Chapter 04 – Completing the Accounting Cycle
Chapter 4
Completing the Accounting Cycle
QUESTIONS
1. The four-step closing entry process is: (i) close the revenue (and gain) accounts to
the Income Summary account, (ii) close the expense (and loss) accounts to the
2. Closing entries affect temporary accounts: revenues, expenses, withdrawals, and
income summary. Specifically, closing entries at the end of an accounting period
3. (i) Closing entries prepare the temporary accounts—revenue and expense (and gain
4. The Income Summary account is used to summarize the period’s revenues and
expenses. As a result, it temporarily has a balance equal to the net income (or net
5. Yes, an error would have occurred because a post-closing trial balance should only
6. A work sheet can be used to collect and organize data for preparing (i) adjusting
7. The adjustments in the Adjustments columns of a work sheet are identified by
letters to link the debits with the credits to ensure that the entries are complete and
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8. A company’s operating cycle is the normal time between paying cash for
9. Assets on a typical classified balance sheet include current assets and noncurrent
assets—where noncurrent assets usually include long-term investments, plant
10. Unearned revenue is reported as a liability—usually a current liability.
11. Plant assets (also called property, plant and equipment or long-lived assets) are
tangible long-lived assets used to produce or sell goods or services.
12.AReversing entries simplify subsequent entries for accrued expenses and accrued
13.AThe following reversing entry could be made as of the first day of the next
accounting period, after the post-closing trial balance is completed and financial
statements are prepared.
14. The five main categories of noncurrent assets on Apple’s balance sheet are: Long-
15. Samsung’s current assets are: Cash and cash equivalents; Short-term financial
instruments; Available-for-sale financial assets; Trade and other receivables;
Advances; Prepaid expenses; Inventories; Other current assets; and Assets held for
sale.
16. Google has eight current liability accounts: Accounts payable; Short-term debt;
17. The closing entry likely recorded on December 31, 2013, to transfer the company’s
net income to its Retained Earnings account would have been (in millions of Korean
won)
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Chapter 04 – Completing the Accounting Cycle
QUICK STUDIES
Quick Study 4-1 (5 minutes)
Quick Study 4-2 (5 minutes)
Quick Study 4-3 (10 minutes)
Computation of B. Warton, Capital for the Dec. 31, 2015, balance sheet
B. Warton, Capital (beginning).….…..….…….....$ 72,000
Add net income ($181,000 – $122,000).........…. 59,000
131,000
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Education.
Chapter 04 – Completing the Accounting Cycle
Quick Study 4-4 (20 minutes)
CLAUDELL COMPANY
Work Sheet
Unadjusted
Trial Balance Adjustments
Adjusted
Trial Balance
Income
Statement Balance Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Prepaid Rent………………...1,000 (a) 200 800 800
Services Revenue..…....... 55,600 (b) 900 56,500 56,500
Wages Payable…….….…... (c) 700 700 700
Rent Expense……..….……. (a) 200 200 200
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Chapter 04 – Completing the Accounting Cycle
Quick Study 4-5 (10 minutes)
1. “b”; Permanent accounts generally consist of all balance sheet
accounts, and these accounts are not closed.
4. “a”; Temporary accounts include all income statement accounts, the
withdrawals account, and the Income Summary account.
Quick Study 4-6 (15 minutes)
31 Income Summary…………………………….…..… 10,000
Wages Expense……………….…..….….….. 8,400
Rent Expense………………………………….. 1,600
To close the expense accounts.
31 D.Mai, Capital………………..….….…..….….….... 800
D. Mai, Withdrawals ………………………... 800
To close the withdrawals account.
Quick Study 4-7 (5 minutes)
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Chapter 04 – Completing the Accounting Cycle
Quick Study 4-8 (5 minutes)
1. (e) Analyzing transactions and events.
2. (h) Journalizing transactions and events.
Quick Study 4-9 (10 minutes)
1. B
Quick Study 4-10 (10 minutes)
a. The closing process is identical under U.S. GAAP and IFRS.
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Chapter 04 – Completing the Accounting Cycle
Quick Study 4-11 (5 minutes)
Current assets
Cash…………………………….…..….….…..….…. $ 7,000
Accounts receivable…………..….….…..….… 18,000
Office supplies…..……………………………….. 2,800
Current ratio = $31,360 / $14,000 = 2.24
Quick Study 4-12A (10 minutes)
2014—NOT required (2014 shown for instructional purposes only)
2015
Jan. 1 Management Fees Earned ….….…..….….….... 12,000
Accounts Receivable …..….…..….….….. 12,000
To reverse accrued revenue.
EXERCISES
Exercise 4-1 (15 minutes)
1. B 5. D 9. C 13. C
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Chapter 04 – Completing the Accounting Cycle
Exercise 4-2 (20 minutes)
Planta Company
Work Sheet
Adjusted
Trial Balance
Income
Statement
Balance Sheet
& Statement of
Owner’s Equity
No. Account Dr. Cr. Dr. Cr. Dr. Cr.
10
1
Cash……………………………… 7,000 7,000
10
6
Accounts receivable.......... 27,200 27,200
9
23
3
Unearned fees.….….….….... 3,600 3,600
30
1
F. Planta, Capital………..…... 65,500 65,500
30
2
F. Planta, Withdrawals........ 15,400 15,400
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Chapter 04 – Completing the Accounting Cycle
0
67
7
Miscellaneous expense…… 8,700
______ 8,700
______ _______ ______
Totals……..…………………….. 189,800
189,800
66,200 84,000 123,600 105,800
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Chapter 04 – Completing the Accounting Cycle
Exercise 4-3 (20 minutes)
Instructor note: Entries are shown without an account reference column because no posting is required.
(a) Insurance Expense—Office Equipment.….…..…..... 332
Insurance Expense—Store Equipment.….…..….….. 568
Prepaid Insurance………………………………….…... 900
To record expired insurance.
(b) Office Supplies Expense…………….….…..….….…..…. 1,750
Office Supplies……………………………………..….... 1,750
To record consumed supplies.
Exercise 4-4 (25 minutes)
WESTCOTT COMPANY
December 31, 2015
Unadjusted
Trial Balance
Dr. Cr.
Adjustments
Dr. Cr.
Adjusted
Trial Balance
Dr. Cr.
Cash………………………………….….…..… 21 21
Equipment…………………..…..….….…... 39 39
Accumulated depreciation–Equip…. 15 (a) 3 18
Accounts payable………………..….…... 6 6
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Chapter 04 – Completing the Accounting Cycle
W. Westcott, Capital…..….….…..…..... 42 42
W. Westcott, Withdrawals………...….. 6 6
Revenue………………………………………. 75 (c) 12 87
Depreciation expense–Equip........... (a) 3 3
Salaries expense……………………….… 18 (b) 6 24
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