CHAPTER 4 COMPLETING THE ACCOUNTING CYCLE: Test Bank for Accounting Principles, Eleventh Edition. This document/TEST BANK Contains 235 Questions With Answers, Worked Solutions and Essay Explanations

Document Content and Description Below

CHAPTER 4 COMPLETING THE ACCOUNTING CYCLE SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY 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. SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE Note: TF = True-False BE = Brief Exercise C = Completion MC = Multiple Choice Ex = Exercise MA = Matching SA = Short-Answer Essay CHAPTER LEARNING OBJECTIVES 1. Prepare a worksheet. 2. Explain the process of closing the books.. 3. Describe the content and purpose of a post-closing trial balance. 4. State the required steps in the accounting cycle. 5. Explain the approaches to preparing correcting entries. 6. Identify the sections of a classified balance sheet.. a7. Prepare reversing entries. TRUE-FALSE STATEMENTS 1. A worksheet is a mandatory form that must be prepared along with an income statement and balance sheet. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 2. If a worksheet is used, financial statements can be prepared before adjusting entries are journalized. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 3. If total credits in the income statement columns of a worksheet exceed total debits, the enterprise has net income. , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, A IMA: Reporting 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. , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, None, IMA: Reporting 5. The adjustments on a worksheet can be posted directly to the accounts in the ledger from the worksheet. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 6. The adjusted trial balance columns of a worksheet are obtained by subtracting the adjustment columns from the trial balance columns. , SO: 1, Bloom: K, Difficulty: Easy, Min: 1, LOlving, IMA: FSA 7. The balance of the depreciation expense account will appear in the income statement debit column of a worksheet. , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, Solving, IMA: FSA 8. Closing entries are unnecessary if the business plans to continue operating in the future and issue financial statements each year. , LO: 2, Bloom: K, 9. The dividends account is closed to the Income Summary account in order to properly determine net income (or loss) for the period. , LO: 2, Bloom: K, 10. After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances. , LO: 2, Bloom: K, 11. Closing revenue and expense accounts to the Income Summary account is an optional bookkeeping procedure. , LO: 2, Bloom: K, 12. Closing the dividends account to Retained Earnings is not necessary if net income is greater than dividends during the period. , LO: 2, Bloom: K, 13. The dividends account is a permanent account whose balance is carried forward to the next accounting period. , LO: 2, Bloom: K, 14. Closing entries are journalized after adjusting entries have been journalized. , LO: 2, Bloom: K, 15. The amounts appearing on an income statement should agree with the amounts appearing on the post-closing trial balance. , LO: 3, Bloom: C, 16. The post-closing trial balance is entered in the first two columns of a worksheet. , LO: 3, Bloom: K, 17. A business entity has only one accounting cycle over its economic existence. , LO: 4, Bloom: K, 18. The accounting cycle begins at the start of a new accounting period. , LO: 4, Bloom: C, Difficulty: Easy, Min: 1, Solving, IMA: FSA 19. Both correcting entries and adjusting entries always affect at least one balance sheet account and one income statement account. , LO: 5, Bloom: C, Difficulty: Easy, Min: 1, Solving, IMA: FSA 20. Correcting entries are made any time an error is discovered even though it may not be at the end of an accounting period. , LO: 5, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 5, Bloom: C, 22. In a corporation, Retained Earnings is a part of stockholders' equity. , LO: 6, Bloom: K, 23. A company's operating cycle and fiscal year are usually the same length of time. , LO: 6, Bloom: C, Difficulty: Easy, Min: 1, Solving, IMA: FSA 24. Cash and supplies are both classified as current assets. , LO: 6, Bloom: C, 25. Long-term investments would appear in the property, plant, and equipment section of the balance sheet. , LO: 6, Bloom: C, 26. A liability is classified as a current liability if the company is to pay it within the forthcoming year. , LO: 6, Bloom: K, 27. A company's liquidity is concerned with the relationship between long-term investments and long-term debt. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics 28. Current assets are customarily the first items listed on a classified balance sheet. , LO: 6, Bloom: K, 29. The operating cycle of a company is determined by the number of years the company has been operating. , LO: 6, Bloom: K, a30. Reversing entries are an optional bookkeeping procedure. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 31. After a worksheet has been completed, the statement columns contain all data that are required for the preparation of financial statements. , LO: 1, Bloom: K, 32. To close net income to retained earnings, Income Summary is debited and Retained Earnings is credited. , LO: 2, Bloom: K, 33. In one closing entry, Dividends is credited and Income Summary is debited. , LO: 2, Bloom: K, 34. The post-closing trial balance will contain only retained earnings statement accounts and balance sheet accounts. , LO: 3, Bloom: K, 35. The operating cycle of a company is the average time required to collect the receivables resulting from producing revenues. , LO: 6, Bloom: C, Difficulty: Easy, Min: 1, Solving, IMA: Business Economics 36. Current assets are listed in the order of liquidity. , LO: 6, Bloom: K, 37. Current liabilities are obligations that the company is to pay within the coming year. , LO: 6, Bloom: K, Answers to True-False Statements MULTIPLE CHOICE QUESTIONS 38. Preparing a worksheet involves a. two steps. b. three steps. c. four steps. d. five steps. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 1, Bloom: C, 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. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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 , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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 , LO: 1, Bloom: K, 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. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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 , LO: 1, Bloom: K, 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. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 1, Bloom: C, 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. , LO: 1, Bloom: K, 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. , LO: 1, Bloom: C, 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. , LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: : Reporting 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. , LO: 1, Bloom: C, Difficulty: Medium, Min: 2, AACSB: : Reporting 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. , LO: 2, Bloom: K, 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. , LO: 2, Bloom: K, 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. , LO: 2, Bloom: K, 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. , LO: 2, Bloom: K, 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. , LO: 2, Bloom: K, 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. , LO: 2, Bloom: K, 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. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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 , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 2, Bloom: C, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 2, Bloom: C, 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. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 2, Bloom: C, 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. , LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $7,000  $5,700  $1,300 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. , LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 2, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $35,000 + $1,300 = $36,300 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. , LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 2, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $50,000  $10,000  $7,500  $32,500 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. , LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 3, Bloom: K, 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. , LO: 3, Bloom: C, 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. , LO: 3, Bloom: K, 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. , LO: 3, Bloom: K, 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. , LO: 3, Bloom: K, 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. , LO: 3, Bloom: K, 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. , LO: 3, Bloom: K, 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 , LO: 3, Bloom: C, 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. , LO: 3, Bloom: C, 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. , LO: 3, Bloom: C, 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 , LO: 4, Bloom: K, 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. , LO 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 , LO 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. , LO 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 , LO 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 , LO 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 , LO 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. , LO 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. , LO 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. , LO: 5, Bloom: K, 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. , LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $820  $280  $540 108. 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. , LO: 5, Bloom: K, 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. , LO: 5, Bloom: C, 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. , LO: 5, Bloom: K, 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 , LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, IMA: FSA 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 , LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, IMA: FSA Solution: $940 + $490  $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 , LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, IMA: FSA Solution: $710  $170 = $540 114. 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. , LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, IMA: FSA 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 , LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, IMA: FSA Solution: $550  $500  $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. , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $25,000  $30,000  $50,000  $70,000  $175,000 117. 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. , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $120,000  $80,000  $200,000 118. 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. , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $60,000  $15,000  $75,000 120. 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. , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $40,000  $80,000  $100,000  $140,000  $360,000 121. 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. , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $250,000  $140,000  $390,000 122. 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. , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $130,000  $50,000  $180,000 124. All of the following are property, plant, and equipment except a. supplies. b. machinery. c. land. d. buildings. , LO: 6, Bloom: K, 125. The first item listed under current liabilities is usually a. accounts payable. b. notes payable. c. salaries and wages payable. d. taxes payable. , LO: 6, Bloom: K, 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. , LO: 6, Bloom: C, 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. , LO: 6, Bloom: K, 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. , LO: 6, Bloom: K, 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. , LO: 6, Bloom: C, 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 , LO: 6, Bloom: C, 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 , LO: 6, Bloom: K, 132. Intangible assets include each of the following except a. copyrights. b. goodwill. c. land improvements. d. patents. , LO: 6, Bloom: K, 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. , LO: 6, Bloom: K, 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. , LO: 6, Bloom: K, 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. , LO: 6, Bloom: K, 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. , LO: 6, Bloom: K, 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. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics 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. , LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics 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 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 , LO: 1, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $133,000  $21,000  $12,000  $3,000  $17,000  $32,000  $6,000  $42,000 140. 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 , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $133,000  $21,000  $12,000  $3,000  $17,000  $32,000  $6,000  $42,000 $42,000  $60,000 + $42,000  $14,000  $130,000 141. 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 , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $11,000  $15,000  $6,000  $4,000  $36,000 142. 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 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 , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $210,000  $28,000  $182,000 143. 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 , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $18,000  $70,000  $88,000 144. 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 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 , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting 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 , LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $133,000  $21,000  $12,000  $3,000  $17,000  $32,000  $6,000  $42,000 $18,000  $70,000  $88,000 $88,000  ($42,000  $60,000 + $42,000  $14,000)  $218,000 146. 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. , LO: 6, Bloom: K, Difficulty: Medium, Min: 3, AACSB: : Reporting 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 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. , LO: 6, Bloom: K, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 6, Bloom: K, 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 , LO: 6, Bloom: K, 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 , LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: : Reporting Solution: $100,000  $700,000  $450,000  $150,000  $425,000  $975,000 151. 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 , LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA a 153. 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. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 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. , LO: 1, Bloom: C, Difficulty: Easy, Min: 1, Solving, IMA: FSA 155. Balance sheet accounts are considered to be a. temporary stockholders’ equity accounts. b. permanent accounts. c. equity accounts. d. nominal accounts. , LO: 2, Bloom: K, 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. , LO: 2, Bloom: K, Difficulty: Medium, Min: 3, AACSB: : Reporting 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. , LO: 3, Bloom: K, 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 , LO 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. , LO 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. , LO: 5, Bloom: K, 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. , LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: : Reporting 162. All of the following are stockholders’ equity accounts except a. Dividends. b. Common Stock. c. Investment in Stock. d. Retained Earnings. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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. , LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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. IFRS. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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. IFRS. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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. IFRS. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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. IFRS. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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 IFRS. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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. IFRS. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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. IFRS. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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. IFRS. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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. IFRS. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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. IFRS. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting 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. IFRS. , LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: : Reporting Answers to Multiple Choice Questions 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? 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. 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? 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. 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 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. 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 ——————————————————————————————————————————— 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 ________________ , LO: 1, Bloom: C, Difficulty: Easy, Min: 5, A IMA: Reporting 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. 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 , LO: 1, Bloom: AN, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, IMA: FSA 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 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 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 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. 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. 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. , LO: 2, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, IMA: FSA 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. , LO: 2, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, IMA: FSA 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. , LO: 2, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, IMA: FSA 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. 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 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 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. 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. , LO: 5, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, IMA: FSA 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. , LO: 5, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, IMA: FSA 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. Ex. 207 (Cont.) Instructions Prepare an analysis of each error showing the (a) incorrect entry. (b) correct entry. (c) correcting entry. 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 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 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. 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. 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 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? 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 , LO: 7, Bloom: AN, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory, IMA: FSA COMPLETION STATEMENTS 216. The first step in preparing a worksheet is to prepare a ______________ from the general ledger accounts. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 217. The account balances appearing in the adjusted trial balance columns are extended to the ______________ columns and the ______________ columns. , LO: 1, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 218. The process of transferring net income (or loss) for the period to Retained Earnings is accomplished by making ______________ entries. , LO: 2, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: FSA 219. At the end of an accounting period, all revenue and expense accounts are closed to a temporary account called ______________. , LO: 2, Bloom: K, 220. The Dividends account is closed to the ______________ account at the end of the accounting period. , LO: 2, Bloom: K, 221. After all closing entries have been journalized and posted, the final step in the accounting cycle is to prepare a ______________ trial balance. , LO: 3, Bloom: K, 222. The preparation of a ______________ and ______________ entries are two optional steps in the accounting cycle. , LO 223. Two permanent accounts that are part of the stockholders' equity in a corporation are ______________ and ______________. , LO: 6, Bloom: K, 224. The four major classifications of assets in a classified balance sheet are: ________________, ________________, ________________ and ________________. , LO: 6, Bloom: K, 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. , LO: 6, Bloom: K, Difficulty: Easy, Min: 1, Solving, IMA: Business Economics 226. Assets that do not have a physical substance yet often are very valuable are called ______________ assets. , LO: 6, Bloom: K, 227. Liabilities are generally classified as either ______________ or ______________ on a classified balance sheet. , LO: 6, Bloom: K, 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. 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. , LO: 1, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 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? , LO: 2, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: Reporting S-A E 231 Give the definition of current assets and current liabilities and provide two examples of each. , LO: 6, Bloom: K, Difficulty: Easy, Min: 5, Communication, IMA: Reporting 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. , LO: 6, Bloom: K, Difficulty: Easy, Min: 5, Communication, IMA: Reporting S-A E 233 Distinguish between a reversing entry and an adjusting entry. Are reversing entries required? , LO: 7, Bloom: K, Difficulty: Easy, Min: 5, Communication, IMA: Reporting 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.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? , LO: 5, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Ethics, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Communication, IMA: Business Economics A third issue is that of the integrity of the accountants themselves. If they are being asked to ignore a basic principle of accounting so openly now, they should certainly ask themselves what lies ahead. 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. 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. 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. 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. [Show More]

Last updated: 2 years ago

Preview 1 out of 91 pages