Ch04 Completing The Accounting Cycle

Chapter 4 Completing the Accounting Cycle OBJECTIVES

Obj 1 Obj 2 Obj 3 Obj 4 Obj 5 Obj 6

Describe the flow of accounting information from the unadjusted trial balance into the adjusted trial balance and financial statements. Prepare financial statements from adjusted account balances. Prepare closing entries. Describe the accounting cycle. Illustrate the accounting cycle for one period. Explain what is meant by the fiscal year and the natural business year.

QUESTION GRID

True / False No Objective . 1 04-01 2 04-01 3 04-01 4 04-01 5 04-01 6 04-01 7 04-02 8 04-02 9 04-02 10 04-02 11 04-02 12 04-02 13 04-02 14 04-02 15 04-02 16 04-02 17 04-02 18 04-02 19 04-02 20 04-02 21 04-02 22 04-02 23 04-02 24 04-02

Difficulty

No.

Objective

Difficulty

No.

Objective

Difficulty

Easy Easy Easy Moderate Moderate Moderate Easy Moderate Moderate Moderate Easy Moderate Easy Easy Easy Moderate Easy Easy Easy Easy Moderate Easy Easy Easy

25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48

04-02 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03

Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Moderate Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Easy Moderate

49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72

04-04 04-04 04-04 04-04 04-06 04-06 04-06 04-06 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP

Easy Easy Moderate Easy Easy Easy Easy Easy Easy Easy Moderate Easy Moderate Easy Easy Moderate Moderate Moderate Moderate Moderate Easy Moderate Easy Easy

167

Chapter 4/Completing the Accounting Cycle  168

Matching No Objective . 1 04-05 2 04-05 3 04-05

Difficulty

No.

Objective

Difficulty

No.

Objective

Difficulty

Moderate Moderate Moderate

4 5 6

04-05 04-05 04-05

Moderate Moderate Moderate

7 8

04-05 04-05

Moderate Moderate

Multiple Choice No. Objective 1 04-01 2 04-01 3 04-01 4 04-01 5 04-02 6 04-02 7 04-02 8 04-02 9 04-02 10 04-02 11 04-02 12 04-02 13 04-02 14 04-02 15 04-02 16 04-02 17 04-02 18 04-02 19 04-02 20 04-02 21 04-02 22 04-02 23 04-02 24 04-02 25 04-02 26 04-02 27 04-02 28 04-03

Difficulty Moderate Difficult Difficult Moderate Moderate Moderate Moderate Easy Easy Easy Moderate Easy Moderate Moderate Moderate Moderate Easy Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate

No. 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56

Objective 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-03 04-04 04-04

Difficulty Moderate Difficult Easy Easy Easy Moderate Moderate Easy Moderate Moderate Moderate Moderate Moderate Moderate Moderate Easy Moderate Difficult Moderate Difficult Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate

No. 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83

Objective 04-04 04-04 04-06 04-06 04-06 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP 04-APP

Difficulty Moderate Easy Moderate Moderate Moderate Easy Moderate Easy Easy Moderate Moderate Moderate Moderate Moderate Moderate Easy Moderate Moderate Moderate Moderate Moderate Moderate Moderate Moderate Easy Difficult Difficult

Difficulty

No.

Objective

Difficulty

No.

Objective

Difficulty

Easy

5

04-02

Easy

9

04-04

Difficult

Exercise/Other No Objective . 1 04-01

Chapter 4/Completing the Accounting Cycle  169

2 04-02 3 04-02 4 04-02 Problem No Objective . 1 04-02 2 04-02 3 04-02 4 04-02 5 04-02 6 04-02 7 04-02 8 04-02

Easy Moderate Easy

6 7 8

04-03 04-03 04-03

Difficulty

No . 9 10 11 12 13 14 15 16

Objective

Difficulty

04-02 04-02 04-02|04-03 04-03 04-03 04-03 04-03 04-03

Difficult Difficult Difficult Moderate Difficult Moderate Moderate Moderate

Easy Easy Moderate Easy Moderate Easy Difficult Difficult

Easy Moderate Moderate

10 11

04-APP 04-APP

Moderate Difficult

No . 17 18 19 20 21 22 23 24

Objective

Difficulty

04-03 04-03 04-03 04-03 04-03 04-05 04-APP 04-APP

Difficult Moderate Difficult Difficult Difficult Difficult Difficult Difficult

Chapter 4—Completing the Accounting Cycle TRUE/FALSE 1. After analyzing transactions, the next step would be to post the transactions in the ledger. ANS: F DIF: Easy OBJ: 04-01 NAT: AACSB Analytic | AICPA FN-Measurement 2. The most important output of the accounting cycle is the financial statements. ANS: T DIF: Easy OBJ: 04-01 NAT: AACSB Analytic | AICPA FN-Measurement 3. The work sheet is not considered a part of the formal accounting records. ANS: T DIF: Easy OBJ: 04-01 NAT: AACSB Analytic | AICPA FN-Measurement 4. Cross-referencing is useful in assuring that the debits and credits are in balance. ANS: F DIF: Moderate OBJ: 04-01 NAT: AACSB Analytic | AICPA FN-Measurement 5.

When accounts do not appear on the unadjusted trial balance but are needed to post adjustments, they are simply added to the account title column. ANS: T DIF: Moderate OBJ: 04-01 NAT: AACSB Analytic | AICPA FN-Measurement 6.

Once the adjusted trial balance is in balance, the flow of accounts will now go into the financial statements. ANS: T DIF: Moderate OBJ: 04-01 NAT: AACSB Analytic | AICPA FN-Measurement

170  Chapter 4/Completing the Accounting Cycle

7. There is really no benefit in preparing financial statements in any particular order. ANS: F DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 8.

Round tripping is a fraudulent scheme where business A artificially inflates revenue by lending money to customer B who uses that money to buy products from A. ANS: T DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 9.

On the income statement, miscellaneous expenses are usually presented as the last item without regard to the dollar amount. ANS: T DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 10. The usual presentation of the statement of retained earnings is (1) Beginning retained earnings, (2) Net income or loss, (3) Dividends, (4) Investment by Stockholder, (5) Ending retained earnings. ANS: F DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 11. The difference between a classified balance sheet and one that is not classified is that the classified one has subheadings. ANS: T DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 12. Cash and other assets that may reasonably be expected to be realized in cash, sold, or consumed through the normal operations of a business, usually longer than one year, are called current assets. ANS: F DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 13. Prepaid Insurance is an example of a current asset. ANS: T DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 14. Land is an example of a plant asset. ANS: T DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 15. Liabilities that will be due within one year or less and that are to be paid out of current assets are called current liabilities. ANS: T DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  171

16. The amount of the net income for a period appears on both the income statement and the balance sheet for that period. ANS: F DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 17. Accrued taxes payable are generally reported on the balance sheet as a current liability. ANS: T DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 18. At the end of the fiscal period, prepaid expenses are reported on the Income Statement as expenses. ANS: F DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 19. Office Equipment is an example of a current asset account. ANS: F DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 20. Capital Stock and Dividends are reported in the stockholders’ equity section of the balance sheet. ANS: F DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 21. Deferred expenses that benefit a relatively short period of time are listed on the balance sheet as current assets. ANS: T DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 22. Unearned revenues that will be earned in a relatively short period of time are listed on the balance sheet as current assets. ANS: F DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 23. Accrued expenses are ordinarily listed on the balance sheet as current assets. ANS: F DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 24. Accrued revenues are ordinarily listed on the balance sheet as current liabilities. ANS: F DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 25. The income statement is prepared from the adjusted trial balance or the income statement columns on the work sheet. ANS: T DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement

172  Chapter 4/Completing the Accounting Cycle

26. Examples of temporary accounts are supplies and prepaid expenses which are in the ledger for just a short time before they expire. ANS: F DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 27. Accumulated Depreciation is a permanent account. ANS: T DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 28. The dividend account is a temporary account. ANS: T DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 29. The balance sheet accounts are referred to as real or permanent accounts. ANS: T DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 30. Journalizing and posting the adjustments and closing entries updates the ledger for the new accounting period. ANS: T DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 31. The income summary account is closed to the retained earnings account. ANS: T DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 32. The accumulated depreciation account is closed to the income summary account. ANS: F DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 33. The dividends account is closed to the income summary account. ANS: F DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 34. The trial balance prepared after all the closing entries have been posted is called a preclosing trial balance. ANS: F DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 35. Entries required to close the balances of the temporary accounts at the end of the period are called final entries. ANS: F DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  173

36. In a corporation, a closing entry for the dividends account may not be necessary. ANS: F DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 37. Journalizing and posting closing entries must be completed before financial statements can be prepared. ANS: F DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 38. During the closing process, some balance sheet accounts are closed and end the period with a zero balance. ANS: F DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 39. Closing entries are entered directly on to the work sheet. ANS: F DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 40. The post-closing trial balance will generally have fewer accounts than the trial balance. ANS: T DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 41. A post-closing trial balance contains only asset and liability accounts. ANS: F DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 42. A post-closing trial balance should be prepared before the financial statements are prepared. ANS: F DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 43. Assets, liabilities, and stockholders’ equity are real accounts and do not get closed at the end of the period. ANS: T DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 44. The income summary account is also known as the clearing account. ANS: T DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 45. All income statement accounts will be closed at the end of the period. ANS: T DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement

174  Chapter 4/Completing the Accounting Cycle

46. Balance Sheet are not considered real accounts. ANS: F DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 47. It is not necessary to post the closing entries to the general ledger. ANS: F DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 48. Once an account has been closed for the period, inserting a line in the balance columns zero’s out the account making it ready for the following period. ANS: T DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 49. The last step of the accounting cycle is to prepare a post-closing trial balance. ANS: T DIF: Easy OBJ: 04-04 NAT: AACSB Analytic | AICPA FN-Measurement 50. The accounting cycle begins with preparing an unadjusted trial balance. ANS: F DIF: Easy OBJ: 04-04 NAT: AACSB Analytic | AICPA FN-Measurement 51. Financial statements should be prepared before the closing entries are journalized and posted. ANS: T DIF: Moderate OBJ: 04-04 NAT: AACSB Analytic | AICPA FN-Measurement 52. The unadjusted, adjusted, and final trial balances are prepared during the accounting cycle of a period. ANS: F DIF: Easy OBJ: 04-04 NAT: AACSB Analytic | AICPA FN-Measurement 53. Any twelve-month accounting period adopted by a company is known as its fiscal year. ANS: T DIF: Easy OBJ: 04-06 NAT: AACSB Analytic | AICPA BB-Industry 54. A fiscal year that ends when business activities have reached their lowest point is called the natural business year. ANS: T DIF: Easy OBJ: 04-06 NAT: AACSB Analytic | AICPA BB-Industry 55. All companies must use a calendar year as their fiscal year. ANS: F DIF: Easy OBJ: 04-06 NAT: AACSB Analytic | AICPA BB-Industry

Chapter 4/Completing the Accounting Cycle  175

56. The majority of businesses end their fiscal year on December 31. ANS: T DIF: Easy OBJ: 04-06 NAT: AACSB Analytic | AICPA BB-Industry 57. The work sheet is not considered a part of the formal accounting records. ANS: T DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 58. The work sheet is a working paper that accountants can use to summarize adjusting entries and the account balances for the financial statements. ANS: T DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 59. In a computerized accounting system, a work sheet may not be necessary because the software program automatically posts entries to the accounts and prepares financial statements. ANS: T DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 60. The trial balance may be listed on the work sheet instead of being prepared separately. ANS: T DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 61. The totals of the Adjusted Trial Balance columns on a work sheet will always be the sum of the Trial Balance column totals and the Adjustments column totals. ANS: F DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 62. A work sheet heading is dated for a period of time. ANS: T DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 63. On the work sheet, the retained earnings and dividend account balances are extended to the Balance Sheet columns. ANS: T DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 64. After the account balances have been extended from the Adjusted Trial Balance columns on the work sheet, the difference between the initial totals of the Balance Sheet debit and credit columns is Net Income or Net Loss. ANS: T DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement

176  Chapter 4/Completing the Accounting Cycle

65. After Net Income or Loss is entered on the work sheet, the debit column total must equal the credit column total for the Balance Sheet pair of columns. ANS: T DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 66. A net loss is shown on the work sheet in the credit columns of both the Income Statement columns and the Balance Sheet columns. ANS: F DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 67. Net income is shown on the work sheet in the Income Statement debit column and the Balance Sheet credit column. ANS: T DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 68. If the totals of the Income Statement debit and credit columns of a work sheet are $22,750 and $25,000, respectively, after all account balances have been extended, the amount of the net loss is $2,250. ANS: F DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 69. The worksheet and the financial statements both require dollar signs. ANS: F DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 70. The balance in the retained accounts account on the worksheet will equal the amount presented in the balance sheet. ANS: F DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 71. Since the adjustments are entered on the work sheet, it is not necessary to record them in the journal or post them to the ledger. ANS: F DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 72. The chart of accounts, the journal, and the ledger are essential parts of the accounting system. ANS: T DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  177

MATCHING Identify the following transactions as either: a. Journal entries b. Adjusting journal entries c. Closing journal entries 1.

Cash

500 Fees Earned 500 2. Income Summary 465 Retained earnings 465 3. Utilities Expense 123 Cash 123 4. Wages Expense 790 Wages Payable 790 5. Unearned revenue 498 Fees Earned 498 6. Income Summary 677 Rent Expense 240 Supplies Expense 220 Utilities Expense 130 Miscellaneous Exp 87 7. Dividends 175 Cash 175 8. Accounts Receivable 400 Fees earned 400 (Customer billed for services performed) 1. ANS: A DIF: Moderate OBJ: 04-05 NAT: AACSB Analytic | AICPA FN-Measurement 2. ANS: C DIF: Moderate OBJ: 04-05 NAT: AACSB Analytic | AICPA FN-Measurement 3. ANS: A DIF: Moderate OBJ: 04-05 NAT: AACSB Analytic | AICPA FN-Measurement 4. ANS: B DIF: Moderate OBJ: 04-05 NAT: AACSB Analytic | AICPA FN-Measurement 5. ANS: B DIF: Moderate OBJ: 04-05 NAT: AACSB Analytic | AICPA FN-Measurement 6. ANS: C DIF: Moderate OBJ: 04-05 NAT: AACSB Analytic | AICPA FN-Measurement 7. ANS: A DIF: Moderate OBJ: 04-05 NAT: AACSB Analytic | AICPA FN-Measurement 8. ANS: A DIF: Moderate OBJ: 04-05 NAT: AACSB Analytic | AICPA FN-Measurement

178  Chapter 4/Completing the Accounting Cycle

MULTIPLE CHOICE 1.

In the accounting cycle, the last step is a. preparing the financial statements b. journalizing and posting the adjusting entries c. preparing a post-closing trial balance d. journalizing and posting the closing entries ANS: C DIF: Moderate OBJ: 04-01 NAT: AACSB Analytic | AICPA FN-Measurement 2.

During the end-of-period processing which of the following best describes the logical order of this process a. Preparation of adjustments, adjusted trial balance, financial statements b. Preparation of Income Statement, adjusted trial balance, Balance Sheet c. Preparation of adjusted trial balance, cross-referencing, journalizing d. Preparation of adjustments, adjusted trial balance, posting ANS: A DIF: Difficult OBJ: 04-01 NAT: AACSB Analytic | AICPA FN-Measurement 3.

What is the major difference between the Unadjusted Trial Balance and the Adjusted Trial Balance? a. The Adjusted Trial Balance will show the net income (loss) as an additional account. b. Both will need to be in balance in order to continue with the end-of-period processing c. The Adjusted Trial Balance includes the postings of the adjustments for the period in the balance of the accounts. d. The Unadjusted Trial Balance will be used to record the adjustments for the period. ANS: C DIF: Difficult OBJ: 04-01 NAT: AACSB Analytic | AICPA FN-Measurement 4.

Once the adjusting entries are posted, the Adjusted Trial Balance will prepared to a. verify that the debits and credits are in balance. b. verify that all of the adjustments were posted in the correct accounts. c. verify that the net income (loss) is correct for the period. d. verify the correct flow of accounts into the financial statements. ANS: A DIF: Moderate OBJ: 04-01 NAT: AACSB Analytic | AICPA FN-Measurement 5.

When preparing the statement of retained earnings, the beginning retained earnings balance can always be found a. in the Income Statement columns of the work sheet b. in the statement of cash flows c. in the general ledger d. in the Balance Sheet columns of the work sheet ANS: C DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  179

6.

Accumulated Depreciation appears on the a. balance sheet in the current assets section b. balance sheet in the property, plant and equipment section c. balance sheet in the long-term liabilities section d. income statement as an operating expense ANS: B DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 7.

Notes Receivable due in 345 days appear on the a. balance sheet in the current assets section b. balance sheet in the fixed assets section c. balance sheet in the current liabilities section d. income statement as an expense ANS: A DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 8.

Unearned Fees appear on the a. balance sheet in the current assets section b. balance sheet as a current liability c. balance sheet in the stockholders’ equity section d. income statement as revenue ANS: B DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 9.

Which one of the fixed asset accounts listed below will not have a related contra asset account? a. Office Equipment b. Land c. Delivery Equipment d. Building ANS: B DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 10. Prepaid insurance is reported on the balance sheet as a a. current asset b. fixed asset c. current liability d. long-term liability ANS: A DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement

180  Chapter 4/Completing the Accounting Cycle

11. The income statement is prepared from the a. adjusted trial balance b. income statement columns of the work sheet c. either the adjusted trial balance or the income statement columns of the work sheet d. both the adjusted trial balance and the income statement columns of the work sheet ANS: C DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 12. Round-tripping is when a. a selling company sells to a customer company with huge discounts. b. a selling company pretends to sell to a fictitious company with the intend of inflating revenues c. a selling company lends money to a customer company to increase assets. d. a selling company lends money to a customer company to be used to purchase goods from the selling company. ANS: D DIF: Difficult OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 13. The Statement of Retained Earnings should be prepared a. before the income statement and after the balance sheet b. before the income statement and balance sheet c. after the income statement and balance sheet d. after the income statement and before the balance sheet ANS: A DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 14. The income statement should be prepared a. before the statement of retained earnings and balance sheet b. after the statement of retained earnings and before the balance sheet c. after the statement of retained earnings and balance sheet d. after the balance sheet and before the statement of retained earnings ANS: A DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 15. When preparing the Statement of Retained Earnings the beginning balance should be followed by ____ to arrive and the ending balance of retained earnings. a. investments plus net income (loss) b. investments less dividends c. net income (loss) less dividends d. investments plus net income (loss) less dividends ANS: A DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  181

The following is the adjusted trial balance for Steely Company. Steely Company Adjusted Trial Balance For the Year ended December 31, 2008 Cash Accounts Receivable Prepaid Expenses Equipment Accumulated Depreciation Accounts Payable Notes Payable Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Depreciation Expense Miscellaneous Expense Totals

6,130 2,300 750 13,400 1,200 1,700 5,000 12,000 870 6,600 1,450 900 475 150 75 26,500

16. Determine the net income (loss) for the period. a. Net Income 26,500 b. Net Loss 870 c. Net Loss 3,550 d. Net Income 3,550 ANS: D DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 17. Determine the stockholders’ equity ending balance for the period. a. $14,680 b. $11,130 c. $15,550 d. $2,680 ANS: A DIF: Difficult OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement

26,500

182  Chapter 4/Completing the Accounting Cycle

18. Determine total assets. a. $26,500 b. $15,380 c. $21,380 d. $22,580 ANS: C DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 19. Determine the current assets. a. $22,580 b. $9,180 c. $21,380 d. $26,500 ANS: B DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 20. Determine the total liabilities for the period. a. $6,700 b. $1,700 c. $5,000 d. $18,700 ANS: A DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 21. The Balance Sheet should be prepared a. before the income statement and the statement of retained earnings b. before the income statement and after the statement of retained earnings c. after the income statement and the statement of retained earnings d. after the income statement and before the statement of retained earnings ANS: C DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 22. The Statement of Retained Earnings begins with the beginning balance followed by a. plus Net Income (loss) less dividends b. plus Net Income (loss) plus investments c. plus investments less dividends d. plus investments plus Net Income (loss) less dividends ANS: A DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  183

23. The Income Statement will include the following accounts a. Revenues less Expenses (ordered largest to smallest amount) with Miscellaneous Expense listed last b. Revenues less Expenses (ordered smallest to largest amounts) with Miscellaneous Expense listed last c. Revenues less Expenses (ordered in alphabetical order) d. Revenues less Expenses (order is not important) ANS: A DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 24. The classified Balance Sheet will subsection the assets section as follows a. Current Assets and Other Assets b. Current Assets and Property, Plant, and Equipment c. Current Assets and Long-Term Assets d. Other Assets and Property, Plant and Equipment ANS: B DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 25. The classified Balance Sheet will divide its Liabilities Section as the following subsections a. Current Liabilities and Long-Term Liabilities b. Current Liabilities and Other Liabilities c. Other Liabilities and Long-Term Liabilities d. Present Liabilities and Tomorrow’s Liabilities ANS: A DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 26. Long-term liabilities are those liabilities that a. will be paid in less than one year b. are due to paid in 5 to 10 years c. are due to be paid in more than one year d. are liabilities owed to the owner and will never be paid ANS: C DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 27. The stockholders’ equity is a. added to assets and the two are equal to liabilities b. added to liabilities and the two are equal to assets c. subtracted from liabilities and the net amount is equal to assets d. subtracted from stockholders’ equity and the net amount is equal to net income ANS: B DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement

184  Chapter 4/Completing the Accounting Cycle

28. Balance sheet accounts a. represent amounts accumulated during a specific period of time b. are called real accounts c. have zero balances after the closing entries have been posted d. are equal to assets and liabilities ANS: B DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 29. On which financial statement will Income Summary be shown? a. Statement of retained earnings b. Balance Sheet c. Income Statement d. No financial statement ANS: D DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 30. Which is the following that is not true about closing entries? a. There are four closing entries that update the stockholders’ equity account. b. After the second closing entry, the income summary account is equal to the net income or (loss) for the period. c. All real accounts are closed at the end of the period. d. By closing nominal accounts at the end of the period to zero, it is possible to isolate next period’s information correctly. ANS: C DIF: Difficult OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 31. The income summary account is also called a. the closing account b. the clearing account c. the nominal account d. the temporary account ANS: B DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 32. After posting the second closing entry to the income summary account, the balance will be equal to a. zero. b. stockholders’ equity. c. revenues for the period d. the net income or (loss) for the period. ANS: D DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  185

33. What is the last account that should be listed in the Post Closing Trial Balance? a. Income Summary b. Retained Earnings c. Cash d. Fees Earned ANS: B DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 34. Which of the following account groups are all considered nominal accounts? a. Cash, Fees Earned, Unearned Revenues b. Prepaid Expenses, Unearned Revenues, Fees Earned c. Capital Stock, Dividends, Income Summary d. Dividends, Fees Earned, Rent Expense ANS: D DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 35. There are four closing entries. The first one is to close ____, the second one is to close ____, the third one is to close ____, and the last one is to close ____. a. Revenues, expenses, income summary, dividends account b. Expenses, assets, income summary, capital stock account c. Capital stock account, dividends account, income summary, assets d. Dividends account, income summary, expenses, revenues ANS: A DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 36. All of the closing entries will adjust ____ to update that account. a. the dividends account b. the retained earnings account c. the cash account d. the income summary account ANS: B DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 37. Closing entries a. need not be journalized if adjusting entries are prepared b. need not be posted if the financial statements are prepared from the work sheet c. are not needed if adjusting entries are prepared d. must be journalized and posted ANS: D DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement

186  Chapter 4/Completing the Accounting Cycle

38. Closing entries are dated in the journal as of a. the date they are actually journalized, although they are generally prepared after the end of the accounting period b. the last day of the accounting period, although they are actually journalized after the end of the accounting period c. the first day of the accounting period, although they are actually journalized after the end of the accounting period d. the first day of the subsequent accounting period ANS: B DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 39. Which of the accounts below would be closed by posting a debit to the account? a. Unearned Revenue b. Fees Earned c. Dividends d. Rent Expense ANS: B DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 40. Which of the following accounts should be closed to Income Summary at the end of the fiscal year? a. Supplies Expense b. Accumulated Depreciation c. Prepaid Insurance d. Unearned Rent ANS: A DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 41. Which of the following accounts will not be closed to Income Summary at the end of the fiscal year? a. Salaries Expense b. Fees Earned c. Unearned Rent d. Depreciation Expense ANS: C DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 42. Which of the following accounts will be closed to the retained earnings account at the end of the fiscal year? a. Rent Expense b. Fees Earned c. Income Summary d. Depreciation Expense ANS: C DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  187

43. The entry to close the appropriate insurance account at the end of the accounting period is a. debit Income Summary; credit Prepaid Insurance b. debit Prepaid Insurance; credit Income Summary c. debit Insurance Expense; credit Income Summary d. debit Income Summary; credit Insurance Expense ANS: D DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 44. Which of the following accounts ordinarily appears in the post-closing trial balance? a. Dividends b. Supplies Expense c. Fees Earned d. Unearned Rent ANS: D DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 45. The post-closing trial balance differs from the adjusted trial balance in that it a. does not take into account closing entries b. does not take into account adjusting entries c. does not include balance sheet accounts d. does not include income statement accounts ANS: D DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 46. The following accounts were taken from the Adjusted Trial Balance columns of the work sheet: Accumulated Depreciation Fees Earned Depreciation Expense Insurance Expense Prepaid Insurance Supplies Supplies Expenses Net income for the period is a. $2,300 b. $10,000 c. $4,300 d. $5,000 ANS: B DIF: Difficult OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement

$ 2,000 15,000 1,000 500 4,500 1,200 3,500

188  Chapter 4/Completing the Accounting Cycle

47. A summary of selected ledger accounts appear below for Ted's Auto Services for the 2007 calendar year end. 12/31

Capital Stock 7,000 1/1 12/31

5,000 17,000

6/30 11/30

Dividends 2,000 12/31 5,000

7,000

12/31 12/31

Income Summary 15,000 12/31 17,000

32,000

Net income for the period is a. $17,000 b. $22,000 c. $7,000 d. $15,000 ANS: A DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 48. Red Rock Stone purchased a one-year liability insurance policy on January 1st of this year for $3,600 and recorded it as a prepaid expense. From the selections of a. through d., select the value that would be utilized in the closing entry for insurance expense and prepaid insurance during the closing process at the end of the first fiscal period on January 31st. a. $3,600. b. $360. c. $300. d. $360. ANS: C DIF: Difficult OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  189

49. The journal entry to close the Fees Earned, $100, and Rent Revenue, $25, accounts on December 31st during the closing process would be: a. Dec 31 Fees Earned 100 Rent Revenue 25 Income Summary 125 b. Dec 31 Income Summary 125 Fees Earned 100 Rent Revenue 25 c. Dec 31 Revenues 125 Income Summary 125 d. Dec 31 Income Summary 125 Revenues 125 ANS: A DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement Mantle Company Worksheet For the Year Ended December 31, 2008 Adjusted Trial Balance Income Statement Account Title Debit Credit Cash 16,000 Accounts Receivable 6,000 Supplies 2,000 Equipment 19,000 Accumulated Depr6,000 Equip Accounts Payable 10,000 Wages Payable 2,000 Capital Stock 11,000 Dividends 1,000 Fees Earned 47,000 Wages Expense 21,000 Rent Expense 6,000 Depreciation Expense 5,000 Totals 76,000 76,000 Net Income (Loss)

Debit

Balance Sheet Credit Debit 16,000 6,000 2,000 19,000

Credit

6,000 10,000 2,000 11,000 1,000 47,000 21,000 6,000 5,000 32,000 15,000 47,000

47,000

44,000

47,000

44,000

29,000 15,000 44,000

190  Chapter 4/Completing the Accounting Cycle

50. The journal entry to close revenues would be: a. debit Income Summary $47,000, credit Fees Earned $47,000 b. debit Retained Earnings $47,000, credit Fees Earned $47,000 c. debit Fees Earned $47,000; credit Income Summary $47,000 d. credit Fees Earned $47,000; credit Capital Stock $47,000 ANS: C DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 51. Based on the preceding trial balance, the entry to close expenses would be: a. Wages Expense $21,000 Rent Expense 6,000 Depreciation Expense 5,000 Income Summary 32,000 b. Expenses 32,000 Income Summary 32,000 c. Wages Expense $21,000 Rent Expense 6,000 Depreciation Expense 5,000 Retained Earnings 32,000 d. Income Summary 32,000 Wages Expense $21,000 Rent Expense 6,000 Depreciation Expense 5,000 ANS: D DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 52. Based on the preceding trial balance, the entry to close income summary would be: a. debit Income Summary $15,000; credit Retained Earnings $4,000 b. debit Income Summary $47,000; credit Retained Earnings $47,000 c. debit Income Summary $15,000, credit Retained Earnings $15,000 d. debit Retained Earnings $4,000; credit Income Summary $4,000 ANS: C DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 53. Based on the preceding trial balance, the entry to close the dividends would be: a. debit Retained Earnings $1,000, credit Dividends $1,000 b. debit Retained Earnings $4,000, credit Dividends $4,000 c. debit Dividends $1,000; credit Retained Earnings $1,000 d. debit Dividends $4,000; credit Retained Earnings $4,000 ANS: A DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  191

54. Based on the preceding trial balance, the ending balance in Retained Earnings is: a. $0 b. $25,000 c. $4,000 d. $1,000 ANS: B DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 55. The proper sequence for the steps in the accounting cycle is a follows a. analyze and record transactions, post transaction to the ledger, prepare a trial balance, prepare financial statements, journalize closing entries, analyze adjustment data and prepare adjusting entries b. prepare a trial balance, analyze adjustment data, prepare adjusting entries, prepare financial statements, journalize closing entries and post to the ledger, analyze and record transactions, post transactions to the ledger c. analyze and record transactions, post transactions to the ledger, prepare a trial balance, analyze adjustment data, prepare adjusting entries, prepare financial statements, journalize closing entries and post to the ledger d. prepare financial statements, journalize closing entries and post to the ledger, analyze and record transactions, post transactions to the ledger, prepare a trial balance, analyze adjustment data, prepare adjusting entries ANS: C DIF: Moderate OBJ: 04-04 NAT: AACSB Analytic | AICPA FN-Measurement 56. The following are steps to the accounting cycle. Of the following, which step should be done first. a. Closing entries are journalized and posted to the ledger. b. Transactions are posted to the ledger. c. Adjusting entries are journalized and posted to the ledger. d. Financial statements are prepared. ANS: B DIF: Moderate OBJ: 04-04 NAT: AACSB Analytic | AICPA FN-Measurement 57. The following are steps in the accounting cycle. Of the following, which would be prepared last? a. An adjusted trial balance is prepared. b. Transactions are posted to the ledger. c. An unadjusted trial balance is prepared. d. Adjusting entries are journalized and posted to the ledger. ANS: A DIF: Moderate OBJ: 04-04 NAT: AACSB Analytic | AICPA FN-Measurement

192  Chapter 4/Completing the Accounting Cycle

58. The accounting cycle requires three trial balances be done. In what order should they be prepared? a. Post-closing, unadjusted, adjusted b. Unadjusted, post-closing, adjusted c. Unadjusted, adjusted, post-closing d. Post-closing, adjusted, unadjusted ANS: C DIF: Easy OBJ: 04-04 NAT: AACSB Analytic | AICPA FN-Measurement 59. The fiscal year selected by companies a. is the same as the calendar year b. begins with the first day of the month and ends on the last day of the twelfth month c. must always begin on January 1. d. will change each year ANS: B DIF: Moderate OBJ: 04-06 NAT: AACSB Analytic | AICPA BB-Industry 60. A fiscal year a. ordinarily begins on the first day of a month and ends on the last day of the following twelfth month b. for a business is determined by the federal government c. always begins on January 1 and ends on December 31 of the same year d. should end at the height of the business's annual operating cycle ANS: A DIF: Moderate OBJ: 04-06 NAT: AACSB Analytic | AICPA BB-Industry 61. The natural business year a. is a fiscal year that ends when business activities are at its lowest point. b. is a calendar year that ends when business activities are at its lowest point. c. is a fiscal year that ends when business activities are at its highest point. d. is a calendar year that ends when business activities are at its highest point. ANS: A DIF: Moderate OBJ: 04-06 NAT: AACSB Analytic | AICPA BB-Industry 62. The worksheet a. is an integral part of the accounting cycle b. eliminates the need to rewrite the financial statements c. is a working paper that is required d. is used to summarize account balances and adjustments for the financial statements ANS: D DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  193

63. Which one of the steps below is not aided by the preparation of the work sheet? a. preparing the adjusted trial balance b. posting to the general ledger c. preparing the financial statements d. preparing the closing entries ANS: B DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 64. A work sheet includes columns for a. adjusting entries b. closing entries c. reversing entries d. adjusting and closing entries ANS: A DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 65. When a work sheet is complete, the adjustment columns should have a. total credits greater than total debits if a net income was earned b. total debits grater than total credits if a net loss was incurred c. total debits greater than total credits if a net income was earned d. total debits equal total credits ANS: D DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 66. The difference between the totals of the debit and credit columns of the Adjusted Trial Balance columns on a work sheet a. is the amount of net income or loss b. indicates there is an error on the work sheet c. is not unusual when preparing the work sheet d. is the net difference between revenue, expenses, and dividends ANS: B DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 67. Net income appears on the work sheet in the a. debit column of the Balance Sheet columns b. debit column of the Adjustments columns c. debit column of the Income Statement columns d. credit column of the Income Statement columns ANS: C DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement

194  Chapter 4/Completing the Accounting Cycle

68. A net loss appears on the work sheet in the a. debit column of the Balance Sheet columns b. credit column of the Balance Sheet columns c. debit column of the Income Statement columns d. credit column of the Adjustments columns ANS: A DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 69. After net income is entered on the work sheet, the Balance Sheet debit and credit columns must a. be the same amount as the total amount of the Income Statement debit and credit columns b. equal each other c. be the same amount as the total amount in the Adjusted Trial Balance debit and credit columns d. not be equal to each other and need not be the same total amounts as any other pair of columns on the work sheet ANS: B DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 70. Which of the statements below indicates that a company earned a net income for the period? a. The sum of the debits exceeds the sum of the credits in the Balance Sheet columns on the work sheet. b. The sum of the credits exceeds the sum of the debits in the Income Statement columns on the work sheet. c. The sum of the debits exceeds the sum of the credits in the Income Statement columns on the work sheet. d. Cash inflows exceeded cash outflows. ANS: B DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 71. Which of the items below would appear in the Income Statement columns of the work sheet? a. Equipment b. Unearned Fees c. Prepaid Expense d. Net Loss ANS: D DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  195

72. Which of the accounts below would appear in the balance sheet columns of the worksheet? a. Rent Earned b. Dividends c. Unearned Revenue d. Dividends and Unearned Revenue ANS: D DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 73. Which of the accounts below would appear in the Balance Sheet columns of the work sheet? a. Service Revenue b. Prepaid Rent c. Supplies Expense d. None are correct ANS: B DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 74. The work sheet at the end of September has $4,000 in the Balance Sheet credit column for Accumulated Depreciation. The work sheet at the end of October has $4,750 in the Balance Sheet credit column for Accumulated Depreciation. What was the amount of the depreciation expense adjustment for the month of October? a. amount can not be determined b. $4,750 c. $4,000 d. $750 ANS: D DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 75. Which of the items below does not appear on the work sheet? a. adjusting entries b. the unadjusted trial balance c. closing entries d. dividends ANS: C DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 76. An indication that the work sheet columns are in balance and the work sheet is completed is a. the word "Total" is written at the bottom of each pair of columns b. each pair of columns is double underlined c. each pair of columns has the totals circled d. the final figures are written in ink ANS: B DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement

196  Chapter 4/Completing the Accounting Cycle

77. After all of the account balances have been extended to the Balance Sheet columns of the work sheet, the totals of the debit and credit columns are $25,250 and $21,825, respectively. What is the amount of net income or net loss for the period? a. $3,425 net income b. $25,250 net loss c. $3,425 net loss d. $21,825 net income ANS: A DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 78. After all of the account balances have been extended to the Income Statement columns of the work sheet, the totals of the debit and credit columns are $87,500 and $98,300, respectively. What is the amount of the net income or net loss for the period? a. $10,800 net income b. $10,800 net loss c. $98,300 net income d. $87,500 net loss ANS: A DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 79. On October 1, the company pays rent for twelve months in advance and debits an asset account. At year end, the adjusting entry on the work sheet would a. increase an expense account b. decrease a liability account c. increase an asset account d. decrease an expense account ANS: A DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 80. On August 1, a company collects revenue in advance for the next twelve months and credits a liability account. The adjusting entry at year end on the work sheet would a. increase a liability account b. decrease an asset account c. decrease a revenue account d. decrease a liability account ANS: D DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 81. Which of the following is not an essential part of the accounting records? a. The journal b. The ledger c. The chart of accounts d. The work sheet ANS: D DIF: Easy OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement

Chapter 4/Completing the Accounting Cycle  197

82. After totaling all of the columns in the work sheet, the Balance Sheet show debits of $35,678 and the credits of $39,901. This indicates that a. neither net income or loss can be calculated because that is found on the income statement b. the company recorded a net loss of $4,223 c. the company recorded a net income of $4,223 d. The amounts are out of balance and need to be corrected ANS: A DIF: Difficult OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement 83. The column of the income statement show the debits are equal to $56,899 and credits are $60,333. What do this information mean to the accountant? a. Net income of $3,434 b. Net loss of $3,434 c. the accounts are out of balance d. None are correct. ANS: A DIF: Difficult OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement EXERCISE/OTHER 1.

The balances for the accounts listed below appear in the Adjusted Trial balance columns of the end-of-period spreadsheet (work sheet). Indicate whether each balance should be extended to (a) an Income Statement column or (b) a Balance Sheet column.

(1) Retained Earnings (2) Dividends (3) Depreciation Expense (4) Accumulated Depreciation (5) Fees earned (6) Unearned Fees (7) Supplies (8) Supplies Expense ANS: (1) Balance sheet column (2) Balance sheet column (3) Income statement column (4) Balance sheet column (5) Income statement column (6) Balance sheet column (7) Balance sheet column (8) Income statement column DIF: Easy OBJ: 04-01 NAT: AACSB Analytic | AICPA FN-Measurement TOP: Example Exercise 4-1

198  Chapter 4/Completing the Accounting Cycle

2.

In the Balance Sheet columns of the end-of-period spreadsheet (work sheet) for Sugar Company. for the current year, the Debit column total is $563,430, and the Credit column total is $544,210 before the amount for net income or net loss has been included. In preparing the income statement from the end-of-period spreadsheet (work sheet), what is the amount of net income or net loss? ANS: A net income of $19,220 DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement TOP: Example Exercise 4-2 3.

Aaron Daniel owns and operates Reach It Baseball Batting Cages Company. On January 1, 2008, Aaron Daniel, the balance in capital stock was $100,000 and retained earnings had a balance of $212,000 During the year Aaron invested an additional $20,000 and the company paid cash dividends of $35,000. For the year ended December 31, 2008, Reach It Baseball Batting Cages reported a net income of $56,780. Prepare a statement of retained earnings for the year ended December 31, 2008. ANS: Reach It Baseball Batting Cages Company Statement of Retained Earnings For the Year Ended December 31, 2008 Retained earnings January 1, 2008 Net Income Less Dividends Increase in retained earnings Retained earnings, December 31, 2008

$212,000 $56,780 35,000 21,780 $233,780

DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement TOP: Example Exercise 4-3 4.

The following accounts appear in an adjusted trial balance of Reach It Batting Cages Company. Indicate whether each account would be reported in the (a) current asset, (b) property, plant, and equipment, (c) current liabilities, (d) long-term liability, or (e) stockholders’ equity section of the December 31, 2008, balance sheet of Reach It Batting Cages Company. (1) (2) (3) (4) (5) (6) (7) (8)

Capital Stock Accumulated Depreciation Unearned Revenues Mortgage Payable Equipment Notes Payable (due in 2010) Cash Accounts Receivable

Chapter 4/Completing the Accounting Cycle  199

ANS: (1) Stockholders’ equity (2) Property, plant and equipment (3) Current liabilities (4) Long-term liabilities (5) Property, plant and equipment (6) Long-term liabilities (7) Current assets (8) Current assets DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement TOP: Example Exercise 4-4 5. Compare the differences between a balance sheet and a classified balance sheet. ANS: A classified balance sheet subsections assets as current assets and property, plant, and equipment. It also subsections liabilities as current liabilities and long-term liabilities, and stockholders’ equity. DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 6. List and describe the purpose of the four closing entries. ANS: (1) Close revenues to income summary. (2) Close expenses to income summary. (3) Close income summary to retained earnings. (4) Close dividend account to retained earnings. DIF: Easy OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 7.

After the accounts have been adjusted at January 31, 2008, the end of the fiscal year, the following balances are taken from the ledger of Reach It Batting Cages Company Capital Stock Dividends Fees Earned Wages Expense Rent Expense Supplies Expense Miscellaneous Expense

$356,000 12,000 123,400 36,000 50,000 14,300 1,050

200  Chapter 4/Completing the Accounting Cycle

Journalize the four entries required to close the accounts ANS: Jan 31 Fees Earned Income Summary 31 Income Summary Wages Expense Rent Expense Supplies Expense Miscellaneous Expense

123,400 123.400 101,350 36,000 50,000 14,300 1,050

31 Income Summary Retained Earnings

22,050

31 Retained Earnings Dividends

12,000

22,050 12,000

DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement TOP: Example Exercise 4-5 8.

Prior to adjustment at July 31, 2007, Salary Expense has a debit balance of $300,500. Salaries owed but not paid as of the same date total $1,500. Present the entries to record the following: (1) Accrued salaries as of July 31. (2) Closing of Salary Expense as of July 31.

ANS: (1) Salary Expense Salaries Payable (2)

Income Summary Salary Expense

DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement

1,500 1,500 302,000 302,000

Chapter 4/Completing the Accounting Cycle  201

9.

The following are all the steps in the accounting cycle. List them in the order in which they should be done.

- Closing entries are journalized and posted to the ledger. - An unadjusted trial balance is prepared. - An optional end-of-period spreadsheet (work sheet) is prepared. - A post-closing trial balance is prepared. - Adjusting entries are journalized and posted to the ledger. - Transactions are analyzed and recorded in the journal. - Adjustment data are assembled and analyzed. - Financial statements are prepared. - An adjusted trial balance is prepared. - Transactions are posted to the ledger. ANS: 1. Transactions are analyzed and recorded in the journal. 2. Transactions are posted to the ledger. 3. An unadjusted trial balance is prepared. 4. Adjustment data are assembled and analyzed. 5. An optional end-of-period spreadsheet (work sheet) is prepared. 6. Adjusting entries are journalized and posted to the ledger. 7. An adjusted trial balance is prepared. 8. Financial statements are prepared. 9. Closing entries are journalized and posted to the ledger. 10. A post-closing trial balance is prepared. DIF: Difficult OBJ: 04-04 NAT: AACSB Analytic | AICPA FN-Measurement TOP: Example Exercise 4-6 10. If work papers are not considered a part of the formal accounting records, then why are they used? ANS: Work papers are tools used by accounts to collect and summarize date for various analysis and reports. DIF: Moderate OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement

202  Chapter 4/Completing the Accounting Cycle

11. Explain how net income or loss is determined by using the work sheet. ANS: The difference between the debits and credits from the Income Statement columns are compared to the debits and credits from the Balance Sheet columns. They should be the same amounts but opposite from each other. If the debits are more than the credits on the income statement columns, signifying a net loss, then the credits should be higher than the debits on the balance sheet columns by the same amount. If the credits are more than the debits on the income statement columns, signifying a net income, then the debits should be higher than the credits on the balance sheet columns by the same amount. DIF: Difficult OBJ: 04-App NAT: AACSB Analytic | AICPA FN-Measurement PROBLEM 1.

The balances for the accounts listed below appeared in the Adjusted Trial Balance columns of the work sheet. Indicate whether each balance should be extended to (a) the Income Statement columns or (b) the Balance Sheet columns. (1) (2) (3) (4) (5) (6)

Salaries Payable Fees Earned Accounts Payable Capital Stock Supplies Expense Unearned Rent

(7) (8) (9) (10) (11) (12)

Dividends Equipment Accounts Receivable Accumulated Depreciation Salary Expense Depreciation Expense

ANS: (a) Income statement: 2, 5, 11, 12 (b) Balance sheet: 1, 3, 4, 6, 7, 8, 9, 10 DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 2.

Indicate whether each of the following would be reported in the financial statements as a(n) (a) current asset, (b) current liability, (c) revenue, or (d) expense: (1) (2) (3) (4)

Supplies Unearned Fees Prepaid Advertising Advertising Expense

(5) (6) (7) (8)

Supplies Expense Prepaid Insurance Accounts Payable Fees Earned

Chapter 4/Completing the Accounting Cycle  203

ANS: (1) current asset (2) current liability (3) current asset (4) expense (5) expense (6) current asset (7) current liability (8) revenue DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 3.

The following accounts were taken from the Adjusted Trial Balance columns of the work sheet for June 30, 2007 for Brodie Co.: Accumulated Depreciation Fees Earned Depreciation Expense Rent Expense Prepaid Insurance Supplies Supplies Expense

$ 25,000 85,000 9,500 44,000 7,000 500 2,500

Prepare an income statement. ANS: Brodie Co. Income Statement For the Year Ended June 30, 2007 Fees earned Expenses: Rent expense Depreciation expense Supplies expense Total expenses Net income DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement

$85,000 $44,000 9,500 2,500 56,000 $29,000

204  Chapter 4/Completing the Accounting Cycle

4.

The following revenue and expense account balances were taken from the Income Statement columns of the work sheet for Marion Services Co. for December 31, 2007: Depreciation Expense Insurance Expense Miscellaneous Expense Rent Expense Service Revenue Supplies Expense Utilities Expense Wages Expense

$ 5,950 3,900 2,200 34,000 102,500 4,150 6,000 53,750

Prepare an income statement. ANS: Marion Services Co. Income Statement For the Year Ended December 31, 2007 Service revenue Operating expenses: Wages expense Rent expense Utilities expense Depreciation expense Insurance expense Supplies expense Miscellaneous expense Total operating expenses Net loss

$ 102,500 $53,750 34,000 6,000 5,950 3,900 4,150 2,200 109,950 $ (7,450)

DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 5.

The following data were taken from the Balance Sheet columns of the work sheet for September 30, 2007 for Clayton Company: Accumulated Depreciation-Trucks Prepaid Rent Supplies Unearned Fees Trucks Cash Capital Stock Retained Earnings

$25,000 4,000 500 4,300 29,000 2,000 1,000 ?

Chapter 4/Completing the Accounting Cycle  205

Prepare a classified balance sheet. ANS: Clayton Company Balance Sheet September 30, 2007 Assets Current assets: Cash Supplies Prepaid rent Total current assets Property, plant, and equipment: Trucks

Liabilities $ 2,000 500 4,000

Current liabilities: Unearned fees $ 6,500

$29,000

Less accum. depreciation Total property, plant and equipment Total assets

Stockholders’ Equity Capital Stock 1,000 Retained Earnings 5,200 Total Stockholders’ Equity Total liabilities and owner's equity

$ 4,300

6,200 $10,500

25,000 4,000 $10,500

DIF: Moderate OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 6.

Indicate whether each of the following would be reported in the section of financial statements identified as (a) current asset, (b) property, plant, and equipment, (c) current liability, (d) revenue, or (e) expense: (1) (2) (3) (4) (5) (6) (7) (8) (9)

Automobile Accumulated depreciation Rent expense Fees earned Salaries payable Prepaid rent Store supplies Advertising expense Unearned rent

206  Chapter 4/Completing the Accounting Cycle

ANS: (1) property, plant, and equipment (2) property, plant, and equipment (3) expense (4) revenue (5) current liability (6) current asset (7) current asset (8) expense (9) current liability DIF: Easy OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 7.

The following balance sheet contains errors. Billy Brown Services Co. Balance Sheet For the Year Ended December 31, 2007 Assets Current assets: Cash Accounts payable Supplies Prepaid insurance Land Total current assets Property, plant, and equipment: Building Equipment Total property, plant, and equipment Total assets

Liabilities Current liabilities: Accounts receivable Accum. depr-building Accum. depr-equipment Net income

$ 6,170 8,500 1,590 345 25,000

$ 41,605 Total liabilities

$45,500 28,250

$

9,000 13,525 6,340 12,500

$ 41,365

Stockholders’ Equity Wages payable

$

Capital stock Retained earnings Total Stockholders’Equity

40,000 $ 34,490 $74,990

500

73,750 Total liabilities and $116,355 stockholders’ equity

$116,355

Chapter 4/Completing the Accounting Cycle  207

(a) List the errors in the balance sheet above and (b) prepare a corrected balance sheet. ANS: (a) (1) Date of statement should be "December 31, 2007" and not "For the Year Ended December 31, 2007." (2) Accounts payable should be a current liability. (3) Land should be a fixed asset and listed as Property, Plant and Equipment. (4) Accumulated depreciation should be deducted from the related fixed asset in the Property Plant, and Equipment section. (5) An adding error was made in determining the amount of total assets. (6) Accounts receivable should be a current asset. (7) Net income would be reported on the income statement. (8) Wages payable should be a current liability.

208  Chapter 4/Completing the Accounting Cycle

A corrected balance sheet would be as follows: Billy Brown Services Co. Balance Sheet December 13, 2007 Assets Current assets: Cash Accounts receivable Supplies Prepaid insurance Total current assets Property, plant, and equipment: Land Building Less accum. depreciation Equipment Less accum. depreciation Total property, plant, and equipment Total assets Liabilities Current liabilities: Accounts payable Wages payable Total liabilities

$ 6,170 9,000 1,590 345 $17,105 $25,000 $45,500 13,525 28,250 6,340

Stockholders’ Equity Capital stock Retained earnings Total Stockholders’ equity Total liabilities and stockholders’ equity DIF: Difficult OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement

31,975 21,910 78,885 $95,990 $8,500 500 $ 9,000 $40,000 46,990 86,990 $95,990

Chapter 4/Completing the Accounting Cycle  209

8.

The following is the adjusted trial balance for Steely Company. Steely Company Adjusted Trial Balance For the Year ended December 31, 2008 Cash Accounts Receivable Prepaid Expenses Equipment Accumulated Depreciation Accounts Payable Notes Payable - Due on June 30, 2009 Capital Stock Retained Earnings Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Depreciation Expense Miscellaneous Expense Totals

6,130 2,300 750 13,400 1,200 1,700 5,000 6,000 6,000 870 6,600 1,450 900 475 150 75 26,500

26,500

Prepare an Income Statement, Balance Sheet, and Statement of Stockholders’ Equity. ANS: Steely Company Income Statement For Year Ended December 31, 2008 Fees Earned Expenses: Wages Expense Rent Expense Utilities Expense Depreciation Expense Miscellaneous Expense Total Expenses Net Income

$6,600 $1,450 900 475 150 75 3,050 $3,550

210  Chapter 4/Completing the Accounting Cycle

Steely Company Statement of Retained Earnings For Year Ended December 31, 2008 Retained earnings, January 1, 2008 Net Income

$6,000 3,550

Sub-Total Less Dividends

$9,550 870

Retained earnings, December 31, 2008

$8,680

Steely Company Balance Sheet December 31, 2008 Assets Current Assets Cash Accounts Receivable Prepaid Expenses Total Current Assets Property, Plant, & Equip.: Equipment Less: Accum Depre.

Total Prop., Plant, & Equip Total Assets

Liabilities Current Liabilities Accounts Payable Notes Payable

$6,130 2,300 750

Total Liabilities

$1,700 5,000 $6,700

$9,180

$13,400 1,200

Stockholders’ Equity Capital Stock $6,000 Retained Earnings 8,680 Total Stockholders’ Equity $12,200 Total Liabilities and $21,380 Stockholders’ Equity

DIF: Difficult OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement

14,680 $21,380

Chapter 4/Completing the Accounting Cycle  211

9.

Prepare an income statement and a statement of retained earnings for MN Company, for the month ended October 31, 2008, from the following T-Accounts. Prepaid Insurance 1200 100

Accounts Receivable. 6000 500

Unearned Revenues 1350 350

Capital Stock

Retained Earnings 4515 3500

Dividends

Income Summary 8850 4535 4515

Fees Earned

3500 3500

7000

8000 500 350 8850

Wages Expense 2600 475 3075

Rent Expense 1280 1280

Insurance Expense 100 100

Utilities Expense 80 80

ANS: MN Company Income Statement For the Month Ended October 31, 2008 Fees Earned Expenses: Wages Expense Rent Expense Insurance Expense Utilities Expense Total Expenses Net Income

$8,850 $3075 1,280 100 80 $4,535 $4,515

212  Chapter 4/Completing the Accounting Cycle

MN Company Statement of Stockholders’ Equity For the Month Ended October 31, 2008 Beginning balance Add: Net Income Month Ended October 31, 2008 Less: Dividends

$0 $4,515 3,500

Increase in Retained Earnings Ending Balance Retained Earnings, October 31, 2008

1,015 $1,015

DIF: Difficult OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 10. Prepare an income statement and a statement of retained earnings for the month ended November 30, 2008 from the T-accounts below. Prepaid Insurance 1200 100

Accounts Receivable. 2000 500

Unearned Revenues 1350 350

Capital Stock

Retained Earnings 3000 185 2600

Dividends

Income Summary 5850 6035 185

Fees Earned

2600 2600

4000 3000

5000 500 350 5850

Wages Expense 3600 475 4075

Rent Expense 1780 1780

Insurance Expense 100 100

Utilities Expense 80 80

Chapter 4/Completing the Accounting Cycle  213

ANS: MN Company Income Statement For the Month Ended November 30, 2008 Fees Earned Expenses: Wages Expense Rent Expense Insurance Expense Utilities Expense Total Expenses

$5,850 $4,075 1,780 100 80 $6,035

Net Loss

($185) MN Company Statement of Retained Earnings For the Month Ended November 30, 2008

Beginning balance Less: Net Loss Month Ended October 31, 2008 Dividends

$3,000 ($185) 2,600

Decrease in Retained Earnings Ending Balance Retained Earnings, October 31, 2008

2,785 $ 215

DIF: Difficult OBJ: 04-02 NAT: AACSB Analytic | AICPA FN-Measurement 11. Selected ledger accounts appear below for Construction Services for 2007. Capital Stock 1/1

20,000

3/31 12/22

Dividends 12,000 12/31 3,000

15,000

Retained Earnings 12/3 1

12/31 12/31

15,000 12/31

Income Summary 19,000 12/31 45,000

45,000

64,000

214  Chapter 4/Completing the Accounting Cycle

Prepare a statement of retained earnings. ANS: Construction Services Statement of Retained Earnings For the Year Ended December 31, 2007 Retained Earnings, 1/1/2007 Net income $ 45,000 Less dividends 15,000 Increase in retained earnings Retained Earnings, 12/31/2007

$0 30,000 $30,000

DIF: Difficult OBJ: 04-02 | 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 12. On the basis of the following data taken from the Adjusted Trial Balance columns of the work sheet for the year ended October 31 for Shore Co., journalize the four closing entries. Cash Accounts Receivable Supplies Equipment Accumulated Depreciation Accounts Payable Capital Stock Dividends Fees Earned Salary Expense Rent Expense Depreciation Expense Supplies Expense Miscellaneous Expense

$ 21,500 45,200 5,000 169,900 $ 69,000 42,500 152,600 30,000 404,500 300,500 60,000 25,000 9,500 2,000 $668,600

$668,600

Chapter 4/Completing the Accounting Cycle  215

ANS: Oct. 31 31

31 31

Fees Earned Income Summary

404,500

Income Summary Salary Expense Rent Expense Depreciation Expense Supplies Expense Miscellaneous Expense

397,000

404,500 300,500 60,000 25,000 9,500 2,000

Income Summary Retained Earnings

7,500

Retained Earnings Dividends

30,000

7,500 30,000

DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 13. After all adjustments have been made, but before the accounts have been closed, the following balances were taken from the ledger: Accounts Payable Accounts Receivable Accumulated Depreciation Cash Depreciation Expense Equipment Insurance Expense Prepaid Insurance

$ 40,000 54,500 83,325 7,150 23,500 155,000 8,600 5,275

Rent Expense Salary Expense Salaries Payable Service Revenue Supplies Supplies Expense Capital Stock Dividends

$ 21,400 66,000 150 151,000 2,500 3,500 100,950 28,000

216  Chapter 4/Completing the Accounting Cycle

Journalize the entries to close the appropriate accounts. ANS: Service Revenue Income Summary Income Summary Depreciation Expense Insurance Expense Rent Expense Salary Expense Supplies Expense

151,000 151,000 123,000 23,500 8,600 21,400 66,000 3,500

Income Summary Retained Earnings

28,000

Retained Earnings Dividends

28,000

28,000 28,000

DIF: Difficult OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 14. On the basis of the following information taken from the Adjusted Trial Balance columns of the work sheet for the month ended November 30th, journalize the closing entries. Cash $12,500.00 Accounts Receivable 4,575.00 Office Supplies 1,850.00 Repair Parts 4,785.00 Machinery 14,750.00 Accumulated Depreciation 2,950.00 Accounts Payable 1,750.00 Notes Payable 7,500.00 Capital Stock 2,750.00 Dividends 2,500.00 Service Revenue 32,500.00 Wages Expense 3,840.00 Office Supplies Expense 275.00 Repair Parts Expense 1,925.00 Depreciation Expense 450.00 $47,450.00 $47,450.00 ANS: Nov 30 Service Revenue Income Summary Closing Entry - Service Revenue

32,500.00 32,500.00

Chapter 4/Completing the Accounting Cycle  217

Nov 30 Income Summary Wages Expense Office Supplies Expense Repair Parts Expense Depreciation Expense Closing Entry - Expenses Nov 30 Income Summary Retained Earnings Closing Entry - Income Summary Nov 30

Retained Earnings Dividends Closing Entry - Dividends

6,490.00 3,840.00 275.00 1,925.00 450.00 26,010.00 26,010.00 2,500.00 2,500.00

DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 15. The following adjusted trial balance is the result of the adjustments made at the end of the month of May for Jenni Linn Company. Utilize these adjusted values to perform the closing entries for Jenni Linn Company. Cash $14,750.00 Accounts Receivable 3,750.00 Office Supplies 1,525.00 Store Supplies 4,785.00 Machinery 19,750.00 Accumulated Depreciation 3,150.00 Accounts Payable 1,550.00 Notes Payable 5,500.00 Capital Stock 29,725.00 Dividends 3,250.00 Service Revenue 16,500.00 Wages Expense 4,425.00 Office Supplies Expense 465.00 Store Supplies Expense 3,150.00 Depreciation Expense 575.00 ________ $56,425.00 $56,425.00 ANS: May 31

Service Revenue Income Summary Closing Entry - Service Revenue

16,500.00 16,500.00

218  Chapter 4/Completing the Accounting Cycle

May 31

May 31

May 31

Income Summary Wages Expense Office Supplies Expense Store Supplies Expense Depreciation Expense Closing Entry - Expenses

8,615.00

Income Summary Retained Earnings Closing Entry - Income Summary

7,885.00

Retained Earnings Dividends Closing Entry - Dividends

3,250.00

4,425.00 465.00 3,150.00 575.00

7,885.00

3,250.00

DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 16. The following adjusted trial balance is the result of the adjustments made at the end of the month of March for Jenni Linn Company. Utilize these adjusted values to perform the closing entries for Jenni Linn Company. Cash $14,750.00 Accounts Receivable 3,750.00 Office Supplies 1,525.00 Store Supplies 4,785.00 Machinery 19,750.00 Accumulated Depreciation 5,150.00 Accounts Payable 4,300.00 Notes Payable 9,500.00 Capital Stock 10,000.00 Retained Earnings 19,725.00 Dividends 3,250.00 Service Revenue 11,500.00 Wages Expense 4,425.00 Rent Expense 2,000.00 Advertising Expense 1,750.00 Office Supplies Expense 465.00 Store Supplies Expense 3,150.00 Depreciation Expense 575.00 $60,175.00 $60,175.00 ANS: May 31

Service Revenue Income Summary Closing Entry - Service Revenue

11,500.00 11,500.00

Chapter 4/Completing the Accounting Cycle  219

May 31

May 31

May 31

Income Summary Wages Expense Rent Expense Advertising Expense Office Supplies Expense Store Supplies Expense Depreciation Expense Closing Entry - Expenses Retained Earnings Income Summary Closing Entry - Income Summary

Retained Earnings Dividends Closing Entry - Dividends DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement

12,365.00 4,425.00 2,000.00 1,750.00 465.00 3,150.00 575.00 865.00 865.00 3,250.00 3,250.00

220  Chapter 4/Completing the Accounting Cycle

17. Based on the following worksheet, prepare and income statement, statement of retained earnings, and balance sheet for Mantle Enterprises. Mantle Enterprises Worksheet For the Year Ended December 31, 2008 Adjusted Trial Balance Income Statement Balance Sheet Account Title Debit Credit Debit Credit Debit Cash 16,000 16,000 Accounts Receivable 6,000 6,000 Supplies 2,000 2,000 Equipment 19,000 19,000 Accumulated Depr6,000 Equip Accounts Payable 10,000 Wages Payable 2,000 Capital Stock 7,000 Retained Earnings 4,000 Dividends 1,000 1,000 Fees Earned 47,000 47,000 Wages Expense 21,000 21,000 Rent Expense 6,000 6,000 Depreciation Expense 5,000 5,000 Totals 76,000 76,000 32,000 47,000 44,000 Net Income (Loss) 15,000 47,000 47,000 44,000 ANS: Mantle Enterprises Income Statement For the Year Ended December 31, 2008 Revenues Earned Expenses: Wages Expense Rent Expense Depreciation Expense Total Expenses Net Income

$ 47,000 $ 21,000 6,000 5,000 32,000 $ 15,000

Credit

6,000 10,000 2,000 7,000 4,000

29,000 15,000 44,000

Chapter 4/Completing the Accounting Cycle  221

Mantle Enterprises Statement of Retained Earnings For the Year Ended December 31, 2008 Retained Earnings, January 1, 2008 Net income for the Year Ended December 31, 2008 $ 15,000 Less dividends 1,000 Increase in Retained Earnings Retained Earnings, December 31, 2008

Assets Current Assets: Cash Accounts Receivable Supplies Total current assets Property, plant and equipment Equipment Less accum depr

Mantle Enterprises Balance Sheet December 31, 2008 Liabilities Current liabilities $16,00 Accounts Payable 0 6,000 Wages Payable 2,000 Total Liabilities $ 24,000 $19,00 0 6,000

Stockholders’ Equity Capital Stock

Total property, plant and

$ 4,000

14,000 $ 18,000

$ 10,000 2,000 $12,000

$7,000

13,000 equipment

Total assets

Retained Earning Total Stockholders Equity $37,000 Total liabilities and Stockholders’ equity

DIF: Difficult OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement

18,000 25,000 $37,000

222  Chapter 4/Completing the Accounting Cycle

18. Prepare closing entries from the following work sheet. Mantle Enterprises Worksheet For the Year Ended December 31, 2008 Adjusted Trial Income Statement Balance Sheet Balance Account Title Debit Credit Debit Credit Debit Credit Cash 16,000 16,000 Accounts Receivable 6,000 6,000 Supplies 2,000 2,000 Equipment 19,000 19,000 Accumulated Depr6,000 6,000 Equip Accounts Payable 10,000 10,000 Wages Payable 2,000 2,000 Capital Stock 7,000 7,000 Retained Earnings 4,000 4,000 Dividends 1,000 1,000 Fees Earned 47,000 47,000 Wages Expense 21,000 21,000 Rent Expense 6,000 6,000 Depreciation Expense 5,000 5,000 Totals 76,000 76,000 32,000 47,000 44,000 29,000 Net Income (Loss) 15,000 15,000 47,000 47,000 44,000 44,000 ANS: Journal Post Date Description Ref Debit Credit Dec 31 Fees Earned 47,000 Income Summary 47,000 Dec 31

Dec 31

Dec 31

Income Summary Wages Expense Rent Expense Depreciation Expense

32,000

Income Summary Retained Earnings

15,000

Retained Earnings Dividends DIF: Moderate OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement

21,000 6,000 5,000

15,000 1,000 1,000

Chapter 4/Completing the Accounting Cycle  223

19. The following is the adjusted trial balance for Steely Company. Steely Company Adjusted Trial Balance For the Year ended December 31, 2008 Cash Accounts Receivable Prepaid Expenses Equipment Accumulated Depreciation Accounts Payable Notes Payable - Due on June 30, 2009 Capital Stock Dividends Fees Earned Wages Expense Rent Expense Utilities Expense Depreciation Expense Miscellaneous Expense Totals Prepare closing entries and the post closing trial balance. ANS: Fees Earned Income Summary

6,130 2,300 750 13,400 1,200 1,700 5,000 12,000 870 6,600 1,450 900 475 150 75 26,500

6,600 6,600

Income Summary Wages Expense Rent Expense Utilities Expense Depreciation Expense Miscellaneous Expense

3,050

Income Summary Retained Earnings

3,550

Retained Earnings Dividends

26,500

1450 900 475 150 75

3,550 870 870

224  Chapter 4/Completing the Accounting Cycle

Steely Company Post Closing Trial Balance For the Year ended December 31, 2008 Cash Accounts Receivable Prepaid Expenses Equipment Accumulated Depreciation Accounts Payable Notes Payable Capital Stock

6,130 2,300 750 13,400 1,200 1,700 5,000 12,000

Retained Earnings

2,680

Total

$22,580

$22,580

DIF: Difficult OBJ: 04-03 NAT: AACSB Analytic | AICPA FN-Measurement 20. Reconstruct the adjusting and closing entries from the following T-Accounts. Prepaid Insurance 1200 100

Accounts Receivable. 6000 500

Unearned Revenues 1350 350

Capital Stock

Retained Earnings 4515 3500

Dividends

Income Summary 8850 4535 4515

Fees Earned

3500 3500

7000

8000 500 350 8850

Wages Expense 3075 3075

Rent Expense 1280 1280

Insurance Expense 100 100

Utilities Expense 80 80

Chapter 4/Completing the Accounting Cycle  225

ANS: Adjusting Entries: 1) 2) 3)

Insurance Expense Prepaid Insurance Accounts Receivable Fees Earned Unearned Revenue Fees Earned

100 100 500 500 350 350

Closing Entries: 1)

Fees Earned Income Summary

8850

2)

Income Summary Wages Expense Rent Expense Insurance Expense Utilities Expense Income Summary Retained Earnings Retained Earnings Dividends

4535 3075

3) 4) DIF: NAT:

Difficult OBJ: 04-03 AACSB Analytic | AICPA FN-Measurement

8850 1280 100 80 4515 4515 3500 3500

226  Chapter 4/Completing the Accounting Cycle

21. Reconstruct adjusting and closing entries for the month ended November 30, 2008 from the Taccounts below. Prepaid Insurance 1200 100

Accounts Receivable. 2000 500

Unearned Revenues 1350 350

Capital Stock

Retained Earnings 3000 185 2600

MN, Drawing

Income Summary 5850 6035 185

Fees Earned

2600 2600

7000

5000 500 350 5850

Wages Expense 4075 4075

Rent Expense 1780 1780

Insurance Expense 100 100

Utilities Expense 80 80

ANS: Adjusting Entries: 1) 2) 3)

Insurance Expense Prepaid Insurance Accounts Receivable Fees Earned Unearned Revenue Fees Earned

Closing Entries: 1) Fees Earned Income Summary 2) Income Summary Wages Expense Rent Expense Insurance Expense Utilities Expense 3) Retained Earnings Income Summary 4) Retained Earnings Dividends

100 100 500 500 350 350

5850 5850 6035 4075 1780 100 80 185 185 2600 2600

Chapter 4/Completing the Accounting Cycle  227

DIF: NAT:

Difficult OBJ: 04-03 AACSB Analytic | AICPA FN-Measurement

22. (1)

Reconstruct the entries for the month ended February 28, 2008 from the T-accounts below. Record them as follows: A - L Journal Entries M- R Adjusting Journal Entries Balance and prepare the Income Statement, Statement of Retained Earnings, and the Balance Sheet from the T-Accounts. Prepare the four closing entries (S - V). Prepare the Post-Closing Trial Balance.

(2) (3) (4)

Cash

360

Prepaid Insurance 2400 200

Accumulated Depreciation 30

Accounts Payable 670

Wages Payable 125

Unearned Revenues 930 450

Capital Stock

Retained Earnings

Fees Earned

Wages Expense 360 125

Rent Expense

Depreciation

Miscellaneous

7000 700

Accounts Receivable 1000 585

Supplies 670

600 350 2400 2500 50 400 930 Equipment 3000

700 1000 2500 585 450 Insurance

7000 3000

Dividends 400

600

Supplies Expense 350

228  Chapter 4/Completing the Accounting Cycle

Expense 200

Expense 30

Expense 50

ANS: (1) Journal Entries: a) b) c) d) e) f) g) h) i) j) k) l)

Cash Capital Stock Equipment Capital Stock Rent Expense Cash Cash Fees Earned Accounts Receivable Fees Earned Supplies Accounts Payable Wages Expense Cash Prepaid Insurance Cash Cash Fees Earned Miscellaneous Expense Cash Dividends Cash Cash Unearned Revenue

7000 7000 3000 3000 600 600 700 700 1000 1000 670 670 350 350 2400 2400 2500 2500 50 50 400 400 930 930

Adjusting Entries: m) n) o) p) q) r)

Supplies Expense Supplies Accounts Receivable Fees Earned Insurance Expense Prepaid Insurance Depreciation Expense Accumulated Depreciation Wages Expense Wages Payable Unearned Revenues Fees Earned

350 350 585 585 200 30 30 30 125 125 450 450

Chapter 4/Completing the Accounting Cycle  229

(2) DL Company Income Statement For the Month Ended February 28, 2008 Fees Earned Expenses: Wages Expense Rent Expense Supplies Expense Insurance Expense Depreciation Expense Miscellaneous Expense Total Expenses Net Income

$5,235 $485 600 350 200 30 50 1,715 $3,520

DL Company Statement of Retained Earnings For the Month Ended February 28, 2008 Beginning Balance Net Income for the Period Less: Dividends Increase in Retained Earnings

$0 $3,520 400 3,120

Retained Earnings

$3,120 DL Company Balance Sheet February 28, 2008

Assets: Cash Accounts Receivable Supplies Prepaid Insurance Equipment Less: Accum Depre Total Assets

$7,330 1,585 310 2,200

$3,000 30

2,970 $14,395

Liabilities: Accounts Payable Wages Payable Unearned Revenues Total Liabilities Stockholders’ Equity Capital Stock 10,000 Retained Earnings

13,120 $14,395

(3) Closing Entries: Fees earned

1,275

3,120

Total Stockholders’ Equity Total Liabilities and Owner’s Equity

s)

$670 125 480

5235

230  Chapter 4/Completing the Accounting Cycle

t)

u) v)

Income Summary Income Summary Wages Expense Rent Expense Supplies Expense Insurance Expense Depreciation Expense Miscellaneous Expense Income Summary Retained Earnings Retained Earnings Dividends

5235 1715 485 600 350 200 30 50 3520 3520 400 400

(4) DL Company Post-Closing Trial Balance For the Month Ended February 28, 2008 Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accumulated Depreciation Accounts Payable Wages Payable Unearned Revenues Capital Stock Retained Earnings

7330 1585 310 2200 3000 30 670 125 480 10,000 3,120 Total

DIF: NAT:

$14,425 $14,425

Difficult OBJ: 04-05 AACSB Analytic | AICPA FN-Measurement

23. The balances in the ledger of Landscape Services as of December 31, 2007 before adjustments, are as follows: Cash Supplies Prepaid Insurance Equipment Accumulated Depreciation

$ 4,500 4,150 8,700 42,000 10,200

Capital Stock Dividends Service Revenue Salary Expense Rent Expense Miscellaneous Expense

$33,050 2,900 52,500 26,600 5,000 1,900

Adjustment data are as follows: supplies on hand, December 31, $1,000; insurance expired for December, $900; depreciation on equipment for December, $1,500; salaries accrued, December 31, $1,000. (a) (b)

Prepare a ten-column work sheet for Landscape Services for December, 2007. On the basis of the work sheet in (a), present the following in good order: (1) income

Chapter 4/Completing the Accounting Cycle  231

(c)

statement, (2) statement of retained earnings, and (3) balance sheet. On the basis of the work sheet in (a), journalize the closing entries as of December 31, 2007.

ANS: (a) Landscape Services Work Sheet For the Month Ended December 31, 2007

Account Title Cash Supplies Prepaid Insurance Equipment Accumulated Depreciation Capital Stock Dividends Service Revenue Salary Expense Rent Expense Miscellaneous Expense Supplies Expense Insurance Expense Depreciation Expense Salaries Payable Net Income

Trial Balance Dr. Cr.

) ) ) ) ) Dr.

4,500 4,150 8,700 42,000 ..... ..... 2,900 ..... 26,600 5,000 1,900 95,750

..... ..... ..... ..... 10,200 33,050 ..... 52,500 ..... ..... ..... 95,750

..... ..... ..... ..... ..... ..... ..... ..... (d) 1,000 ..... .....

..... ..... ..... .....

..... ..... ..... .....

(a) 3,150 (b) 900 (c) 1,500 ..... 6,550

Adjustments Cr.) .....) (a) 3,150) (b) 900) .....) (c) 1,500) .....) .....) .....) .....) .....) .....) ) ) .....) .....) .....) d) 1,000) 6,550)

232  Chapter 4/Completing the Accounting Cycle

( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( (

Adjusted Trial Balance Dr. 4,500 1,000 7,800 42,000 ..... ..... 2,900 ..... 27,600 5,000 1,900 3,150 900 1,500 ........... 98,250

Cr.

..... ..... ..... ..... 11,700 33,050 ..... 52,500 ..... ..... ..... ..... ..... ..... 1,000 98,250

Income Statement Dr. Cr. ..... ..... ..... ..... ..... ..... ..... ..... 27,600 5,000 1,900 3,150 900 1,500 ........... 40,050 12,450 52,500

..... ..... ..... ..... ..... ..... ..... 52,500 ..... ..... ..... ..... ..... ..... ........... 52,500 ........... 52,500

Balance Sheet Dr. 4,500 1,000 7,800 42,000 ..... ..... 2,900 ..... ..... ..... ..... ..... ..... ..... ........... 58,200 ........... 58,200

Cr.

..... ..... ..... ..... 11,700 33,050 ..... ..... ..... ..... ..... ..... ..... ..... 1,000 45,750 12,450 58,200

(b) (1) Landscape Services Income Statement For the Month Ended December 31, 2007 Service revenue Operating expenses: Salary expense Rent expense Supplies expense Depreciation expense Insurance expense Miscellaneous expense Total operating expenses Net income

$52,500 $27,600 5,000 3,150 1,500 900 1,900 40,050 $12,450

(b) (2) Landscape Services Statement of Retained Earnings For the Month Ended December 31, 2007 Retained Earnings,December 1, 2007 Net income for the month Less dividends Increase in retained earnings Retained earnings, December 31, 2007

$0 $12,450 2,900 9,550 $9,550

Chapter 4/Completing the Accounting Cycle  233

(b) (3) Landscape Services Balance Sheet December 31, 2007 Assets Current assets: Cash Supplies Prepaid insurance Total current assets

Liabilities $ 4,500 1,000 7,800

Current liabilities: Salaries payable $13,300 Stockholders’ Equity Capital Stock Retained Earnings

Property, plant, and equipment: Equipment

$42,000

Less accumulated depreciation Total property, plant, and equipment Total assets

Total liabilities and stockholders’ equity

$ 1,000 33,050 9,550 $43,600

11,700 30,300 $43,600

(c) Jan. 31 31

31 31 DIF: NAT:

Closing Entries Service Revenue Income Summary

52,500 52,500

Income Summary Salary Expense Rent Expense Miscellaneous Expense Supplies Expense Insurance Expense Depreciation Expense

40,050

Income Summary Retained Earnings

12,450

Retained Earnings Dividends Difficult OBJ: 04-App AACSB Analytic | AICPA FN-Measurement

24. Complete the following worksheet for Mantle Enterprises. Mantle Enterprises Worksheet For the Year Ended December 31, 2008

27,600 5,000 1,900 3,150 900 1,500 12,450 2,900 2,900

234  Chapter 4/Completing the Accounting Cycle

Account Title Cash Accounts Receivable Supplies Equipment Accumulated DeprEquip Accounts Payable Wages Payable Mantle, Capital Capital Stock Dividends Fees Earned Wages Expense Rent Expense Depreciation Expense Totals Net Income (Loss)

Adjusted Trial Balance Debit Credit 16,000 6,000 2,000 19,000 6,000

Income Statement Debit Credit

Balance Sheet Debit Credit

10,000 2,000 7,000 4,000 1,000 47,000 21,000 6,000 5,000 76,000

76,000

ANS: Mantle Enterprises Worksheet For the Year Ended December 31, 2008 Adjusted Trial Balance Income Statement Account Title Debit Credit Debit Credit Cash 16,000 Accounts Receivable 6,000 Supplies 2,000 Equipment 19,000 Accumulated Depr-Equip 6,000 Accounts Payable 10,000 Wages Payable 2,000 Capital Stock 7,000 Dividends 4,000 Mantle, Drawing 1,000 Fees Earned 47,000 47,000 Wages Expense 21,000 21,000 Rent Expense 6,000 6,000 Depreciation Expense 5,000 5,000 Totals 76,000 76,000 32,000 47,000 Net Income (Loss) 15,000 47,000 47,000 DIF: NAT:

Difficult OBJ: 04-App AACSB Analytic | AICPA FN-Measurement

Balance Sheet Debit Credit 16,000 6,000 2,000 19,000 6,000 10,000 2,000 7,000 4,000 1,000

44,000

29,000 15,000 44,000 44,000