Chapter 16 Financial Statements and Closing Entries for a Corporation • 465
Study
Guide
16
Name Perfect
Score
Your
Score
Identifying Accounting Terms 11 Pts.
Preparing Financial Statements for a Merchandising Business Organized as
a Corporation 12 Pts.
Analyzing Financial Statements for a Merchandising Business 30 Pts.
Total 53 Pts.
Part One—Identifying Accounting Terms
Directions: Select the one term in Column I that best fits each definition in Column II.
Print the letter identifying your choice in the Answers column.
Column I
A. current liabilities
B. cost of merchandise sold
C. gross profit
D. income from operations
Column II
1. The revenue earned by a business from its normal business
operations. (p. 475)
2. The amount of sales, less sales discounts and sales returns
and allowances. (p. 475)
3. The original price of all merchandise sold during a fiscal
period. (p. 476)
4. The revenue remaining after cost of merchandise sold has
been deducted. (p. 476)
Answers
1.
2.
3.
4.
H
F
B
C
466 • Working Papers
Part Two—Preparing Financial Statements for a Merchandising
Business Organized as a Corporation
Directions: Write a number from 1 to 12 to the left of each step to indicate the correct sequence
of all the steps in the accounting cycle. (p. 504)
An adjusted trial balance is prepared from the general ledger.
A post-closing trial balance is prepared from the general ledger.
Journal entries are posted to the accounts payable ledger, the accounts receivable ledger,
and the general ledger.
Closing entries are journalized.
Answers
1.
2.
3.
4.
TE
8
12
3
10
23148_ch16_hr_465-498.indd 466 1/18/18 1:31 AM
Name Date Class
Part Three—Analyzing Financial Statements for a Merchandising Business
Directions: Place a T for True or an F for False in the Answers column to show whether each of the
following statements is true or false.
1. Financial statements provide the primary source of information needed by owners and
managers to make decisions on the future activity of a business. (p. 472)
2. Reporting financial information the same way from one fiscal period to the next is an
application of the accounting concept Adequate Disclosure. (p. 472)
3. An income statement for a merchandising business has four main sections: operating
revenue, cost of merchandise sold, operating expenses, and other revenue. (p. 473)
10. Total operating expenses on an income statement are deducted from gross profit to
determine income from operations. (p. 478)
11. Federal income tax expense is an example of an operating expense. (pp. 478–479)
12. All the information required to prepare a statement of stockholders’ equity is obtained from
the income statement and the adjusted trial balance. (p. 482)
13. A statement of stockholders’ equity contains two major sections: (1) Capital Stock and (2)
Retained Earnings. (p. 483)
14. The beginning balance of the capital stock account is the amount of capital stock issued as of
the beginning of the year. (p. 483)
15. The amounts in the capital stock section of the statement of stockholders’ equity are obtained
from the general ledger account, Capital Stock. (p. 483)
16. Net income is shown on the last line of a statement of stockholders’ equity. (p. 484)
Answers
1.
2.
3.
10.
11.
12.
13.
14.
15.
16.
T
F
T
T
F
F
T
T
T
F
468 • Working Papers
24. Amounts needed for the closing entries are obtained from the adjusted trial balance and
from the statement of stockholders’ equity. (p. 494)
25. The Income Summary account has a normal credit balance. (p. 494)
26. A closing entry that results in credit to Income Summary would close sales, contra
24.
25.
26.
Answers
TE
T
F
T
Name Date Class
16-1 WORK TOGETHER, p. 481
Preparing an income statement for a merchandising business
ACCOUNT TITLE DEBIT CREDIT
(Note: Adjusted trial balance is continued on next page.)
Superior Corporation
Adjusted Trial Balance
December 31, 20–
Cash 43 3 5 5 47
Petty Cash 2 0 0 00
Accounts Receivable 16 3 0 5 45
Allowance for Uncollectible Accounts 2 4 8 4 22
Office Equipment 19 9 1 6 14
Accumulated Depreciation—Office Equipment 12 4 3 6 20
Store Equipment 47 3 1 8 49
Accumulated Depreciation—Store Equipment 16 6 2 6 00
Accounts Payable 13 1 9 1 28
Sales Tax Payable 2 8 5 9 71
Employee Income Tax Payable 7 6 0 00
Social Security Tax Payable 1 6 1 8 45
Medicare Tax Payable 3 7 8 51
Health Insurance Premiums Payable 3 6 8 00
470 • Working Papers
16-1 WORK TOGETHER (continued)
ACCOUNT TITLE DEBIT CREDIT
Superior Corporation
Adjusted Trial Balance
December 31, 20–
Income Summary 5 7 7 1 89
Sales 505 8 9 7 40
Depreciation Expense—Office Equipment 7 4 8 5 00
Depreciation Expense—Store Equipment 9 8 3 0 00
Insurance Expense 6 0 0 0 00
Miscellaneous Expense 2 7 9 6 03
Payroll Taxes Expense 14 3 7 5 91
Rent Expense 6 7 2 0 00
Salary Expense 131 9 7 8 76
TE
Chapter 16 Financial Statements and Closing Entries for a Corporation • 471
Name Date Class
16-1 WORK TOGETHER (concluded)
% OF NET
SALES
1., 2. Superior Corporation
Income Statement
For Year Ended December 31, 20–
Operating Revenue:
Less: Purchases Discount 7 3 7 71
Purchases Returns and Allowances 1 1 9 6 01 1 9 3 3 72
Net Purchases 201 9 4 7 29
Total Cost of Mdse. Available for Sale 288 7 3 6 44
Less Mdse. Inventory, December 31, 20– 81 0 1 7 26
Cost of Merchandise Sold 207 7 1 9 18 41.4
Gross Profit 293 7 0 6 41 58.6
Operating Expenses:
Advertising Expense 3 7 4 4 00
Credit Card Fee Expense 5 4 7 3 76
Depreciation Expense—Office Equipment 7 4 8 5 00
Depreciation Expense—Store Equipment 9 8 3 0 00
Insurance Expense 6 0 0 0 00
Miscellaneous Expense 2 7 9 6 03
16-1 ON YOUR OWN, p. 481
Preparing an income statement for a merchandising business
ACCOUNT TITLE DEBIT CREDIT
(Note: Adjusted trial balance is continued on next page.)
Eastern Imports
Adjusted Trial Balance
December 31, 20–
Supplies—Store 1 3 2 3 00
Prepaid Insurance 2 6 0 0 00
Notes Receivable 4 4 6 4 00
Interest Receivable 8 2 00
Office Equipment 17 9 2 4 53
Accumulated Depreciation—Office Equipment 11 9 4 1 08
Store Equipment 42 5 8 6 64
Accumulated Depreciation—Store Equipment 15 9 4 6 40
Dividends Payable 2 7 0 0 00
Capital Stock 136 0 0 0 00
Retained Earnings 29 4 7 4 56
Dividends 24 0 0 0 00
Chapter 16 Financial Statements and Closing Entries for a Corporation • 473
16-1 ON YOUR OWN (continued)
ACCOUNT TITLE DEBIT CREDIT
Eastern Imports
Adjusted Trial Balance
December 31, 20–
Income Summary 5 6 4 8 44
Sales 432 4 3 2 64
Advertising Expense 3 3 6 9 60
Credit Card Fee Expense 4 9 2 6 38
Depreciation Expense—Office Equipment 8 4 8 5 00
Depreciation Expense—Store Equipment 8 8 3 0 00
Insurance Expense 5 1 2 0 00
Miscellaneous Expense 2 5 1 6 43
Payroll Taxes Expense 12 9 3 8 32
Rent Expense 6 0 4 8 00
Salary Expense 109 4 8 5 25
Supplies Expense—Office 2 4 9 4 69
Supplies Expense—Store 2 5 1 2 72
474 • Working Papers
16-1 ON YOUR OWN (concluded)
% OF NET
SALES
1., 2.
TE
Eastern Imports
Income Statement
For Year Ended December 31, 20–
Operating Revenue:
Sales 432 4 3 2 64
Less: Sales Discount 1 1 8 6 70
Sales Returns and Allowances 2 8 3 7 93 4 0 2 4 63
Net Purchases 191 7 5 2 56
Total Cost of Mdse. Available for Sale 319 8 6 2 80
Less Mdse. Inventory, December 31, 20– 122 4 6 1 80
Cost of Merchandise Sold 197 4 0 1 00 46.1
Gross Profit 231 0 0 7 01 53.9
Operating Expenses:
Advertising Expense 3 3 6 9 60
Credit Card Fee Expense 4 9 2 6 38
Depreciation Expense—Office Equipment 8 4 8 5 00
Depreciation Expense—Store Equipment 8 8 3 0 00
Insurance Expense 5 1 2 0 00
Miscellaneous Expense 2 5 1 6 43
Payroll Taxes Expense 12 9 3 8 32
Chapter 16 Financial Statements and Closing Entries for a Corporation • 475
Name Date Class
16-2 WORK TOGETHER, p. 485
Preparing a statement of stockholders’ equity
Superior Corporation
Statement of Stockholders’ Equity
For Year Ended December 31, 20–
Capital Stock:
$10.00 Par Value
January 1, 20–, 8,000 Shares Issued 80 0 0 0 00
Issued during Current Year, 250 Shares 2 5 0 0 00
Balance, December 31, 20–, 8,250 Shares Issued 82 5 0 0 00
476 • Working Papers
16-2 ON YOUR OWN, p. 485
Preparing a statement of stockholders’ equity
TE
Eastern Imports
Statement of Stockholders’ Equity
For Year Ended December 31, 20–
Capital Stock:
$1.00 Par Value
January 1, 20–, 124,000 Shares Issued 124 0 0 0 00
Issued during Current Year, 12,000 Shares 12 0 0 0 00
Balance, December 31, 20–, 136,000 Shares Issued 136 0 0 0 00
Retained Earnings:
Balance, January 1, 20– 29 4 7 4 56
Chapter 16 Financial Statements and Closing Entries for a Corporation • 477
16-3 WORK TOGETHER, p. 493
Preparing a balance sheet for a corporation
Superior Corporation
Balance Sheet
December 31, 20–
Assets
Current Assets:
Cash 43 3 5 5 47
Prepaid Insurance 2 8 0 0 00
Notes Receivable 4 9 6 0 00
Interest Receivable 9 5 00
Total Current Assets 147 5 4 2 97
Plant Assets:
Liabilities
Current Liabilities:
Accounts Payable 13 1 9 1 28
Sales Tax Payable 2 8 5 9 71
Employee Income Tax Payable 7 6 0 00
Social Security Tax Payable 1 6 1 8 45
Medicare Tax Payable 3 7 8 51
Health Insurance Premiums Payable 3 6 8 00
Retirement Benefits Payable 3 7 2 00
Unemployment Tax Payable—Federal 2 3 7 62
478 • Working Papers
16-3 ON YOUR OWN, p. 493
Preparing a balance sheet for a corporation
TE
Eastern Imports
Balance Sheet
December 31, 20–
Assets
Current Assets:
Cash 19 0 1 9 92
Petty Cash 1 8 0 00
Notes Receivable 4 4 6 4 00
Interest Receivable 8 2 00
Total Current Assets 182 9 3 5 63
Plant Assets:
Office Equipment 17 9 2 4 53
Less Accumulated Depreciation—Office Equipment 11 9 4 1 08 5 9 8 3 45
Store Equipment 42 5 8 6 64
Less Accumulated Depreciation—Store Equipment 15 9 4 6 40 26 6 4 0 24
Total Plant Assets 32 6 2 3 69
Total Assets 215 5 5 9 32
Retirement Benefits Payable 3 3 4 80
Unemployment Tax Payable—Federal 2 1 3 86
Unemployment Tax Payable—State 1 0 6 15
Federal Income Tax Payable 1 6 1 7 90
Dividends Payable 2 7 0 0 00
Total Liabilities 25 2 3 1 07
Stockholders’ Equity
Total Liabilities and Stockholders’ Equity 215 5 5 9 32
Name Date Class
16-4 WORK TOGETHER, p. 501
Journalizing closing entries
GENERAL JOURNAL PAGE
DATE ACCOUNT TITLE DOC.
NO.
POST.
REF. DEBIT CREDIT
1 1
2 2
3 3
4 4
5 5
6 6
16 16
17 17
18 18
19 19
20 20
21 21
22 22
23 23
29 29
30 30
Closing Entries
20–
Dec. 31 Sales 505 8 9 7 40
Purchases Discount 7 3 7 71
Purchases Returns and Allowances 1 1 9 6 01
Interest Income 4 6 6 20
Income Summary 508 2 9 7 32
Miscellaneous Expense 2 7 9 6 03
Payroll Taxes Expense 14 3 7 5 91
Rent Expense 6 7 2 0 00
Salary Expense 131 9 7 8 76
Supplies Expense—Office 2 8 6 0 89
Supplies Expense—Store 3 5 2 3 33
Uncollectible Accounts Expense 2 3 8 4 10
Utilities Expense 3 9 7 2 34
19
16-4 ON YOUR OWN, p. 501
Journalizing closing entries
GENERAL JOURNAL PAGE
DATE ACCOUNT TITLE DOC.
NO.
POST.
REF. DEBIT CREDIT
1 1
2 2
3 3
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
18 18
19 19
20 20
21 21
29 29
30 30
Closing Entries
20–
Dec. 31 Sales 432 4 3 2 64
Purchases Discount 6 6 3 94
Purchases 193 4 9 2 91
Advertising Expense 3 3 6 9 60
Credit Card Fee Expense 4 9 2 6 38
Depreciation Expense—Office Equipment 8 4 8 5 00
Depreciation Expense—Store Equipment 8 8 3 0 00
Insurance Expense 5 1 2 0 00
Miscellaneous Expense 2 5 1 6 43
Payroll Taxes Expense 12 9 3 8 32
Rent Expense 6 0 4 8 00
Salary Expense 109 4 8 5 25
Supplies Expense—Office 2 4 9 4 69
Supplies Expense—Store 2 5 1 2 72
25
Chapter 16 Financial Statements and Closing Entries for a Corporation • 481
16-5 WORK TOGETHER, p. 505
Preparing a post-closing trial balance
ACCOUNT TITLE DEBIT CREDIT
Plumbing Central
Post-Closing Trial Balance
December 31, 20–
Cash 12 8 1 0 20
Petty Cash 3 5 0 00
Accounts Receivable 18 3 9 8 80
Allowance for Uncollectible Accounts 1 2 0 0 00
Merchandise Inventory 140 9 8 0 00