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115. Permanent accounts include all of the following except:
A. Accumulated Depreciation – Equipment.
B. Prepaid Rent.
C. Unearned Consulting Revenue.
D. Accounts Payable.
E. Depreciation Expense – Equipment.
116. 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 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.
117. Use the information in the adjusted trial balance presented below to calculate current assets
for Jones Company:
Account Title Dr. Cr.
Cash 23,000
Accounts receivable 16,000
Prepaid insurance 6,600
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Equipment 100,000
Accumulated Depreciation – Equipment 50,000
Land 95,000
Accounts payable 17,000
Interest payable 2,400
Unearned revenue 5,000
Long-term notes payable 30,000
J. Jones, Capital 136,200
Totals 240,600 240,600
A. $21,200.
B. $45,600.
C. $24,400.
D. $95,600.
E. $41,200.
118. Use the information in the adjusted trial balance presented below to calculate the current ratio
for Jones Company:
Account Title Dr. Cr.
Cash 23,000
Accounts receivable 16,000
Prepaid insurance 6,600
Equipment 100,000
Accumulated Depreciation – Equipment 50,000
Land 95,000
Accounts payable 17,000
Interest payable 2,400
Unearned revenue 5,000
Long-term notes payable 30,000
J. Jones, Capital 136,200
Totals 240,600 240,600
A. 1.87.
B. .54.
C. 3.92.
D. 1.77.
E. 1.60.
119. Which of the following statements regarding reporting under GAAP and IFRS is not true:
A. Both GAAP and IFRS define the initial asset value as historical cost for nearly all assets.
B. The definition of an asset under GAAP and IFRS involves three basic criteria.
C. Both GAAP and IFRS define the initial asset value as replacement value.
D. The definition of a liability under GAAP and IFRS involves three basic criteria.
E. After acquisition, one of two asset measurement systems is applied.
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120. Based on the following information from Raptor Company’s balance sheet, calculate the
current ratio.
Current assets $ 87,000
Investments 50,000
Plant assets 250,000
Current liabilities 39,000
Long-term liabilities 90,000
Raptor, Capital 258,000
A. .44.
B. 3.51.
C. 3.33.
D. 1.06.
E. 2.23.
121. The following information is available for Crandall Company before closing the accounts.
After all of the closing entries are made, what will be the balance in the Crandall, Capital account?
Total revenues $ 500,000
Total expenses 385,000
Crandall, Capital 110,000
Crandall, Withdrawals 39,000
A. $115,000.
B. $225,000.
C. $264,000.
D. $186,000.
E. $956,000.
122. The following information is available for Crandall Company before closing the accounts.
What will be the amount in the Income Summary account that should be closed to Crandall,
Capital?
J. Bones, Capital 112,000
J. Bones, Withdrawals 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.
123. A company had revenues of $187,000 and expenses of $109,000 for the accounting period.
The owner withdrew $37,000 during the year. Which of the following entries could not be a
closing entry?
A. Debit Income Summary $78,000; credit Owner’s, Capital $78,000
B. Debit Capital $37,000; credit Withdrawals $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.
124. Bentley 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.
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125. Bentley 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 on January 3 to record payment assuming the
correct 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.
126. Match the following terms with the appropriate definition.
A. Permanent accounts
B. Accounting cycle
C. Temporary accounts
D. Working papers
E. Income summary
F. Work sheet
G. Closing entries
H. Post-closing trial balance
I. Operating cycle of a business
J. Pro forma statements
____ 1. Analyses and other informal reports prepared by accountants when organizing the
information presented in reports and financial statements.
____ 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 used only in the closing process and to where the balances of
revenue and expense accounts are transferred.
____ 4. A spreadsheet used to draft an unadjusted trial balance, adjusting entries, adjusted trial
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balance, and financial statements.
____ 5. A list of permanent accounts and their balances from the ledger after all closing entries
are journalized and posted.
____ 6. Recurring 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).
____ 7. Entries 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.
____ 8. Statements that show the effects of proposed transactions as if the transactions had already
occurred.
____ 9. Accounts that reflect on activities related to one or more future periods; they include all
balance sheet accounts.
____10. Accounts that are used to record transactions and events for one accounting period only;
they include revenues, expenses, and withdrawals.
127. Match the following terms with the appropriate definition.
A. Plant assets
B. Owner’s capital
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 owner’s claim on the assets of a company.
____ 2. Tangible long-lived assets used to produce or sell products or services.
____ 3. Cash or other assets that are expected to be sold, collected, or used within one year or the
company’s operating cycle whichever is longer.
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____ 4. Entries 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.
____ 5. Long-term assets used to produce or sell products or services; these assets usually lack
physical form and their benefits are uncertain.
____ 6. Assets such as notes receivable or investments in stocks which are held for the longer of
one year or the operating cycle of the company.
____ 7. A balance sheet that organizes the assets and liabilities into important subgroups.
____ 8. Debts that are 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 assets, liabilities and equity items.
____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.
128. 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 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 operations
2) ____ Office Supplies
3) ____ Land held for future plant expansion
4) ____ Long-term note payable
5) ____ Accounts Receivable
6) ____ Margarita Acosta, Capital
7) ____ Accounts payable
8) ____ Current portion of long-term debt
9) ____ Patents
10) ____ Wages payable
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11) ____ Prepaid insurance
12) ____ Cash
129. Explain why temporary accounts are closed each period.
130. Explain the difference between temporary and permanent accounts.
131. List the steps in the accounting cycle.
132. How is a classified balance sheet different from an unclassified balance sheet? List the order
of the usual classifications on a classified balance sheet.
133. How is the current ratio calculated? How is it used to evaluate a company?
134. Describe a work sheet and explain why it is useful.
135. List and explain the steps in preparing a 10-column worksheet.
136. What is the purpose of closing entries? Describe the closing process.
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137. 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.
138. What is the purpose of a post-closing trial balance?
139. Explain the purpose of reversing entries.
Problems
140. In the table below, indicate with an “X” in the proper column whether the account is a
temporary (nominal) account or a permanent (real) account.
Account Temporary
(Nominal) Permanent
(Real)
a. Cash
b. Prepaid insurance
c. Unearned fees
d. Accounts receivable
e. Insurance expense
f. O. Ner, Capital
g. O. Ner, Withdrawals
h. Rent expense
i. Fees earned
j. Supplies
k. Supplies expense
l. Depreciation expense — Building
m. Accumulated depreciation — Building…..
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141. 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.
Account Permanent (P)
or
Temporary (T)
P Income
Statement (IS)
or Balance
Sheet (BS)
BS Closed (C)
or
Not
Closed (NC)
NC Closed
with a
Debit or(Dr) Credit (CR)
–
a. Accounts payable………….
b. Accounts receivable………..
c. Accumulated depreciation,
Equipment……………..
d. Advertising expense……….
e. Cash………………………….
f. Unearned revenues………..
g. Depreciation expense—
Equipment………………….
h. Owner, Withdrawals……..
i. Equipment………………….
j. Insurance expense……….
k. Interest expense………….
l. Miscellaneous expense….
m Notes payable……………..
n. Office supplies…………….
o. Office supplies expense…
p. Prepaid insurance………..
q. Rent expense…………….
r. Owner, Capital…………….
s. Salaries expense…………
t. Salaries payable…………..
u. Revenue…………………….
142. The following are the steps in the accounting cycle. List them in the order in which they are
completed:
Prepare adjusted trial balance
Post transactions
Prepare an unadjusted trial balance
Journalize transactions
Prepare the financial statements
Close the temporary accounts
Adjust the ledger accounts
Prepare a post-closing trial balance
Analyze transactions
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143. Based on the adjusted trial balance shown below, prepare a classified balance sheet for Focus
Package Delivery.
Focus Package
Delivery
Adjusted Trial
Balance
December
31
Debit
Credit
Cas
h………………….………………………..……………..……...
.
18,200
Accounts
receivable
……………………………………….……
.
34,200
Supplie
s……………………………….…………….………..…….
.
2,100
Long-term
investments
………………………………………..
.
25,000
Delivery
equipment.……………………..……………..……...
.
45,000
Accumulated
depreciation
–
Delivery
equipment.…...
.
11,080
Intangible assets
…………………….…………………………...
.
16,000
Accounts payable
…………………..……………………………
.
16,200
Wages payable
……………………………………………………
.
4,120
Long-term notes payable
*
…..….……..….……..….…….........
20,000
K. Ferman, Capital
……………………………….……………..
.
40,400
K. Ferman,
Withdrawals
…………………………..………….
.
15,000
Delivery fees earned
……………………………………………
.
145,000
Rent expense
……………………………….……………………..
.
8,000
Wages
expense
……………………………..…………………….
.
62,000
Supplies expense.
………………………………………………...
.
2,500
Depreciation
expense
–
Delivery
equipment
…………..
…
4,050
Interest
expense
…………………………………………………..
.
1,000
Utilities
expense…………………………………………….…...
.
3,750
Totals………………………………………….……………………..
.
236,800
236,800
* $2,000 of the long-term note payable is due during the next year.
