304) All of the following statements regarding the Income Statement columns on the worksheet
are true except:
A) The balances in the Income Statement credit column are revenues.
B) The balances in the Income Statement credit column are unearned revenues.
C) The balances in the Income Statement debit column are expenses.
D) The difference between the totals of the Income Statement columns is net income or net loss.
E) The net income or net loss from the Income Statement columns is entered in the Balance
Sheet & Statement of Retained Earnings columns.
305) Temporary accounts include all of the following except:
A) Consulting revenue.
B) Dividends.
C) Rent expense.
D) Prepaid rent.
E) Income Summary.
306) Permanent accounts include all of the following except:
A) Accumulated Depreciation—Equipment.
B) Prepaid Insurance.
C) Unearned Revenue.
D) Accounts Receivable.
E) Depreciation Expense—Equipment.
307) Which of the following statements about a company’s operating cycle is not true:
A) Non-current items are those expected to come due within one year or the company’s operating
cycle.
B) The operating cycle is the time span from when cash is used to acquire goods and services
until cash is received from the sale of goods and services.
C) The length of a company’s operating cycle depends on its activities.
D) For a merchandiser selling products, the operating cycle is the time span between paying
suppliers for merchandise and receiving cash from customers.
E) Most operating cycles are less than one year.
308) Which of the following types of businesses might have an operating cycle longer than one
year?
A) Ski resort.
B) Clothing retailer.
C) Florist.
D) Wheat farmer.
E) Commercial airplane manufacturer.
309) Use the information in the adjusted trial balance presented below to calculate current assets
for Wicked Wicker Company:
Account Title
Dr.
Cr.
Cash
$
23,000
Accounts receivable
16,000
Prepaid insurance
6,600
Equipment
100,000
Accumulated depreciation—Equipment
$
Land
95,000
Accounts payable
Interest payable
Unearned revenue
Long-term notes payable
Retained earnings
Totals
$
240,600
$
A) $21,200.
B) $45,600.
C) $24,400.
D) $95,600.
E) $41,200.
310) Use the information in the adjusted trial balance presented below to calculate the current
ratio for Wicked Wicker Company:
Account Title
Dr.
Cr.
Cash
$
23,000
Accounts receivable
16,000
Prepaid insurance
6,600
Equipment
100,000
Accumulated depreciation—Equipment
$
Land
95,000
Accounts payable
Interest payable
Unearned revenue
Long-term notes payable
Retained earnings
Totals
$
240,600
$
A) 1.87.
B) .54.
C) 3.92.
D) 1.77.
E) 1.60.
311) An adjusting entry that increases an asset and increases a revenue is known as a(n):
A) Accrued expense.
B) Deferred expense.
C) Deferred revenue.
D) Accrued revenue.
E) Depreciation.
312) Based on the following information from Scranton Company’s balance sheet, calculate the
current ratio.
Current assets
$
87,000
Investments
50,000
Plant assets
220,000
Current liabilities
39,000
Long-term liabilities
90,000
Retained earnings
228,000
A) .44.
B) 3.51.
C) 3.33.
D) 1.06.
E) 2.23.
313) The following information is available for Cubic Company before closing the accounts.
After all closing entries are made, what will be the balance in the Retained earnings account?
Net income
$
115,000
Retained earnings
110,000
Dividends
39,000
A) $115,000.
B) $225,000.
C) $264,000.
D) $186,000.
E) $956,000.
314) The following information is available for Brendon Company before closing the accounts.
What will be the amount in the Income Summary account that should be closed to Retained
earnings?
Retained earnings
$
112,000
Dividends
32,000
Fees earned
187,000
Depreciation Expense—Equipment
12,000
Wages expense
71,400
Interest expense
3,300
Insurance expense
11,700
Rent expense
24,200
A) $80,000.
B) $64,400.
C) $43,000.
D) $32,400.
E) $42,400.
315) For the year ended December 31, a company had revenues of $187,000 and expenses of
$109,000. $37,000 in dividends were paid during the year. Which of the following entries could
not be a closing entry?
A) Debit Income Summary $78,000; credit Retained earnings $78,000.
B) Debit Retained earnings $37,000; credit Dividends $37,000.
C) Debit revenues $187,000; credit Income Summary $187,000.
D) Debit Income Summary $109,000, credit expenses $109,000.
E) Debit Income Summary $187,000; credit revenues $187,000.
316) Flagg records adjusting entries at its December 31 year end. At December 31, employees
had earned $12,000 of unpaid and unrecorded salaries. The next payday is January 3, at which
time $30,000 will be paid. Prepare the January 1 journal entry to reverse the effect of the
December 31 salary expense accrual.
A) Debit Salaries expense $12,000; credit Salaries payable $12,000.
B) Debit Salaries expense $18,000; debit Salaries payable $12,000; credit Cash $30,000.
C) Debit Salaries payable $18,000; credit Cash $18,000.
D) Debit Salaries payable $12,000, credit Salaries expense $12,000.
E) Debit Salaries expense $18,000; credit Salaries payable $18,000.
317) Flagg records adjusting entries at its December 31 year-end. At December 31, employees
had earned $12,000 of unpaid and unrecorded salaries. The next payday is January 3, at which
time $30,000 will be paid. Prepare the journal entry on January 3 to record payment assuming
the adjusting and reversing entries were made on December 31 and January 1.
A) Debit Salaries expense $12,000; debit Salaries payable $18,000; credit Cash $30,000.
B) Debit Salaries expense $30,000; credit Cash $30,000.
C) Debit Salaries payable $30,000; credit Cash $30,000.
D) Debit Salaries expense $18,000, debit Salaries payable $12,000; credit Cash $30,000.
E) Debit Salaries expense $18,000; credit Cash $18,000.
318) Which of the following accounts would be included in a post-closing trial balance?
A) Accounts Receivable.
B) Dividends.
C) Consulting Fees Earned.
D) Depreciation Expense—Equipment.
E) Salaries Expense.
319) Palmer Company is at the end of its annual accounting period. The accountant has
journalized and posted all external transactions and all adjusting entries, has prepared an adjusted
trial balance, and completed the financial statements. The next step in the accounting cycle is:
A) Prepare a work sheet.
B) Prepare reversing entries.
C) Close temporary accounts.
D) Prepare a post-closing trial balance.
E) Prepare an unadjusted trial balance.
320) For the year ended December 31, a company has revenues of $317,000 and expenses of
$196,000. The company paid $50,000 in dividends during the year. The balance in the Retained
earnings account before closing is $81,000. Which of the following entries would be used to
close the dividends account?
A) Debit Income Summary $50,000; credit Retained earnings $50,000.
B) Debit Retained earnings $50,000; credit Dividends $50,000.
C) Debit Retained earnings $81,000; credit Income Summary $81,000.
D) Debit Income Summary $81,000, credit Dividends $81,000.
E) Debit Dividends $50,000; credit Retained earnings $50,000.
321) Which of the following accounts could not be classified as a current liability?
A) Unearned revenues.
B) Accounts payable.
C) Notes payable (due in 11 months).
D) Current portion of long-term note payable.
E) Notes payable (due in 5 years).
322) Match the following terms with the appropriate definition.
A. Accrual basis accounting
B. Cash basis accounting
C. Fiscal year
D. Interim financial statements
E. Depreciation
F. Straight-line depreciation
G. Time period assumption
H. Expense recognition (matching) principle
I. Accrued revenues
____ 1. Any 12 consecutive months or 52-week period that a company adopts for its annual
reporting period.
____ 2. A method that allocates equal amounts of an asset’s cost (less any salvage value) to
depreciation expense during its useful life.
____ 3. Assumes that an organization’s activities can be divided into specific time periods such
as months, quarters, or years.
____ 4. Aims to record expenses in the same accounting period as the revenues that are earned as
a result of those expenses.
____ 5. The accounting system that uses the adjusting process to recognize revenues when
earned and expenses when incurred.
____ 6. The process of allocating the costs of long-term assets to the income statement over their
expected useful lives.
____ 7. Revenues earned in a period that are both unrecorded and not yet received in cash or
other assets.
____ 8. The accounting system that recognizes revenue when cash is received and records
expenses when cash is paid.
____ 9. A set of financial statements that covers less than one year, typically one, three, or six
months of activity.
323) Match the following terms with the appropriate definition.
A. Accrued expenses
B. Adjusting entry
C. Adjusted trial balance
D. Prepaid expenses
E. Report form balance sheet
F. Accounting period
G. Contra account
H. Profit margin
I. Unadjusted trial balance
J. Natural business year
____ 1. A 12-month period, used by companies with seasonal variation that ends when a
company’s sales activities are at their lowest point.
____ 2. A journal entry made at the end of an accounting period to reflect a transaction or event
that is not yet recorded; affects one or more income statement account and one or more balance
sheet account, but never cash.
____ 3. An account linked with another account and having an opposite normal balance.
____ 4. Items paid for in advance of receiving their benefits; recorded as an asset when
purchased and expensed when used.
____ 5. Any length of time that an organization’s activities are divided into and reported by
financial statements.
____ 6. A listing of accounts and balances prepared after adjustments are recorded and posted to
the ledger.
____ 7. A balance sheet that lists items vertically in the order of assets, liabilities and equity.
____ 8. Costs that are incurred in a period but are both unpaid and unrecorded, requiring an
adjustment at the end of the period.
____ 9. A listing of accounts and balances prepared after external transactions are recorded but
before adjustments are recorded.
____ 10. A useful measure of a company’s operating results determined by dividing net income
by net sales.
324) Match the following types of adjustments (a though d) with the transactions (1 through 4).
a. Prepaid expense
b. Unearned revenue
c. Accrued expense
d. Accrued revenue
1. Used to record revenue earned for which cash was received in advance.
2. Used to record expiration or use of prepaid insurance.
3. Used to record revenue earned for which cash has not been received.
4. Used to record wages owed, but not yet paid.
1. Used to record revenue earned for which cash was received in advance.
2. Used to record expiration or use of prepaid insurance.
3. Used to record revenue earned for which cash has not been received.
4. Used to record wages owed, but not yet paid.
325) Match the following terms with the appropriate definition.
A. Permanent accounts F. Work sheet
B. Accounting cycle G. Closing entries
C. Temporary accounts H. Post-closing trial balance
D. Working papers I. Operating cycle of a business
E. Income summary J. Pro forma statements
____ 1. Various analyses and internal documents prepared by accountants when organizing
information for internal and external decision makers.
____ 2. The time span from when cash is used to acquire goods and services until cash is
received from the sale of those goods and services.
____ 3. A temporary account only used for the closing process that contains a credit for the sum
of all revenues and a debit for the sum of all expenses.
____ 4. A widely used working paper that is a useful tool for preparers in working with
accounting information, usually not available to external decision makers.
____ 5. A list of permanent accounts and their balances from the ledger after all closing entries
are journalized and posted.
____ 6. Recurring steps in preparing financial statement performed each accounting period,
beginning with analyzing transactions and ending with a post-closing trial balance or reversing
entries.
____ 7. Entries used to transfer end-of-period balances in revenue, expense, and dividends
accounts to the permanent retained earnings account.
____ 8. Statements that show the effects of proposed transactions as if the transactions had
already occurred.
____ 9. Accounts that report on activities related to one or more future accounting periods; they
carry their ending balances into the next period.
____10. Accounts that accumulate data related to one accounting period only; they include
income statement accounts, dividends, and the Income Summary account.
326) Match the following terms with the appropriate definition.
A. Plant assets
B. Stockholders’ equity
C. Classified balance sheet
D. Intangible assets
E. Current ratio
F. Closing entries
G. Current liabilities
H. Long-term investments
I. Current assets
J. Unclassified balance sheet
____ 1. The owners’ claims on the assets of a company.
____ 2. Tangible assets that are long-lived and used to produce or sell products or services.
____ 3. 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.
____ 4. Entries recorded at the end of each accounting period to transfer end-of-period balances
in revenue, expense, and dividends accounts to the permanent retained earnings account.
____ 5. Long-term resources that benefit business operations, usually lack physical form, and
have uncertain benefits.
____ 6. Assets that are held for more than the longer of one year or the operating cycle of the
company and are not used in operations.
____ 7. A balance sheet that organizes the assets and liabilities into important subgroups that
provide more information to decision makers.
____ 8. Obligations due to be paid or settled within one year or the operating cycle of a business,
whichever is longer.
____ 9. A balance sheet that broadly groups items into assets, liabilities and equity.
____10. A 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.
327) Classified balance sheets commonly include the following categories.
a. Current assets
b. Long-term investments
c. Plant assets
d. Intangible assets
e. Current liabilities
f. Long-term liabilities
g. Equity.
Indicate the typical classification of each item below by placing the letter of the correct balance
sheet category a through g in the blank space next to the item.
1) ____ Equipment used in business operations
2) ____ Store Supplies
3) ____ Investment maturing in two years
4) ____ Long-term Note Payable
5) ____ Prepaid Rent
6) ____ Retained Earnings
7) ____ Accounts Payable
8) ____ Current portion of long-term debt
9) ____ Trademarks
10) ____ Wages Payable
11) ____ Accounts Receivable
12) ____ Cash
328) Discuss the importance of periodic reporting and the time period assumption.
329) Discuss how accrual accounting enhances the usefulness of financial statements.
330) Identify the primary differences between accrual accounting and cash basis accounting.
331) Explain the purpose of adjusting entries at the end of a period and provide an example of an
adjusting entry.
332) List the three-steps of the adjusting process.
333) Identify the types of adjusting entries and explain the purpose of each type.
334) Explain how accounting adjustments affect financial statements and provide an example of
an adjustment that would impact the statements if not recorded.
335) How is profit margin calculated? Discuss its use in analyzing a company’s performance.
336) Describe the types of entries required in later periods that result from accruals.
337) Describe the adjusting entries, including the accounts used, for 1) prepaid expenses, 2)
depreciation and 3) unearned revenues.
338) Describe the adjusting entries, including the accounts used, for 1) accrued expenses and 2)
accrued revenues.
339) Describe the two alternate methods used to account for prepaid expenses.