CHAPTER 4
COMPLETING THE ACCOUNTING CYCLE
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY
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True-False Statements
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Multiple Choice Questions
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sg This question also appears in the Study Guide.
st This question also appears in a self-test at the student companion website.
a This question covers a topic in an appendix to the chapter.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 2
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY
Brief Exercises
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Exercises
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Completion Statements
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Matching
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Short-Answer Essay
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Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 3
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
Item
Type
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Learning Objective 1
1.
TF
7.
TF
42.
MC
48.
MC
54.
MC
190.
Ex
217.
C
2.
TF
31.
TF
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MC
49.
MC
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MC
191.
Ex
228.
MA
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TF
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MC
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Ex
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SA
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TF
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MC
188.
Ex
194.
Ex
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TF
41.
MC
47.
MC
53.
MC
189.
Ex
216.
C
Learning Objective 2
8.
TF
33.
TF
63.
MC
71.
MC
79.
MC
155.
MC
197.
Ex
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TF
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MC
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Ex
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TF
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176.
BE
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Ex
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TF
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MC
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BE
200.
Ex
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TF
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MC
67.
MC
75.
MC
83.
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178.
BE
218.
C
13.
TF
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MC
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MC
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MC
84.
MC
179.
BE
219/220.
C
14.
TF
61.
MC
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MC
77.
MC
85.
MC
195.
Ex
228.
MA
32.
TF
62.
MC
70.
MC
78.
MC
86.
MC
196.
Ex
230.
SA
Learning Objective 3
15.
TF
87.
MC
90.
MC
93.
MC
96.
MC
201.
Ex
228.
MA
16.
TF
88.
MC
91.
MC
94.
MC
157.
MC
202.
Ex
34.
TF
89.
MC
92.
MC
95.
MC
180.
BE
221.
C
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
Learning Objective 4
17.
TF
98.
MC
101.
MC
104.
MC
159.
MC
228.
MA
18.
TF
99.
MC
102.
MC
105.
MC
203.
Ex
97.
MC
100.
MC
103.
MC
158.
MC
222.
C
Learning Objective 5
19.
TF
107.
MC
111.
MC
115.
MC
182.
BE
207.
Ex
235.
SA
20.
TF
108.
MC
112.
MC
160.
MC
204.
Ex
208.
Ex
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TF
109.
MC
113.
MC
161.
MC
205.
Ex
228.
MA
106.
MC
110.
MC
114.
MC
181.
BE
206.
Ex
234.
SA
Learning Objective 6
22.
TF
37.
TF
125.
MC
135.
MC
145.
MC
184.
BE
225.
C
23.
TF
116.
MC
126.
MC
136.
MC
146.
MC
185.
BE
226.
C
24.
TF
117.
MC
127.
MC
137.
MC
147.
MC
186.
BE
227.
C
25.
TF
118.
MC
128.
MC
138.
MC
148.
MC
183.
Ex
228.
MA
26.
TF
119.
MC
129.
MC
149.
MC
209.
Ex
231.
SA
27.
TF
120.
MC
130.
MC
140.
MC
150.
MC
210.
Ex
232.
SA
28.
TF
121.
MC
131.
MC
141.
MC
151.
MC
211.
Ex
29.
TF
122.
MC
132.
MC
142.
MC
162.
MC
212.
Ex
35.
TF
123.
MC
133.
MC
143.
MC
163.
MC
223.
C
36.
TF
124.
MC
134.
MC
144.
MC
183.
BE
224.
C
Learning Objective a7
a30.
TF
a153.
MC
a167.
MC
a213.
Ex
a215.
Ex
228.
MA
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 4
a152.
MC
a164.
MC
a187.
BE
a214.
Ex
233.
SA
Learning Objective a8
a165.
MC
a167.
MC
a169.
MC
a171.
MC
a173.
MC
a175.
MC
a166.
MC
a168.
MC
a170.
MC
a172.
MC
a174.
MC
Note: TF = True-False BE = Brief Exercise C = Completion
MC = Multiple Choice Ex = Exercise MA = Matching
SA = Short-Answer Essay
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 5
CHAPTER LEARNING OBJECTIVES
1. Prepare a worksheet. The steps in preparing a worksheet follows. (a) Prepare a trial
balance on the worksheet, (b) Enter the adjustments in the adjustments columns, (c) Enter
adjusted balances in the adjusted trial balance columns, (d) Extend adjusted trial balance
amounts to appropriate financial statement columns, and (e) Total the statement columns,
compute net income (or net loss), and complete the worksheet.
2. Explain the process of closing the books. Closing the books occurs at the end of an
accounting period. The process is to journalize and post closing entries and then underline
and balance all accounts. In closing the books, companies make separate entries to close
revenues and expenses to Income Summary, Income Summary to Retained Earnings, and
Dividends to Retained Earnings. Only temporary accounts are closed.
3. Describe the content and purpose of a post-closing trial balance. A post-closing trial
balance contains the balances in permanent accounts that are carried forward to the next
accounting period. The purpose of this trial balance is to prove the equality of these
balances.
4. State the required steps in the accounting cycle. The required steps in the accounting
cycle are (1) analyze business transactions, (2) journalize the transactions, (3) post to ledger
accounts, (4) prepare a trial balance, (5) journalize and post adjusting entries, (6) prepare
an adjusted trial balance, (7) prepare financial statements, (8) journalize and post closing
entries, and (9) prepare a post-closing trial balance.
5. Explain the approaches to preparing correcting entries. One way to determine the
correcting entry is to compare the incorrect entry with the correct entry. After comparison,
the company makes a correcting entry to correct the accounts. An alternative to a correcting
entry is to reverse the incorrect entry and then prepare the correct entry.
6. Identify the sections of a classified balance sheet. A classified balance sheet
categorizes assets as current assets; long-term investments; property, plant, and
equipment; and intangibles. Liabilities are classified as either current or long-term. There is
also a stockholders’ equity section, which varies with the form of business organization.
a7. Prepare reversing entries. Reversing entries are the opposite of the adjusting entries
made in the preceding period. Some companies choose to make reversing entries at the
beginning of a new accounting period to simplify the recording of later transactions related to
the adjusting entries. In most cases, only accrued adjusting entries are reversed.
Test Bank for Financial Accounting, Ninth Edition
4 – 6
TRUE-FALSE STATEMENTS
1. A worksheet is a mandatory form that must be prepared along with an income statement
and balance sheet.
2. If a worksheet is used, financial statements can be prepared before adjusting entries are
journalized.
3. If total credits in the income statement columns of a worksheet exceed total debits, the
enterprise has net income.
4. It is not necessary to prepare formal financial statements if a worksheet has been
prepared because financial position and net income are shown on the worksheet.
5. The adjustments on a worksheet can be posted directly to the accounts in the ledger from
the worksheet.
6. The adjusted trial balance columns of a worksheet are obtained by subtracting the
adjustment columns from the trial balance columns.
7. The balance of the depreciation expense account will appear in the income statement
debit column of a worksheet.
8. Closing entries are unnecessary if the business plans to continue operating in the future
and issue financial statements each year.
9. The dividends account is closed to the Income Summary account in order to properly
determine net income (or loss) for the period.
10. After closing entries have been journalized and posted, all temporary accounts in the
ledger should have zero balances.
11. Closing revenue and expense accounts to the Income Summary account is an optional
bookkeeping procedure.
Completing the Accounting Cycle
4 – 7
12. Closing the dividends account to Retained Earnings is not necessary if net income is
greater than dividends during the period.
13. The dividends account is a permanent account whose balance is carried forward to the
next accounting period.
14. Closing entries are journalized after adjusting entries have been journalized.
15. The amounts appearing on an income statement should agree with the amounts
appearing on the post-closing trial balance.
16. The post-closing trial balance is entered in the first two columns of a worksheet.
17. A business entity has only one accounting cycle over its economic existence.
18. The accounting cycle begins at the start of a new accounting period.
19. Both correcting entries and adjusting entries always affect at least one balance sheet
account and one income statement account.
20. Correcting entries are made any time an error is discovered even though it may not be at
the end of an accounting period.
21. An incorrect debit to Accounts Receivable instead of the correct account Notes
Receivable does not require a correcting entry because total assets will not be misstated.
22. In a corporation, Retained Earnings is a part of stockholders’ equity.
23. A company’s operating cycle and fiscal year are usually the same length of time.
24. Cash and supplies are both classified as current assets.
Test Bank for Financial Accounting, Ninth Edition
4 – 8
25. Long-term investments would appear in the property, plant, and equipment section of the
balance sheet.
26. A liability is classified as a current liability if the company is to pay it within the forthcoming
year.
27. A company’s liquidity is concerned with the relationship between long-term investments
and long-term debt.
28. Current assets are customarily the first items listed on a classified balance sheet.
29. The operating cycle of a company is determined by the number of years the company has
been operating.
a30. Reversing entries are an optional bookkeeping procedure.
31. After a worksheet has been completed, the statement columns contain all data that are
required for the preparation of financial statements.
32. To close net income to retained earnings, Income Summary is debited and Retained
Earnings is credited.
33. In one closing entry, Dividends is credited and Income Summary is debited.
34. The post-closing trial balance will contain only retained earnings statement accounts and
balance sheet accounts.
35. The operating cycle of a company is the average time required to collect the receivables
resulting from producing revenues.
Completing the Accounting Cycle
4 – 9
36. Current assets are listed in the order of liquidity.
37. Current liabilities are obligations that the company is to pay within the coming year.
Answers to True-False Statements
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
MULTIPLE CHOICE QUESTIONS
38. Preparing a worksheet involves
a. two steps.
b. three steps.
c. four steps.
d. five steps.
39. The adjustments entered in the adjustments columns of a worksheet are
a. not journalized.
b. posted to the ledger but not journalized.
c. not journalized until after the financial statements are prepared.
d. journalized before the worksheet is completed.
40. The information for preparing a trial balance on a worksheet is obtained from
a. financial statements.
b. general ledger accounts.
c. general journal entries.
d. business documents.
41. After the adjusting entries are journalized and posted to the accounts in the general
ledger, the balance of each account should agree with the balance shown on the
a. adjusted trial balance.
b. post-closing trial balance.
c. the general journal.
d. adjustments columns of the worksheet.
Test Bank for Financial Accounting, Ninth Edition
4 – 10
42. If the total debit column exceeds the total credit column of the income statement columns
on a worksheet, then the company has
a. earned net income for the period.
b. an error because debits do not equal credits.
c. suffered a net loss for the period.
d. to make an adjusting entry.
43. A worksheet is a multiple column form that facilitates the
a. identification of events.
b. measurement process.
c. preparation of financial statements.
d. analysis process.
44. Which of the following companies would be least likely to use a worksheet to facilitate the
adjustment process?
a. Large company with numerous accounts
b. Small company with numerous accounts
c. All companies, since worksheets are required under generally accepted accounting
principles
d. Small company with few accounts
45. A worksheet can be thought of as a(n)
a. permanent accounting record.
b. optional device used by accountants.
c. part of the general ledger.
d. part of the journal.
46. The account, Supplies, will appear in the following debit columns of the worksheet.
a. Trial balance
b. Adjusted trial balance
c. Balance sheet
d. All of these answer choices are correct
47. When constructing a worksheet, accounts are often needed that are not listed in the trial
balance already entered on the worksheet from the ledger. Where should these additional
accounts be shown on the worksheet?
a. They should be inserted in alphabetical order into the trial balance accounts already
given.
b. They should be inserted in chart of account order into the trial balance already given.
c. They should be inserted on the lines immediately below the trial balance totals.
d. They should not be inserted on the trial balance until the next accounting period.
Completing the Accounting Cycle
4 – 11
48. When using a worksheet, adjusting entries are journalized
a. after the worksheet is completed and before financial statements are prepared.
b. before the adjustments are entered on to the worksheet.
c. after the worksheet is completed and after financial statements have been prepared.
d. before the adjusted trial balance is extended to the proper financial statement
columns.
49. Assuming that there is a net loss for the period, debits equal credits in all but which
section of the worksheet?
a. Income statement columns
b. Adjustments columns
c. Trial balance columns
d. Adjusted trial balance columns
50. Adjusting entries are prepared from
a. source documents.
b. the adjustments columns of the worksheet.
c. the general ledger.
d. last year’s worksheet.
51. The net income (or loss) for the period
a. is found by computing the difference between the income statement credit column and
the balance sheet credit column on the worksheet.
b. cannot be found on the worksheet.
c. is found by computing the difference between the income statement columns of the
worksheet.
d. is found by computing the difference between the trial balance totals and the adjusted
trial balance totals.
52. The worksheet does not show
a. net income or loss for the period.
b. revenue and expense account balances.
c. the ending balance in the retained earnings account.
d. the trial balance before adjustments.
53. If the total debits exceed total credits in the balance sheet columns of the worksheet,
stockholders’ equity
a. will increase because net income has occurred.
b. will decrease because a net loss has occurred.
c. is in error because a mistake has occurred.
d. will not be affected.
Test Bank for Financial Accounting, Ninth Edition
4 – 12
54. The income statement and balance sheet columns of Iron and Wine Company’s
worksheet reflect the following totals:
Income Statement Balance Sheet
Dr. Cr. Dr. Cr.
Totals $72,000 $44,000 $60,000 $88,000
The net income (or loss) for the period is
a. $44,000 income.
b. $28,000 income.
c. $28,000 loss.
d. not determinable.
55. The income statement and balance sheet columns of Iron and Wine Company’s
worksheet reflect the following totals:
Income Statement Balance Sheet
Dr. Cr. Dr. Cr.
Totals $72,000 $48,000 $60,000 $84,000
To enter the net income (or loss) for the period into the above worksheet requires an entry
to the
a. income statement debit column and the balance sheet credit column.
b. income statement credit column and the balance sheet debit column.
c. income statement debit column and the income statement credit column.
d. balance sheet debit column and the balance sheet credit column.
56. Closing entries are necessary for
a. permanent accounts only.
b. temporary accounts only.
c. both permanent and temporary accounts.
d. permanent or real accounts only.
57. Each of the following accounts is closed to Income Summary except
a. Expenses.
b. Dividends.
c. Revenues.
d. All of these are closed to Income Summary.
Completing the Accounting Cycle
4 – 13
58. Closing entries are made
a. in order to terminate the business as an operating entity.
b. so that all assets, liabilities, and stockholders’ equity accounts will have zero balances
when the next accounting period starts.
c. in order to transfer net income (or loss) and dividends to the retained earnings
account.
d. so that financial statements can be prepared.
59. Closing entries are
a. an optional step in the accounting cycle.
b. posted to the ledger accounts from the worksheet.
c. made to close permanent or real accounts.
d. journalized in the general journal.
60. The income summary account
a. is a permanent account.
b. appears on the balance sheet.
c. appears on the income statement.
d. is a temporary account.
61. If Income Summary has a credit balance after revenues and expenses have been closed
into it, the closing entry for Income Summary will include a
a. debit to the retained earnings account.
b. debit to the dividends account.
c. credit to the retained earnings account.
d. credit to the dividends account.
62. Closing entries are journalized and posted
a. before the financial statements are prepared.
b. after the financial statements are prepared.
c. at management’s discretion.
d. at the end of each interim accounting period.
63. Closing entries
a. are prepared before the financial statements.
b. reduce the number of permanent accounts.
c. cause the revenue and expense accounts to have zero balances.
d. summarize the activity in every account.
Test Bank for Financial Accounting, Ninth Edition
4 – 14
64. Which of the following is a true statement about closing the books of a corporation?
a. Expenses are closed to the Expense Summary account.
b. Only revenues are closed to the Income Summary account.
c. Revenues and expenses are closed to the Income Summary account.
d. Revenues, expenses, and the dividends account are closed to the Income Summary
account.
65. Closing entries may be prepared from all of the following except
a. Adjusted balances in the ledger
b. Income statement and balance sheet columns of the worksheet
c. Balance sheet
d. Income and retained earnings statements
66. In order to close the dividends account, the
a. income summary account should be debited.
b. income summary account should be credited.
c. retained earnings account should be credited.
d. retained earnings account should be debited.
67. In preparing closing entries
a. each revenue account will be credited.
b. each expense account will be credited.
c. the retained earnings account will be debited if there is net income for the period.
d. the dividends account will be debited.
68. The most efficient way to accomplish closing entries is to
a. credit the income summary account for each revenue account balance.
b. debit the income summary account for each expense account balance.
c. credit the dividends balance directly to the income summary account.
d. credit the income summary account for total revenues and debit the income summary
account for total expenses.
69. The closing entry process consists of closing
a. all asset and liability accounts.
b. out the retained earnings account.
c. all permanent accounts.
d. all temporary accounts.
Completing the Accounting Cycle
4 – 15
70. The final closing entry to be journalized is typically the entry that closes the
a. revenue accounts.
b. dividends account.
c. retained earnings account.
d. expense accounts.
71. An error has occurred in the closing entry process if
a. revenue and expense accounts have zero balances.
b. the retained earnings account is credited for the amount of net income.
c. the dividends account is closed to the retained earnings account.
d. the balance sheet accounts have zero balances.
72. The Income Summary account is an important account that is used
a. during interim periods.
b. in preparing adjusting entries.
c. annually in preparing closing entries.
d. annually in preparing correcting entries.
73. The balance in the income summary account before it is closed will be equal to
a. the net income or loss on the income statement.
b. the beginning balance in the retained earnings account.
c. the ending balance in the retained earnings account.
d. zero.
74. After closing entries are posted, the balance in the retained earnings account in the ledger
will be equal to
a. the beginning retained earnings reported on the retained earnings statement.
b. the amount of the retained earnings reported on the balance sheet.
c. zero.
d. the net income for the period.
Test Bank for Financial Accounting, Ninth Edition
4 – 16
75. The income statement for the month of June, 2015 of Camera Obscura Enterprises
contains the following information:
Revenues $7,000
Expenses:
Salaries and Wages Expense $3,000
Rent Expense 1,500
Advertising Expense 800
Supplies Expense 300
Insurance Expense 100
Total expenses 5,700
Net income $1,300
The entry to close the revenue account includes a
a. debit to Income Summary for $1,300.
b. credit to Income Summary for $1,300.
c. debit to Income Summary for $7,000.
d. credit to Income Summary for $7,000.
76. The income statement for the month of June, 2015 of Camera Obscura Enterprises
contains the following information:
Revenues $7,000
Expenses:
Salaries and Wages Expense $3,000
Rent Expense 1,500
Advertising Expense 800
Supplies Expense 300
Insurance Expense 100
Total expenses 5,700
Net income $1,300
The entry to close the expense accounts includes a
a. debit to Income Summary for $1,300.
b. credit to Rent Expense for $1,500.
c. credit to Income Summary for $5,700.
d. debit to Salaries and Wages Expense for $3,000.
Completing the Accounting Cycle
4 – 17
77. The income statement for the month of June, 2015 of Camera Obscura Enterprises
contains the following information:
Revenues $7,000
Expenses:
Salaries and Wages Expense $3,000
Rent Expense 1,500
Advertising Expense 800
Supplies Expense 300
Insurance Expense 100
Total expenses 5,700
Net income $1,300
After the revenue and expense accounts have been closed, the balance in Income
Summary will be
a. $0.
b. a debit balance of $1,300.
c. a credit balance of $1,300.
d. a credit balance of $7,000.
78. The income statement for the month of June, 2015 of Camera Obscura Enterprises
contains the following information:
Revenues $7,000
Expenses:
Salaries and Wages Expense $3,000
Rent Expense 1,500
Advertising Expense 800
Supplies Expense 300
Insurance Expense 100
Total expenses 5,700
Net income $1,300
The entry to close Income Summary to Retained Earnings includes
a. a debit to Revenues for $7,000.
b. credits to Expenses totalling $5,700.
c. a credit to Income Summary for $1,300
d. a credit to Retained Earnings for $1,300.
Test Bank for Financial Accounting, Ninth Edition
4 – 18
79. The income statement for the month of June, 2015 of Camera Obscura Enterprises
contains the following information:
Revenues $7,000
Expenses:
Salries and Wages Expense $3,000
Rent Expense 1,500
Advertising Expense 800
Supplies Expense 300
Insurance Expense 100
Total expenses 5,700
Net income $1,300
At June 1, 2015, Camera Obscura reported retained earnings of $35,000. The company
had no dividends during June. At June 30, 2015, the company will report retained
earnings of
a. $29,300.
b. $35,000.
c. $36,300.
d. $42,000.
80. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)
The entry to close the revenue account includes a
a. debit to Income Summary for $7,500.
b. credit to Income Summary for $7,500.
c. debit to Revenues for $70,000.
d. credit to Revenues for $70,000.
Completing the Accounting Cycle
4 – 19
81. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)
The entry to close the expense accounts includes a
a. debit to Income Summary for $7,500.
b. credit to Income Summary for $7,500.
c. debit to Income Summary for $77,500.
d. debit to Utilities Expense for $2,500.
82. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)
After the revenue and expense accounts have been closed, the balance in Income
Summary will be
a. $0.
b. a debit balance of $7,500.
c. a credit balance of $7,500.
d. a credit balance of $70,000.
Test Bank for Financial Accounting, Ninth Edition
4 – 20
83. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)
The entry to close Income Summary to Retained Earnings includes
a. a debit to Revenue for $70,000.
b. credits to Expenses totalling $77,500.
c. a credit to Income Summary for $7,500.
d. a credit to Retained Earnings for $7,500.
84. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)
At January 1, 2015, Fugazi reported retained earnings of $50,000. Dividends for the year
totalled $10,000. At December 31, 2015, the company will report retained earnings of
a. $17,500.
b. $32,500.
c. $40,000.
d. $42,500.
Completing the Accounting Cycle
4 – 21
85. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)
After all closing entries have been posted, the Income Summary account will have a
balance of
a. $0.
b. $7,500 debit.
c. $7,500 credit.
d. $77,500 credit.
86. The income statement for the year 2015 of Fugazi Co. contains the following information:
Revenues $70,000
Expenses:
Salaries and Wages Expense $45,000
Rent Expense 12,000
Advertising Expense 10,000
Supplies Expense 6,000
Utilities Expense 2,500
Insurance Expense 2,000
Total expenses 77,500
Net income (loss) $ (7,500)
After all closing entries have been posted, the revenue account will have a balance of
a. $0.
b. $70,000 credit.
c. $70,000 debit.
d. $7,500 credit.
87. A post-closing trial balance is prepared
a. after closing entries have been journalized and posted.
b. before closing entries have been journalized and posted.
c. after closing entries have been journalized but before the entries are posted.
d. before closing entries have been journalized but after the entries are posted.
Test Bank for Financial Accounting, Ninth Edition
4 – 22
88. All of the following statements about the post-closing trial balance are correct except it
a. shows that the accounting equation is in balance.
b. provides evidence that the journalizing and posting of closing entries have been
properly completed.
c. contains only permanent accounts.
d. proves that all transactions have been recorded.
89. A post-closing trial balance will show
a. only permanent account balances.
b. only temporary account balances.
c. zero balances for all accounts.
d. the amount of net income (or loss) for the period.
90. A post-closing trial balance should be prepared
a. before closing entries are posted to the ledger accounts.
b. after closing entries are posted to the ledger accounts.
c. before adjusting entries are posted to the ledger accounts.
d. only if an error in the accounts is detected.
91. A post-closing trial balance will show
a. zero balances for all accounts.
b. zero balances for balance sheet accounts.
c. only balance sheet accounts.
d. only income statement accounts.
92. The purpose of the post-closing trial balance is to
a. prove that no mistakes were made.
b. prove the equality of the balance sheet account balances that are carried forward into
the next accounting period.
c. prove the equality of the income statement account balances that are carried forward
into the next accounting period.
d. list all the balance sheet accounts in alphabetical order for easy reference.
93. The balances that appear on the post-closing trial balance will match the
a. income statement account balances after adjustments.
b. balance sheet account balances after closing entries.
c. income statement account balances after closing entries.
d. balance sheet account balances after adjustments.
Completing the Accounting Cycle
4 – 23
94. Which account listed below would be double ruled in the ledger as part of the closing
process?
a. Cash
b. Retained Earnings
c. Dividends
d. Accumulated Depreciation—Equipment
95. A double rule applied to accounts in the ledger during the closing process implies that
a. the account is a temporary account.
b. the account is a balance sheet account.
c. the account balance is not zero.
d. a mistake has been made, since double ruling is prescribed.
96. The heading for a post-closing trial balance has a date line that is similar to the one found on
a. a balance sheet.
b. an income statement.
c. a retained earnings statement.
d. the worksheet.
97. Which one of the following is usually performed only at the end of a company’s annual
accounting period?
a. Preparing financial statements
b. Journalizing and posting adjusting entries
c. Journalizing and posting closing entries
d. Preparing an adjusted trial balance
98. The step in the accounting cycle that is performed on a periodic basis (i.e., monthly,
quarterly) is
a. analyzing transactions.
b. journalizing and posting adjusting entries.
c. preparing a post-closing trial balance.
d. posting to ledger accounts.
99. Which one of the following is an optional step in the accounting cycle of a business
enterprise?
a. Analyze business transactions
b. Prepare a worksheet
c. Prepare a trial balance
d. Post to the ledger accounts
Test Bank for Financial Accounting, Ninth Edition
4 – 24
100. The final step in the accounting cycle is to prepare
a. closing entries.
b. financial statements.
c. a post-closing trial balance.
d. adjusting entries.
101. Which of the following steps in the accounting cycle would not generally be performed
daily?
a. Journalize transactions
b. Post to ledger accounts
c. Prepare adjusting entries
d. Analyze business transactions
102. Which of the following steps in the accounting cycle may be performed most frequently?
a. Prepare a post-closing trial balance
b. Journalize closing entries
c. Post closing entries
d. Prepare a trial balance
103. Which of the following depicts the proper sequence of steps in the accounting cycle?
a. Journalize the transactions, analyze business transactions, prepare a trial balance
b. Prepare a trial balance, prepare financial statements, prepare adjusting entries
c. Prepare a trial balance, prepare adjusting entries, prepare financial statements
d. Prepare a trial balance, post to ledger accounts, post adjusting entries
104. The two optional steps in the accounting cycle are preparing
a. a post-closing trial balance and reversing entries.
b. a worksheet and post-closing trial balances.
c. reversing entries and a worksheet.
d. an adjusted trial balance and a post-closing trial balance.
105. The first required step in the accounting cycle is
a. reversing entries.
b. journalizing transactions in the book of original entry.
c. analyzing transactions.
d. posting transactions.
Completing the Accounting Cycle
4 – 25
106. Correcting entries
a. always affect at least one balance sheet account and one income statement account.
b. affect income statement accounts only.
c. affect balance sheet accounts only.
d. may involve any combination of accounts in need of correction.
107. Merriweather Post Pavillion received a $820 check from a customer for the balance due.
The transaction was erroneously recorded as a debit to Cash $280 and a credit to Service
Revenue $280. The correcting entry is
a. debit Cash, $820; credit Accounts Receivable, $820.
b. debit Cash, $540 and Accounts Receivable, $280; credit Service Revenue, $820.
c. debit Cash, $540 and Service Revenue, $280; credit Accounts Receivable, $820.
d. debit Accounts Receivable, $820; credit Cash, $540 and Service Revenue, $280.
108. If errors occur in the recording process, they
a. should be corrected as adjustments at the end of the period.
b. should be corrected as soon as they are discovered.
c. should be corrected when preparing closing entries.
d. cannot be corrected until the next accounting period.
109. A correcting entry
a. must involve one balance sheet account and one income statement account.
b. is another name for a closing entry.
c. may involve any combination of accounts.
d. is a required step in the accounting cycle.
110. An unacceptable way to make a correcting entry is to
a. reverse the incorrect entry.
b. erase the incorrect entry.
c. compare the incorrect entry with the correct entry and make a correcting entry to
correct the accounts.
d. correct it immediately upon discovery.
Test Bank for Financial Accounting, Ninth Edition
4 – 26
111. Zen Arcade paid the weekly payroll on January 2 by debiting Salaries and Wages
Expense for $47,000. The accountant preparing the payroll entry overlooked the fact that
Salaries and Wages Expense of $27,000 had been accrued at year end on December 31.
The correcting entry is
a. Salaries and Wages Payable ………………………………………. 27,000
Cash ……………………………………………………………… 27,000
b. Cash ……………………………………………………………………….. 20,000
Salaries and Wages Expense ……………………………. 20,000
c. Salaries and Wages Payable ………………………………………. 27,000
Salaries and Wages Expense ……………………………. 27,000
d. Cash ……………………………………………………………………….. 27,000
Salaries and Wages Expense ……………………………. 27,000
112. Jawbreaker Company paid $940 on account to a creditor. The transaction was
erroneously recorded as a debit to Cash of $490 and a credit to Accounts Receivable,
$490. The correcting entry is
a. Accounts Payable ……………………………………………………… 940
Cash ……………………………………………………………… 940
b. Accounts Receivable………………………………………………….. 490
Cash ……………………………………………………………… 490
c. Accounts Receivable………………………………………………….. 490
Accounts Payable ……………………………………………. 490
d. Accounts Receivable………………………………………………….. 490
Accounts Payable ……………………………………………………… 940
Cash ……………………………………………………………… 1,430
113. A lawyer collected $710 of legal fees in advance. He erroneously debited Cash for $170
and credited Accounts Receivable for $170. The correcting entry is
a. Cash ……………………………………………………………………….. 170
Accounts Receivable………………………………………………….. 540
Unearned Service Revenue ………………………………. 710
b. Cash ……………………………………………………………………….. 710
Service Revenue …………………………………………….. 710
c. Cash ……………………………………………………………………….. 540
Accounts Receivable………………………………………………….. 170
Unearned Service Revenue ………………………………. 710
d. Cash ……………………………………………………………………….. 540
Accounts Receivable ……………………………………….. 540
Completing the Accounting Cycle
4 – 27
114. On May 25, Yellow House Company received a $650 check from Grizzly Bean for
services to be performed in the future. The bookkeeper for Yellow House Company
incorrectly debited Cash for $650 and credited Accounts Receivable for $650. The
amounts have been posted to the ledger. To correct this entry, the bookkeeper should:
a. debit Cash $650 and credit Unearned Service Revenue $650.
b. debit Accounts Receivable $650 and credit Service Revenue $650.
c. debit Accounts Receivable $650 and credit Cash $650.
d. debit Accounts Receivable $650 and credit Unearned Service Revenue $650.
115. On March 8, Black Candy Company bought supplies on account from the Arcade Fire
Company for $550. Black Candy Company incorrectly debited Equipment for $500 and
credited Accounts Payable for $500. The entries have been posted to the ledger. the
correcting entry should be:
a. Supplies …………………………………………………………………… 550
Accounts Payable ………………………………………………… 550
b. Supplies …………………………………………………………………… 550
Accounts Payable ………………………………………………… 500
Equipment…………………………………………………………… 50
c. Supplies …………………………………………………………………… 550
Equipment…………………………………………………………… 550
d. Supplies …………………………………………………………………… 550
Equipment…………………………………………………………… 500
Accounts Payable ………………………………………………… 50
116. The following information is for Sunny Day Real Estate:
Sunny Day Real Estate
Balance Sheet
December 31, 2015
Cash $ 25,000 Accounts Payable $ 60,000
Prepaid Insurance 30,000 Salaries and Wages Payable 15,000
Accounts Receivable 50,000 Mortgage Payable 85,000
Inventory 70,000 Total Liabilities 160,000
Land Held for Investment 85,000
Land 120,000
Buildings $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000 370,000
Depreciation (20,000) 80,000
Trademark 70,000 Total Liabilities and
Total Assets $530,000 Stockholders’ Equity $530,000
The total dollar amount of assets to be classified as current assets is
a. $105,000.
b. $175,000.
c. $190,000.
d. $260,000.
Test Bank for Financial Accounting, Ninth Edition
4 – 28
117. The following information is for Sunny Day Real Estate:
Sunny Day Real Estate
Balance Sheet
December 31, 2015
Cash $ 25,000 Accounts Payable $ 60,000
Prepaid Insurance 30,000 Salaries and Wages Payable 15,000
Accounts Receivable 50,000 Mortgage Payable 85,000
Inventory 70,000 Total Liabilities 160,000
Land Held for Investment 85,000
Land 120,000
Buildings $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000 370,000
Depreciation (20,000) 80,000
Trademark 70,000 Total Liabilities and
Total Assets $530,000 Stockholders’ Equity $530,000
The total dollar amount of assets to be classified as property, plant, and equipment is
a. $200,000.
b. $220,000.
c. $285,000.
d. $305,000.
118. The following information is for Sunny Day Real Estate:
Sunny Day Real Estate
Balance Sheet
December 31, 2015
Cash $ 25,000 Accounts Payable $ 60,000
Prepaid Insurance 30,000 Salaries and Wages Payable 15,000
Accounts Receivable 50,000 Mortgage Payable 85,000
Inventory 70,000 Total Liabilities 160,000
Land Held for Investment 85,000
Land 120,000
Buildings $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000 370,000
Depreciation (20,000) 80,000
Trademark 70,000 Total Liabilities and
Total Assets $530,000 Stockholders’ Equity $530,000
The total dollar amount of assets to be classified as investments is
a. $0.
b. $70,000.
c. $85,000.
d. $155,000.
Completing the Accounting Cycle
4 – 29
119. The following information is for Sunny Day Real Estate:
Sunny Day Real Estate
Balance Sheet
December 31, 2015
Cash $ 25,000 Accounts Payable $ 60,000
Prepaid Insurance 30,000 Salaries and Wages Payable 15,000
Accounts Receivable 50,000 Mortgage Payable 85,000
Inventory 70,000 Total Liabilities 160,000
Land Held for Investment 85,000
Land 120,000
Buildings $100,000 Common Stock $120,000
Less Accumulated Retained Earnings 250,000 370,000
Depreciation (20,000) 80,000
Trademark 70,000 Total Liabilities and
Total Assets $530,000 Stockholders’ Equity $530,000
The total dollar amount of liabilities to be classified as current liabilities is
a. $15,000.
b. $60,000.
c. $75,000.
d. $160,000.
120. The following information is for Bright Eyes Auto Supplies:
Bright Eyes Auto Supplies
Balance Sheet
December 31, 2015
Cash $ 40,000 Accounts Payable $ 130,000
Prepaid Insurance 80,000 Salaries and Wages Payable 50,000
Accounts Receivable 100,000 Mortgage Payable 150,000
Inventory 140,000 Total Liabilities 330,000
Land Held for Investment 180,000
Land 250,000
Buildings $200,000 Common Stock $400,000
Less Accumulated Retained Earnings 340,000 740,000
Depreciation (60,000) 140,000
Trademark 140,000 Total Liabilities and
Total Assets $1,070,000 Stockholders’ Equity $1,070,000
The total dollar amount of assets to be classified as current assets is
a. $140,000.
b. $220,000.
c. $360,000.
d. $500,000.
Test Bank for Financial Accounting, Ninth Edition
4 – 30
121. The following information is for Bright Eyes Auto Supplies:
Bright Eyes Auto Supplies
Balance Sheet
December 31, 2015
Cash $ 40,000 Accounts Payable $ 130,000
Prepaid Insurance 80,000 Salaries and Wages Payable 50,000
Accounts Receivable 100,000 Mortgage Payable 150,000
Inventory 140,000 Total Liabilities 330,000
Land Held for Investment 180,000
Land 250,000
Buildings $200,000 Common Stock $400,000
Less Accumulated Retained Earnings 340,000 740,000
Depreciation (60,000) 140,000
Trademark 140,000 Total Liabilities and
Total Assets $1,070,000 Stockholders’ Equity $1,070,000
The total dollar amount of assets to be classified as property, plant, and equipment is
a. $390,000.
b. $450,000.
c. $570,000.
d. $630,000.
122. The following information is for Bright Eyes Auto Supplies:
Bright Eyes Auto Supplies
Balance Sheet
December 31, 2015
Cash $ 40,000 Accounts Payable $ 130,000
Prepaid Insurance 80,000 Salaries and Wages Payable 50,000
Accounts Receivable 100,000 Mortgage Payable 150,000
Inventory 140,000 Total Liabilities 330,000
Land Held for Investment 180,000
Land 250,000
Buildings $200,000 Common Stock $400,000
Less Accumulated Retained Earnings 340,000 740,000
Depreciation (60,000) 140,000
Trademark 140,000 Total Liabilities and
Total Assets $1,070,000 Stockholders’ Equity $1,070,000
The total dollar amount of assets to be classified as investments is
a. $0.
b. $140,000.
c. $180,000.
d. $250,000.
Completing the Accounting Cycle
4 – 31
123. The following information is for Bright Eyes Auto Supplies:
Bright Eyes Auto Supplies
Balance Sheet
December 31, 2015
Cash $ 40,000 Accounts Payable $ 130,000
Prepaid Insurance 80,000 Salaries and Wages Payable 50,000
Accounts Receivable 100,000 Mortgage Payable 150,000
Inventory 140,000 Total Liabilities 330,000
Land Held for Investment 180,000
Land 250,000
Buildings $200,000 Common Stock $400,000
Less Accumulated Retained Earnings 340,000 740,000
Depreciation (60,000) 140,000
Trademark 140,000 Total Liabilities and
Total Assets $1,070,000 Stockholders’ Equity $1,070,000
The total dollar amount of liabilities to be classified as current liabilities is
a. $50,000.
b. $130,000.
c. $180,000.
d. $330,000.
124. All of the following are property, plant, and equipment except
a. supplies.
b. machinery.
c. land.
d. buildings.
125. The first item listed under current liabilities is usually
a. accounts payable.
b. notes payable.
c. salaries and wages payable.
d. taxes payable.
126. Equipment is classified in the balance sheet as
a. a current asset.
b. property, plant, and equipment.
c. an intangible asset.
d. a long-term investment.
Test Bank for Financial Accounting, Ninth Edition
4 – 32
127. A current asset is
a. the last asset purchased by a business.
b. an asset which is currently being used to produce a product or service.
c. usually found as a separate classification in the income statement.
d. an asset that a company expects to convert to cash or use up within one year.
128. An intangible asset
a. does not have physical substance, yet often is very valuable.
b. is worthless because it has no physical substance.
c. is converted into a tangible asset during the operating cycle.
d. cannot be classified on the balance sheet because it lacks physical substance.
129. Liabilities are generally classified on a balance sheet as
a. small liabilities and large liabilities.
b. present liabilities and future liabilities.
c. tangible liabilities and intangible liabilities.
d. current liabilities and long-term liabilities.
130. Which of the following would not be classified a long-term liability?
a. Current maturities of long-term debt
b. Bonds payable
c. Mortgage payable
d. Lease liabilities
131. Which of the following liabilities are not related to the operating cycle?
a. Salaries and wages payable
b. Accounts payable
c. Utilities payable
d. Bonds payable
132. Intangible assets include each of the following except
a. copyrights.
b. goodwill.
c. land improvements.
d. patents.
133. It is not true that current assets are assets that a company expects to
a. realize in cash within one year.
b. sell within one year.
c. use up within one year.
d. acquire within one year.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 33
134. The operating cycle of a company is the average time that is required to go from cash to
a. sales in producing revenues.
b. cash in producing revenues.
c. inventory in producing revenues.
d. accounts receivable in producing revenues.
135. On a classified balance sheet, current assets are customarily listed
a. in alphabetical order.
b. with the largest dollar amounts first.
c. in the order of liquidity.
d. in the order of acquisition.
136. Intangible assets are
a. listed under current assets on the balance sheet.
b. not listed on the balance sheet because they do not have physical substance.
c. long-lived assets that are often very valuable.
d. listed as a long-term investment on the balance sheet.
137. The relationship between current assets and current liabilities is important in evaluating a
company’s
a. profitability.
b. liquidity.
c. market value.
d. accounting cycle.
138. The most important information needed to determine if companies can pay their current
obligations is the
a. net income for this year.
b. projected net income for next year.
c. relationship between current assets and current liabilities.
d. relationship between short-term and long-term liabilities.
139. The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Test Bank for Financial Accounting, Ninth Edition
4 – 34
Multiple Choice 139. (Cont.)
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000
What is the company’s net income for the year ending December 31, 2015?
a. $12,000
b. $28,000
c. $42,000
d. $133,000
140. The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000
What is the amount that would be reported for stockholders’ equity at December 31,
2015?
a. $158,000
b. $144,000
c. $130,000
d. $102,000
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 35
141. The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000
What are total current assets at December 31, 2015?
a. $26,000
b. $32,000
c. $36,000
d. $42,000
142. The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Equipment 210,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 36
Multiple Choice 142. (Cont.)
What is the book value of the equipment at December 31, 2015?
a. $170,000
b. $182,000
c. $210,000
d. $238,000
143. The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000
What are total current liabilities at December 31, 2015?
a. $18,000
b. $70,000
c. $88,000
d. $120,000
144. The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Completing the Accounting Cycle
4 – 37
Multiple Choice 144. (Cont.)
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000
What are total long-term liabilities at December 31, 2015?
a. $0
b. $70,000
c. $88,000
d. $90,000
145. The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Equipment 210,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
What is total liabilities and stockholders’ equity at December 31, 2015?
a. $176,000
b. $218,000
c. $190,000
d. $232,000
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 38
146. The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Equipment 210,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
The sub-classifications for assets on the company’s classified balance sheet would
include all of the following except
a. Current Assets.
b. Property, Plant, and Equipment.
c. Intangible Assets.
d. Long-term Assets.
147. The following items are taken from the financial statements of the Postal Service for the
year ending December 31, 2015:
Accounts payable $ 18,000
Accounts receivable 11,000
Accumulated depreciation – equipment 28,000
Advertising expense 21,000
Cash 15,000
Common stock 42,000
Dividends 14,000
Depreciation expense 12,000
Insurance expense 3,000
Note payable, due 6/30/16 70,000
Prepaid insurance (12-month policy) 6,000
Rent expense 17,000
Retained earnings (1/1/15) 60,000
Salaries and wages expense 32,000
Service revenue 133,000
Supplies 4,000
Supplies expense 6,000
Equipment 210,000
Completing the Accounting Cycle
4 – 39
Multiple Choice 147. (Cont.)
The current assets should be listed on Postal Service’s balance sheet in the following
order:
a. cash, accounts receivable, prepaid insurance, equipment.
b. cash, prepaid insurance, supplies, accounts receivable.
c. cash, accounts receivable, prepaid insurance, supplies.
d. equipment, supplies, prepaid insurance, accounts receivable, cash.
148. Which statement about long-term investments is not true?
a. They will be held for more than one year.
b. They are not currently used in the operation of the business.
c. They include investments in stock of other companies and land held for future use.
d. They can never include cash accounts.
149. What is the order in which assets are generally listed on a classified balance sheet?
a. Current and long-term
b. Current; property, plant, and equipment; long-term investments; intangible assets
c. Current; property, plant, and equipment; intangible assets; long-term investments
d. Current; long-term investments; property, plant, and equipment; intangible assets
150. These are selected account balances on December 31, 2015.
Land (location of the office building) $100,000
Land (held for future use) 150,000
Office Building 700,000
Inventory 200,000
Equipment 450,000
Office Furniture 150,000
Accumulated Depreciation 425,000
What is the total amount of property, plant, and equipment that will appear on the balance
sheet?
a. $975,000
b. $1,125,000
c. $1,175,000
d. $1,400,000
Test Bank for Financial Accounting, Ninth Edition
4 – 40
151. The following selected account balances appear on the December 31, 2015 balance
sheet of Superchunk Co.
Land (location of the office building) $150,000
Land (held for future use) 225,000
Office Building 800,000
Inventory 300,000
Equipment 675,000
Office Furniture 225,000
Accumulated Depreciation 640,000
What is the total amount of property, plant, and equipment that will be reported on the
balance sheet?
a. $1,210,000
b. $1,435,000
c. $1,510,000
d. $1,850,000
a152. A reversing entry
a. reverses entries that were made in error.
b. is the exact opposite of an adjusting entry made in a previous period.
c. is made when a business disposes of an asset it previously purchased.
d. is made when a company sustains a loss in one period and reverses the effect with a
profit in the next period.
a153. If a company utilizes reversing entries, they will
a. be made at the beginning of the next accounting period.
b. not actually be posted to the general ledger accounts.
c. be made before the post-closing trial balance.
d. be part of the adjusting entry process.
154. The steps in the preparation of a worksheet do not include
a. analyzing documentary evidence.
b. preparing a trial balance on the worksheet.
c. entering the adjustments in the adjustment columns.
d. entering adjusted balances in the adjusted trial balance columns.
155. Balance sheet accounts are considered to be
a. temporary stockholders’ equity accounts.
b. permanent accounts.
c. equity accounts.
d. nominal accounts.
Completing the Accounting Cycle
4 – 41
156. Income Summary has a credit balance of $17,000 in S. Sufjan Co. after closing revenues
and expenses. The entry to close Income Summary is
a. credit Income Summary $17,000, debit Retained Earnings $17,000.
b. credit Income Summary $17,000, debit Dividends $17,000.
c. debit Income Summary $17,000, credit Dividends $17,000.
d. debit Income Summary $17,000, credit Retained Earnings $17,000.
157. The post-closing trial balance contains only
a. income statement accounts.
b. balance sheet accounts.
c. balance sheet and income statement accounts.
d. income statement, balance sheet, and retained earnings statement accounts.
158. Which of the following is an optional step in the accounting cycle?
a. Adjusting entries
b. Closing entries
c. Correcting entries
d. Reversing entries
159. Which one of the following statements concerning the accounting cycle is incorrect?
a. The accounting cycle includes journalizing transactions and posting to ledger
accounts.
b. The accounting cycle includes only one optional step.
c. The steps in the accounting cycle are performed in sequence.
d. The steps in the accounting cycle are repeated in each accounting period.
160. Correcting entries are made
a. at the beginning of an accounting period.
b. at the end of an accounting period.
c. whenever an error is discovered.
d. after closing entries.
161. On September 23, Sebadoh Company received a $350 check from Surfer Rosa Inc. for
services to be performed in the future. The bookkeeper for Sebadoh Company incorrectly
debited Cash for $350 and credited Accounts Receivable for $350. The amounts have
been posted to the ledger. To correct this entry, the bookkeeper should
a. debit Cash $350 and credit Unearned Service Revenue $350.
b. debit Accounts Receivable $350 and credit Unearned Service Revenue $350.
c. debit Accounts Receivable $350 and credit Cash $350.
d. debit Accounts Receivable $350 and credit Service Revenue $350.
Test Bank for Financial Accounting, Ninth Edition
4 – 42
162. All of the following are stockholders’ equity accounts except
a. Dividends.
b. Common Stock.
c. Investment in Stock.
d. Retained Earnings.
163. Current liabilities
a. are obligations that the company is to pay within the forthcoming year.
b. are listed in the balance sheet in order of their expected maturity.
c. are listed in the balance sheet, starting with accounts payable.
d. should not include long-term debt that is expected to be paid within the next year.
a164. The use of reversing entries
a. is a required step in the accounting cycle.
b. changes the amounts reported in the financial statements.
c. simplifies the recording of subsequent transactions.
d. is required for all adjusting entries.
165. The classified balance sheet is
a. required under GAAP but not under IFRS.
b. required under IFRS in the same format as under GAAP.
c. required under IFRS but not under GAAP.
d. required under IFRS with certain variations in format as compared to GAAP.
166. IFRS requires the use of
a. the term balance sheet.
b. the term statement of financial position.
c. neither balance sheet nor statement of financial position, but recommends use of the
term balance sheet.
d. neither balance sheet nor statement of financial position, but recommends use of the
term statement of financial position.
167. IFRS
a. requires a specific format for the balance sheet (statement of financial position) that is
identical to U.S. GAAP.
b. requires a specific format for the balance sheet (statement of financial position) that is
different from U.S. GAAP.
c. requires no specific format for the balance sheet (statement of financial position) but
most companies that follow IFRS prepare the statement identical to U.S. GAAP.
d. requires no specific format for the balance sheet (statement of financial position) but
most companies that follow IFRS prepare the statement in a different format from U.S.
GAAP.
Completing the Accounting Cycle
4 – 43
168. Most companies that follow IFRS present balance sheet (statement of financial position)
information in this order:
a. current assets; investments; property, plant and equipment; intangible assets; current
liabilities; long term liabilities; equity.
b. intangible assets; property, plant and equipment; investments; current assets; current
liabilities; equity; long term liabilities.
c. current assets; noncurrent assets; current liabilities; noncurrent liabilities; equity.
d. noncurrent assets; current assets; equity; noncurrent liabilities; current liabilities.
169. Under IFRS and under GAAP, current assets are listed in
IFRS GAAP
a. order of liquidity order of liquidity
b. reverse order of liquidity order of liquidity.
c. order of liquidity reverse order of liquidity
d. reverse order of liquidity reverse order of liquidity
170. The subtotal net assets is used in
a. both GAAP and IFRS.
b. GAAP but not IFRS.
c. IFRS but not GAAP.
d. neither IFRS nor GAAP.
171. Both IFRS and GAAP require disclosure about
a. accounting policies followed.
b. judgements that management has made in the process of applying the entity’s
accounting policies.
c. the key assumptions and estimation uncertainty.
d. All of these answer choices are correct.
172. Under IFRS
a. comparative prior-period information must be presented, but financial statements need
not be provided annually.
b. comparative prior-period informaton must be presented, and financial statements must
be provided annually.
c. comparative prior-period information is not required, and financial statements need not
be provided annually.
d. comparative prior-period information is not required, but financial statements must be
provided annually.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 44
173. The use of fair value to report assets
a. is not allowed under GAAP or IFRS.
b. is required by GAAP and IFRS.
c. is increasing under GAAP and IFRS, but GAAP has adopted it more broadly.
d. is increasing under GAAP and IFRS, but IFRS has adopted it more broadly.
174. Under IFRS
a. companies can apply fair value to property, plant, and equipment and natural
resources.
b. companies can apply fair value to property, plant, and equipment but not to natural
resources.
c. companies can apply fair value to neither property, plant, and equipment nor natural
resources.
d. companies can apply fair value to natural resources but not to property, plant, and
equipment.
175. The IASB and FASB are working on a converged statement of financial position using the
headings of
a. assets, liabilities, and equity.
b. revenues and expenses.
c. assets, liabilities, revenues, expenses and equity.
d. operating, investing, and financing.
Answers to Multiple Choice Questions
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 45
BRIEF EXERCISES
BE 176
Use the following income statement for the year 2015 for Belle Company to prepare entries to
close the revenue and expense accounts for the company.
Service revenue $85,000
Expenses:
Salaries and Wages Expense $40,000
Rent Expense 12,500
Advertising Expense 8,700
Total expenses 61,200
Net income (loss) $23,800
BE 177
Sebastien Company earned net income of $44,000 during 2014. The company paid dividends
totalling $20,000 during the period. Prepare the entries to close Income Summary and the
Dividends account.
BE 178
At April 1, 2015, Spiderland Company reported a balance of $20,000 in the Retained Earnings
account. Spiderland Company earned revenues of $50,000 and incurred expenses of $32,000
during April 2015. The company paid dividends of $10,000 during the month.
(a) Prepare the entries to close Income Summary and the Dividends acccount at April 30, 2015.
(b) What is the balance in Retained Earnings on the April 30, 2015 post-closing trial balance?
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 46
BE 179
Identify which of the following are temporary accounts of Sabrina Company.
(1) Retained Earnings
(2) Dividends
(3) Equipment
(4) Accumulated Depreciation
(5) Depreciation Expense
BE 180
Identify which of the following accounts would have balances on a post-closing trial balance.
(1) Service Revenue
(2) Income Summary
(3) Notes Payable
(4) Interest Expense
(5) Cash
BE 181
Prepare the necessary correcting entry for each of the following.
a. A payment on account of $840 was debited to Accounts Payable $480 and credited to Cash
$480.
b. The collection of Accounts Receivable of $680 was recorded as a debit to Cash $680 and a
credit to Service Revenue $680.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 47
BE 182
Prepare the necessary correcting entry for each of the following.
a. A payment of $5,000 for salaries was recorded as a debit to Supplies Expense and a credit to
Cash.
b. A purchase of supplies on account for $1,000 was recorded as a debit to Equipment and a
credit to Accounts Payable.
BE 183
The following accounts were included on Aeroplane Consultants adjusted trial balance at
December 31, 2015:
Accounts payable $ 9,200
Accounts receivable 12,000
Cash 5,500
Common stock 25,000
Dividends 10,000
Equipment 5,000
Interest expense 3,000
Note payable, due 8/31/17 60,000
Retained earnings 15,000
Supplies 1,000
Service revenue 39,000
(a) What are total current assets?
(b) What are total current liabilities?
Test Bank for Financial Accounting, Ninth Edition
4 – 48
BE 184
The following items are taken from the adjusted trial balance of Westley Company for the month
ending July 31, 2015:
Accounts payable $ 2,000
Accounts receivable 3,300
Accumulated depreciation – equipment 8,000
Cash 2,600
Common stock 30,000
Depreciation expense 2,000
Equipment 54,000
Retained earnings 7/1/15 22,000
Service revenue 33,000
Supplies 1,200
Prepare the current assets section of Westley’s classified balance sheet.
BE 185
The following information is available for Elwes Company for the year ended December 31, 2015:
Accounts payable $ 3,800
Accumulated depreciation-equipment 4,000
Common stock 5,000
Retain earnings 4,300
Intangible assets 2,300
Notes payable (due in 5 years) 5,000
Accounts receivable 1,500
Cash 2,800
Short-term investments 1,000
Equipment 8,800
Long-term investments 5,700
Instructions
Use the above information to prepare a classified balance sheet for the year ended December 31,
2015.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 49
BE 186
The following lettered items represent a classification scheme for a balance sheet, and the
numbered items represent accounts found on balance sheets. In the blank next to each account,
write the letter indicating to which category it belongs.
A. Current assets E. Current liabilities
B. Long-term investments F. Long-term liabilities
C. Property, plant, and equipment G. Stockholders’ equity
D. Intangible assets H. Not on the balance sheet
_____ 1. Accumulated Depreciation _____ 6. Inventory
_____ 2. Retained Earnings _____ 7. Patents
_____ 3. Interest Expense _____ 8. Prepaid Rent
_____ 4. Salaries and Wages Payable _____ 9. Mortgage Payable
_____ 5. Dividends _____ 10. Land Held for Investment
Test Bank for Financial Accounting, Ninth Edition
4 – 50
aBE 187
Inigo Company prepared the following adjusting entries at year end on December 31, 2015:
(a) Interest Expense ……………………………………………………………….. 250
Interest Payable ………………………………………………………… 250
(b) Interest Receivable ……………………………………………………………. 450
Interest Revenue ……………………………………………………….. 450
(c) Salaries and Wages Expense ……………………………………………… 3,500
Salaries and Wages Payable ………………………………………. 3,500
In an effort to minimize errors in recording transactions, Inigo Company utilizes reversing entries.
Prepare reversing entries on January 1, 2016.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 51
EXERCISES
Ex. 188
The worksheet for Montoya Company has been completed through the adjusted trial balance. You are
ready to extend each amount to the appropriate financial statement column. Indicate for each account,
the financial statement column to which the account should be extended by placing a check mark ()
in the appropriate column.
———————————————————————————————————————————
Income Statement Balance Sheet
Account Title Dr. Cr. Dr. Cr.
———————————————————————————————————————————
(1) Cash
———————————————————————————————————————————
(2) Retained Earnings
———————————————————————————————————————————
(3) Mortgage Payable
———————————————————————————————————————————
(4) Interest Receivable
———————————————————————————————————————————
(5) Supplies
———————————————————————————————————————————
(6) Accounts Payable
———————————————————————————————————————————
(7) Short-term Investments
———————————————————————————————————————————
(8) Maintenance and Repairs Expense
———————————————————————————————————————————
(9) Unearned Service Revenue
———————————————————————————————————————————
(10) Equipment
———————————————————————————————————————————
(11) Depreciation Expense
———————————————————————————————————————————
(12) Interest Revenue
———————————————————————————————————————————
(13) Salaries and Wages Expense
———————————————————————————————————————————
(14) Dividends
———————————————————————————————————————————
(15) Accum. Deprec.—Equipment
———————————————————————————————————————————
(16) Utilities Expense
———————————————————————————————————————————
(17) Salaries and Wages Payable
———————————————————————————————————————————
(18) Accounts Receivable
———————————————————————————————————————————
(19) Notes Payable
———————————————————————————————————————————
(20) Service Revenue
———————————————————————————————————————————
Ans: N/A, LO: 1, Bloom: C, Difficulty: Medium, Min: 10, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 52
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 53
Ex. 189
Indicate the worksheet column (income statement Dr., balance sheet Cr., etc.) to which each of
the following accounts would be extended.
Account Worksheet Column
a. Accounts Receivable ________________
b. Accumulated Depreciation—Equip. ________________
c. Service Revenue ________________
d. Interest Expense ________________
e. Dividends ________________
f. Unearned Service Revenue ________________
Ex. 190
The worksheet for Gibler Rental Company appears below. Using the adjustment data below,
complete the worksheet. Add any accounts that are necessary.
Adjustment data:
(a) Prepaid rent expired during August, $3.
(b) Depreciation expense on equipment for the month of August, $8.
(c) Supplies on hand on August 31 amounted to $6.
(d) Salaries and wages expense incurred at August 31 but not yet paid amounted to $10.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 54
Ex. 190 (Cont.)
GIBLER RENTAL COMPANY
Worksheet
For the Month Ended August 31, 2015
Trial Balance
Adjustments
Adjusted
Trial Balance
Income
Statement
Balance Sheet
Account Titles
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
20
Accounts Receivable
12
Prepaid Rent
8
Supplies
10
Equipment
50
Accum. Depreciation—
Equipment
10
Accounts Payable
20
Common Stock
15
Retained Earnings
14
Dividends
2
Rent Revenue
73
Depreciation Expense
6
Rent Expense
4
Salaries and Wages
Expense
20
Totals
132
132
Supplies Expense
Salaries Payable
Totals
Net Income
Totals
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 55
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 56
Ex. 191
The account balances appearing on the trial balance (below) were taken from the general ledger
of Irick’s Copy Shop at September 30.
Additional information for the month of September which has not yet been recorded in the
accounts is as follows:
(a) A physical count of supplies indicates $300 on hand at September 30.
(b) The amount of insurance that expired in the month of September was $200.
(c) Depreciation on equipment for September was $400.
(d) Rent owed on the copy shop for the month of September was $600 but will not be paid until
October.
Instructions
Using the above information, complete the worksheet on the following page for Irick’s Copy Shop
for the month of September.
IRICK’S COPY SHOP
Worksheet
For the Month Ended September 30, 2015
Trial Balance
Adjustments
Adjusted
Trial Balance
Income
Statement
Balance Sheet
Account Titles
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Debit
Credit
Cash
3,000
Supplies
1,100
Prepaid Insurance
2,200
Equipment
24,000
Accum. Depreciation—
Equipment
4,500
Accounts Payable
2,400
Notes Payable
4,000
Common Stock
10,000
Retained Earnings
5,300
Dividends
2,400
Service Revenue
6,900
Utilities Expense
400
Totals
33,100
33,100
Supplies Expense
Insurance Expense
Depreciation Expense
Rent Expense
Rent Payable
Totals
Net Income
Totals
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 57
Ex. 192
The adjustments columns of the worksheet for Mandy Company are shown below.
Adjustments
Account Titles Debit Credit
Accounts Receivable 800
Prepaid Insurance 650
Accumulated Depreciation 770
Salaries and Wages Payable 1,200
Service Revenue 800
Salaries and Wages Expense 1,200
Insurance Expense 650
Depreciation Expense 770
3,420 3,420
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 58
Ex. 192 (Cont.)
Instructions
(a) Prepare the adjusting entries.
(b) Assuming the adjusted trial balance amount for each account is normal, indicate the financial
statement column to which each balance should be extended.
Ex. 193
Selected worksheet data for Patinkin Company are presented below.
Adjusted
Account Titles Trial Balance Trial Balance
Dr. Cr. Dr. Cr.
Accounts Receivable ? 31,000
Prepaid Insurance 24,000 18,000
Supplies 7,000 ?
Accumulated Depreciation 12,000 ?
Salaries and Wages Payable ? 7,600
Service Revenue 85,000 100,000
Insurance Expense ?
Depreciation Expense 9,000
Supplies Expense 5,200
Salaries and Wages Expense ? 49,000
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 59
Ex. 193 (Cont.)
Instructions
(a) Fill in the missing amounts.
(b) Prepare the adjusting entries that were made.
Ex. 194
These financial statement items are for Rugen Company at year-end, July 31, 2015.
Salaries and wages payable $ 2,980 Notes payable (long-term) $ 3,000
Salaries and wages expense 45,700 Cash 5,200
Utilities expense 21,100 Accounts receivable 9,780
Equipment 38,000 Accumulated depreciation 6,000
Accounts payable 4,100 Dividends 4,000
Service revenue 57,200 Depreciation expense 4,000
Rent revenue 6,500 Retained earnings 28,000
Common stock 20,000 (Aug. 1, 2014)
Instructions
(a) Prepare an income statement and a retained earnings statement for the year. Stockholders
not make any new investments during the year.
(b) Prepare a classified balance sheet at July 31.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 60
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 61
Ex. 195
Prepare the necessary closing entries based on the following selected accounts.
Accumulated Depreciation $10,000
Depreciation Expense 4,000
Retained Earnings 20,000
Dividends 12,000
Salaries and Wages Expense 18,000
Service Revenue 31,000
Ex. 196
All revenue and expense accounts have been closed at the end of the calendar year for Patton
Company. The Income Summary account has total debits of $530,000 and total credits of
$600,000. As of the same date, Retained Earnings has a balance of $115,000, and the Dividends
account has a balance of $48,000.
Instructions
(a) Journalize the entries required to complete the closing of the accounts.
(b) Prepare a retained earnings statement for the year ended December 31, 2015.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 62
Ex. 197
At March 31, account balances after adjustments for Vizzini Cinema are as follows:
Account Balances
Accounts (After Adjustment)
Cash $ 11,000
Supplies 4,000
Equipment 50,000
Accumulated Depreciation—Equipment 12,000
Accounts Payable 5,000
Common Stock 6,000
Retained Earnings 14,000
Dividends 12,000
Ticket Revenue 65,000
Service Revenue 53,000
Advertising Expense 18,000
Supplies Expense 19,000
Depreciation Expense 4,000
Rent Expense 28,000
Salaries and Wages Expense 24,000
Utilities Expense 5,000
Instructions
Prepare the closing journal entries for Vizzini Cinema.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 63
Ex. 198
Presented below is an adjusted trial balance for Shawn Company, at December 31, 2015.
Cash $ 7,700 Accounts payable $10,000
Accounts receivable 20,000 Notes payable 9,000
Prepaid insurance 15,000 Accumulated depreciation—
Equipment 35,000 Equipment 14,000
Depreciation expense 7,000 Service revenue 29,000
Dividends 1,500 Common stock 10,000
Advertising expense 1,400 Retained earnings 14,000
Rent expense 800 Unearned service revenue 16,000
Salaries and wages expense 12,000
Insurance expense 1,600
$102,000 $102,000
Instructions
(a) Prepare closing entries for December 31, 2015.
(b) Determine the balance in the Retained Earnings account after the entries have been posted.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 64
Ex. 199
The adjusted account balances of the Fitness Center at July 31 are as follows:
Accounts Account Balances Accounts Account Balances
Cash $ 16,000 Service Revenue $105,000
Accounts Receivable 15,000 Interest Revenue 8,000
Supplies 4,000 Depreciation Expense 27,000
Prepaid Insurance 8,000 Insurance Expense 6,000
Buildings 300,000 Salaries and Wages Expense 35,000
Accumulated Depreciation— Supplies Expense 9,000
Buildings 120,000 Utilities Expense 12,000
Accounts Payable 19,000
Common Stock 90,000
Retained Earnings 105,000
Dividends 15,000
Instructions
Prepare the end of the period closing entries for the Fitness Center.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 65
Ex. 200
The income statement of Fezzik’s Shoe Repair is as follows:
FEZZIK’S SHOE REPAIR
Income Statement
For the Month Ended April 30, 2015
Revenue
Service Revenue ……………………………………………………….……… $9,500
Expenses
Salaries and Wages Expense……………………………………………… $4,200
Depreciation Expense ……………………………………………………….. 350
Utilities Expense ……………………………………………………………….. 400
Rent Expense ……………………………………………………….………….. 600
Supplies Expense ……………………………………………………………… 1,050
Total Expenses ………………………………………………………….. 6,600
Net Income ……………………………………………………………………………… $2,900
On April 1, the Retained Earnings account had a balance of $12,900. During April, the company
paid $3,000 in dividends.
Instructions
(a) Prepare closing entries at April 30.
(b) Prepare a retained earnings statement for the month of April.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 66
Ex. 201
Identify which of the following accounts would appear in a post-closing trial balance.
Accumulated Depreciation—Equipment Dividends
Depreciation Expense Service Revenue
Interest Payable Equipment
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 67
Ex. 202
The trial balances of Orton Company follow with the accounts arranged in alphabetic order.
Analyze the data and prepare (a) the adjusting entries and (b) the closing entries made by Orton
Company.
Trial Balances
Unadjusted Adjusted Post-Closing
Accounts Payable $10,000 $10,000 $10,000
Accounts Receivable 2,200 3,200 3,200
Accumulated Depreciation—Equipment 13,000 17,000 17,000
Advertising Expense 0 16,300 0
Cash 60,000 60,000 60,000
Common Stock 30,000 30,000 30,000
Depreciation Expense 0 4,000 0
Dividends 11,000 11,000 0
Equipment 75,000 75,000 75,000
Prepaid Advertising 17,800 1,500 1,500
Prepaid Rent 15,000 11,000 11,000
Rent Expense 0 4,000 0
Retained Earnings 52,200 52,200 72,400
Service Revenue 96,000 105,000 0
Supplies 3,200 700 700
Supplies Expense 2,000 4,500 0
Unearned Service Revenue 23,000 15,000 15,000
Salaries and Wages Expense 38,000 45,000 0
Salaries and Wages Payable 0 7,000 7,000
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 68
Ex. 203
Indicate the proper sequence of the steps in the accounting cycle by placing numbers 1-8 in the
blank spaces.
____ a. Analyze business transactions.
____ b. Journalize and post adjusting entries.
____ c. Journalize and post closing entries.
____ d. Journalize the transactions.
____ e. Prepare a post-closing trial balance.
____ f. Prepare a trial balance.
____ g. Prepare financial statements.
____ h. Post to ledger accounts.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 69
Ex. 204
Prepare the necessary correcting entry for each of the following.
a. A collection on account of $350 from a customer was credited to Accounts Receivable $530
and debited to Cash $530.
b. The purchase of supplies on account for $310 was recorded as a debit to Equipment $310
and a credit to Accounts Payable $310.
Ex. 205
An examination of the accounts of Savage Company for the month of June revealed the following
errors after the transactions were journalized and posted.
1. A check for $800 from R. Wright, a customer on account, was debited to Cash $800 and
credited to Service Revenue, $800.
2. A payment for Advertising Expense costing $630 was debited to Utilities Expense, $360 and
credited to Cash $360.
3. A bill for $850 for Supplies purchased on account was debited to Equipment, $580 and
credited to Accounts Payable $580.
Instructions
Prepare correcting entries for each of the above assuming the erroneous entries are not
reversed. Explain how the transaction as originally recorded affected net income for the month of
June.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 70
Ex. 206
As Mel Smith was doing his year-end accounting, he noticed that the bookkeeper had made
errors in recording several transactions. The erroneous transactions are as follows:
(a) A check for $700 was issued for goods previously purchased on account. The bookkeeper
debited Accounts Receivable and credited Cash for $700.
(b) A check for $180 was received as payment on account. The bookkeeper debited Accounts
Payable for $810 and credited Accounts Receivable for $810.
(c) When making the entry to record the year’s depreciation expense, the bookkeeper debited
Accumulated Depreciation—Equipment for $1,000 and credited Cash for $1,000.
(d) When accruing interest on a note payable, the bookkeeper debited Interest Receivable for
$200 and credited Interest Payable for $200.
Instructions
Prepare the appropriate correcting entries. (Do not reverse the original entries.)
Ex. 207
Peter Cook, CPA, was asked by Carol Kane to review the accounting records and prepare the
financial statements for her upholstering shop. Peter reviewed the records and found three errors.
1. Cash paid on accounts payable for $930 was recorded as a debit to Accounts Payable $390
and a credit to Cash $390.
2. The purchase of supplies on account for $600 was debited to Equipment $600 and credited to
Accounts Payable $600.
3. The company paid dividends of $1,300 and the bookkeeper debited Accounts Receivable for
$130 and credited Cash $130.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 71
Ex. 207 (Cont.)
Instructions
Prepare an analysis of each error showing the
(a) incorrect entry.
(b) correct entry.
(c) correcting entry.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 72
Ex. 208
Wakefield Company discovered the following errors made in January 2015.
1. A payment of salaries expense of $900 was debited to Equipment and credited to Cash, both
for $900.
2. A collection of $2,000 from a client on account was debited to Cash $200 and credited to
Service Revenue $200.
3. The purchase of equipment on account for $680 was debited to Equipment $860 and credited
to Accounts Payable $860.
Instructions
Correct the errors by reversing the incorrect entry and preparing the correct entry.
Ex. 209
The following items were taken from the financial statements of Buttercup Company. (All dollars
are in thousands.)
Mortgage payable $ 2,443 Accumulated depreciation 3,655
Prepaid insurance 880 Accounts payable 1,444
Property, plant, and equipment 11,500 Notes payable after 2016 1,200
Long-term investments 1,100 Common stock 5,000
Short-term investments 3,690 Retained earnings 8,480
Notes payable in 2016 1,000 Accounts receivable 1,696
Cash 2,600 Inventories 1,756
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 73
Ex. 209 (Cont.)
Instructions
Prepare a classified balance sheet in good form as of December 31, 2015.
Ex. 210
Compute the dollar amount of current assets based on the following account balances.
Accounts Receivable $22,000
Accumulated Depreciation—Equipment 27,000
Cash 8,400
Equipment 93,000
Prepaid Rent 7,000
Short-term Investments 15,000
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 74
Ex. 211
The financial statement columns of the worksheet for Miracle Max at December 31, 2015, are as
follows: MIRACLE MAX
Worksheet
For the Year Ended December 31, 2015
Income Statement Balance Sheet
Accounts Debit Credit Debit Credit
Cash 13,000
Accounts Receivable 7,000
Supplies 4,000
Prepaid Insurance 6,000
Equipment 207,000
Accumulated Depreciation—Equipment 29,000
Accounts Payable 19,000
Notes Payable 70,000
Salaries and Wages Payable 3,000
Common Stock 50,000
Retained Earnings 62,000
Dividends 18,000
Service Revenue 123,000
Advertising Expense 21,000
Depreciation Expense 12,000
Insurance Expense 3,000
Rent Expense 17,000
Salaries and Wages Expense 42,000
Supplies Expense 6,000
Totals 101,000 123,000 255,000 233,000
Net Income 22,000 22,000
123,000 123,000 255,000 255,000
Instructions
(a) Calculate the retained earnings balance that would appear on a balance sheet at December
31, 2015.
(b) Prepare a classified balance sheet for Miracle Max at December 31, 2015 assuming the
note payable is a long-term liability.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 75
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 76
Ex. 212
The financial statement columns of the worksheet for Booer Company as of December 31, 2015
are as follows: BOOER COMPANY
Worksheet
For the Year Ended December 31, 2015
Income Statement Balance Sheet
Accounts Debit Credit Debit Credit
Cash 8,000
Accounts Receivable 26,000
Supplies 4,500
Prepaid Insurance 7,000
Equipment 41,000
Accumulated Depreciation—Equipment 4,800
Patents 7,500
Accounts Payable 22,200
Notes Payable (due 2018) 20,000
Common Stock 30,000
Retained Earnings 13,300
Dividends 4,200
Service Revenue 26,400
Salaries and Wages Expense 5,200
Depreciation Expense 4,800
Insurance Expense 5,000
Interest Expense 3,500
Totals 18,500 26,400 98,200 90,300
Net Income 7,900 7,900
26,400 26,400 98,200 98,200
Instructions
Prepare a classified balance sheet for Booer Company.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 77
aEx. 213
Reisner Company prepared the following adjusting entries at year end on December 31, 2015:
(a) Interest Expense ………………………………………………………………. 150
Interest Payable ………………………………………………………… 150
(b) Unearned Revenue …………………………………………………………… 1,500
Service Revenue ………………………………………………………. 1,500
(c) Insurance Expense ……………………………………………………………. 1,200
Prepaid Insurance……………………………………………………… 1,200
(d) Interest Receivable ……………………………………………………………. 100
Interest Revenue ………………………………………………………. 100
(e) Supplies Expense ……………………………………………………………… 250
Supplies …………………………..………………………………………. 250
(f) Salaries and Wages Expense……………………………………………… 3,000
Salaries and Wages Payable ………………………………………. 3,000
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 78
Ex. 213 (Cont.)
In an effort to minimize errors in recording transactions, Reisner Company utilizes reversing
entries.
Instructions
Prepare reversing entries on January 1, 2016, for the adjusting entries given where appropriate.
aEx. 214
On December 31, 2015 the adjusted trial balance of the Yellin Personnel Agency shows the
following selected data:
Accounts Receivable, $8,000
Service Revenue, $60,000
Interest Expense, $10,500
Interest Payable, $3,500
Utilities Expense, $4,800
Accounts Payable, $2,700
Analysis indicates that adjusting entries were made for (a) $8,000 of employment commission
revenue earned but not billed, (b) $3,500 of accrued but unpaid interest, and (c) $2,700 of utilities
expense accrued but not paid.
Instructions
(a) Prepare the closing entries at December 31, 2015.
(b) Prepare the reversing entries on January 1, 2016.
(c) Enter the adjusted trial balance data in T-accounts. Post the entries in (a) and (b) and rule
and balance the accounts.
(d) Prepare the entries to record (1) the collection of the accrued commission on January 8, (2)
payment of the utility bill on January 10, and (3) payment of all the interest due ($4,000) on
January 15.
(e) Post the entries in (d) to the temporary accounts.
(f) What is the interest expense for the month of January 2016?
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 79
Test Bank for Financial Accounting, Ninth Edition
4 – 80
aEx. 215
Transaction and adjustment data for Doty Company for the calendar year end is as follows:
1. December 24 (initial salary entry): $12,000 of salaries earned between December 1 and
December 24 are paid.
2. December 31 (adjusting entry): Salaries earned between December 25 and December 31 are
$3,000. These will be paid in the January 8 payroll.
3. January 8 (subsequent salary entry): Total salary payroll amounting to $8,000 was paid.
Instructions
Prepare two sets of journal entries as specified below. The first set of journal entries should
assume that the company does not use reversing entries, and the second set should assume that
reversing entries are utilized by the company.
Assume no reversing entries Assume reversing entries
(a) Initial Salary Entry
Dec. 24
(b) Adjusting Entry
Dec. 31
(c) Closing Entry
Dec. 31
(d) Reversing Entry
Jan. 1
(e) Subsequent Salary Entry
Jan. 8
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 81
Test Bank for Financial Accounting, Ninth Edition
4 – 82
COMPLETION STATEMENTS
216. The first step in preparing a worksheet is to prepare a ______________ from the general
ledger accounts.
217. The account balances appearing in the adjusted trial balance columns are extended to the
______________ columns and the ______________ columns.
218. The process of transferring net income (or loss) for the period to Retained Earnings is
accomplished by making ______________ entries.
219. At the end of an accounting period, all revenue and expense accounts are closed to a
temporary account called ______________.
220. The Dividends account is closed to the ______________ account at the end of the
accounting period.
221. After all closing entries have been journalized and posted, the final step in the accounting
cycle is to prepare a ______________ trial balance.
222. The preparation of a ______________ and ______________ entries are two optional
steps in the accounting cycle.
223. Two permanent accounts that are part of the stockholders’ equity in a corporation are
______________ and ______________.
224. The four major classifications of assets in a classified balance sheet are:
________________, ________________, ________________ and ________________.
225. The ______________ of a company is the average time that it takes to purchase
inventory, sell it on account, and then collect cash from customers.
226. Assets that do not have a physical substance yet often are very valuable are called
______________ assets.
Completing the Accounting Cycle
4 – 83
227. Liabilities are generally classified as either ______________ or ______________ on a
classified balance sheet.
Answers to Completion Statements
MATCHING
228. Match the items below by entering the appropriate code letter in the space provided.
A. Worksheet F. Common Stock
B. Permanent accounts G. Current assets
C. Closing entries H. Operating cycle
D. Income Summary I. Long-term liabilities
E. Reversing entry J. Correcting entries
____ 1. Obligations that a company expects to pay after one year.
____ 2. A part of owners’ equity in a corporation.
____ 3. An optional tool which facilitates the preparation of financial statements.
____ 4. A temporary account used in the closing process.
____ 5. Balance sheet accounts whose balances are carried forward to the next period.
____ 6. The average time that it takes to go from cash to cash in producing revenues.
____ 7. Entries to correct errors made in recording transactions.
____ 8. The exact opposite of an adjusting entry made in a previous period.
____ 9. Entries at the end of an accounting period to transfer the balances of temporary
accounts to a permanent stockholders’ equity account.
____ 10. Assets that a company expects to pay or convert to cash or use up within one year.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 84
Answers to Matching
SHORT-ANSWER ESSAY QUESTIONS
S-A E 229
A worksheet is an optional working tool used by accountants to facilitate the preparation of
financial statements. Consider the steps followed in preparing a worksheet. How does the use of
a worksheet assist the accountant. Could financial statements be prepared without a worksheet?
Evaluate how the process would differ. Consider factors such as timeliness, accuracy, and
efficiency in your evaluation.
S-A E 230
Journalizing and posting closing entries is a required step in the accounting cycle. Discuss why it
is necessary to close the books at the end of an accounting period. If closing entries were not
made, how would the preparation of financial statements be affected?
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 85
S-A E 231
Give the definition of current assets and current liabilities and provide two examples of each.
S-A E 232
(a) What is the term used to describe the owner’s equity section of a corporation? (b) Identify the
two owners’ equity accounts in a corporation and indicate the purpose of each.
S-A E 233
Distinguish between a reversing entry and an adjusting entry. Are reversing entries required?
S-A E 234 (Ethics)
Under Protection provides underground storage facilities for companies desiring off–site storage
of sensitive documents, computer records, and other items. They have developed a sophisticated
surveillance and security system which they initially used in their own facilities, and have recently
started to market elsewhere as well.
The underground storage facilities are made from natural caves in some instances (reinforced
and modified as appropriate) and from excavations of natural rock formations in others. The land
was purchased over ten years ago for a total of $2.5 million. The modifications have cost
approximately $15 million more. The company has never depreciated its storage facilities
because the market value of the property has continued to rise. Presently, the market price is
between $30 and $40 million.
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 86
Betsy Brantley, a new accounting manager, questioned this depreciation policy. Will Gray, the
controller, has told her that she needn’t worry about it. For one thing, he says, this is really a
special form of Land account, which should not be depreciated at all. For another, this is a
privately held company, and so they don’t need to worry about misleading investors. All the
owners know about and approve the depreciation policy.
Required:
What are the ethical issues in this situation?
S-A E 235 (Communication)
You have recently started to work for Storry Malcom, manufacturers of cemetery markers and
monuments. During your first month at work, you inadvertently recorded as revenue, about
$4,000 of prepayments from Budger Company. The financial statements had been released
within the company when you discovered your error. The month-end closing had not been
completed, however, and you were able to correct the accounts without incident.
Required:
Prepare a short note to accompany the re-released financial statements explaining the mistake.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 87
Solution 235
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 88
CHALLENGE EXERCISES
CE 1
The adjusted trial balance for Molina Company is presented below.
MOLINA COMPANY
Adjusted Trial Balance
July 31, 2015
No. Account Titles
Debits
Credits
101 Cash
$18,000
112 Accounts Receivable
9,000
157 Equipment
26,000
167 Accumulated Depreciatio–Equip.
$ 8,000
201 Accounts Payable
5,500
208 Unearned Rent Revenue
2,000
311 Common Stock
22,000
320 Retained Earnings
27,500
332 Dividends
17,000
400 Service Revenue
69,000
429 Rent Revenue
11,000
711 Depreciation Expense
5,000
726 Salaries and Wages Expense
60,000
732 Utilities Expense
10,000
$145,000
$145,000
Molina made an error during year when they debited Utilities Expense for $2,000 instead of
Equipment for a cash purchase of equipment. In addition, Molina failed to accrue $4,000 of
Service Revenue.
Instructions
(a) Prepare an income statement and a retained earnings statement for the year.
(b) Prepare a classified balance sheet at July 31.
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 89
Solution CE 1
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 90
CE 2
Remington Company discovered the following errors made in January 2015
1. A payment of salaries and wages of $1,000 was debited to Equipment and credited to Cash,
both for $1,000. Remington recorded $200 of depreciation on this “equipment”.
2. A collection of $3,000 from a client on account was debited to Cash $300 and credited to
Service Revenue $300.
3. The purchase of supplies on account for $840 was debited to Supplies $480 and credited to
Accounts Payable $480.
4. The purchase of short-term investments for $1,500 cash was debited to Prepaid Rent and
credited to Cash. At year end, $500 of the “prepaid rent” was recorded as rent expense.
Instructions
(a) Correct the errors by reversing the incorrect entry and preparing the correct entry.
(b) Correct the errors without reversing the incorrect entry.
Solution CE 2
Completing the Accounting Cycle
FOR INSTRUCTOR USE ONLY
4 – 91
CE 3
The following items were taken from the financial statements Wyatt Company. (All dollars are in
thousands.)
Long-term debt
$ 1,950
Accumulated depreciation
$ 5,600
Prepaid insurance
900
Accounts payable
2,444
Equipment
14,300
Notes payable after 2016
1,024
Long-term investments
464
Common stock
10,000
Short-term investments
3,490
Retained earnings
5,800
Notes payable in 2016
474
Accounts receivable
1,734
Cash
4,648
Inventory
1,456
Patents
600
2015 net income was 1,000 and dividends paid were $700.
Instructions
Prepare a classified balance sheet in good form as of December 31, 2015.
Solution CE 3 WYATT COMPANY
Test Bank for Financial Accounting, Ninth Edition
FOR INSTRUCTOR USE ONLY
4 – 92
Solution CE 3 (Cont.)