Accounting Chapter 4 Reversing entries are recorded in response to external

61)

Reversing entries are recorded in response to external transactions that were created in error during

the prior accounting period.

A)

True

B)

False

62)

Reversing entries overcome the disadvantage of more complex entries to pay accrued liabilities

from the previous accounting period.

A)

True

B)

False

63)

Another name for a temporary account is a(n):

A)

Real account.

B)

Nominal account.

C)

Contra account.

D)

Balance column account.

E)

Accrued account.

64)

Which of the following accounts is a permanent (real) account?

A)

Interest revenue.

B)

Office supplies expense.

C)

Fees earned.

D)

Salaries expense.

E)

Accounts payable.

65)

When closing entries are made:

A)

All permanent accounts are closed but nominal accounts are not closed.

B)

All balance sheet accounts are closed.

C)

All real accounts are closed but nominal accounts are not closed.

D)

All temporary accounts are closed but permanent accounts are not closed.

E)

All ledger accounts are closed to start the new accounting period.

66)

Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting

period are:

A)

Balance sheet accounts.

B)

Temporary accounts.

C)

Real accounts.

D)

Permanent accounts.

E)

Closing accounts.

67)

Which of the following statements is incorrect?

A)

Temporary accounts carry a zero balance at the beginning of each accounting period.

B)

The closing process applies only to temporary accounts.

C)

Real accounts remain open as long as the asset, liability, or equity items recorded in the

accounts continue in existence.

D)

Permanent account is another name for nominal account.

E)

The Income Summary account is a temporary account.

68)

Assets, liabilities, and equity accounts are not closed; these accounts are called:

A)

Temporary accounts.

B)

Contra accounts.

C)

Accrued accounts.

D)

Nominal accounts.

E)

Permanent accounts.

69)

Closing the temporary accounts at the end of each accounting period does all of the following

except:

A)

Serves to transfer the effects of these accounts to the owner’s capital account on the balance

sheet.

B)

Prepares the withdrawals account for use in the next period.

C)

Causes owner’s capital to reflect increases from revenues and decreases from expenses and

withdrawals.

D)

Brings the revenue and expense accounts to zero balances.

E)

Has no effect on the owner’s capital account.

70)

Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and

withdrawals accounts for the upcoming period and to update the owner’s capital account for the

events of the period just finished are referred to as:

A)

Updating entries.

B)

Work sheet entries.

C)

Closing entries.

D)

Adjusting entries.

E)

Final entries.

71)

The closing process is necessary in order to:

A)

Ensure that the company complies with state laws.

B)

Calculate net income or net loss for an accounting period.

C)

Ensure that management is aware of how well the company is operating.

D)

Ensure that all permanent accounts are closed to zero at the end of each accounting period.

E)

Ensure that net income or net loss and owner withdrawals for the period are closed into the

owner’s capital account.

72)

Closing entries are required:

A)

If the temporary accounts are to reflect correct amounts for each accounting period.

B)

Only if the company adheres to the accrual method of accounting.

C)

If a company’s bookkeeper does not choose to prepare reversing entries.

D)

If management has decided to cease operating the business.

E)

In order to satisfy the Internal Revenue Service guidelines.

73)

The recurring steps performed each reporting period in preparing financial statements, starting with

analyzing and recording transactions in the journal and continuing through the post-closing trial

balance, is referred to as the:

A)

Closing cycle.

B)

Natural business year.

C)

Operating cycle.

D)

Accounting cycle.

E)

Accounting period.

74)

Which of the following is the usual final step in the accounting cycle?

A)

Preparing a post-closing trial balance.

B)

Preparing the financial statements.

C)

Journalizing transactions.

D)

Preparing a work sheet.

E)

Preparing an adjusted trial balance.

75)

A classified balance sheet:

A)

Broadly groups items into assets, liabilities and equity.

B)

Measures a company’s ability to pay its bills on time.

C)

Organizes assets and liabilities into important subgroups that provide more information.

D)

Reports operating, investing, and financing activities.

E)

Reports the effect of profit and withdrawals on owner’s capital.

76)

The assets section of a classified balance sheet usually includes the subgroups:

A)

Current assets, long-term investments, plant assets, and intangible assets.

B)

Current assets, long-term investments, plant assets, and equity.

C)

Current liabilities, long-term investments, plant assets, and intangible assets.

D)

Current assets, long-term assets, revenues, and intangible assets.

E)

Current assets, liabilities, plant assets, and intangible assets.

77)

The usual order for the asset subgroups of a classified balance sheet is:

A)

Current assets, long-term investments, plant assets, intangible assets.

B)

Plant assets, intangible assets, long-term investments, current assets.

C)

Intangible assets, current assets, long-term investments, plant assets.

D)

Current assets, prepaid expenses, long-term investments, intangible assets.

E)

Long-term investments, current assets, plant assets, intangible assets.

78)

A classified balance sheet differs from an unclassified balance sheet in that

A)

An unclassified balance sheet is never used by large companies.

B)

A classified balance sheet presents information in a manner that makes it easier to calculate a

company’s current ratio.

C)

A classified balance sheet groups items into the broad categories of asset, liability, and equity.

D)

A classified balance sheet will include more accounts than an unclassified balance sheet for

the same company on the same date.

E)

A classified balance sheet is not usually provided to outside parties.

79)

Two common subgroups for liabilities on a classified balance sheet are:

A)

Current liabilities and intangible liabilities.

B)

Current liabilities and long-term liabilities.

C)

Present liabilities and operating liabilities.

D)

General liabilities and specific liabilities.

E)

Intangible liabilities and long-term liabilities.

80)

Which of the following is classified as a current asset?

A)

Office supplies.

B)

Patent.

C)

Office equipment.

D)

Land.

E)

Unearned revenue.

81)

Which of the following is classified as a plant asset?

A)

Office equipment.

B)

Merchandise inventory.

C)

Patent.

D)

Office supplies.

E)

Cash.

82)

The current ratio:

A)

Is used to help assess a company’s ability to pay its debts in the near future.

B)

Is used to measure a company’s profitability.

C)

Measures the effect of operating income on profit.

D)

Is used to measure the relation between assets and long-term debt.

E)

Is calculated by dividing current assets by equity.

83)

All of the following regarding the current ratio are true except:

A)

Current ratio is calculated by dividing current assets by current liabilities.

B)

Current ratio can reveal challenges in covering short-term obligations if it is less than 1.

C)

Current ratio can affect a creditor’s decision about whether to lend money to a company.

D)

Current ratio does not affect a creditor’s decision on whether to allow a company to buy on

credit.

E)

Current ratio helps to assess a company’s ability to pay its debts in the near future.

84)

The Unadjusted Trial Balance columns of a company’s work sheet shows the Store Supplies

account with a balance of $750. The Adjustments columns shows a credit of $425 for supplies used

during the period. The amount shown as Store Supplies in the Balance Sheet columns of the work

sheet is:

A)

$425 debit.

B)

$750 debit.

C)

$425 credit.

D)

$325 credit.

E)

$325 debit.

85)

An optional columnar working paper used to prepare a company’s unadjusted trial balance,

adjusting entries, adjusted trial balance, and financial statements is a(n):

A)

Unadjusted trial balance.

B)

Adjusted trial balance.

C)

Work sheet.

D)

General ledger.

E)

Post-closing trial balance.

86)

Accumulated Depreciation and Service Fees Earned would be sorted to which respective columns

in completing a work sheet?

A)

Balance Sheet and Statement of Owner’s Equity-Debit and Balance Sheet and Statement of

Owner’s Equity-Credit.

B)

Balance Sheet and Statement of Owner’s Equity-Debit and Income Statement-Debit.

C)

Income Statement-Debit and Income Statement-Credit.

D)

Balance Sheet and Statement of Owner’s Equity-Debit; and Income Statement-Credit.

E)

Balance Sheet and Statement of Owner’s Equity-Credit and Income Statement-Credit.

87)

Which of the following statements is incorrect?

A)

After the work sheet is completed, it can be used to help prepare the financial statements.

B)

On the work sheet, the effects of the accounting adjustments are shown on the account

balances.

C)

Working papers are useful aids in the accounting process.

D)

On the work sheet, the adjusted amounts are sorted into columns according to whether the

accounts are used in preparing the unadjusted trial balance or the adjusted trial balance.

E)

A worksheet is not a substitute for financial statements.

88)

A company shows a $600 balance in Prepaid Rent in the Unadjusted Trial Balance columns of the

work sheet. The Adjustments columns show expired rent of $200. This adjusting entry results in:

A)

$200 of prepaid insurance.

B)

$200 difference between the debit and credit columns of the Unadjusted Trial Balance.

C)

An error in the financial statements.

D)

$200 decrease in net income.

E)

$200 increase in net income.

89)

Statements that show the financial statements as if proposed transactions had already occurred are

called:

A)

Temporary statements.

B)

Interim statements.

C)

Pro forma statements.

D)

Professional statements.

E)

Simplified statements.

90)

In preparing a work sheet an adjusted trial balance amount is mistakenly sorted to the wrong work

sheet column. The Balance Sheet columns will balance on completing the work sheet but with the

wrong net income, if the amount sorted in error is:

A)

A liability amount placed in the Income Statement Credit column.

B)

A liability amount placed in the Balance Sheet Debit column.

C)

An asset amount placed in the Balance Sheet Credit column.

D)

An expense amount placed in the Balance Sheet Credit column.

E)

A revenue amount placed in the Balance Sheet Debit column.

36

91)

If the Balance Sheet and Statement of Owner’s Equity columns of a work sheet fail to balance when

the net income is added to the Balance Sheet and Statement of Owner’s Equity Credit column, the

cause could be:

A)

An expense entered in the Balance Sheet and Statement of Owner’s Equity Credit column.

B)

A liability amount entered in the Income Statement and Statement of Owner’s Equity Credit

column.

C)

An expense entered in the Balance Sheet and Statement of Owner’s Equity Debit column.

D)

A revenue entered in the Balance Sheet and Statement of Owner’s Equity Credit column.

E)

An asset amount entered in the Income Statement and Statement of Owner’s Equity Debit

column.

92)

A company’s December 31 work sheet for the current period appears below. Based on the

information provided, what is net income for the current period?

Unadjusted

Trial Balance Adjustments

Debit Credit Debit Credit

Cash 975

Accounts receivable 300

Prepaid insurance 3,600 150

Supplies 180 70

Equipment 10,320

Accumulated depreciation–equipment 190

Accounts payable 1,140

Salaries payable 315

Unearned fees 4,500 375

Owner, Capital 9,180

Owner, Withdrawals 1,650

Fees earned 5,850 375

300

Rent expense 1,500

Salaries expense 2,100 315

Utilities expense

345

Insurance expense

150

Supplies expense

70

Depreciation expense–equipment

190

Totals 20,670 20,670 1,400 1,400

A) $2,060. B) $1,400. C) $1,905. D) $4,670. E) $1,855.

38

93)

A company’s December 31 work sheet for the current period appears below. Based on the

information provided, what is net income for the current period?

Unadjusted

Trial Balance Adjustments

Debit Credit Debit Credit

Cash 1,975

Accounts Receivable 1,000 875

Prepaid insurance 1,600 650

Supplies 330 115

Equipment 8,320

Accumulated depreciation–equipment 720 190

Accounts payable 1,140

Owner, Capital 9,110

Owner, Withdrawals 1,050

Fees earned

7,250

875

Rent expense

1,300

Salaries expense

2,300

Utilities expense

345

Insurance expense

650

Supplies expense

115

Depreciation expense–equipment 190

Totals 18,220 18,220 1,830 1,830

A) $3,225. B) $2,540. C) $4,180. D) $3,305. E) $2,350.