12.2 Learning Objective 12-2
1) How is Income Summary closed if the company had a net loss?
A) Credit Income Summary; debit Capital
B) Debit Income Summary; credit Capital
C) Debit Capital; credit Revenue
D) Debit Withdrawals; credit Capital
2) How is Income Summary closed if the company had a net income?
A) Debit Capital; credit Income Summary
B) Debit Income Summary; credit Capital
C) Debit Capital; credit Withdrawals
D) Debit Withdrawals; credit Capital
3) Adjusting entries from the worksheet:
A) are journalized and posted to the ledger.
B) are posted directly to the ledger.
C) are closed to the Income Summary account.
D) affect only income statement accounts.
4) The goal of closing entries does NOT include:
A) to clear revenue and expense accounts.
B) to update the Capital account balance.
C) to clear the Withdrawals account.
D) to clear the Cash account.
5) The first step in the closing process is to:
A) close all balances on the income statement debit column of the worksheet except Income Summary.
B) transfer the balance from the Income Summary Account to the Capital Account.
C) close all balances on the income statement credit column of the worksheet except Income Summary.
D) transfer the balance of the Owner’s Withdrawals Account to Capital.
6) After the closing entries have been posted:
A) the temporary accounts are zeroed out.
B) the Capital account includes the current net profit or loss.
C) the post-closing trial balance is prepared.
D) All of these answers are correct.
7) The amount shown in the balance sheet debit column of worksheet for Merchandise Inventory is:
A) the Cost of Goods Sold.
B) net purchases + beginning merchandise inventory.
C) the ending inventory.
D) the beginning inventory.
8) Income Summary, before closing to Capital, contains a debit balance of $190 and a credit balance of
$270. What is the entry to close Income Summary to Capital?
A) Debit Income Summary $190; credit Capital $270
B) Debit Income Summary $80 credit Capital $190
C) Debit Capital $80; credit Income Summary $80
D) Debit Income Summary $80; credit Capital $80
9) The amount shown in the adjustments credit column for Merchandise Inventory on the worksheet is:
A) beginning inventory.
B) ending inventory.
C) total purchases.
D) Cost of Goods Sold.
10) Closing entries:
A) are posted to the general ledger.
B) are done to update Cash.
C) can be done before adjusting entries.
D) are done to update the balance sheet.
11) The entry to close the Income Summary account to Capital was omitted, and there was a net income
for the period. This error would cause:
A) the Capital account to be understated.
B) Inventory to be overstated.
C) Revenue to be understated.
D) the Capital account to be overstated.
12) The entry to close the Withdrawals account to Capital was omitted. This error would cause:
A) the Capital account to be understated.
B) Withdrawal to be understated.
C) Revenue to be understated.
D) the Capital account to be overstated.
13) The entry to close the expense account(s) was entered in reverse—Income Summary was credited and
the expense account(s) was/were debited. This error would cause:
A) assets to be overstated.
B) liabilities to be overstated.
C) the Capital account to be understated.
D) the Capital account to be overstated.
14) The entry to close the Withdrawal account was entered in reverse—the Withdrawal account was
debited and Capital credited. This error would cause:
A) the income summary account to have a debit balance.
B) net income to be overstated.
C) net income to be understated.
D) Withdrawals to be overstated.
15) The entry to adjust salaries was done twice. This error would cause:
A) assets to be understated.
B) liabilities to be overstated.
C) revenue to be understated.
D) assets to be overstated.
16) When closing income statement accounts having credit balances, which of the following accounts will
also be closed?
A) Sales Returns and Allowances
B) Purchases Discount
C) Accounts Receivable
D) Unearned Revenue
17) When closing income statement accounts having debit balances, which of the following accounts will
also be closed?
A) Purchases Returns and Allowances
B) Merchandise Inventory
C) Sales Returns and Allowances
D) Revenue
18) The entry to close the Freight-in account will include which of the following?
A) Debit to Purchases
B) Credit to Income Summary
C) Debit to Income Summary
D) Debit to Freight-Out
19) The entry to close the owner’s Withdrawals account will include which of the following?
A) A debit to Income Summary
B) A credit to Capital
C) A credit to Withdrawals
D) A debit to Withdrawals
20) Which of the following transactions could cause the Income Summary account to be debited and
Capital to be credited?
A) The business earned a net loss for the period.
B) The business earned a net income for the period.
C) Closed the Owner‘s Capital account
D) A credit balance in the Owner’s Withdrawals account
21) The post-closing trial balance contains:
A) assets and liabilities.
B) all accounts with balances.
C) only permanent accounts.
D) All of these answers are correct.
22) The post-closing trial balance is prepared from:
A) the income statement column on the worksheet.
B) the balance sheet columns on the worksheet.
C) the trial balance columns on the worksheet.
D) the general ledger.
23) Which of the following accounts will NOT appear on the post-closing trial balance?
A) Accounts Receivable
B) Cash
C) Accounts Payable
D) Revenue
24) Which of the following accounts will appear on the post-closing trial balance?
A) Capital
B) Purchases
C) Supplies Expense
D) Withdrawals
25) The trial balance is used to prepare the post-closing trial balance.
26) The post-closing trial balance would include Supplies Expense and Purchases.
27) Adjusting journal entries still need to be made after the worksheet is completed; otherwise the
account balances will not be correct.
28) The adjusting entry to record Service income that is earned would involve a debit to Service Income
and a credit to Unearned Service Revenue.
29) The entry to record the adjustment for depreciation on equipment would be a debit to Depreciation
Expense-Equipment and a credit to Equipment.
30) Beginning inventory is adjusted by debiting Merchandise Inventory and crediting Income Summary.
31) Ending inventory is adjusted by debiting Merchandise Inventory and crediting Capital.
32) After the closing process, the permanent accounts are set back to zero.
33) In the process of closing entries, the Income Summary account is closed to the Capital account before
Withdrawals.
For each of the following, identify in Column 1 the category to which the account belongs, in Column 2
the normal balance for the account, in Column 3 the financial statement on which the account balance is
reported, and in Column 4 the account’s nature (permanent/temporary).
34)
Column 1 Column 2 Column 3 Column 4
Cash
35)
Column 1 Column 2 Column 3 Column 4
Supplies
36)
Column 1 Column 2 Column 3 Column 4
Accounts Payable
37)
Column 1 Column 2 Column 3 Column 4
Merchandise Inventory
38)
Column 1 Column 2 Column 3 Column 4
Prepaid Rent Expense
39)
Column 1 Column 2 Column 3 Column 4
Equipment
40)
Column 1 Column 2 Column 3 Column 4
Accumulated Depr. Equip.
41)
Column 1 Column 2 Column 3 Column 4
Wages Payable
42)
Column 1 Column 2 Column 3 Column 4
Wages Expense
43)
Column 1 Column 2 Column 3 Column 4
Purchases
44)
Column 1 Column 2 Column 3 Column 4
Purchases Discounts
45)
Column 1 Column 2 Column 3 Column 4
Purchases Returns & Allowances
46)
Column 1 Column 2 Column 3 Column 4
Sales
47)
Column 1 Column 2 Column 3 Column 4
Sales Returns and Allowances
48)
Column 1 Column 2 Column 3 Column 4
Sales Discounts
49)
Column 1 Column 2 Column 3 Column 4
Depreciation Expense
50) Prepare the closing entries from the following information on the PC Pros Company worksheet
income statement columns.
Income Statement
Debit Credit
Income Summary 5 6
Sales 28
Sales Ret. and Allow. 1
Purchases 20
Pur. Ret. and Allow. 4
Insurance Expense 3
Office Salaries Expense 1
51) Prepare closing entries from the following information on the Warner Books worksheet income
statement columns. Additional information: Withdrawals equal $25 for the period.
Income Statement
Debit Credit
Income Summary 16 22
Sales 90
Sales Ret. and Allow. 8
Purchases 50
Pur. Ret. and Allow. 8
Sales Salaries Expense 12
Office Salaries Expense 4
12.3 Learning Objective 12-3
1) Which of the following could appear in an adjusting entry, closing entry, and reversing entry?
A) Salary Expense
B) Withdrawals
C) Depreciation Expense, Buildings
D) Cash
2) Reversing entries occur at the beginning of the accounting period and:
A) help to reduce potential errors.
B) simplify the bookkeeping associated with accruals from the prior period.
C) reverse the adjusting entries.
D) All of the above are correct.
3) Which of the following could be recorded as a reversing entry?
A) Depreciation of building
B) Accrual of salary expense
C) Allocation of prepaid rent in the current period
D) Cash
4) Which of the following adjustments may be reversed?
A) The adjustment to Record Depreciation Expense
B) The adjustment to Allocate Prepaid Insurance to the current period
C) The adjustment to Accrue Salaries Payable
D) The adjustment for Petty Cash replenishment
5) The reversing entry for Salaries is:
A) debit Salaries Expense; credit Salaries Payable.
B) debit Salaries Payable; credit Capital.
C) debit Salaries Payable; credit Salaries Expense.
D) debit Salaries Expense; credit Accounts Payable.
6) Reversing entries are done when assets or liabilities are increasing and have no previous balance.
7) Reversing entries are the opposite of adjusting entries.
8) Not all adjusting entries can be reversed.
9) Reversing entries are recorded on the third day of the new accounting period.