liabilities. It is used to help evaluate a company's ability to pay
its short term obligations. It can be used by suppliers and
creditors to help them decide whether to allow a company to buy on
credit, and whether to loan them money.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Risk
AnalysisDifficulty: MediumLearning Objective: A1123.Describe a work
sheet and explain why it is useful.
A work sheet is a useful tool for organizing the preparation and
analysis of financial statements. It contains five pairs of debit
and credit columns for the trial balance, adjusting entries,
adjusted trial balance, income statement accounts, and balance
sheet (and owner's equity) accounts.
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: MediumLearning Objective: P1
124.List and explain the steps in preparing a 10-column
worksheet.
1. Enter the unadjusted trial balance. List all account titles
that will be expected to appear on the financial statements and
enter their balances from the ledger.2. Enter adjustments.3.
Prepare the adjusted trial balance by combining the unadjusted
trial balance columns with the adjustments.4. Sort the adjusted
trial balance columns into the Income Statement columns and Balance
Sheet and Statement of Owner's Equity columns.5. Total the Income
Statement columns and Balance Sheet and Statement of Owner's Equity
columns. The difference between the Income Statement columns is the
net income or net loss. The difference between the Balance Sheet
and Statement of Owner's Equity columns will also be the amount of
the net income or net loss. Add the net income to the Income
Statement debit column and total the columns. Add the net income to
the Balance Sheet and Statement of Owner's Equity credit column and
total the columns.
AACSB: TechnologyAICPA BB: IndustryAICPA FN: Leveraging
TechnologyDifficulty: HardLearning Objective: P1125.What is the
purpose of closing entries? Describe the closing process.
The purpose of closing entries is to transfer the end of period
balances in the temporary accounts to the equity account(s). The
closing process has four steps: (1) Close credit balances in
revenue accounts to income summary, (2) close debit balances in
expense accounts to income summary, (3) close withdrawals to the
owner's capital account, (4) close income summary to the owner's
capital account.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P2
126.Journalizing and posting closing entries is a required step
in the accounting cycle. Explain why it is necessary to close the
books at the end of an accounting period.
Closing entries are necessary to close the income statement
accounts (the temporary or nominal accounts) at the end of the year
in order to start the next year with the proper balances in those
accounts. The closing entries are what separate one accounting
period from another.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P2127.What is the
purpose of a post-closing trial balance?
A post-closing trial balance is a list of permanent accounts and
their balances after all the closing entries are journalized and
posted. It is used to verify the equality of debits and credits of
the permanent account balances. It also verifies that the temporary
accounts have zero balances.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P3128.Explain the
purpose of reversing entries.
Reversing entries are an optional step in the accounting cycle.
They apply to accrued assets and accrued liabilities. The purpose
of the reversing entries is to simplify a company's
recordkeeping.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: HardLearning Objective: P4
Problems
129.In the table below, indicate with an "X" in the proper
column whether the account is a (nominal) temporary account or a
(real) permanent account.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C1
130.Listed below are a number of accounts. Use the table below
to classify each account. Indicate whether it is a temporary or
permanent account, whether it is included in the Income Statement
or Balance sheet, and if it is closed at the end of the accounting
period, and, if so, how it is closed. The first one is done as an
example.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C1
131.The following are the steps in the accounting cycle. List
them in the order in which they are completed: Prepare adjusted
trial balancePost transactionsPrepare an unadjusted trial
balanceJournalize transactionsPrepare the financial statementsClose
the temporary accountsAdjust the ledger accountsPrepare a
post-closing trial balanceAnalyze transactions
1) Analyze transactions2) Journalize transactions3) Post
transactions4) Prepare an unadjusted trial balance5) Adjust the
ledger accounts6) Prepare adjusted trial balance7) Prepare the
financial statements8) Close the temporary accounts9) Prepare a
post-closing trial balance
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C2
132.Based on the adjusted trial balance shown below, prepare a
classified balance sheet for Focus Package Delivery.
* $2,000 of the long-term note payable is due during the next
year.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: MediumLearning Objective: C3
133.The calendar year-end adjusted trial balance for Acosta Co.
follows:
Required:(a) Prepare a classified year-end balance sheet. (Note:
A $7,000 installment on the long-term note payable is due within
one year.)(b) Calculate the current ratio. Comment on the ability
of Acosta Co. to meets its short-term debts.
(a)
*NI = $370,800 - $90,000 - $5,200 - $5,000 - $800 - $7,000 =
$262,800Ending Capital = $1,010,000 + $262,800 - $200,500 =
$1,072,300
(b)Acosta Co. has a current ratio of 4.5 to 1, which means it
should have no difficulty paying its short-term debts. Cash alone
is more than adequate to meet short-term debts.
AACSB: Analytic, Reflective ThinkingAICPA BB: Industry, Resource
Management, Critical ThinkingAICPA FN: Reporting, Risk
AnalysisDifficulty: HardLearning Objective: A1Learning Objective:
C3134.Calculate the current ratio in each of the following separate
cases.
Case 1. 2.5Case 2. 1.9Case 3. 0.85Case 4. 1.04Case 5. 0.90
AACSB: AnalyticAICPA BB: Resource ManagementAICPA FN: Risk
AnalysisDifficulty: MediumLearning Objective: A1
135.Use the following partial work sheet from Matthews Lanes to
prepare its income statement, statement of owner's equity and a
balance sheet (Assume the owner did not make any investments in the
business this year.)
AACSB: CommunicationsAICPA BB: IndustryAICPA FN:
ReportingDifficulty: MediumLearning Objective: P1
136.The unadjusted trial balance of E. Pace, Consultant is
entered on the partial work sheet below. Complete the work sheet
using the following information:
(a) Salaries earned by employees that are unpaid and unrecorded,
$500.(b) An inventory of supplies showed $800 of unused supplies
still on hand.(c) Depreciation on equipment, $1,300.
AACSB: Technology, AnalyticAICPA BB: IndustryAICPA FN:
Leveraging TechnologyDifficulty: HardLearning Objective: P1
137.A partially completed work sheet is shown below. The
unadjusted trial balance columns are complete. Complete the
adjustments, adjusted trial balance, income statement, and balance
sheet and statement of owner's equity columns.
AACSB: Technology, AnalyticAICPA BB: IndustryAICPA FN:
Leveraging TechnologyDifficulty: HardLearning Objective: P1
138.Shown below are selected data taken from the unadjusted and
adjusted trial balances for the Simonson Company for the current
year ended December 31. Determine the items A through H below.
AACSB: Technology, AnalyticAICPA BB: IndustryAICPA FN:
Leveraging TechnologyDifficulty: HardLearning Objective: P1
139.The summary amounts below appear in the Income Statement and
Balance Sheet columns of a company's December 31 work sheet.
Prepare the necessary closing entries.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: P2
140.The adjusted trial balance of Sara's Web Services
follows:
(a) Prepare the closing entries for Sara's Web Services.(b) What
is the balance of Sara's capital account after the closing entries
are posted?
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P2
141.Following are selected accounts and their balances for a
company after the adjustments as of May 31, the end of its fiscal
year. (All accounts have normal balances.)
Prepare all the necessary closing entries for this company.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P2
142.The adjusted trial balance of the Thomas Company
follows:
Prepare the closing entries for Thomas Company.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P2
143.The items that follow appeared in the Income Statement
columns of the work sheet prepared for Armstrong Delivery Service
at current year-end. In addition, L. Armstrong, Capital had a
credit balance of $117,000 and L. Armstrong, Withdrawals had a
debit balance of $30,000 at year end. Prepare closing journal
entries for this company.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P2
144.Presented below are the year-end balances at December 31 of
Laura's Laundry Service. (All accounts have normal balances.)
(a) Prepare the necessary closing entries at December 31.(b)
Prepare a post-closing trial balance at December 31.
(a)
(b)
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: HardLearning Objective: P2Learning Objective:
P3
145.Shown below is Adventure Travel's adjusted trial balance as
of the end of its annual accounting period:
(a) Prepare the necessary closing entries.(b) Prepare a
post-closing trial balance.
(a)
(b)
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: HardLearning Objective: P2Learning Objective:
P3
146.Employees of Artworld Co. have earned but have not been paid
$3,500 in salaries for the last week of the current calendar
year.
(a) Prepare the necessary adjusting journal entry(ies) for
Artworld at December 31 of the current year.(b) Assuming that
Artworld makes reversing entries, prepare the necessary reversing
entry. Include the appropriate date for the reversing
entry(ies).
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision Making,
MeasurmentDifficulty: EasyLearning Objective: P4147.The following
information has been gathered for Stylish Co. to assist in
preparing its year-end adjusting entries at December 31:
(a) The company has earned $2,500 of rental revenue that has not
yet been received or recorded.(b) Stylish has recorded $3,200 of
unearned service fees. At year-end, $1,500 of this amount has been
earned.(c) Depreciation on equipment for the year is $7,800.(d)
Employees have earned but have not yet been paid $2,750 in
salaries.
Identify which of the above accounting adjustment would be
reversed assuming Stylish Co. uses reversing entries.
(a) Reversed.(b) Not reversed.(c) Not reversed.(d) Reversed.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P4
Fill in the Blank Questions
148.The closing process resets ________, __________, and
________ account balances to zero at the end of each accounting
period.Revenue, expense, withdrawals
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C1149.The
___________________ account is used only in the closing
process.Income Summary
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C1150.Revenues, expenses,
withdrawals, and Income Summary are called _________________
accounts because they are closed at the end of each accounting
period.Temporary (or nominal)
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C1151.Balance sheet
accounts are called ____________________ accounts because they
carry their balances to the next accounting period, and are not
closed as long as the company continues to own the asset, owe the
liability and have equity.Permanent (or real)
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C1
152.The ______________ refers to the steps in preparing
financial statements for users.Accounting cycle
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: C2153.Intangible assets
are long-term resources used to produce or sell products and
services; they generally lack ______________ and their benefits are
highly ____________.Physical form; uncertain
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C3154.The current
portion of long-term debt is classified with the
_________________________.Current Liabilities
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: C3155.A current ratio
of 2.1 suggests that a company has ____________ current assets to
cover current liabilities.Sufficient
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: A1
156.A ____________________ helps in preparing financial
statements, is useful in preparing interim statements, and is
helpful in showing the effects of proposed transactions.Work
sheet
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: EasyLearning Objective: P1157.A company's
post-closing trial balance has a debit total of $475,000 and a
credit total of $457,000. This indicates that
__________________________.An error was made in the closing
process.
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: MediumLearning Objective: P3158.Reversing entries
are linked to ____________________ and _____________ that were
created by adjusting entries at the end of the prior accounting
period.Accrued assets, accrued liabilities
AACSB: CommunicationsAICPA BB: IndustryAICPA FN: Decision
MakingDifficulty: HardLearning Objective: P4
Problems
159.The unadjusted trial balance of Quick Delivery is entered on
the partial work sheet below. Complete the work sheet using the
following information:
(a) Salaries earned by employees that are unpaid and unrecorded,
$5,000.(b) An inventory of supplies showed $1,000 of unused
supplies still on hand.(c) Depreciation on delivery vans,
$24,000.(d) Services paid in advance by customers of $10,000 have
now been provided to customers.
AACSB: Technology, AnalyticAICPA BB: IndustryAICPA FN:
Leveraging TechnologyDifficulty: HardLearning Objective: P1
160.The following year-end adjusted trial balance is for Tom
Janes Co. at the end of December 31. The credit balance in Tom
Janes, Capital at the beginning of the year, January 1, was
$320,000. The owner, Tom Janes, invested an additional $300,000
during the current year. The land held for future expansion was
also purchased during the current year.
Required:Prepare a classified year-end balance sheet. (Note: A
$22,000 installment on the long-term note payable is due within one
year.)
Net income $470,800 - $180,000 - $12,000 - $25,000 - $2,000 -
$10,000 = $241,800Ending Capital = $620,000 + $241,800 - $60,000 =
$801,800
AACSB: AnalyticAICPA BB: Industry, Resource ManagementAICPA FN:
ReportingDifficulty: HardLearning Objective: C3
161.Using the information presented in problem 160: (a)
Calculate the current ratio. Comment on the ability of Tom Janes
Co. to meets its short-term debts.(b) Calculate the debt ratio and
comment on the financial position and risk analysis of Tom Janes
Co.(c) Using the account balances to analyze the financial position
of Tom Janes Co., why would the owner need to invest an additional
$300,000 in the business when the business is already profitable
and the owner had an existing capital balance of $320,000?
(a) Current ratio = current assets/current
liabilites116,000/56,200 = 2.1 to 1Tom Janes Co.'s current ratio is
good and indicates that the company has more than enough in current
assets to meet its short-term debts.(b) Debt ratio = Total
Liabilities/Total Assets258,200/1,060,000 = .24 to 1The debit ratio
is low and indicates that the company does not have a high degree
of risk associated with the company's use of liabilities to finance
the company. The company has a low degree of financial leverage,
the assets of the company have been purchased through equity
financing rather than debt financing. The company should have no
problem meeting required future payments of liabilities.(c) To keep
the debt ratio low, the owner may have decided to use his own
capital to finance the purchase of assets. Also, the majority of
capital contributed prior to the current year had been used to
purchase other plant and long-term assets. To finance the purchase
of the land held for future expansion, the bank may have required
the owner to increase equity before granting the long-term note
payable. If the long-term note had previously existed, then the
owner invested the cash to purchase the land held for future
expansion.
AACSB: Analytic, Reflective ThinkingAICPA BB: Resource
Management, Critical ThinkingAICPA FN: Risk AnalysisDifficulty:
HardLearning Objective: A1Learning Objective: C3
162.Excalibur frequently has accrued expenses at the end of its
fiscal year that should be recorded for proper financial statement
presentation. Excalibur pays on a weekly basis and has $50,000 of
accrued salaries incurred but not paid for June 30, its fiscal
year-end. This consists of one day's accrued salaries for the week.
Excalibur will pay its employees $250,000 on July 4; the one day of
accrued salaries and the remaining four days for July salaries.
Record the following entries: (a) Accrual of the salaries on June
30.(b) Payment of the salaries on July 4, assuming that Excalibur
does not prepare reversing entries.(c) Assuming that Excalibur
prepares reversing entries, reverse the adjusting entry made on
June 30.(d) Assuming that Excalibur prepares reversing entries,
payment of the salaries on July 4.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision Making,
MeasurementDifficulty: HardLearning Objective: P4
163.Epee Inc. frequently has accrued revenues at the end of its
fiscal year that should be recorded for proper financial statement
presentation. Epee Inc.'s fiscal year ends on September 30 of the
current year. Epee Inc. has determined through an evaluation of
invoices and services rendered that $32,000 of services has been
provided as of September 30, but not yet billed. The total contract
to be billed for services when completed will be $60,000. Record
the following entries: (a) Accrual of the revenues on September
30.(b) Receipt of payment from customers on October 9 for the
services rendered, assuming that Epee does not prepare reversing
entries.(c) Assuming that Epee prepares reversing entries, reverse
the adjusting entry made on September 30.(d) Assuming that Epee
prepares reversing entries, receipt of the payment for the total
contract amount on October 9.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: Decision Making,
MeasurementDifficulty: HardLearning Objective: P44-87