ch04

Student: ___________________________________________________________________________

1. Accounts that appear in the balance sheet are often called temporary (nominal) accounts.
True False
2. Income Summary is a temporary account only used for the closing process.
True False
3. Revenue accounts should begin each accounting period with zero balances.
True False
4. Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and
expense accounts ready for use in the next period.
True False
5. The closing process takes place after financial statements have been prepared.
True False
6. Revenue and expense accounts are permanent (real) accounts and should not be closed at the end of the
accounting period.
True False
7. Closing entries result in net income or net loss being transferred to the owner's capital account.
True False
8. The closing process is a step in the accounting cycle that prepares accounts for the next accounting
period.
True False
9. Closing entries are required at the end of each accounting period to close all ledger accounts.
True False
10. Closing entries are designed to transfer the end-of-period balances in the revenue accounts, the expense
accounts, and the withdrawals account to owner's capital.
True False
11. The Income Summary account is a permanent account that will be carried forward period after
period.
True False
12. Closing entries are necessary so that owner's capital will begin each period with a zero balance.
True False
13. Permanent accounts carry their balances into the next accounting period. Moreover, asset, liability and
revenue accounts are not closed as long as a company continues in business.
True False
14. The first step in the accounting cycle is to analyze transactions and events to prepare for journalizing.
True False
15. The accounting cycle refers to the sequence of steps in preparing the work sheet.
True False
16. The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing
an unadjusted trial balance, and recording adjusting entries.
True False
17. The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial
statements and recording closing and adjusting entries.
True False
18. A classified balance sheet organizes assets and liabilities into important subgroups that provide more
information to decision makers.
True False
19. An unclassified balance sheet provides more information to users than a classified balance sheet.
True False
20. Current assets and current liabilities are expected to be used up or come due within one year or the
company's operating cycle whichever is longer.
True False
21. Intangible assets are long-term resources that benefit business operations that usually lack physical form
and have uncertain benefits.
True False
22. Assets are often classified into current assets, long-term investments, plant assets, and intangible
assets.
True False
23. Current liabilities are cash and other resources that are expected to be sold, collected or used within one
year or the company's operating cycle whichever is longer.
True False
24. Long-term investments can include land held for future expansion.
True False
25. Plant assets are tangible assets that are usually long-term assets used to produce or sell products and
services.
True False
26. Current liabilities include accounts receivable, unearned revenues, and salaries payable.
True False
27. Cash and office supplies are both classified as current assets.
True False
28. Plant assets are usually listed in order from most liquid to least liquid.
True False
29. The current ratio is used to help assess a company's ability to pay its debts in the near future.
True False
30. The current ratio is computed by dividing current liabilities by current assets.
True False
31. Harry's Bikes' current assets are $400 million and its current liabilities are $250 million. Its current ratio
is 0.63.
True False
32. A company has current assets of $15,000 and current liabilities of $9,500. Its current ratio is 1.6.
True False
33. Harry's Bikes' current ratio is 1.3. The industry average for the current ratio is 1.2. This indicates that
Harry's Bikes can cover its short term liabilities with its short term assets.
True False
34. A work sheet is a tool to help organize information needed in adjusting the accounts and preparing the
financial statements.
True False
35. Adjustments must be entered in the journal and posted to the ledger after the work sheet is prepared.
True False
36. The work sheet is a required report.
True False
37. A work sheet is a substitute for the set of financial statements.
True False
38. All necessary numbers to prepare the income statement can be taken from the income statement columns
of the work sheet, including the net income or net loss.
True False
39. On a work sheet, a loss is indicated if the total of the Income Statement Debit column exceeds the total of
the Income Statement Credit column.
True False
40. If all columns balance upon completion of a work sheet, you can be sure that no errors were made in
preparing the work sheet.
True False
41. Closing entries are normally entered in the general journal and then posted to the work sheet.
True False
42. Adjusting entries are normally entered in the general journal before they are posted to the work sheet.
True False
43. On a work sheet, the adjusted balances of revenues and expenses are sorted to the Income Statement
columns of the work sheet.
True False
44. On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance
Sheet or Statement of Owner's Equity Debit column.
True False
45. All necessary numbers to prepare the balance sheet can be found in the balance sheet columns of the
work sheet including ending owner's capital.
True False
46. A worksheet can be helpful in showing the effects of proposed or "what if" transactions, as well as being
useful in helping to prepare end-of-period financial statements.
True False
47. Since it is an important financial statement, the trial balance must be prepared according to specified
accounting procedures.
True False
48. An expense account is normally closed by debiting Income Summary and crediting the expense
account.
True False
49. The withdrawals account is normally closed by debiting it.
True False
50. After posting the entries to close all revenue accounts and all expense accounts, the Income Summary
account of Waif Services has a $4,000 debit balance. This result implies that Waif Services earned a net
income of $4,000.
True False
51. After posting the entries to close all revenue and expense accounts, Hatfield Company's Income
Summary account has a credit balance of $6,000, and its Hatfield, Withdrawals account has a debit
balance of $2,500. These balances indicate that net income for the current accounting period amounted to
$3,500.
True False
52. When expenses exceed revenues, there is a net loss and the Income Summary account would have a
credit balance.
True False
53. The Income Summary account is used to close the permanent accounts at the end of an accounting
period.
True False
54. The steps in the closing process are (1) close credit balances in revenue accounts to Income Summary;
(2) close credit balances in expense accounts to Income Summary; (3) close Income Summary to Owner's
Capital; (4) close Withdrawals to Owner's Capital.
True False
55. The third closing entry is to close Owner's Capital to the Owner's Withdrawals account.
True False
56. A post-closing trial balance is a list of permanent accounts and their balances from the ledger after all
closing entries are journalized and posted.
True False
57. The aim of a post-closing trial balance is to verify that (1) total debits equal total credits for temporary
accounts, and (2) all temporary accounts have zero balances.
True False
58. A company's post-closing trial balance has total debits of $40,350 and total credits of $40,650.
Accordingly, the company should review for errors in the closing process.
True False
59. Reversing entries are optional.
True False
60. Reversing entries are recorded in response to accrued assets and accrued liabilities that were created by
adjusting entries at the end of the prior accounting period.
True False
61. Another name for temporary accounts is:
A. Real accounts.
B. Contra accounts.
C. Accrued accounts.
D. Balance column accounts.
E. Nominal accounts.
62. When closing entries are made:
A. All ledger accounts are closed to start the new accounting period.
B. All temporary accounts are closed but not the permanent accounts.
C. All real accounts are closed but not the nominal accounts.
D. All permanent accounts are closed but not the nominal accounts.
E. All balance sheet accounts are closed.
63. Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting period
are:
A. Real accounts.
B. Temporary accounts.
C. Closing accounts.
D. Permanent accounts.
E. Balance sheet accounts.
64. Which of the following statements is incorrect?
A. Permanent accounts is another name for nominal accounts.
B. Temporary accounts carry a zero balance at the beginning of each accounting period.
C. The Income Summary account is a temporary account.
D. Real accounts remain open as long as the asset, liability, or equity items recorded in the accounts
continue in existence.
E. The closing process applies only to temporary accounts.
65. Assets, liabilities, and equity accounts are not closed; these accounts are called:
A. Nominal accounts.
B. Temporary accounts.
C. Permanent accounts.
D. Contra accounts.
E. Accrued accounts.
66. Closing the temporary accounts at the end of each accounting period does all of the following except:
A. Serves to transfer the effects of these accounts to the owner's capital account on the balance sheet.
B. Prepares the withdrawals account for use in the next period.
C. Gives the revenue and expense accounts zero balances.
D. Has no effect on the owner's capital account.
E. Causes owner's capital to reflect increases from revenues and decreases from expenses and
withdrawals.
67. Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and
withdrawals accounts for the upcoming period and to update the owner's capital account for the events of
the period just finished are referred to as:
A. Adjusting entries.
B. Closing entries.
C. Final entries.
D. Work sheet entries.
E. Updating entries.
68. The closing process is necessary in order to:
A. calculate net income or net loss for an accounting period.
B. ensure that all permanent accounts are closed to zero at the end of each accounting period.
C. ensure that the company complies with state laws.
D. ensure that net income or net loss and owner withdrawals for the period are closed into the owner's
capital account.
E. ensure that management is aware of how well the company is operating.
69. Closing entries are required:
A. if management has decided to cease operating the business.
B. only if the company adheres to the accrual method of accounting.
C. if a company's bookkeeper forgets to prepare reversing entries.
D. if the temporary accounts are to reflect correct amounts for each accounting period.
E. in order to satisfy the Internal Revenue Service.
70. The recurring steps performed each reporting period, starting with analyzing and recording transactions in
the journal and continuing through the post-closing trial balance, is referred to as the:
A. Accounting period.
B. Operating cycle.
C. Accounting cycle.
D. Closing cycle.
E. Natural business year.
71. Which of the following is the usual final step in the accounting cycle?
A. Journalizing transactions.
B. Preparing an adjusted trial balance.
C. Preparing a post-closing trial balance.
D. Preparing the financial statements.
E. Preparing a work sheet.
72. A classified balance sheet:
A. Measures a company's ability to pay its bills on time.
B. Organizes assets and liabilities into important subgroups.
C. Presents revenues, expenses, and net income.
D. Reports operating, investing, and financing activities.
E. Reports the effect of profit and withdrawals on owner's capital.
73. The assets section of a classified balance sheet usually includes:
A. Current assets, long-term investments, plant assets, and intangible assets.
B. Current assets, long-term assets, revenues, and intangible assets.
C. Current assets, long-term investments, plant assets, and equity.
D. Current liabilities, long-term investments, plant assets, and intangible assets.
E. Current assets, liabilities, plant assets, and intangible assets.
74. The usual order for the asset section of a classified balance sheet is:
A. Current assets, prepaid expenses, long-term investments, intangible assets.
B. Long-term investments, current assets, plant assets, intangible assets.
C. Current assets, long-term investments, plant assets, intangible assets.
D. Intangible assets, current assets, long-term investments, plant assets.
E. Plant assets, intangible assets, long-term investments, current assets.
75. A classified balance sheet differs from an unclassified balance sheet in that
A. an unclassified balance sheet is never used by large companies.
B. a classified balance sheet normally includes only three subgroups.
C. a classified balance sheet presents information in a manner that makes it easier to calculate a
company's current ratio.
D.a classified balance sheet will include more accounts than an unclassified balance sheet for the same
company on the same date.
E. a classified balance sheet cannot be provided to outside parties.
76. Two common subgroups for liabilities on a classified balance sheet are:
A. current liabilities and intangible liabilities.
B. present liabilities and operating liabilities.
C. general liabilities and specific liabilities.
D. intangible liabilities and long-term liabilities.
E. current liabilities and long-term liabilities.
77. The current ratio:
A. Is used to measure a company's profitability.
B. Is used to measure the relation between assets and long-term debt.
C. Measures the effect of operating income on profit.
D. Is used to help evaluate a company's ability to pay its debts in the near future.
E. Is calculated by dividing current assets by equity.
78. All of the following regarding current ratio are true except:
A. Current ratio is calculated by dividing current assets by current liabilities.
B. Current ratio helps to assess a company's ability to pay its debts in the near future.
C. Current ratio does not affect a creditor's decision on when to allow a company to buy on credit.
D. Current ratio can affect a creditor's decision about whether to lend money to a company.
E. Current ratio can reveal problems in a company if it is less than 1.
79. The Unadjusted Trial Balance columns of a company's work sheet show the balance in the Office
Supplies account as $750. The Adjustments columns show that $425 of these supplies were used during
the period. The amount shown as Office Supplies in the Balance Sheet columns of the work sheet is:
A. $325 debit.
B. $325 credit.
C. $425 debit.
D. $750 debit.
E. $750 credit.
80. A columnar working paper used to prepare a company's unadjusted trial balance, adjusting entries,
adjusted trial balance, and financial statements, and which is an optional tool in the accounting process is
a(n) :
A. Adjusted trial balance.
B. Work sheet.
C. Post-closing trial balance.
D. Unadjusted trial balance.
E. General ledger.
81. Accumulated Depreciation, Accounts Receivable, and Service Fees Earned would be sorted to which
respective columns in completing a work sheet?
A Balance Sheet and Statement of Owner's Equity-Credit; Balance Sheet and Statement of Owner's
. Equity Debit; and Income Statement-Credit.
B Balance Sheet and Statement of Owner's Equity-Debit; Balance Sheet and Statement of Owner's
. Equity-Credit; and Income Statement-Credit.
C. Income Statement-Debit; Balance Sheet and Statement of Owner's Equity-Debit; and Income
Statement-Credit.
D. Income Statement-Debit; Income Statement-Debit; and Balance Sheet and Statement of Owner's
Equity-Credit.
E. Balance Sheet and Statement of Owner's Equity-Credit; Income Statement-Debit; and Income
Statement-Credit.
82. Which of the following statements is incorrect?
A. Working papers are useful aids in the accounting process.
B. On the work sheet, the effects of the accounting adjustments are shown on the account balances.
C. After the work sheet is completed, it can be used to help prepare the financial statements.
DOn the work sheet, the adjusted amounts are sorted into columns according to whether the accounts are
. used in preparing the unadjusted trial balance or the adjusted trial balance.
E. A worksheet is not a substitute for financial statements.
83. A company shows a $600 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of
the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results
in:
A. $200 decrease in net income.
B. $200 increase in net income.
C. $200 difference between the debit and credit columns of the Unadjusted Trial Balance.
D. $200 of prepaid insurance.
E. An error in the financial statements.
84. Statements that show the effects of proposed transactions as if the transactions had already occurred are
called:
A. Pro forma statements.
B. Professional statements.
C. Simplified statements.
D. Temporary statements.
E. Interim statements.
85. If in preparing a work sheet an adjusted trial balance amount is mistakenly sorted to the wrong work sheet
column. The Balance Sheet columns will balance on completing the work sheet but with the wrong net
income, if the amount sorted in error is:
A. An expense amount placed in the Balance Sheet Credit column.
B. A revenue amount placed in the Balance Sheet Debit column.
C. A liability amount placed in the Income Statement Credit column.
D. An asset amount placed in the Balance Sheet Credit column.
E. A liability amount placed in the Balance Sheet Debit column.
86. If the Balance Sheet and Statement of Owner's Equity columns of a work sheet fail to balance when the
amount of the net income is added to the Balance Sheet and Statement of Owner's Equity Credit column,
the cause could be:
A. An expense amount entered in the Balance Sheet and Statement of Owner's Equity Debit column.
B. A revenue amount entered in the Balance Sheet and Statement of Owner's Equity Credit column.
C. An asset amount entered in the Income Statement and Statement of Owner's Equity Debit column.
D. A liability amount entered in the Income Statement and Statement of Owner's Equity Credit column.
E. An expense amount entered in the Balance Sheet and Statement of Owner's Equity Credit column.
87. The following items appeared on a company's December 31 work sheet for the current
period. Based on the following information, what is the net income for the current period?

A. $1,400.
B. $1,855.
C. $1,905.
D. $2,060.
E. $4,670.
88. Which of the following errors would cause the Balance Sheet and Statement of Owner's Equity columns
of a work sheet to be out of balance?
A. Entering an asset amount in the Income Statement Debit column.
B. Entering a liability amount in the Income Statement Credit column.
C. Entering an expense amount in the Balance Sheet and Statement of Owner's Equity Debit column.
D. Entering a revenue amount in the Balance Sheet and Statement of Owner's Equity Debit column.
E. Entering a liability amount in the Balance Sheet and Statement of Owner's Equity Credit column.
89. The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments columns contain
entries for the following:
1. Office supplies used during the period, $1,200.
2. Expiration of prepaid rent, $700.
3. Accrued salaries expense, $500.
4. Depreciation expense, $800.
5. Accrued service fees receivable, $400.
The Adjusted Trial Balance columns total is:
A. $80,400.
B. $84,000.
C. $85,700.
D. $85,900.
E. $87,600.
90. The balances in the unadjusted columns of a work sheet will agree with:
A. the balances reflected in the company's financial statements.
B. the balances reflected in the company's unadjusted trial balance.
C. whatever balances management has decided to report.
D. the balances in the company's post-closing trial balance.
E. the balances management budgeted for the accounting period.
91. In the process of completing a work sheet, you determine that the Income Statement debit column totals
$83,000, while the Income Statement credit column totals $65,000. To enter net income (or net loss) for
the period into the work sheet would require an entry to
A. the Adjustments debit column and the Adjustments credit column.
B. the Unadjusted Trial Balance debit column and the Adjustments credit column.
C. it is not practical to enter Net Income (or Net Loss) on the work sheet.
D. the Balance Sheet & Statement of Owner's Equity debit column and the Income Statement credit
column.
E. the Income Statement debit column and the Balance Sheet & Statement of Owner's Equity credit
column.
92. The special account used only in the closing process to temporarily hold the amounts of revenues and
expenses before the net difference is added to (or subtracted from) the owner's capital account is the:
A. Income Summary account.
B. Closing account.
C. Balance column account.
D. Contra account.
E. Nominal account.
93. J. Awn, the proprietor of Awn Services, withdrew $8,700 from the business during the current year. The
entry to close the withdrawals account at the end of the year is:
A. Debit J. Awn, Withdrawals $8,700; credit Cash, $8,700
B. Debit J. Awn, Capital $8,700; credit J. Awn, Withdrawals $8,700
C. Debit J. Awn, Withdrawals $8,700; credit J. Awn, Capital $8,700
D. Debit J. Awn, Capital $8,700, credit Salary Expense $8,700
E. Debit Income Summary $8,700; credit J. Awn, Capital $8,700
94. A company had revenues of $75,000 and expenses of $62,000 for the accounting period. The owner
withdrew $8,000 in cash during the same period. Which of the following entries could not be a closing
entry?
A. Debit Income Summary $13,000; credit Owner's, Capital $13,000.
B. Debit Income Summary $75,000; credit Revenues $75,000.
C. Debit Revenues $75,000; credit Income Summary $75,000.
D. Debit Income Summary $62,000, credit Expenses $62,000.
E. Debit Owner's, Capital $8,000, credit Owner's, Withdrawals $8,000.
95. The following information is available for the Travis Travel Agency. After these closing entries what will

be the balance in the Jay Travis, Capital account?

A. $65,000.
B. $80,000.
C. $130,000.
D. $145,000.
E. $280,000.
96. The J. Godfrey, Capital account has a credit balance of $17,000 before closing entries are made. If total
revenues for the period are $55,200, total expenses are $39,800, and withdrawals are $9,000, what is the
ending balance in the J. Godfrey, Capital account after all closing entries are made?
A. $8,000.
B. $15,400.
C. $23,400.
D. $17,000.
E. $32,400.
97. The Income Summary account is used:
A. To adjust and update asset and liability accounts.
B. To close the revenue and expense accounts.
C. To determine the appropriate withdrawal amount.
D. To replace the income statement under certain circumstances.
E. To replace the capital account in some businesses.
98. Dina Kader withdrew a total of $35,000 from her business during the current year. The entry needed to
close the withdrawals account is:
A. Debit Income Summary and credit Cash for $35,000.
B. Debit Dina Kader, Withdrawals and credit Cash for $35,000.
C. Debit Income Summary and credit Dina Kader, Withdrawals for $35,000.
D. Debit Dina Kader, Capital and credit Dina Kader, Withdrawals for $35,000.
E. Debit Dina Kader, Withdrawals and credit Dina Kader, Capital for $35,000.
99. A company's ledger accounts and their end-of-period balances before closing entries are posted are shown
below. What amount will be posted to Tricia DeBarre, Capital in the process of closing the Income

Summary account? (Assume all accounts have normal balances.)

A. $16,780 debit.
B. $7,180 credit.
C. $16,780 credit.
D. $18,280 credit.
E. $23,780 credit.
100.It is obvious that an error occurred in the preparation and/or posting of closing entries if:
A. all revenue and expense accounts have zero balances.
B. the owner's capital account is debited for the amount of the net loss for the period.
C. the income summary account is debited for the amount of net income for the period.
D. all balance sheet accounts have zero balances.
E. only permanent accounts appear on the post-closing trial balance.
101.At the beginning of the year, a company's balance sheet reported the following balances: Total Assets
= $125,000; Total Liabilities = $75,000; and Owner's Capital = $50,000. During the year, the company
reported revenues of $46,000 and expenses of $30,000. In addition, owner's withdrawals for the year
totaled $20,000. Assuming no other changes to owner's capital, the balance in the owner's capital account
at the end of the year would be:
A. $66,000.
B. $86,000.
C. $(4,000).
D. $46,000.
E. $54,000.
102.At the beginning of the year, Beta Company's balance sheet reported Total Assets of $195,000 and Total
Liabilities of $75,000. During the year, the company reported total revenues of $226,000 and expenses
of $175,000. Also, owner withdrawals during the year totaled $48,000. Assuming no other changes to
owner's capital, the balance in the owner's capital account at the end of the year would be:
A. $174,000.
B. $78,000.
C. cannot be determined from the information provided.
D. $120,000.
E. $123,000.
103.After preparing and posting the closing entries to close revenues (and gains) and expenses (and losses),
the income summary account has a debit balance of $33,000. The entry to close the income summary
account will include:
A. a debit of $33,000 to owner withdrawals.
B. a credit of $33,000 to owner withdrawals.
C. a debit of $33,000 to income summary.
D. a debit of $33,000 to owner capital.
E. a credit of $33,000 to owner capital.
104.A trial balance prepared after the closing entries have been journalized and posted is the:
A. Unadjusted trial balance.
B. Post-closing trial balance.
C. General ledger.
D. Adjusted trial balance.
E. Work sheet.
105.An error is indicated if the following account has a balance appearing on the post-closing trial
balance:
A. Office Equipment.
B. Accumulated Depreciation-Office Equipment.
C. Depreciation Expense-Office Equipment.
D. Ted Nash, Capital.
E. Salaries Payable.
106.A post-closing trial balance reports:
A. All ledger accounts with balances, none of which can be temporary accounts.
B. All ledger accounts with balances, none of which can be permanent accounts.
C. All ledger accounts with balances, which include some temporary and some permanent accounts.
D. Only revenue and expense accounts.
E. Only asset accounts.
107.Which of the following statements is true?
A. Owner's capital must be closed each accounting period.
B. A post-closing trial balance should include only permanent accounts.
C. Information on the work sheet can be used in place of preparing financial statements.
D. By using a work sheet to prepare adjusting entries you need not post these entries to the ledger
accounts.
E. Closing entries are only necessary if errors have been made.
108.Reversing entries:
A. Are optional.
B. Are mandatory.
C. Correct errors in journal entries.
D. Are required by GAAP.
E. Are prepared on the worksheet.
109.All of the following regarding reversing entries are true except:
A. Reversing entries are optional.
B Reversing entries are recorded in response to accrued assets and accrued liabilities that were created by
. adjusting entries at the end of the previous accounting period.
C. Reversing entries are used to simplify a company's recordkeeping.
D. Reversing entries are dated the first day of the new accounting period.
E. Reversing entries are not the exact opposite of adjusting entries.
110.Reversing entries:
A. are necessary when journal entries have been incorrectly recorded.
B. are a required step in the accounting cycle.
C. will often result in abnormal account balances in some accounts.
D. are required only if the company uses accounting software to record journal entries.
E. must be made before preparing the post-closing trial balance.
111.The purpose of reversing entries is to:
A. simplify the recording of certain journal entries in the future.
B. correct an error made in a previous journal entry.
C. ensure that closing entries have been properly posted to the ledger accounts.
D. make certain that only permanent accounts are carried forward into the next accounting period.
E. complete a required step in the accounting cycle.
112.All of the following statements regarding a work sheet are true except:
A. A worksheet aids in the preparation of financial statements.
B. A worksheet reduces the possibility of errors when working with many accounts and adjustments.
C. A worksheet does not assist in planning and organizing an audit of financial statements.
D. A worksheet helps in preparing interim financial statements.
E. A worksheet shows the effects of proposed or "what-if" transactions.
113.All of the following statements regarding the Income Statement columns on the worksheet are true
except:
A. The balances in the Income Statement credit column are revenues.
B. The balances in the Income Statement credit column are unearned revenues.
C. The balances in the Income Statement debit column are expenses.
D. The difference between the totals of the Income Statement columns is net income or net loss.
E The net income or net loss from the Income Statement columns is entered in the Balance Sheet &
. Statement of Owner's Equity columns.
114.Temporary accounts include all of the following except:
A. Consulting revenue.
B. Withdrawals.
C. Rent expense.
D. Prepaid rent.
E. Income Summary.
115.Permanent accounts include all of the following except:
A. Accumulated Depreciation - Equipment.
B. Prepaid Rent.
C. Unearned Consulting Revenue.
D. Accounts Payable.
E. Depreciation Expense - Equipment.
116.Which of the following statements about a company's operating cycle is not true?
A. Noncurrent items are those expected to come due within one year or the company's operating cycle.
B The operating cycle is the time span from when cash is used to acquire goods and services until cash is
. received from the sale of goods and services.
C. The length of a company's operating depends on its activities.
D For a merchandiser selling products, the operating cycle is the time span between paying suppliers for
. merchandise and receiving cash from customers.
E. Most operating cycles are less than one year.
117.Use the information in the adjusted trial balance presented below to calculate current assets for Jones

Company:
A. $21,200.
B. $45,600.
C. $24,400.
D. $95,600.
E. $41,200.
118.Use the information in the adjusted trial balance presented below to calculate the current ratio for Jones
Company:

A. 1.87.
B. .54.
C. 3.92.
D. 1.77.
E. 1.60.
119.Which of the following statements regarding reporting under GAAP and IFRS is not true?
A. Both GAAP and IFRS define the initial asset value as historical cost for nearly all assets.
B. The definition of an asset under GAAP and IFRS involves three basic criteria.
C. Both GAAP and IFRS define the initial asset value as replacement value.
D. The definition of a liability under GAAP and IFRS involves three basic criteria.
E. After acquisition, one of two asset measurement systems is applied.
120.Based on the following information from Raptor Company's balance sheet, calculate the current

ratio.
A. .44.
B. 3.51.
C. 3.33.
D. 1.06.
E. 2.23.
121.The following information is available for Crandall Company before closing the accounts. After
all of the closing entries are made, what will be the balance in the Crandall, Capital account?

A. $115,000.
B. $225,000.
C. $264,000.
D. $186,000.
E. $956,000.
122.The following information is available for Crandall Company before closing the accounts. What
will be the amount in the Income Summary account that should be closed to Crandall, Capital?

A. $80,000.
B. $64,400.
C. $43,000.
D. $32,400.
E. $42,400.
123.A company had revenues of $187,000 and expenses of $109,000 for the accounting period. The owner
withdrew $37,000 during the year. Which of the following entries could not be a closing entry?
A. Debit Income Summary $78,000; credit Owner's, Capital $78,000.
B. Debit Capital $37,000; credit Withdrawals $37,000.
C. Debit Revenues $187,000; credit Income Summary $187,000.
D. Debit Income Summary $109,000, credit Expenses $109,000.
E. Debit Income Summary $187,000; credit Revenues $187,000.
124.Bentley records adjusting entries at its December 31 year end. At December 31, employees had earned
$12,000 of unpaid and unrecorded salaries. The next payday is January 3, at which time $30,000 will
be paid. Prepare the January 1 journal entry to reverse the effect of the December 31 salary expense
accrual.
A. Debit Salaries expense $12,000; credit Salaries payable $12,000.
B. Debit Salaries expense $18,000; debit Salaries payable $12,000; credit Cash $30,000.
C. Debit Salaries payable $18,000; credit Cash $18,000.
D. Debit Salaries payable $12,000, credit Salaries expense $12,000.
E. Debit Salaries expense $18,000; credit Salaries payable $18,000.
125.Bentley records adjusting entries at its December 31 year end. At December 31, employees had earned
$12,000 of unpaid and unrecorded salaries. The next payday is January 3, at which time $30,000 will be
paid. Prepare the journal on January 3 to record payment assuming the correct adjusting and reversing
entries were made on December 31 and January 1.
A. Debit Salaries expense $12,000; debit Salaries payable $18,000; credit Cash $30,000.
B. Debit Salaries expense $30,000; credit Cash $30,000.
C. Debit Salaries payable $30,000; credit Cash $30,000.
D. Debit Salaries expense $18,000, debit Salaries payable $12,000; credit Cash $30,000.
E. Debit Salaries expense $18,000; credit Cash $18,000.
126.Match the following terms with the appropriate definition.
1. Workin Analyses and other informal reports prepared by accountants
g papers when organizing the information presented in reports and_
financial statements. _
_
_
2. Income The time span from when cash is used to acquire goods and
summary services until cash is received from the sale of those goods and_
services. _
_
_
3. Per A temporary account used only in the closing process and
manent to where the balances of revenue and expense accounts are_
accounts transferred. _
_
_
4. Closing A spreadsheet used to draft an unadjusted trial balance,
entries adjusting entries, adjusted trial balance, and financial statements. _
_
_
_
5. Tem A list of permanent accounts and their balances from the
porary ledger after all closing entries and are journalized and posted. _
accounts _
_
_
6. Accoun Recurring steps performed each accounting period, starting
ting cycle with analyzing and recording of transactions in the journal and_
continuing through the post-closing trial balance (or reversing_
entries). _
_
7. Post- Entries recorded at the end of each accounting period to
closing transfer end-of-period balances and in revenue, expense, and_
trial withdrawals accounts to the permanent owner's capital account. _
balance _
_
8. Ope Statements that show the effects of proposed transactions as if
rating the transactions had already occurred. _
cycle of a _
business _
_
9. Work Accounts that reflect on activities related to one or more future
sheet periods; they include all balance sheet accounts. _
_
_
_
10. Pro Accounts that are used to record transactions and events for
forma one accounting period only; they include revenues, expenses, and_
statements withdrawals. _
_
_
127.Match the following terms with the appropriate definition.
1. Current The owner's claim on the assets of a company. _
liabilities __
_
2. Intangib Tangible long-lived assets used to produce or sell products or _
le assets services. __
_
3. Current Cash or other assets that are expected to be sold, collected, or _
ratio used within one year or the company's operating cycle whichever__
is longer. _
4. Plant Entries recorded at the end of each accounting period to _
assets transfer end-of-period balances in revenue, expense, and__
withdrawals accounts to the permanent owner's capital account. _
5. Owner's Long-term assets used to produce or sell products or services; _
capital these assets usually lack physical form and their benefits are__
uncertain. _
6. Classifi Assets such as notes receivable or investments in stocks which _
ed balance are held for the longer of one year or the operating cycle of the__
sheet company. _
7. Closing A balance sheet that organizes the assets and liabilities into _
entries important subgroups. __
_
8. Long- Debts that are due to be paid or settled within one year or the _
term operating cycle of a business whichever is longer. __
investmen _
ts
9. Uncl A balance sheet that broadly groups assets, liabilities and _
assified equity items. __
balance _
sheet
10. Curren A ratio that is used to help evaluate a company's ability to pay _
t assets its short-term obligations, calculated by dividing current assets by__
current liabilities. _
128.Classified balance sheets commonly include the following categories.
Indicate the typical classification of each item listed below by placing the letter of the correct balance
sheet category a through g in the blank space next to the item.
1. Current assets Buildings used in business operations ____
2. Current assets Office Supplies ____
3. Long-term investments Land held for future plant expansion ____
4. Equity Long-term note payable ____
5. Long-term liabilities Accounts Receivable ____
6. Plant assets Margarita Acosta, Capital ____
7. Current liabilities Accounts payable ____
8. Current liabilities Current portion of long-term debt ____
9. Current assets Patents ____
10. Intangible assets Wages payable ____
11. Current assets Prepaid insurance ____
12. Current liabilities Cash ____
129.Explain why temporary accounts are closed each period.
130.Explain the difference between temporary and permanent accounts.

131.List the steps in the accounting cycle.

132.How is a classified balance sheet different from an unclassified balance sheet? List the order of the usual
classifications on a classified balance sheet.

133.How is the current ratio calculated? How is it used to evaluate a company?

134.Describe a work sheet and explain why it is useful.

135.List and explain the steps in preparing a 10-column worksheet.

136.What is the purpose of closing entries? Describe the closing process.

137.Journalizing and posting closing entries is a required step in the accounting cycle. Explain why it is
necessary to close the books at the end of an accounting period.

138.What is the purpose of a post-closing trial balance?

139.Explain the purpose of reversing entries.

140.In the table below, indicate with an "X" in the proper column whether the account is a temporary
(nominal) account or a permanent (real) account.
141.Listed below are a number of accounts. Use the table below to classify each account. Indicate whether it
is a temporary or permanent account, whether it is included in the Income Statement or Balance sheet,
and if it is closed at the end of the accounting period, and, if so, how it is closed. The first one is done as
an example.

142.The following are the steps in the accounting cycle. List them in the order in which they are completed:
Prepare adjusted trial balance
Post transactions
Prepare an unadjusted trial balance
Journalize transactions
Prepare the financial statements
Close the temporary accounts
Adjust the ledger accounts
Prepare a post-closing trial balance
Analyze transactions
143.Based on the adjusted trial balance shown below, prepare a classified balance sheet for Focus Package
Delivery.

$2,000 of the long-term note payable is due during the next year.
144.The calendar year-end adjusted trial balance for Acosta Co. follows:

Required:
(a) Prepare a classified year-end balance sheet. (Note: A $7,000 installment on the long-term note payable
is due within one year.)
(b) Calculate the current ratio. Comment on the ability of Acosta Co. to meets its short-term debts.

145.Calculate the current ratio in each of the following separate cases.

146.Use the following partial work sheet from Matthews Lanes to prepare its income statement, statement
of owner's equity and a classified balance sheet (Assume the owner did not make any investments in the
business this year.)
147.The unadjusted trial balance of E. Pace, Consultant is entered on the partial work sheet below. Complete
the work sheet using the following information:
(a) Salaries earned by employees that are unpaid and unrecorded, $500.
(b) An inventory of supplies showed $800 of unused supplies still on hand.
(c) Depreciation on equipment,

$1,300.

148.A partially completed work sheet is shown below. The unadjusted trial balance columns are complete.
Complete the adjustments, adjusted trial balance, income statement, and balance sheet and statement of
owner's equity columns.
149.Shown below are selected data taken from the unadjusted and adjusted trial balances for the Simonson
Company for the current year ended December 31. Determine the items A through H below.

150.The summary amounts below appear in the Income Statement and Balance Sheet columns of a company's
December 31 work sheet. Prepare the necessary closing entries.
151.The adjusted trial balance of Sara's Web Services follows:

(a) Prepare the closing entries for Sara's Web Services.

(b) What is the balance of Sara's capital account after the closing entries are posted?

152.Following are selected accounts and their balances for a company after the adjustments as of May 31, the
end of its fiscal year. (All accounts have normal balances.)

Prepare all the necessary closing entries for this company.

153.The adjusted trial balance of the Thomas Company follows:

Prepare the closing entries for Thomas Company.

154.The items that follow appeared in the Income Statement columns of the work sheet prepared for
Armstrong Delivery Service at current year-end. In addition, L. Armstrong, Capital had a credit balance
of $117,000 and L. Armstrong, Withdrawals had a debit balance of $30,000 at year end. Prepare closing
journal entries for this company.
155.Presented below are the year-end balances at December 31 of Laura's Laundry Service. (All accounts

have normal balances.)

(a) Prepare the necessary closing entries at December 31.
(b) Prepare a post-closing trial balance at December 31.

156.Shown below is Adventure Travel's adjusted trial balance as of the end of its annual accounting period:

(a) Prepare the necessary closing entries.

(b) Prepare a post-closing trial balance.
157.Employees of Artworld Co. have earned but have not been paid $3,500 in salaries for the last week of the
current calendar year.
(a) Prepare the necessary adjusting journal entry(ies) for Artworld at December 31 of the current year.
(b) Assuming that Artworld makes reversing entries, prepare the necessary reversing entry. Include the
appropriate date for the reversing entry(ies).

158.The following information has been gathered for Stylish Co. to assist in preparing its year-end adjusting
entries at December 31:
(a) The company has earned $2,500 of rental revenue that has not yet been received or recorded.
(b) Stylish has recorded $3,200 of unearned service fees. At year-end, $1,500 of this amount has been
earned.
(c) Depreciation on equipment for the year is $7,800.
(d) Employees have earned but have not yet been paid $2,750 in salaries.
Identify which of the above accounting adjustment would be reversed assuming Stylish Co. uses
reversing entries.
159.The unadjusted trial balance of Quick Delivery is entered on the partial work sheet below. Complete the
work sheet using the following information:
(a) Salaries earned by employees that are unpaid and unrecorded, $5,000.
(b) An inventory of supplies showed $1,000 of unused supplies still on hand.
(c) Depreciation on delivery vans, $24,000.
(d) Services paid in advance by customers of $10,000 have now been provided to customers.
160.The following year-end adjusted trial balance is for Tom Janes Co. at the end of December 31. The credit
balance in Tom Janes, Capital at the beginning of the year, January 1, was $320,000. The owner, Tom
Janes, invested an additional $300,000 during the current year. The land held for future expansion was
also purchased during the current year.

Required: 1. Prepare a classified year-end balance sheet. (Note: A $22,000 installment on the long-term
note payable is due within one year.)
2. Using the information presented:
(a) Calculate the current ratio. Comment on the ability of Tom Janes Co. to meets its short-term debts.
(b) Calculate the debt ratio and comment on the financial position and risk analysis of Tom Janes Co.
(c) Using the account balances to analyze the financial position of Tom Janes Co., why would the owner
need to invest an additional $300,000 in the business when the business is already profitable and the
owner had an existing capital balance of $320,000?
161.Excalibur frequently has accrued expenses at the end of its fiscal year that should be recorded for proper
financial statement presentation. Excalibur pays on a weekly basis and has $50,000 of accrued salaries
incurred but not paid for June 30, its fiscal year-end. This consists of one day's accrued salaries for the
week. Excalibur will pay its employees $250,000 on July 4; the one day of accrued salaries and the
remaining four days for July salaries. Record the following entries:
(a) Accrual of the salaries on June 30.
(b) Payment of the salaries on July 4, assuming that Excalibur does not prepare reversing entries.
(c) Assuming that Excalibur prepares reversing entries, reverse the adjusting entry made on June 30.
(d) Assuming that Excalibur prepares reversing entries, payment of the salaries on July 4.

162.Epee Inc. frequently has accrued revenues at the end of its fiscal year that should be recorded for proper
financial statement presentation. Epee Inc.'s fiscal year ends on September 30 of the current year. Epee
Inc. has determined through an evaluation of invoices and services rendered that $32,000 of services has
been provided as of September 30, but not yet billed. The total contract to be billed for services when
completed will be $60,000. Record the following entries:
(a) Accrual of the revenues on September 30.
(b) Receipt of payment from customers on October 9 for the services rendered, assuming that Epee does
not prepare reversing entries.
(c) Assuming that Epee prepares reversing entries, reverse the adjusting entry made on September 30.
(d) Assuming that Epee prepares reversing entries, receipt of the payment for the total contract amount on
October 9.

163.Compute Dave Company's current ratio using the following

information:
164.The unadjusted trial balance of Bade Cleaning Service is entered on the partial work sheet below.
Complete the work sheet using the following information:
(a) Salaries earned by employees that are unpaid and unrecorded, $4,000.
(b) An inventory of supplies showed $3,000 of unused supplies still on hand.
(c) Depreciation on automobiles, $30,000.
(d) Services paid in advance by customers of $12,000 have now been provided to customers.
(e) Advertising for November and December in the amount of $8,000 remains unpaid and

unrecorded.

165.The Adjusted Trial Balance of Bade Cleaning Service is entered on the partial work sheet below.
Complete the work sheet by extending the account balances into the appropriate financial statement
columns and by entering the amount of net income for the reporting period:
166.The following adjusted trial balance is for Clara Co. at year-end December 31. The credit balance in
Clara, Capital at the beginning of the year, January 1, was $320,000. The owner, Sara Clara, invested
an additional $100,000 during the current year. The land held for future expansion was also purchased

during the current year.

Required:
Prepare a classified balance sheet. (Note: A $21,000 installment on the long-term note payable is due
within one year.)

167.The closing process resets _______, _________, and ________ account balances to zero at the end of
each accounting period.
________________________________________
168.The ___________________ account is used only in the closing process.
________________________________________
169.Revenues, expenses, withdrawals, and Income Summary are called _________________ accounts
because they are closed at the end of each accounting period.
________________________________________
170.Balance sheet accounts are called ____________________ accounts because they carry their balances to
the next accounting period, and are not closed as long as the company continues to own the asset, owe the
liability and have equity.
________________________________________
171.The ______________ refers to the steps in preparing financial statements for users.
________________________________________
172.Intangible assets are long-term resources used to produce or sell products and services; they generally
lack ______________ and their benefits are highly ___________.
________________________________________
173.The current portion of long-term debt is classified with the ________________________.
________________________________________
174.A current ratio of 2.1 suggests that a company has ____________ current assets to cover current
liabilities.
________________________________________
175.A ____________________ helps in preparing financial statements, is useful in preparing interim
statements, and is helpful in showing the effects of proposed transactions.
________________________________________
176.A company's post-closing trial balance has a debit total of $475,000 and a credit total of $457,000. This
indicates that _________________________.
________________________________________
177.Reversing entries are linked to ____________________ and _____________ that were created by
adjusting entries at the end of the prior accounting period.
________________________________________
 ch04 Key
1. FALSE

2. TRUE

3. TRUE

4. TRUE

5. TRUE

6. FALSE

7. TRUE

8. TRUE

9. FALSE

10. TRUE

11. FALSE

12. FALSE

13. FALSE

14. TRUE

15. FALSE

16. TRUE

17. FALSE

18. TRUE

19. FALSE

20. TRUE

21. TRUE

22. TRUE

23. FALSE

24. TRUE

25. TRUE

26. FALSE

27. TRUE

28. TRUE

29. TRUE

30. FALSE

31. FALSE

32. TRUE

33. TRUE

34. TRUE

35. TRUE

36. FALSE
37. FALSE

38. TRUE

39. TRUE

40. FALSE

41. FALSE

42. FALSE

43. TRUE

44. FALSE

45. FALSE

46. TRUE

47. FALSE

48. TRUE

49. FALSE

50. FALSE

51. FALSE

52. FALSE

53. FALSE

54. FALSE

55. FALSE

56. TRUE

57. FALSE

58. TRUE

59. TRUE

60. TRUE

61. E

62. B

63. B

64. A

65. C

66. D

67. B

68. D

69. D

70. C

71. C

72. B

73. A

74. C
75. C

76. E

77. D

78. C

79. A

80. B

81. A

82. D

83. A

84. A

85. C

86. E

87. B

88. D

89. C

90. B

91. D

92. A

93. B

94. B

95. C

96. C

97. B

98. D

99. C

100. D

101. D

102. E

103. D

104. B

105. C

106. A

107. B

108. A

109. E

110. C

111. A

112. C
113. B

114. D

115. E

116. A

117. B

118. A

119. C

120. E

121. D

122. B

123. E

124. D

125. B

126. Working papers :: Analyses and other informal reports prepared by accountants when organizing the information presented in reports
and financial statements. and Operating cycle of a business :: The time span from when cash is used to acquire goods and services until cash
is received from the sale of those goods and services. and Income summary :: A temporary account used only in the closing process and to
where the balances of revenue and expense accounts are transferred. and Work sheet :: A spreadsheet used to draft an unadjusted trial balance,
adjusting entries, adjusted trial balance, and financial statements. and Post-closing trial balance :: A list of permanent accounts and their balances
from the ledger after all closing entries and are journalized and posted. and Accounting cycle :: Recurring steps performed each accounting
period, starting with analyzing and recording of transactions in the journal and continuing through the post-closing trial balance (or reversing
entries). and Closing entries :: Entries recorded at the end of each accounting period to transfer end-of-period balances and in revenue, expense,
and withdrawals accounts to the permanent owner's capital account. and Pro forma statements :: Statements that show the effects of proposed
transactions as if the transactions had already occurred. and Permanent accounts :: Accounts that reflect on activities related to one or more
future periods; they include all balance sheet accounts. and Temporary accounts :: Accounts that are used to record transactions and events for
one accounting period only; they include revenues, expenses, and withdrawals.

127. Owner's capital :: The owner's claim on the assets of a company. and Plant assets :: Tangible long-lived assets used to produce or
sell products or services. and Current assets :: Cash or other assets that are expected to be sold, collected, or used within one year or the
company's operating cycle whichever is longer. and Closing entries :: Entries recorded at the end of each accounting period to transfer end-
of-period balances in revenue, expense, and withdrawals accounts to the permanent owner's capital account. and Intangible assets :: Long-
term assets used to produce or sell products or services; these assets usually lack physical form and their benefits are uncertain. and Long-
term investments :: Assets such as notes receivable or investments in stocks which are held for the longer of one year or the operating cycle of
the company. and Classified balance sheet :: A balance sheet that organizes the assets and liabilities into important subgroups. and Current
liabilities :: Debts that are due to be paid or settled within one year or the operating cycle of a business whichever is longer. and Unclassified
balance sheet :: A balance sheet that broadly groups assets, liabilities and equity items. and Current ratio :: A ratio that is used to help evaluate a
company's ability to pay its short-term obligations, calculated by dividing current assets by current liabilities.

128. Plant assets :: Buildings used in business operations and Current assets :: Office Supplies and Long-term investments :: Land held for
future plant expansion and Long-term liabilities :: Long-term note payable and Current assets :: Accounts Receivable and Equity :: Margarita
Acosta, Capital and Current liabilities :: Accounts payable and Current liabilities :: Current portion of long-term debt and Intangible
assets :: Patents and Current liabilities :: Wages payable and Current assets :: Prepaid insurance and Current assets :: Cash

129. Temporary accounts are closed at the end of each accounting period for two main reasons. First, it prepares revenue, expense and withdrawal
accounts for the next reporting period by bringing the balances in those accounts to zero. Second, the closing process is used to update the owner's
capital account to include the increases from revenues and decreases from expenses and withdrawals.

130. Temporary, or nominal, accounts accumulate data related to one accounting period. They include all income statement accounts, withdrawals,
and Income Summary. Temporary accounts are closed at the end of each accounting period. Permanent, or real, accounts, on the other hand,
report on activities related to one or more future accounting periods. They carry their balances to the next period. All balance sheet accounts are
permanent accounts.

131. The accounting cycle consists of ten steps: (1) analyze transactions, (2) journalize entries, (3) post entries to the ledgers, (4) prepare
an unadjusted trial balance, (5) prepare adjusting entries, (6) prepare an adjusted trial balance, (7) prepare financial statements, (8) close the
temporary accounts, (9) prepare a post-closing trial balance, and (10) prepare reversing entries (optional).

132. An unclassified balance sheet broadly groups assets, liabilities, and equity. A classified balance sheet organizes assets, liabilities, and equity
into important subgroups that provide more useful information to decisions makers. Classified balance sheets usually report four groups of assets:
current assets, long-term investments, plant assets, and intangible assets. Liabilities are usually divided into current and long-term. For sole
proprietorships and partnerships equity is reported under capital accounts. For corporations, the equity section is divided into capital stock and
retained earnings.

133. The current ratio is current assets divided by current liabilities. It is used to help evaluate a company's ability to pay its short term obligations.
It can be used by suppliers and creditors to help them decide whether to allow a company to buy on credit, and whether to loan them money.
134. A work sheet is a useful tool for organizing the preparation and analysis of financial statements. It contains five pairs of debit and credit
columns for the trial balance, adjusting entries, adjusted trial balance, income statement accounts, and balance sheet (and owner's equity) accounts.

5. Total the Income Statement columns and Balance Sheet and Statement of Owner's Equity columns. The difference between the Income
Statement columns is the net income or net loss. The difference between the Balance Sheet and Statement of Owner's Equity columns will also be
the amount of the net income or net loss. Add the net income to the Income Statement debit column and total the columns. Add the net income to
the Balance Sheet and Statement of Owner's Equity credit column and total the columns.
4. Sort the adjusted trial balance columns into the Income Statement columns and Balance Sheet and Statement of Owner's Equity columns.
3. Prepare the adjusted trial balance by combining the unadjusted trial balance columns with the adjustments.
2. Enter adjustments.
135. 1. Enter the unadjusted trial balance. List all account titles that will be expected to appear on the financial statements and enter their balances
from the ledger.

136. The purpose of closing entries is to transfer the end of period balances in the temporary accounts to the equity account(s). The closing process
has four steps: (1) Close credit balances in revenue accounts to income summary, (2) close debit balances in expense accounts to income summary,
(3) close income summary to the owner's capital account, (4) close withdrawals to the owner's capital account.

137. Closing entries are necessary to close the income statement accounts (the temporary or nominal accounts) at the end of the year in order to
start the next year with the proper balances in those accounts. The closing entries are what separate one accounting period from another.

138. A post-closing trial balance is a list of permanent accounts and their balances after all the closing entries are journalized and posted. It is used
to verify the equality of debits and credits of the permanent account balances. It also verifies that the temporary accounts have zero balances.

139. Reversing entries are an optional step in the accounting cycle. They apply to accrued assets and accrued liabilities that were created by
adjusting entries at the end of a reporting period. The purpose of the reversing entries is to simplify a company's recordkeeping.

Feedback:
140. Answers will vary
Feedback:
141. Answers will vary

9) Prepare a post-closing trial balance

8) Close the temporary accounts
7) Prepare the financial statements
6) Prepare adjusted trial balance
5) Adjust the ledger accounts
4) Prepare an unadjusted trial balance
3) Post transactions
2) Journalize transactions
Feedback: 1) Analyze transactions
142. Answers will vary
Feedback:
143. Answers will vary
Acosta Co. has a current ratio of 4.5 to 1, which means it should have no difficulty paying its short-term debts. Cash alone is more than adequate to
meet short-term debts.

(b)
Ending Capital = $1,010,000 + $262,800 - $200,500 = $1,072,300
*NI = $370,800 - $90,000 - $5,200 - $5,000 - $800 - $7,000 = $262,800

Feedback: (a)
144. Answers will vary

Case 5. 0.90
Case 4. 1.04
Case 3. 0.85
Case 2. 1.9
Feedback: Case 1. 2.5
145. Answers will vary
Feedback:
146. Answers will vary
Feedback:
147. Answers will vary

Feedback:
148. Answers will vary

Feedback:
149. Answers will vary
Feedback:
150. Answers will vary

Feedback:
151. Answers will vary

Feedback:
152. Answers will vary
Feedback:
153. Answers will vary

Feedback:
154. Answers will vary
(b)

Feedback: (a)
155. Answers will vary
(b)

Feedback: (a)
156. Answers will vary

Feedback:
157. Answers will vary

(d) Reversed.
(c) Not reversed.
(b) Not reversed.
Feedback: (a) Reversed.
158. Answers will vary
Feedback:
159. Answers will vary
(c) To keep the debt ratio low, the owner may have decided to use his own capital to finance the purchase of assets. Also, the majority of capital
contributed prior to the current year had been used to purchase other plant and long-term assets. To finance the purchase of the land held for
future expansion, the bank may have required the owner to increase equity before granting the long-term note payable. If the long-term note had
previously existed, then the owner invested the cash to purchase the land held for future expansion.
The debit ratio is low and indicates that the company does not have a high degree of risk associated with the company's use of liabilities to finance
the company. The company has a low degree of financial leverage, the assets of the company have been purchased through equity financing rather
than debt financing. The company should have no problem meeting required future payments of liabilities.
258,200/1,060,000 = .24 to 1
(b) Debt ratio = Total Liabilities/Total Assets
Tom Janes Co.'s current ratio is good and indicates that the company has more than enough in current assets to meet its short-term debts.
116,000/56,200 = 2.1 to 1
(a) Current ratio = current assets/current liabilities
Ending Capital = $620,000 + $241,800 - $60,000 = $801,800
Net income $470,800 - $180,000 - $12,000 - $25,000 - $2,000 - $10,000 = $241,800

Feedback:
160. Answers will vary
Feedback:
161. Answers will vary

Feedback:
162. Answers will vary

Feedback: ($20,000+$7,000+$12,000)/($5,000+$15,000)=1.95
163. Answers will vary

Feedback: Bloom's: Apply

164. Answers will vary
Feedback:
165. Answers will vary

Ending Capital = $420,000 + $194,800 - $60,000 = $554,800

Net income = $470,800 - $195,000 - $18,000 - $36,000 - $12,000 - $15,000 = $194,800

Feedback:
166. Answers will vary

167. Revenue, Expense, Withdrawals

168. Income Summary

169. Temporary (or nominal)

170. Permanent (or real)

171. Accounting cycle

172. Physical form; uncertain

173. Current Liabilities

174. Sufficient

175. Work sheet

176. An error was made in the closing process.

177. Accrued assets, accrued liabilities

 ch04 Summary
Category # of Questions
AACSB: Analytic 63
AACSB: Analytic, Reflective Thinking 2
AACSB: Communications 83
AACSB: Technology 23
AACSB: Technology, Analytic 6
AICPA BB: Global 1
AICPA BB: Industry 172
AICPA BB: Industry, Resource Management, Critical Thinking 1
AICPA BB: Resource Management 2
AICPA BB: Resource Management, Critical Thinking 1
AICPA FN: Decision Making 75
AICPA FN: Leveraging Technology 35
AICPA FN: Measurement 30
AICPA FN: Reporting 23
AICPA FN: Reporting, Risk Analysis 2
AICPA FN: Risk Analysis 12
Blooms: Analyze 1
Blooms: Apply 45
Blooms: Remember 57
Blooms: Understand 73
Difficulty: Easy 56
Difficulty: Hard 47
Difficulty: Medium 74
Fundamental - Chapter 04 177
Learning Objective: A1 Compute the current ratio and describe what it reveals about a companys financial condition. 16
Learning Objective: C1 Explain why temporary accounts are closed each period. 32
Learning Objective: C2 Identify steps in the accounting cycle. 11
Learning Objective: C3 Explain and prepare a classified balance sheet. 29
Learning Objective: P1 Prepare a work sheet and explain its usefulness. 40
Learning Objective: P2 Describe and prepare closing entries. 35
Learning Objective: P3 Explain and prepare a post-closing trial balance. 12
Learning Objective: P4 Appendix 4A—Prepare reversing entries and explain their purpose. 14