122)
Reversing entries:
A)
Are prepared on the worksheet.
B)
Are mandatory.
C)
Are optional.
D)
Correct errors in journal entries.
E)
Are required by GAAP.
123)
Kline Company accrued wages of $7,350 that were earned by employees unpaid at the year-end.
Assuming Kline uses reversing entries, which of the following entries correctly reverses the
accrued wages at the beginning of the following year?
A)
Debit Wages Expense $7,350; credit Cash $7,350.
B)
Debit Wages Payable $7,350; credit Wages Expense $7,350.
C)
Debit Wages Expense $7,350; credit Wages Payable $7,350.
D)
Debit Wages Payable $7,350; credit Cash $7,350.
E)
Debit Cash $7,350; credit Wages Expense $7,350.
124)
All of the following regarding reversing entries are true except:
A)
Reversing entries are used to simplify a company’s recordkeeping.
B)
Reversing entries are recorded in response to accrued assets and accrued liabilities that were
created by adjusting entries at the end of the previous accounting period.
C)
Reversing entries are dated the first day of the new accounting period.
D)
Reversing entries are optional.
E)
Reversing entries should not be the exact opposite of previous period adjusting entries.
125)
Reversing entries:
A)
Will often result temporarily in abnormal account balances in some accounts.
B)
Must be made before preparing the post-closing trial balance.
C)
Are a required step in the accounting cycle.
D)
Are required only if the company uses accounting software to record journal entries.
E)
Are necessary when journal entries have been incorrectly recorded.
126)
The purpose of reversing entries is to:
A)
Make certain that only permanent accounts are carried forward into the next accounting
period.
B)
Complete a required step in the accounting cycle.
C)
Correct errors made in previous journal entries.
D)
Ensure that closing entries have been properly posted to the ledger accounts.
E)
Simplify a company’s recording of certain journal entries in the future.
127)
All of the following statements regarding a work sheet are true except:
A)
A worksheet helps in preparing interim financial statements.
B)
A worksheet is not useful in planning and organizing an audit of financial statements.
C)
A worksheet shows the effects of proposed or “what-if” transactions.
D)
A worksheet reduces possible errors when working with many accounts and adjustments.
E)
A worksheet aids in the preparation of financial statements.
128)
All of the following statements regarding the Income Statement columns on the worksheet are true
except:
A)
The difference between the totals of the Income Statement columns is net income or net loss.
B)
The balances in the Income Statement debit column are expenses.
C)
The balances in the Income Statement credit column are unearned revenues.
D)
The balances in the Income Statement credit column are revenues.
E)
The net income or net loss from the Income Statement columns is entered in the Balance
Sheet & Statement of Owner’s Equity columns.
129)
Temporary accounts include all of the following except:
A)
Prepaid rent.
B)
Consulting revenue.
C)
Rent expense.
D)
Income Summary.
E)
Withdrawals.
130)
Permanent accounts include all of the following except:
A)
Accounts Receivable.
B)
Unearned Revenue.
C)
Depreciation Expense—Equipment.
D)
Accumulated Depreciation—Equipment.
E)
Prepaid Insurance.
131)
Which of the following statements about a company’s operating cycle is not true:
A)
Most operating cycles are less than one year.
B)
For a merchandiser selling products, the operating cycle is the time span between paying
suppliers for merchandise and receiving cash from customers.
C)
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.
D)
The length of a company’s operating cycle depends on its activities.
E)
Non-current items are those expected to come due within one year or the company’s operating
cycle.
132)
Which of the following types of businesses might have an operating cycle longer than one year?
A)
Clothing retailer.
B)
Commercial airplane manufacturer.
C)
Wheat farmer.
D)
Florist.
E)
Ski resort.
133)
Use the information in the adjusted trial balance presented below to calculate current assets for Taron
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
Z. Taron, Capital
136,200
Totals
$240,600
$240,600
A) $45,600. B) $21,200. C) $41,200. D) $95,600. E) $24,400.
134)
Use the information in the adjusted trial balance presented below to calculate the current ratio for
Taron 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
Z. Taron, Capital
136,200
Totals
$240,600
$240,600
A) .54. B) 1.77. C) 1.87. D) 3.92. E) 1.60.
135)
Which of the following statements regarding reporting under GAAP and IFRS is not true:
A)
The definition of a liability under GAAP and IFRS involves three basic criteria.
B)
After acquisition, one of two asset measurement systems is applied.
C)
The definition of an asset under GAAP and IFRS involves three basic criteria.
D)
Both GAAP and IFRS define the initial asset value as historical cost for nearly all assets.
E)
Both GAAP and IFRS define the initial asset value as replacement value.
136)
Based on the following information from Schrute Company’s balance sheet, calculate the current
ratio.
$ 87,000
50,000
220,000
39,000
90,000
228,000
A) .44. B) 2.23. C) 1.06. D) 3.51. E) 3.33.
137)
The following information is available for Zephyr Company before closing the accounts. After all of
the closing entries are made, what will be the balance in the Zephyr, Capital account?
Net income
$ 115,000
Zephyr, Capital
110,000
Zephyr, Withdrawals
39,000
A) $225,000. B) $264,000. C) $956,000. D) $115,000. E) $186,000.
138)
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 Brendon, Capital?
J. Brendon, Capital
$112,000
J. Brendon, 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) $32,400. C) $42,400. D) $43,000. E) $64,400.
139)
For the year ended December 31, a company had revenues of $187,000 and expenses of $109,000.
The owner withdrew $37,000 during the year. Which of the following entries could not be a
closing entry?
A)
Debit Owner’s Capital $37,000; credit Owner Withdrawals $37,000.
B)
Debit Income Summary $187,000; credit revenues $187,000.
C)
Debit revenues $187,000; credit Income Summary $187,000.
D)
Debit Income Summary $109,000, credit expenses $109,000.
E)
Debit Income Summary $78,000; credit Owner’s, Capital $78,000.
140)
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 payable $12,000, credit Salaries expense $12,000.
B)
Debit Salaries expense $18,000; debit Salaries payable $12,000; credit Cash $30,000.
C)
Debit Salaries expense $12,000; credit Salaries payable $12,000.
D)
Debit Salaries payable $18,000; credit Cash $18,000.
E)
Debit Salaries expense $18,000; credit Salaries payable $18,000.
141)
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 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 $18,000, debit Salaries payable $12,000; credit Cash $30,000.
C)
Debit Salaries expense $18,000; credit Cash $18,000.
D)
Debit Salaries payable $30,000; credit Cash $30,000.
E)
Debit Salaries expense $30,000; credit Cash $30,000.
142)
Which of the following accounts would be included in a post-closing trial balance?
A)
Depreciation Expense—Equipment.
B)
Salaries Expense.
C)
S. Stills, Withdrawal.
D)
Accounts Receivable.
E)
Consulting Fees Earned.
143)
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 an unadjusted trial balance.
B)
Prepare a post-closing trial balance.
C)
Prepare a work sheet.
D)
Close temporary accounts.
E)
Prepare reversing entries.
74
144)
For the year ended December 31, a company has revenues of $317,000 and expenses of $196,000.
The owner withdrew $50,000 during the year. The balance in the owner’s capital account before
closing is $81,000. Which of the following entries would be used to close the withdrawal account?
A)
Debit Owner’s Capital $81,000; credit Income Summary $81,000.
B)
Debit Income Summary $50,000; credit Owner’s, Capital $50,000.
C)
Debit Income Summary $81,000, credit Owner’s Withdrawals $81,000.
D)
Debit Owner’s Capital $50,000; credit Owner Withdrawals $50,000.
E)
Debit Owner’s Withdrawals $50,000; credit Owner’s Capital $50,000.
145)
Which of the following accounts could not be classified as a current liability?
A)
Unearned revenues.
B)
Notes payable (due in 11 months).
C)
Accounts payable.
D)
Current portion of long-term note payable.
E)
Notes payable (due in 5 years).
SHORT ANSWER QUESTIONS
75
146)
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 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 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, withdrawals, and the Income Summary account.
147)
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 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 withdrawals accounts to the permanent owner’s capital 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.
148)
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) _____ D. Flanders, Capital
7) _____ Accounts Payable
8) _____ Current portion of long-term debt
9) Trademarks
10) _____ Wages Payable
11) Accounts Receivable
12) _____ Cash
ESSAY QUESTIONS
149)
Explain why temporary accounts are closed each period.
150)
Explain the difference between temporary and permanent accounts.
SHORT ANSWER QUESTIONS
151)
List the steps in the accounting cycle.
ESSAY QUESTIONS
152)
How is a classified balance sheet different from an unclassified balance sheet? List the usual order
of the categories on a classified balance sheet.
153)
How is the current ratio calculated? How is it used to evaluate a company?
154)
Describe a work sheet and explain why it is useful.
155)
List and explain the steps in preparing a 10-column worksheet.
156)
What is the purpose of closing entries? Describe the closing process.
157)
What is the purpose of a post-closing trial balance?