Chapter 03 – Supplement – Closing Entries and the Work Sheet
TRUE/FALSE
1. The process of crossfooting requires vertical addition and subtraction.
2. Despite the many uses of microcomputers, they cannot be used to prepare work sheets.
3. A work sheet is more useful for a small company than for a large one.
4. Working papers provide a written record of the work performed by the accountant.
5. The work sheet is a type of accountant’s working paper.
6. The amount for Dividends will appear in the Income Statement columns of a work sheet.
7. The Adjusted Trial Balance columns of the work sheet are prepared by combining the Trial Balance
and Adjustments columns of the work sheet.
8. When the Income Statement columns of the work sheet are initially footed, they should be out of
balance by the amount of net income or net loss.
9. When the Balance Sheet columns of the work sheet are initially footed, they should be in balance.
10. The work sheet should be prepared after the formal financial statements have been prepared.
11. The heading of a work sheet might include the line “As of December 31, 20xx.”
12. On a work sheet, the balance of Retained Earnings is its ending amount for the period.
13. The amount extended to the Retained Earnings line in the Balance Sheet column of the work sheet is
the amount to be reflected for Retained Earnings on the balance sheet.
14. The balances of the Accumulated Depreciation accounts will appear on the credit side of the work
sheet’s Balance Sheet columns.
15. An important use of the work sheet is as an aid in the preparation of financial statements.
16. The work sheet is prepared after the formal adjusting and closing entries.
17. The balance sheet may be prepared by referring solely to the Balance Sheet columns of the work sheet.
18. When adjusting entries are entered onto a work sheet, it is not necessary to record them in the general
journal.
19. The total assets and the total liabilities and stockholders’ equity on the balance sheet are the same as
the totals of the Balance Sheet columns on the work sheet.
20. The amount of dividends for the period can be found on the work sheet.
21. Closing entries may be prepared by referring solely to the Income Statement columns of the work
sheet.
MULTIPLE CHOICE
1. Use this information from the Income Statement columns of the work sheet of Corner Laundry Service
to answer the following question.
Income Statement
Debit
Credit
Laundry Revenue
2,500
Wages Expense
750
Rent Expense
500
Supplies Expense
300
Insurance Expense
200
Income Taxes Expense
50
1,800
2,500
Net Income
700
2,500
2,500
The entry to close the Laundry Revenue account includes a
a.
Laundry Revenue 2,500
Income Summary 2,500
b.
Income Summary 2,500
Laundry Revenue 2,500
c.
Retained Earnings 2,500
Income Summary 2,500
d.
Retained Earnings 2,500
Laundry Revenue 2,500
2. Use this information from the Income Statement columns of the work sheet of Corner Laundry Service
to answer the following question.
Income Statement
Debit
Credit
Laundry Revenue
2,500
Wages Expense
750
Rent Expense
500
Supplies Expense
300
Insurance Expense
200
Income Taxes Expense
50
1,800
2,500
Net Income
700
2,500
2,500
The entry to close the expense accounts includes a
a.
All Expenses 1,800
Retained Earnings 1,800
b.
All Expenses 1,800
Income Summary 1,800
c.
Income Summary 1,800
All Expenses 1,800
d.
Retained Earnings 1,800
All Expenses 1,800
3. Use this information from the Income Statement columns of the work sheet of Corner Laundry Service
to answer the following question.
Income Statement
Debit
Credit
Laundry Revenue
2,500
Wages Expense
750
Rent Expense
500
Supplies Expense
300
Insurance Expense
200
Income Taxes Expense
50
1,800
2,500
Net Income
700
2,500
2,500
The entry to close Income Summary includes a
a.
Income Summary 2,500
Retained Earnings 2,500
b.
Common Stock 700
Income Summary 700
c.
Income Summary 700
Retained Earnings 700
d.
Income Summary 700
Common Stock 700
4. In preparing closing entries, which of the following columns of the work sheet are the most helpful?
a.
Adjustments columns
b.
Income Statement columns
c.
Adjusted Trial Balance columns
d.
Balance Sheet columns
5. In the completed work sheet, which set of columns usually should be out of balance after the initial
footing?
a.
Both Income Statement and Balance Sheet columns
b.
Income Statement columns only
c.
Adjusted Trial Balance columns only
d.
Balance Sheet columns only
6. When a company has earned a net income, the net income amount is entered on the work sheet on the
a.
credit side of the Income Statement columns and the debit side of the Balance Sheet
columns.
b.
debit side of both the Income Statement and the Balance Sheet columns.
c.
debit side of the Income Statement columns and the credit side of the Balance Sheet
columns.
d.
credit side of both the Income Statement and the Balance Sheet columns.
7. Which of the following accounts will have an amount in the Adjustments columns of the work sheet
but probably not in the Trial Balance columns?
a.
Common Stock
b.
Utilities Expense
c.
Depreciation Expense–Machinery
d.
Revenue from Services
8. On the work sheet, under what circumstances will the last two columns be in balance after the initial
footing?
a.
When no adjustments have been entered on the work sheet
b.
Under all circumstances, assuming no arithmetical errors have been made
c.
Under no circumstances
d.
When net income is zero
9. On the work sheet, account balances are “extended” from the
a.
Income Statement and Balance Sheet columns to the financial statements.
b.
Adjusted Trial Balance columns to the Income Statement or Balance Sheet columns.
c.
Trial Balance columns to the Adjusted Trial Balance columns.
d.
Trial Balance and Adjustments columns to the Adjusted Trial Balance columns.
10. The process of crossfooting on the work sheet results in the
a.
Adjusted Trial Balance columns.
b.
Trial Balance columns.
c.
Income Statement columns.
d.
Adjustments columns.
11. An amount would not appear along the Dividends account line in which of the following work sheet
columns?
a.
Income Statement
b.
Balance Sheet
c.
Trial Balance
d.
Adjusted Trial Balance
12. An important reason to use a work sheet is to
a.
aid the accountant in the daily preparation of journal entries.
b.
replace the journal when making adjusting and closing entries.
c.
check the accuracy of adjusting entries before they are entered formally into the
accounting records.
d.
accompany the financial statements in the company’s annual report.
13. Which of the following accounts probably would have a smaller balance in the Adjusted Trial Balance
columns of a work sheet than in the Trial Balance columns?
a.
Prepaid Advertising
b.
Wages Payable
c.
Accumulated Depreciation–Equipment
d.
Wages Expense
14. When a company has suffered a net loss, the net loss amount is entered on the work sheet on the
a.
credit side of the Income Statement columns and the debit side of the Balance Sheet
columns.
b.
debit side of both the Income Statement and the Balance Sheet columns.
c.
credit side of both the Income Statement and the Balance Sheet columns.
d.
debit side of the Income Statement columns and the credit side of the Balance Sheet
columns.
15. Which work sheet columns should contain “key letters”?
a.
Adjustments
b.
Adjusted Trial Balance
c.
Trial Balance
d.
Balance Sheet
16. In preparing adjustments on the work sheet, which of the following accounts could not be added to the
Account Name column?
a.
Notes Payable
b.
Interest Receivable
c.
Interest Income
d.
Depreciation Expense
17. In preparing adjustments on the work sheet, which of the following accounts most likely would be
added to the Account Name column?
a.
Telephone Expense
b.
Retained Earnings
c.
Income Taxes Payable
d.
Accumulated Depreciation–Equipment
18. The work sheet is prepared
a.
after the formal closing entries have been entered into the journal.
b.
before the preparation of a formal trial balance.
c.
after the formal adjusting entries have been entered into the journal.
d.
before the preparation of formal financial statements.
19. Which of the following accounts most likely would have an amount contained in the Income Statement
columns of a work sheet?
a.
Common Stock
b.
Office Supplies
c.
Dividends
d.
Income Taxes Expense
20. Which of the following accounts most likely would have an amount contained in every set of columns
but the Balance Sheet columns of a work sheet?
a.
Dividends
b.
Depreciation Expense
c.
Unearned Revenue
d.
Wages Expense
21. Which of the following is the most useful aid to the accountant in preparing closing entries?
a.
Ledger
b.
Work sheet
c.
Journal
d.
Financial statements
22. A work sheet is useful for all except which of the following?
a.
Recording transactions from source documents
b.
Recording closing entries
c.
Recording adjusting entries
d.
Preparing financial statements
23. An amount for Retained Earnings would not appear in which of the following work sheet columns?
a.
Trial Balance
b.
Income Statement
c.
Balance Sheet
d.
Adjusted Trial Balance
24. The amount of Retained Earnings for the balance sheet is obtained from the
a.
statement of retained earnings.
b.
Adjusted Trial Balance columns of the work sheet.
c.
Balance Sheet columns of the work sheet.
d.
Trial Balance columns of the work sheet.
25. Which account that does not appear on the balance sheet has an amount in the Balance Sheet columns
of a work sheet?
a.
Dividends
b.
Depreciation Expense
c.
Retained Earnings
d.
Accumulated Depreciation–Equipment
26. Typically, formal adjusting entries
a.
are prepared prior to completion of the work sheet.
b.
are prepared at the same time as closing entries.
c.
need not be prepared if a work sheet has been completed.
d.
are entered directly into the ledger.
27. In a manual system which uses a work sheet, the preparation of adjusting entries
a.
typically precedes the preparation of the financial statements.
b.
typically precedes preparation of the work sheet.
c.
is easy because they are simply copied from the work sheet.
d.
is difficult, and therefore they must first be entered into the general journal in pencil.
28. Omitting key letters in the work sheet would make which of the following difficult?
a.
The preparation of the financial statements
b.
The preparation of the closing entries
c.
The preparation of the adjusting entries
d.
Crossfooting to the next set of columns
SHORT ANSWER
1. Presented below are the Retained Earnings, Dividends, and Income Summary accounts for Anika’s Pet
Grooming Boutique, Inc., for the year ended December 31, 2010. Closing entries have been entered
and posted. Prepare a statement of retained earnings.
2. Prepare closing entries for December from the following Income Statement columns of the work sheet
of Custom Cleaning Service, Inc., assuming that a $500 dividend was paid during the period (omit
explanations).
Income Statement
Debit
Credit
Cleaning Revenue
2,600
Wages Expense
1,200
Rent Expense
400
Supplies Expense
300
Income Taxes Expense
40
1,940
2,600
Net Income
660
2,600
2,600
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
Date
Description
Ref.
Debit
Credit
Cleaning Revenue
Income Summary
Retained earnings, December 31, 2010
3. Why would a large company probably benefit more from a work sheet than would a very small
company?
4. From the following items in the Income Statement columns of the work sheet of ElKay Corporation at
December 31, 2010, prepare the closing entries, assuming that a $75 dividend was paid during the
period (omit explanations).
Income Statement
Debit
Credit
Service Revenue
1,800
Wages Expense
1,200
Rent Expense
400
Supplies Expense
200
Income Taxes Expense
100
Depreciation Expense–Building
150
2,050
1,800
Net Loss
250
2,050
2,050
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
Income Summary
Wages Expense
Rent Expense
Supplies Expense
Income Taxes Expense
Income Summary
Retained Earnings
Retained Earnings
Dividends
5. From the following items in the Income Statement columns of the work sheet of Antin Corporation at
December 31, 2010, prepare the closing entries, assuming that a $50 dividend was paid during the
period (omit explanations).
Income Statement
Debit
Credit
Service Revenue
3,000
Wages Expense
1,800
Rent Expense
600
Supplies Expense
300
Income Taxes Expense
150
Depreciation Expense–Building
250
3,100
3,000
Net Loss
100
3,100
3,100
Ref.
Credit
Service Revenue
Income Summary
1,800
Income Summary
Wages Expense
1,200
Rent Expense
400
Supplies Expense
200
Income Taxes Expense
100
Depreciation Expense–Building
150
Retained Earnings
Income Summary
250
Retained Earnings
Dividends
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
6. The Trial Balance and Adjusted Trial Balance columns of Owen Cleaning Corporation‘s work sheet
are shown below. (The Adjustments columns have been omitted.) Using this information, prepare the
post-closing trial balance for Owen Cleaning Corporation as of June 30, 2010.
Account Name
Trial Balance
Adjusted
Trial Balance
Debit
Credit
Debit
Credit
Cash
2,600
2,600
Accounts Receivable
380
400
Prepaid Rent
570
540
Office Supplies
2,600
1,740
Office Equipment
10,800
10,800
Accumulated Depreciation–Office Equipment
2,160
3,920
Accounts Payable
720
780
Common Stock
10,600
10,600
Dividends
850
850
Cleaning Revenue
7,800
7,820
Wages Expense
2,400
2,600
Utilities Expense
1,080
1,140
21,280
21,280
Rent Expense
30
Office Supplies Expense
860
Depreciation Expense–Office Equipment
1,760
Wages Payable
200
Income Taxes Expense
400
Income Taxes Payable
400
23,720
23,720
7. Using the following information and the trial balance accounts and balances on the work sheet
provided, complete the work sheet.
a. Expired insurance totals $16.
b. Of the unearned revenue, all has been earned by the balance sheet date.
Cash
Accounts Receivable
Prepaid Rent
Office Supplies
Office Equipment
Accumulated Depreciation–Office Equipment
$ 3,920
Accounts Payable
Wages Payable
Income Taxes Payable
Common Stock
Retained Earnings
*$1,030 net income – $850 dividends = $180.
c. Estimated depreciation of equipment is $12.
d. Accrued wages equal $8.
e. Unused supplies on hand are $8.
f. Estimated income taxes are $4.
Account Name
Trial Balance
Adjustments
Adjusted
Income
Statement
Balance Sheet
Trial Balance
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
60
Accounts Receivable
40
Prepaid Insurance
24
Supplies
20
Equipment
80
Accumulated
Depreciation–Equipment
12
Accounts Payable
24
Unearned Revenue
16
Common Stock
128
Dividends
4
Service Revenue
96
Wages Expense
48
276
276
Account Name
Trial Balance
Adjustments
Debit
Debit
Debit
Debit
Debit
Cash
Receivable
Prepaid Insurance
Equipment
8. Using the following information and the trial balance accounts and balances on the work sheet
provided, complete the work sheet.
a. Expired insurance totals $150.
b. Of the unearned revenue, all has been earned by the balance sheet date.
c. Estimated depreciation of equipment is $120.
d. Accrued wages equal $300.
e. Unused supplies on hand are $90.
f. Estimated income taxes are $100.
Account Name
Trial Balance
Adjustments
Adjusted
Income
Statement
Balance Sheet
Trial Balance
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
900
Accounts Receivable
60
Prepaid Insurance
400
Supplies
240
Equipment
1,000
Accumulated
Depreciation–Equipment
240
Accounts Payable
50
Unearned Revenue
160
Common Stock
550
Dividends
800
Service Revenue
4,000
Wages Expense
1,600
5,000
5,000
9. Using the information below from the Income Statement and Balance Sheet columns of Tople
Corporation’s work sheet for the month ended April 30, 2010, prepare the income statement, statement
of retained earnings, and balance sheet.
Income Statement
Balance Sheet
Account Name
Debit
Credit
Debit
Credit
Cash
12
Accounts Receivable
24
Prepaid Insurance
4
Supplies
8
Equipment
40
Accumulated Depreciation–Equipment
6
Accounts Payable
10
Unearned Revenue
4
Common Stock
50
Dividends
6
Service Revenue
60
Wages Expense
20
Insurance Expense
8
Depreciation Expense–Equipment
6
Income Taxes Expense
2
Income Taxes Payable
2
Wages Payable
2
Supplies Expense
4
40
60
94
74
Net Income
20
20
60
60
94
94
Service revenue
Expenses
Wages expense
Insurance expense
Depreciation expense–equipment
Supplies expense
Income taxes expense
2
Net income
Retained earnings, April 1, 2009
Net income
Subtotal
Less dividends
Retained earnings, April 30, 2010
Cash
Accounts receivable
Prepaid insurance
Supplies
Equipment
Less accumulated depreciation
10. The Trial Balance and Adjusted Trial Balance columns of Roland Cleaning Corporation’s work sheet
are shown below. (The Adjustments columns have been omitted.) In the journal provided, prepare the
seven adjusting entries and the four closing entries for the month ended June 30, 2010. Omit
explanations.
Account Name
Trial Balance
Adjusted
Trial Balance
Debit
Credit
Debit
Credit
Cash
2,600
2,600
Accounts Receivable
380
400
Prepaid Rent
570
540
Office Supplies
2,600
1,740
Office Equipment
10,800
10,800
Accumulated Depreciation–Office Equipment
2,160
4,320
Accounts Payable
720
780
Common Stock
10,600
10,600
Dividends
850
850
Cleaning Revenue
7,800
7,820
Wages Expense
2,400
2,550
Utilities Expense
1,080
1,140
21,280
21,280
Rent Expense
30
Office Supplies Expense
860
Depreciation Expense–Office Equipment
2,160
Wages Payable
150
Income Taxes Expense
50
Income Taxes Payable
50
23,720
23,720
General Journal
Page 1
Date
Description
Post.
Ref.
Debit
Credit
June
Accounts Receivable
Cleaning Revenue
Rent Expense
Prepaid Rent
Office Supplies Expense
Office Supplies
Depreciation Expense–Office Equipment
Accumulated Depreciation–Office Equipment
Utilities Expense
Accounts Payable
Wages Expense
Wages Payable
Income Taxes Expense
11. Monty Milko is the only accountant employed at Gamma Enterprises, Inc. When asked by the
company president if the financial statements had been prepared yet, Milko answered that he had
completed all of his work except the preparation of the statements. He added that the net income that
would appear on the current income statement would be $369,075. Identify the two instances where
Milko would have learned the net income before he actually prepared the income statement.