CHAPTER 4

FIRST: TRUE OR FALSE QUESTIONS

1. Assets and liabilities are temporary accounts that are closed to income statement while revenues and
expenses are permanent accounts that remain open for the following years.
2. Post-closing trial balance may be used in place of balance sheet.
3. The following steps represent the complete accounting cycle: posting to the ledger, journalizing,
preparing unadjusted trial balance, adjusted trial balance, adjusting entries, preparing closing entries and
preparing financial statements.
4. The market value of asset can be identified from the balance sheet.
5. Closing entries are unnecessary if the business plans to continue operating in the future and issue
financial statements each year.
6. The owner's drawing account is closed to income summary in order to properly determine net income
(or loss) for the period.
7. Preparing correcting entries is a required step in the accounting cycle.
8. All steps of the accounting cycle occurs daily during the period.
9. If the business is operating profitably, the balance of income summary before closing will be debit.
10. If the business is operating profitably, the entry to close income summary will consist of a debit to
capital and credit to income summary.
11. All assets are valued on the balance sheet at the market values to show how much cash would be
realized if it is sold.
12. The closing entry process includes closing all permanent accounts including capital.
13. The post-closing trial balance include only balance sheet accounts.
14. Only income statement accounts are closed during the closing process.
15. After completing the closing process, the balance of income summary will equal the profit (or loss) of
the business.
16. Capital account is closed during the closing process.
17. The balance of capital appears on the post-closing trial balance will be the same as the ending capital
appears on the statement of owner's equity and balance sheet.
18. The net income of ABC Company is LE3000. Therefore, income summary will be debited by LE3000
when it is closed.
19. The adjusting process zeroes out all revenues and all expenses.
20. Permanent accounts are NOT closed at the end of the period.
21. As part of the closing process, revenues and expenses are closed to a temporary account called Net
income (loss)
22. The last step in the closing process is to credit the Drawing account and debit the Capital account.
23. Revenue accounts and expense accounts are closed to the Capital account.
24. Asset and liability accounts are closed to the Income summary account.
25. Beginning balance in Capital is $80,000. Revenues are $60,000. Expenses are $75,000. No
withdrawals were taken. The ending balance in Capital is $65,000.
26. Cash is a temporary account.

32
27. Supplies expense is a temporary account
28. Capital is a temporary account
29. The post-closing trial balance is an optional step
30. The post-closing trial balance shows the updated Capital balance.
31. The post-closing trial balance shows the net income for the period just ended
32. Only permanent accounts appear on the post-closing trial balance
33. Assets and liabilities are classified as either current or long-term to show their relative liquidity.
34. Prepaid rent is usually a long-term asset.
35. A debt due to be paid within one year (or operating cycle, if longer) is a current liability.
36. Closing entries are unnecessary if the business plans to continue operating in the future and issue
financial statements each year.
37. The owner’s drawings account is closed to the Income Summary account in order to properly determine
net income (or loss) for the period.
38. After closing entries have been journalized and posted, all temporary accounts in the ledger should have
zero balances.
39. Closing revenue and expense accounts to the Income Summary account is an optional bookkeeping
procedure.
40. Closing the drawings account to Owner’s Capital is not necessary if net income is greater than owner’s
drawings during the period.
41. The owner’s drawings account is a permanent account whose balance is carried forward to the next
accounting period.
42. Closing entries are journalized after adjusting entries have been journalized.
43. The amounts appearing on an income statement should agree with the amounts appearing on the post-
closing trial balance.
44. A business entity has only one accounting cycle over its economic existence.
45. The accounting cycle begins at the start of a new accounting period.
46. Cash and supplies are both classified as current assets.
47. Long-term investments would appear in the property, plant, and equipment section of the balance sheet.
48. A liability is classified as a current liability if the company is to pay it within the forthcoming year.
49. A company’s liquidity is concerned with the relationship between long-term investments and long-term
debt.
50. Current assets are customarily the first items listed on a classified balance sheet.
51. To close net income to owner’s capital, Income Summary is debited and Owner’s Capital is credited.
52. In one closing entry, Owner’s Drawings is credited and Income Summary is debited.
53. The post-closing trial balance will contain only owner’s equity statement accounts and balance sheet
accounts.
54. Current assets are listed in the order of liquidity.
55. Current liabilities are obligations that the company is to pay within the coming year.
 Answer of True or False Questions (Chapter 4)
Question T/F Question T/F Question T/F Question T/F Question T/F
No. No. No. No. No.
1. F 14. F 27. T 40. F 53. F
2. F 15. F 28. F 41. F 54. T
3. F 16. F 29. T 42. T 55. T
4. F 17. T 30. T 43. F
5. F 18. T 31. F 44. F
6. F 19. F 32. T 45. T
7. F 20. T 33. T 46. T
8. F 21. F 34. F 47. F
9. F 22. T 35. T 48. T
10. F 23. F 36. F 49. F
11. F 24. F 37. F 50. T
12. F 25. T 38. T 51. T
13. T 26. F 39. F 52. F

34
SECOND: MULTIPLE CHOICE QUESTIONS:
On June 1, Michelle Sasse started Divine Creations Co., a company that provides craft opportunities, by
investing $15,200 cash in the business. Following are the assets and liabilities of the company at June 30 and
the revenues and expenses for the month of June.
Cash $1000 Notes Payable (long term) $7400
Accounts Receivable 1000 Accounts Payable 1200
Service Revenue 7000 Supplies Expense 1600
Supplies 1500 Gas and Oil Expense 200
Advertising Expense 400 Utilities Expense 150
Equipment 10000 Land 1600
Rent Revenue 500 Accumulated Depreciation - Equipment 1000
Depreciation Expense – Equipment 250 Building 13000
Accumulated Depreciation – Building 1000 Unearned Revenue 250
Interest Revenue 2300 Prepaid Rent 500
Rent Expense 700 Salaries Expense 300
Drawings 3250 Prepaid Insurance 400
(Use To solve questions 1-11)
1. Total Revenues equals:
a. 9550 b. 9800 c. 10050 d. None of these

2. Total Expenses equals:

a. 3200 b. 3400 c. 3600 d. None of these

3. Net income amounts to:

a. 3450 (income) b. 6200 (income) c. 6200 (loss) d. 3450 (loss)

4. The ending capital for the month ended June equals:

a. 18150 b. 19150 c. 201520 d. None of these

5. Total current assets equals:

a. 1100 b. 2200 c. 3300 d. 4400

6. Total plant assets equals:

a. 22600 b. 24600 c. 26600 d. 28600

7. Total current liabilities equals:

a. 1200 b. 250 c. 1450 d. None of these

8. Total long term liabilities equals:

a. 1200 b. 2550 c. 1450 d. 7400
9. The balance of income summary before closing is:
a. 6200 (debit) b. 6200 (credit) c. 9550 (debit) d. 9550 (credit)

10. Which of the following entries is correct for closing income summary:
a. Income Summary ………….. 9800 b. Capital ………….. 9800
Capital ………………………..9800 Income Summary……..9800
c. Income Summary ………….. 6200 d. Capital ………….. 6200
Capital ………………………..6200 Income Summary ……………..6200

11. The book value of Building equals:

a. 13000 b. 12000 c. 12750 d. 1000

12. If the records of Leeds Company shows a net income of 2000. The required entry to close income
summary will be:
a. Income Summary ………….. 2000 b. Capital ………….. 2000
Capital ………………………..2000 Income Summary ………..2000
c. Income Summary ………….. 2000 d. Net income ………….. 2000
Net income …………………..2000 Income Summary ……………..2000

13. If the records of Leeds Company shows a net loss of 2000. The required entry to close income summary
will be:
a. Income Summary ………….. 2000 b. Capital ………….. 2000
Capital ………………………..2000 Income Summary ……………..2000
c. Income Summary ………….. 2000 d. Net loss ………….. 2000
Net loss …………………………..2000 Income Summary ……………..2000

14. If the records of Leeds Company shows a net loss of 2000. The balance of income summary which
appears in the post-closing trial balance will equal:
a. + 2000 b. -2000 c. Zero d. None of these

15. Where can closing entries be found?

a. In a company's general journal b. On a company's statement of owner's equity
c. On a company's worksheet d. On a company's balance sheet

16. Revenues total $10,200. Expenses total $7,300. Withdrawals total $2,600. What is the balance in the
Income summary account prior to closing Net income or loss to the Capital account?
a. Credit balance of $30 b. Debit balance of $2,900
c. Credit balance of $2,90 d. Balance of $0

17. To what account is the balance in the Income summary account closed?
a. The Withdrawal account b. The Net Income account
c. The Capital account d. The Revenue account

36
18. Which account has a balance equal to net income immediately before it is closed?
a. The Income summary account b. The Drawing account
c. The Net Income account d. The Capital account

19. Net income for the year is $25,000. Withdrawals of $36,000 per were taken at the end of the year.
Which of the following occurs?
a. The Capital account decreases by $22,000. b. The Capital account decreases by $11,000.
c. The Capital account increases by $11,000. d. The Capital account increases by $22,000.

20. The following is the adjusted trial balance for XYZ Photography.

Accounts Debit Credit

Cash $1,700
Accounts receivable 8,500
Supplies 100
Equipment 7,500
Accumulated
$2,000
depreciation
Accounts payable 1,200
Salary payable 800
Unearned revenue 600
Capital 3,400
Drawing 2,300
Service revenue 40,000
Salary expense 24,000
Supplies expense 2,300
Depreciation
1,600
expense
$48,000 $48,000
What will the final ending balance in the Capital account be after posting the closing entries?
a. $13,200 b. $14,500 c. $16,800 d. $10,200

21. Which of the following do NOT show up on a post-closing trial balance?

a. Assets and liabilities b. Capital and assets
c. Capital and liabilities d. Revenues and expenses

22. Which of the following assets is the MOST liquid?

a. Inventory b. Prepaid expenses
c. Accounts receivable d. Cash
23. Under which of the following categories would Accounts payable appear?
a. Current liabilities b. Current assets
c. Long-term liabilities d. Long-term assets

24. A two-year note payable would be classified as a:

a. current liability. b. current asset.
c. long-term liability. d. long-term asset.

25. Below is a list of various balance sheet accounts and their balances.
Debit Credit
Notes payable-short term $800
Salary payable 3,600
Notes payable-long term 20,000
Accounts payable 2,200
Unearned revenue 1,000
Interest payable 2,200

What are the total current liabilities that would be shown on the balance sheet?
a. $29,800 b. $9,000 c. $9,800 d. $6,800

26. After the adjusting entries are journalized and posted to the accounts in the general ledger, the balance
of each account should agree with the balance shown on the
a. adjusted trial balance. b. post-closing trial balance.
c. the general journal. d. adjustments columns of the worksheet.

27. The income statement and balance sheet columns of Beer and Nuts Company reflect the following
totals:

Income Statement Balance Sheet

Dr. Cr. Dr. Cr.
Totals $75,000 $51,000 $60,000 $84,000

The net income (or loss) for the period is

a. $51,000 income. b. $24,000 income.
c. $24,000 loss. d. not determinable.

28. Closing entries are necessary for

a. permanent accounts only. b. temporary accounts only.
c. both permanent and temporary accounts. d. permanent or real accounts only.

38
29. Each of the following accounts is closed to Income Summary except
a. Expenses. b.Owner’s Drawings.
c. Revenues. d. All of these are closed to Income Summary.

30. Closing entries are made

a. in order to terminate the business as an operating entity.
b. so that all assets, liabilities, and owner’s capital accounts will have zero balances when the next
accounting period starts.
c. in order to transfer net income (or loss) and owner’s drawings to the owner’s capital account.
d. so that financial statements can be prepared.

31. Closing entries are

a. an optional step in the accounting cycle.
b. posted to the ledger accounts from the worksheet.
c. made to close permanent or real accounts.
d. journalized in the general journal.

32. The income summary account

a. is a permanent account. b. appears on the balance sheet.
c. appears on the income statement. d. is a temporary account.

33. If Income Summary has a credit balance after revenues and expenses have been closed into it, the
closing entry for Income Summary will include a
a. debit to the owner’s capital account. b. debit to the owner’s drawings account.
c. credit to the owner’s capital account. d. credit to the owner’s drawings account.

34. Closing entries are journalized and posted

a. before the financial statements are prepared. b. after the financial statements are prepared.
c. at management’s discretion. d. at the end of each interim accounting period.

35. Closing entries

a. are prepared before the financial statements. b. reduce the number of permanent accounts.
c. cause the revenue and expense accounts to have zero balances.
d. summarize the activity in every account.

36. Which of the following is a true statement about closing the books of a proprietorship?
a. Expenses are closed to the Expense Summary account.
b. Only revenues are closed to the Income Summary account.
c. Revenues and expenses are closed to the Income Summary account.
d. Revenues, expenses, and the owner’s drawings account are closed to the Income Summary account.
37. Closing entries may be prepared from all of the following except
a. Adjusted balances in the ledger
b. Income statement and balance sheet columns of the worksheet
c. Balance sheet
d. Income and owner’s equity statements

38. In order to close the owner’s drawings account, the

a. income summary account should be debited. b. income summary account should be credited.
c. owner’s capital account should be credited. d. owner’s capital account should be debited.

39. In preparing closing entries

a. each revenue account will be credited.
b. each expense account will be credited.
c. the owner’s capital account will be debited if there is net income for the period.
d. the owner’s drawings account will be debited.

40. The most efficient way to accomplish closing entries is to

a. credit the income summary account for each revenue account balance.
b. debit the income summary account for each expense account balance.
c. credit the owner’s drawings balance directly to the income summary account.
d. credit the income summary account for total revenues and debit the income summary account for
total expenses.

41. The closing entry process consists of closing

a. all asset and liability accounts. b. out the owner’s capital account.
c. all permanent accounts. d. all temporary accounts.

42. The final closing entry to be journalized is typically the entry that closes the
a. revenue accounts. b. owner’s drawings account.
c. owner’s capital account. d. expense accounts.

43. The Income Summary account is an important account that is used

a. during interim periods. b. in preparing adjusting entries.
c. annually in preparing closing entries. d. annually in preparing correcting entries.

44. The balance in the income summary account before it is closed will be equal to
a. the net income or loss on the income statement.
b. the beginning balance in the owner’s capital account.
c. the ending balance in the owner’s capital account.
d. zero.

40
 45. After closing entries are posted, the balance in the owner’s capital account in the ledger will be equal to
a. the beginning owner’s capital reported on the owner’s equity statement.
b. the amount of the owner’s capital reported on the balance sheet.
c. zero.
d. the net income for the period.

The income statement for the month of June, 2016 of XYZ, Inc. contains the following information: (use to
answer questions 46-50)
Revenues $7,300
Expenses:
Salaries and Wages Expense $3,000
Rent Expense 1,300
Advertising Expense 700
Supplies Expense 200
Insurance Expense 100
Total expenses 5,300
Net income $2,000

46. The entry to close the revenue account includes a

a. debit to Income Summary for $2,000. b. credit to Income Summary for $2,000.
c. debit to Income Summary for $7,300. d. credit to Income Summary for $7,300.

47. The entry to close the expense accounts includes a

a. debit to Income Summary for $2,000. b. debit to income summary for 5300.
c. credit to Income Summary for $5,300. d. debit to Salaries and Wages Expense for $3,000.

48. After the revenue and expense accounts have been closed, the balance in Income Summary will be
a. a debit balance of $7,300. b. a debit balance of $2,000.
c. a credit balance of $2,000. d. a credit balance of $7,300.

49. The entry to close Income Summary to Owner’s, Capital includes

a. a debit to Revenues for $7,300. b. credits to Expenses totalling $5,300.
c. a credit to Income Summary for $2,000 d. a credit to Owner’s Capital for $2,000.

50. At June 1, 2016, XYZ reported owner’s equity of $36,000. The company had no owner drawings during
June. At June 30, 2016, the company will report owner’s equity of
a. $30,700. b. $36,000. c. $38,000. d. $43,300.
The income statement for the year 2016 of ABC Co. contains the following information: (use to answer
questions 51-57)
Revenues $73,000
Expenses:
Salaries and Wages Expense $43,000
Rent Expense 12,000
Advertising Expense 11,000
Supplies Expense 6,000
Utilities Expense 3,500
Insurance Expense 4,000
Total expenses 79,500
Net income (loss) $ (6,500)

51. The entry to close the revenue account includes a

a. debit to Income Summary for $6,500. b. credit to Income Summary for $6,500.
c. debit to Revenues for $73,000. d. credit to Revenues for $73,000.

52. The entry to close the expense accounts includes a

a. debit to Income Summary for $6,500. b. credit to Income Summary for $6,500.
c. debit to Income Summary for $79,500. d. debit to Utilities Expense for $3,500.

53. After the revenue and expense accounts have been closed, the balance in Income Summary will be
a. $0. b. a debit balance of $6,500. c. a credit balance of $6,500. d.a credit balance of $73,000.

54. The entry to close Income Summary to Owner’s Capital includes

a. a debit to Revenue for $73,000. b. credits to Expenses totalling $79,500.
c. a credit to Income Summary for $6,500. d. a credit to Owner’s Capital for $6,500.

55. At January 1, 2016, ABC reported owner’s equity of $50,000. Owner drawings for the year totalled
$13,000. At December 31, 2016, the company will report owner’s equity of
a. $19,500. b. $30,500. c. $37,000. d. $43,500.

56. After all closing entries have been posted, the Income Summary account will have a balance of
a. $0. b. $6,500 debit. c. $6,500 credit. d. $79,500 credit.

57. After all closing entries have been posted, the revenue account will have a balance of
a. $0. b. $73,000 credit. c. $73,000 debit. d. $6,500 credit.

58. A post-closing trial balance is prepared

a. after closing entries have been journalized and posted.
b. before closing entries have been journalized and posted.
c. after closing entries have been journalized but before the entries are posted.
42
 d. before closing entries have been journalized but after the entries are posted.

59. All of the following statements about the post-closing trial balance are correct except it
a. shows that the accounting equation is in balance.
b. provides evidence that the journalizing and posting of closing entries have been properly completed.
c. contains only permanent accounts.
d. proves that all transactions have been recorded.

60. A post-closing trial balance will show

a. only permanent account balances. b. only temporary account balances.
c. zero balances for all accounts. d. the amount of net income (or loss) for the period.

61. A post-closing trial balance should be prepared

a. before closing entries are posted to the ledger accounts.
b. after closing entries are posted to the ledger accounts.
c. before adjusting entries are posted to the ledger accounts.
d. only if an error in the accounts is detected.

62. A post-closing trial balance will show

a. zero balances for all accounts. b. zero balances for balance sheet accounts.
c. only balance sheet accounts. d. only income statement accounts.

63. The purpose of the post-closing trial balance is to

a. prove that no mistakes were made.
b. prove the equality of the balance sheet account balances that are carried forward into the next
accounting period.
c. prove the equality of the income statement account balances that are carried forward into the next
accounting period.
d. list all the balance sheet accounts in alphabetical order for easy reference.

64. The balances that appear on the post-closing trial balance will match the
a. income statement account balances after adjustments.
b. balance sheet account balances after closing entries.
c. income statement account balances after closing entries.
d. balance sheet account balances after adjustments.

65. Which account listed below would be double ruled in the ledger as part of the closing process?
a. Cash b. Owner’s Capital
c. Owner’s Drawings d. Accumulated Depreciation—Equipment
66. A double rule applied to accounts in the ledger during the closing process implies that
a. the account is a temporary account.
b. the account is a balance sheet account.
c. the account balance is not zero.
d. a mistake has been made, since double ruling is prescribed.

67. The heading for a post-closing trial balance has a date line that is similar to the one found on
a. a balance sheet. b. an income statement.
c. an owner’s equity statement. d. the worksheet.

68. Which one of the following is usually prepared only at the end of a company’s annual accounting
period?
a. Preparing financial statements b. Journalizing and posting adjusting entries
c. Journalizing and posting closing entries d. Preparing an adjusted trial balance

69. The step in the accounting cycle that is performed on a periodic basis (i.e., monthly, quarterly) is
a. analyzing transactions. b. journalizing and posting adjusting entries.
c. preparing a post-closing trial balance. d. posting to ledger accounts.

70. The final step in the accounting cycle is to prepare

a. closing entries. b. financial statements.
c. a post-closing trial balance. d. adjusting entries.

71. Which of the following steps in the accounting cycle would not generally be performed daily?
a. Journalize transactions b. Post to ledger accounts
c. Prepare adjusting entries d. Analyze business transactions

72. Which of the following steps in the accounting cycle may be performed most frequently?
a. Prepare a post-closing trial balance b. Journalize closing entries
c. Post closing entries d. Prepare a trial balance

73. Which of the following depicts the proper sequence of steps in the accounting cycle?
a. Journalize the transactions, analyze business transactions, prepare a trial balance
b. Prepare a trial balance, prepare financial statements, prepare adjusting entries
c. Prepare a trial balance, prepare adjusting entries, prepare financial statements
d. Prepare a trial balance, post to ledger accounts, post adjusting entries

74. The first required step in the accounting cycle is

a. reversing entries b. journalizing transactions in the book of original entry.
c. analyzing transactions. d. posting transactions.

44
The following information is for Ahmed Real Estate: (use to answer questions 75-78)
Ahmed Real Estate
Balance Sheet
December 31, 2016

Cash $ 25,000 Accounts Payable $ 60,000

Prepaid Insurance 40,000 Salaries and Wages Payable 25,000
Accounts Receivable 50,000 Mortgage Payable 85,000
Inventory 80,000 Total Liabilities 170,000
Land Held for Investment 75,000
Land 120,000
Building $110,000
Less Accumulated Owner’s Capital 380,000
Depreciation (20,000) 90,000
Trademark 70,000 Total Liabilities and
Total Assets $550,000 Owner’s Equity $550,000

75. The total dollar amount of assets to be classified as current assets is

a. $115,000. b. $195,000. c. $200,000. d. $270,000.

76. The total dollar amount of assets to be classified as property, plant, and equipment is
a. $210,000. b. $230,000. c. $285,000. d. $315,000.

77. The total dollar amount of assets to be classified as investments is

a. $0. b. $80,000. c. $75,000. d. $175,000.

78. The total dollar amount of liabilities to be classified as current liabilities is

a. $25,000. b. $60,000. c. $85,000. d. $170,000.
The following information is for Esraa Auto Supplies: (use to answer questions 79-82)
Esraa Auto Supplies
Balance Sheet
December 31, 2016

Cash $ 45,000 Accounts Payable $ 140,000

Prepaid Insurance 80,000 Salaries and Wages Payable 60,000
Accounts Receivable 110,000 Mortgage Payable 150,000
Inventory 140,000 Total Liabilities 350,000
Land Held for Investment 185,000
Land 250,000
Building $200,000
Less Accumulated Owner’s Capital 750,000
Depreciation (50,000) 150,000
Trademark 140,000 Total Liabilities and
Total Assets $1,100,000 Owner’s Equity $1,100,000

79. The total dollar amount of assets to be classified as current assets is

a. $125,000. b. $235,000. c. $375,000. d. $560,000.

80. The total dollar amount of assets to be classified as property, plant, and equipment is
a. $400,000. b. $450,000. c. $585,000. d. $635,000.

81. The total dollar amount of assets to be classified as investments is

a. $0. b. $585,000. c. $185,000. d. $725,000.

82. The total dollar amount of liabilities to be classified as current liabilities is

a. $60,000. b. $140,000. c. $200,000. d. $350,000.

83. All of the following are property, plant, and equipment except
a. supplies. b. machinery. c. land. d. buildings.

84. The first item listed under current liabilities is usually

a. accounts payable. b. notes payable. c. salaries and wages payable. d. taxes payable.

85. Equipment is classified in the balance sheet as

a. a current asset. b. property, plant, and equipment. c. an intangible asset. d. along-term investment.

86. A current asset is

a. the last asset purchased by a business.
b. an asset which is currently being used to produce a product or service.
c. usually found as a separate classification in the income statement.
46
 d. an asset that a company expects to convert to cash or use up within one year.

87. An intangible asset

a. does not have physical substance, yet often is very valuable.
b. is worthless because it has no physical substance.
c. is converted into a tangible asset during the operating cycle.
d. cannot be classified on the balance sheet because it lacks physical substance.

88. Liabilities are generally classified on a balance sheet as

a. small liabilities and large liabilities.
b. present liabilities and future liabilities.
c. tangible liabilities and intangible liabilities.
d. current liabilities and long-term liabilities.

89. Which of the following would not be classified a long-term liability?

a. Current maturities of long-term debt
b. Bonds payable
c. Mortgage payable
d. Lease liabilities

90. Intangible assets include each of the following except

a. copyrights. b. goodwill. c. land improvements. d. patents.

91. It is not true that current assets are assets that a company expects to
a. realize in cash within one year. b. sell within one year.
c. use up within one year. d. acquire within one year.

92. On a classified balance sheet, current assets are customarily listed

a. in alphabetical order. b. with the largest dollar amounts first.
c. in the order of liquidity. d. in the order of acquisition.

93. Intangible assets are

a. listed under current assets on the balance sheet.
b. not listed on the balance sheet because they do not have physical substance.
c. long-lived assets that are often very valuable.
d. listed as a long-term investment on the balance sheet.
The following items are taken from the financial statements of the Freight Service for the year ending
December 31, 2016: (use to answer questions 94-101)
Accounts payable $ 19,000
Accounts receivable 13,000
Accumulated depreciation – equipment 26,000
Advertising expense 21,200
Cash 15,000
Owner’s capital (1/1/16) 104,000
Owner’s drawings 11,000
Depreciation expense 12,000
Insurance expense 3,800
Note payable, due 6/30/17 72,000
Prepaid insurance (12-month policy) 7,200
Rent expense 16,000
Salaries and wages expense 32,000
Service revenue 135,000
Supplies 5,000
Supplies expense 6,000
Equipment 210,000

94. What is the company’s net income for the year ending December 31, 2016?
a. $14,000 b. $33,000 c. $44,000 d. $135,000

95. What is the balance that would be reported for owner’s equity at December 31, 2016?
a. $159,000 b. $148,000 c. $137,000 d. $104,000

96. What are total current assets at December 31, 2016?

a. $28,000 b. $35,200 c. $40,200 d. $46,200

97. What is the book value of the equipment at December 31, 2016?
a. $172,000 b. $184,000 c. $210,000 d. $236,000
98. What are total current liabilities at December 31, 2016?
a. $19,000 b. $72,000 c. $91,000 d. $102,000

99. What are total long-term liabilities at December 31, 2016?

a. $0 b. $72,000 c. $91,000 d. $93,000

100. What is total liabilities and owner’s equity at December 31, 2016?
a. $184,000 b. $228,000 c. $195,000 d. $239,000

101. The current assets should be listed on Freight Service’s balance sheet in the following order:
a. cash, accounts receivable, prepaid insurance, equipment.
48
 b. cash, prepaid insurance, supplies, accounts receivable.
c. cash, accounts receivable, prepaid insurance, supplies.
d. equipment, supplies, prepaid insurance, accounts receivable, cash

102. The following items are taken from the financial statements of the Freight Service for the year
ending December 31, 2016:
Accounts payable $ 19,000
Accounts receivable 13,000
Accumulated depreciation – equipment 26,000
Advertising expense 21,200
Cash 15,000
Owner’s capital (1/1/16) 104,000
Owner’s drawings 11,000
Depreciation expense 12,000
Equipment 210,000
Insurance expense 3,800
Note payable, due 6/30/17 72,000
Prepaid insurance (12-month policy) 7,200
Rent expense 16,000
Salaries and wages expense 32,000
Service revenue 135,000
Supplies 5,000
Supplies expense 6,000
Copyright 7,500

The sub-classifications for assets on the company’s classified balance sheet would include all of the following
except
a. Current Assets. b. Property, Plant, and Equipment.
c. Intangible Assets. d. Long-term Assets.

103. Which statement about long-term investments is not true?

a. They will be held for more than one year.
b. They are not currently used in the operation of the business.
c. They include investments in stock of other companies and land held for future use.
d. They can never include cash accounts.

104. What is the order in which assets are generally listed on a classified balance sheet?
a. Current and long-term
b. Current; property, plant, and equipment; long-term investments; intangible assets
c. Current; property, plant, and equipment; intangible assets; long-term investments
d. Current; long-term investments; property, plant, and equipment; intangible assets
105. These are selected account balances on December 31, 2016.
Land (location of the corporation’s office building) $140,000
Land (held for future use) 150,000
Corporate Office Building 750,000
Inventory 200,000
Equipment 480,000
Office Furniture 150,000
Accumulated Depreciation 435,000
What is the total net amount of property, plant, and equipment that will appear on the balance sheet?
a. $1,085,000 b. $1,235,000 c. $1,285,000 d. $1,520,000

106. The following selected account balances appear on the December 31, 2016 balance sheet of Gigante
Co.
Land (location of the corporation’s office building) $155,000
Land (held for future use) 225,000
Corporate Office Building 850,000
Inventory 300,000
Equipment 674,000
Office Furniture 221,000
Accumulated Depreciation 650,000
What is the total net amount of property, plant, and equipment that will be reported on the balance
sheet?
a. $1,250,000 b. $1,475,000 c. $1,550,000 d. $1,906,000

107. Balance sheet accounts are considered to be

a. temporary owner’s equity accounts. b. permanent accounts.
c. capital accounts. d. nominal accounts.

108. Income Summary has a credit balance of $19,000 in B. Browne Co. after closing revenues and
expenses. The entry to close Income Summary is
a. credit Income Summary $19,000, debit Owner’s Capital $19,000.
b. credit Income Summary $19,000, debit Owner’s Drawings $19,000.
c. debit Income Summary $19,000, credit Owner’s Drawings $19,000.
d. debit Income Summary $19,000, credit Owner’s Capital $19,000.

109. The post-closing trial balance contains only

a. income statement accounts.
b. balance sheet accounts.
c. balance sheet and income statement accounts.
d. income statement, balance sheet, and owner’s equity statement accounts.

50
110. Which one of the following statements concerning the accounting cycle is incorrect?
a. The accounting cycle includes journalizing transactions and posting to ledger accounts.
b. The accounting cycle includes only one optional step.
c. The steps in the accounting cycle are performed in sequence.
d. The steps in the accounting cycle are repeated in each accounting period.

111. Current liabilities

a. are obligations that the company is to pay within the forthcoming year.
b. are listed in the balance sheet in order of their expected maturity.
c. are listed in the balance sheet, starting with accounts payable.
d. should not include long-term debt that is expected to be paid within the next year.
 Answer of Multiple Choice Questions (Chapter 4)
Question Correct Question Correct Question Correct Question Correct
No. Answer No. Answer No. Answer No. Answer
1. B 33. C 65. C 97. B
2. C 34. B 66. A 98. C
3. B 35. C 67. A 99. A
4. A 36. C 68. C 100. B
5. D 37. C 69. B 101. C
6. A 38. D 70. C 102. D
7. C 39. B 71. C 103. D
8. D 40. D 72. D 104. D
9. B 41. D 73. C 105. A
10. C 42. B 74. C 106. A
11. B 43. C 75. B 107. B
12. A 44. A 76. A 108. D
13. B 45. B 77. C 109. B
14. C 46. D 78. C 110. B
15. A 47. B 79. C 111. A
16. C 48. C 80. A
17. C 49. D 81. C
18. A 50. C 82. C
19. B 51. C 83. A
20. A 52. C 84. B
21. D 53. B 85. B
22. D 54. C 86. D
23. A 55. B 87. A
24. C 56. A 88. D
25. C 57. A 89. A
26. A 58. A 90. C
27. C 59. D 91. D
28. B 60. A 92. C
29. B 61. B 93. C
30. C 62. C 94. C
31. D 63. B 95. C
32. d 64. B 96. C

52