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Wilson Engraving
Balance Sheet
December 31, 2018
Assets
Cash $25,000
Accounts Receivable 16,000
Office Supplies 4,000
Prepaid Insurance 10,000
Equipment $65,000
Less: Acc. Depr. – Equipment 2,000 33,000
Total Assets $88,000
Liabilities
Accounts Payable $15,000
Unearned Revenue 8,000
Salaries Payable 5,000
Notes Payable,
Due March 31, 2020 10,000
Total Liabilities $38,000
Stockholders‘ Equity
Common Stock $36,000
Retained Earnings 14,000
Total Stockholders’ Equity 50,000
Total Liabilities and Stockholders’ Equity $88,000
c.
Current Assets/Current Liabilities = Current Ratio
$55,000/$28,000 = 1.96
Current Assets: Cash $25,000 + Accounts Receivable $16,000 + Office Supplies $4,000 + Prepaid Insurance
$10,000 = $55,000
Current Liabilities: Accounts Payable $15,000 + Unearned Revenue $8,000 + Salaries Payable $5,000 =
$28,000
For every $1 of current liabilities, Wilson has $1.96 of current assets. This is a healthy current ratio.
Diff: 3
LO: 4.1, 4.3, 4.6
AACSB: Analytical thinking
AICPA Functional: Measurement
PE Question Type: Critical thinking
H2: How Do We Use the Current Ratio to Evaluate Business Performance? (H1)
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4.7 Learning Objective 4-7
1) Generally Accepted Accounting Principles (GAAP) require every organization to prepare reversing
entries.
2) Reversing entries are special journal entries that ease the burden of accounting for transactions in a
later period.
3) A reversing entry is ________.
A) a journal entry used to close the temporary accounts after preparation of financial statements
B) a special journal entry used to make the adjustments that took place after preparing the trial balance
C) a special journal entry that eases the burden of accounting for transactions in the next period
D) a journal entry prepared at the end of an accounting period to match assets with liabilities
4) Reversing entries are used in conjunction with ________.
A) accrual-type adjustments
B) deferred revenues
C) deferred expenses
D) Unearned Revenue and Prepaid Rent
5) Perry Service Company had the following unadjusted balances at December 31, 2018: Salaries Payable,
$0; Salaries Expense, $12,000. The following transactions took place on December 31, 2018:
Accrued Salaries Expense, $5,000
Closed the Salaries Expense account.
The following transaction took place on January 4, 2019:
Paid salaries of $6,000. This payment included $5,000 that was accrued on December 31, 2018 and $1,000
for the first few days in January 2019.
Prepare the journal entry for January 4, 2019, assuming that reversing entries were not made. Omit
explanation.
6) Reversing entries are dated on the first day of the new accounting period.
7) A reversing entry ________.
A) is required by GAAP
B) is used in conjunction with deferral type adjustments
C) exactly resembles the prior adjusting entry
D) switches the debit and the credit of a previous entry
8) Reversing entries are ________.
A) the exact opposite of a prior adjusting entry
B) dated the last day of the new period
C) required according to GAAP
D) expensive to record and time consuming
9) Your Business Advisor, a consulting company, uses reversing entries. On March 31, 2018, the
bookkeeper journalized and posted the following adjusting entry to accrue Utilities Expense:
Utilities Expense
400
Utilities Payable
400
Which of the following entries is the correct reversing entry to be prepared on April 1, 2018?
A)
Utilities Payable
400
Utilities Expense
400
B)
Utilities Expense
400
Income Summary
400
C)
Cash
400
Utilities Expense
400
D)
Utilities Expense
400
Accounts Receivable
400
10) On December 31, 2018, Action Services, Inc. prepared the following accrual adjustment:
Salaries Expense
1,000
Salaries Payable
1,000
Action uses reversing entries. Prepare the reversing entry on January 1, 2019. Omit explanation.
Salaries Payable
1,000
Salaries Expense
1,000
11) On December 31, 2018, Absolute Services, Inc. prepared the following accrual adjustment:
Salaries Expense
1,000
Salaries Payable
1,000
The company paid salaries amounting to $1,500 on January 7, 2019 for the two-week pay period that
ended on January 6, 2019. Journalize the entries for January 1, 2019 and January 7, 2019, assuming the
company uses reversing entries. Omit explanations.
Salaries Payable
1,000
Salaries Expense
1,000
On January 07, Absolute Services, Inc. will record the salaries payment entry as follows:
Salaries Expense
1,500
Cash
1,500
12) Complete Cleaning Services pays out wages every week on Friday. Payroll expense totals $4,000 per
week, based on a five-day week. The month of June ended on a Thursday. On Thursday, June 30,
Complete made the following accrual adjustment:
Wages Expense
3,200
Wage Payable
3,200
At the same time, they prepared the following reversing entry to be booked on July 1:
Wages Payable
3,200
Wages Expense
3,200
On Friday afternoon, when wages were paid, what journal entry was made? Omit explanation.
Wages Expense
4,000
Cash
4,000
Diff: 2
LO: 4-7
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Accounting with a Reversing Entry
13) Griffen Service Company had the following unadjusted balances at December 31, 2018: Salaries
Payable, $0; Salaries Expense, $12,000. The following transactions took place on December 31, 2018:
Accrued Salaries Expense, $5,000
Closed the Salaries Expense account.
The following transaction took place on January 4, 2019:
Paid salaries of $6,000. This payment included $5,000 that was accrued on December 31, 2018 and $1,000
for the first few days in January 2019.
Prepare the journal entries for January 1, 2019 and January 4, 2019, assuming that reversing entries were
made. Omit explanations.
Salaries Payable
5,000
Salaries Expense
5,000
1/4/19
Salaries Expense
6,000
Cash
6,000
Diff: 2
LO: 4-7
AACSB: Application of knowledge
AICPA Functional: Measurement
PE Question Type: Application
H2: Accounting with a Reversing Entry