Wild24e Chapter04 TB Answerkey PDF Free

Fundamental Accounting Principles, 24e (Wild)
Chapter 4 Completing the Accounting Cycle
1) Accounts that appear in the balance sheet are often called temporary accounts.
Answer: FALSE
Difficulty: 1 Easy
Topic: Closing Process
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.
Bloom's: Remember
AACSB/Accessibility: Communication / Keyboard Navigation
AICPA: BB Industry; FN Decision Making
2) Income Summary is a temporary account only used for the closing process.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
3) Revenue accounts are temporary accounts that should begin each accounting period with zero
balances.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
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.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
1
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5) The closing process takes place before financial statements have been prepared.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
6) Revenue and expense accounts are permanent accounts and should not be closed at the end of
the accounting period.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
7) Closing entries result in the owner's capital account being transferred into net income or net
loss for the period ending.
Answer: FALSE
Difficulty: 2 Medium
Bloom's: Understand
8) The closing process is a step in the accounting cycle that prepares accounts for the next
accounting period.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
2
9) Closing entries are required at the end of each accounting period to close all ledger accounts.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
AACSB/Accessibility: Analytical Thinking / Keyboard Navigation
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.
Answer: TRUE
Bloom's: Understand
11) The Income Summary account is a permanent account that will be carried forward period
after period.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
12) Closing entries are necessary so that owner's capital will begin each period with a zero
balance.
Answer: FALSE
Bloom's: Understand
3
13) Permanent accounts carry their balances into the next accounting period.
Answer: TRUE
Bloom's: Understand
14) If a company plans to continue business into the future, closing entries are not required.
Answer: FALSE
Bloom's: Understand
15) The first step in the accounting cycle is to analyze transactions and events to prepare for
journalizing.
Answer: TRUE
Difficulty: 1 Easy
Topic: Accounting Cycle
Learning Objective: 04-C2 Identify steps in the accounting cycle.
Bloom's: Remember
16) The accounting cycle refers to the sequence of steps used in preparing the work sheet.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
4
17) The first five steps in the accounting cycle include analyzing transactions, journalizing,
posting, preparing an unadjusted trial balance, and recording adjusting entries.
Answer: TRUE
Bloom's: Understand
18) The last four steps in the accounting cycle include preparing the adjusted trial balance,
preparing financial statements, and recording closing and adjusting entries.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Understand
19) A classified balance sheet organizes assets and liabilities into important subgroups that
provide more information to decision makers.
Answer: TRUE
Difficulty: 1 Easy
Topic: Classified Balance Sheet
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.
Bloom's: Remember
AICPA: BB Industry; FN Reporting
20) An unclassified balance sheet provides more information to users than a classified balance
sheet.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
5
21) 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.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
22) Intangible assets are long-term resources that benefit business operations and usually lack
physical form.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
23) Assets are often classified into current assets, long-term investments, plant assets, and
intangible assets.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
24) 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.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
6
25) Long-term investments can include land held for future expansion.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
26) Intangible assets are assets that are long-term, have physical form, and are used to produce or
sell products and services.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
27) Current liabilities include accounts receivable, unearned revenues, and salaries payable.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
28) Cash and office supplies are both classified as current assets.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
7
29) Plant assets are usually listed by how quickly they can be converted to cash.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
30) The current ratio is used to help assess a company's ability to pay its debts in the near future.
Answer: TRUE
Difficulty: 1 Easy
Topic: Current Ratio
Learning Objective: 04-A1 Compute the current ratio and describe what it reveals about a
company's financial condition.
Bloom's: Remember
AICPA: BB Industry; FN Risk Analysis
31) The current ratio is computed by dividing current liabilities by current assets.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
32) Trekker Bikes' current assets are $300 million and its current liabilities are $125 million. Its
current ratio is 0.417.
Answer: FALSE
Explanation: Current Ratio = Current Assets/Current Liabilities
Current Ratio = $300 million/$125 million = 2.4
Bloom's: Apply
8
33) If a company has current assets of $15,000 and current liabilities of $9,500, its current ratio
is 1.6
Answer: TRUE
Current Ratio = $15,000/$9,500 = 1.6
Bloom's: Apply
34) Flo's Flowers' current ratio is 1.3. The industry average for the current ratio is 1.2. This
indicates that Flo's can cover its short-term liabilities with its short-term assets.
Answer: TRUE
Bloom's: Analyze
35) A benefit of using a work sheet is that it aids in the preparation of the financial statements.
Answer: TRUE
Difficulty: 1 Easy
Topic: Benefits of a Work Sheet (Spreadsheet)
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.
Bloom's: Remember
AACSB/Accessibility: Technology / Keyboard Navigation
AICPA: BB Industry; FN Leveraging Technology
36) Adjustments must be entered in the journal and posted to the ledger after the work sheet is
prepared.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
9
37) The work sheet is a required report made available to external decision makers.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
38) A work sheet contains all of the balances for each account and therefore may be used as a
substitute for the set of financial statements.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
39) All necessary amounts needed to prepare the income statement can be taken from the income
statement columns of the work sheet, including the net income or net loss.
Answer: TRUE
Bloom's: Understand
40) On a work sheet, if the Debit total exceeds the Credit total of the Income Statement columns,
a net loss is indicated.
Answer: TRUE
Bloom's: Understand
10
41) If all columns of a completed work sheet balance, you can be sure that no errors were made
in its preparation.
Answer: FALSE
Bloom's: Understand
42) Normally closing entries are first entered in the general journal and then posted to the work
sheet.
Answer: FALSE
Bloom's: Understand
43) Adjusting entries are usually entered in the work sheet before they are entered in the general
journal.
Answer: TRUE
Bloom's: Understand
44) On a work sheet, the adjusted balances of revenues and expenses are sorted to the Income
Statement columns of the work sheet.
Answer: TRUE
Bloom's: Understand
11
45) 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 Credit column.
Answer: FALSE
Bloom's: Understand
46) All necessary amounts to prepare the balance sheet, including ending owner's capital, can be
found in the Balance Sheet columns of the work sheet.
Answer: FALSE
Bloom's: Understand
47) A worksheet can be helpful in showing the effects of proposed or "what if" transactions but
not in helping to prepare financial statements.
Answer: FALSE
Bloom's: Understand
48) Because it is a necessary financial statement, the work sheet must be prepared according to
specified accounting procedures.
Answer: FALSE
Bloom's: Understand
12
49) An expense account is normally closed by debiting Income Summary and crediting the
expense account.
Answer: TRUE
Topic: Preparing Closing Entries
Learning Objective: 04-P2 Describe and prepare closing entries.
Bloom's: Understand
50) The withdrawals account is normally closed by debiting it.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
51) After posting the entries to close all revenue and expense accounts, the Income Summary
account of Cleaver Auto Services has a $4,000 debit balance. This result implies that Cleaver
earned a net income of $4,000.
Answer: FALSE
Bloom's: Understand
52) After posting the entries to close all revenue and expense accounts, Marker Company's
Income Summary account has a credit balance of $6,000, and its Marker, Withdrawals account
has a debit balance of $2,500. These balances indicate that net income for the current accounting
period amounted to $3,500.
Answer: FALSE
Bloom's: Understand
13
53) When there is a net loss, the Income Summary account would have a credit balance.
Answer: FALSE
Bloom's: Understand
54) The Income Summary account is used to close the permanent accounts at the end of an
accounting period.
Answer: FALSE
Bloom's: Understand
55) The steps in the closing process are (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 Owner's Capital; (4) close Withdrawals to Owner's Capital.
Answer: TRUE
Bloom's: Understand
56) During the closing process, Owner's Capital is closed to the Owner's Withdrawals account.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
14
57) A post-closing trial balance is a list of permanent accounts and their balances after all closing
entries.
Answer: TRUE
Difficulty: 1 Easy
Topic: Post-Closing Trial Balance
Learning Objective: 04-P3 Explain and prepare a post-closing trial balance.
Bloom's: Remember
58) 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.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
59) A company's post-closing trial balance has total debits of $40,560 and total credits of
$40,650. Accordingly, the company should review for errors in the closing process.
Answer: TRUE
Difficulty: 1 Easy
Bloom's: Remember
60) Reversing entries are optional.
Answer: TRUE
Difficulty: 1 Easy
Topic: Reversing Entries
Learning Objective: 04-P4 Appendix 4A-Prepare reversing entries and explain their purpose.
Bloom's: Remember
15
61) Reversing entries are recorded in response to external transactions that were created in error
during the prior accounting period.
Answer: FALSE
Difficulty: 1 Easy
Bloom's: Remember
62) Reversing entries simplify the entries to pay accrued liabilities from the previous accounting
period.
Answer: TRUE
Bloom's: Understand
63) Which of the following accounts is a temporary account:

A) Accounts receivable.
B) J. Jones, capital.
C) Accounts payable.
D) Cash.
E) Salaries expense.
Answer: E
Difficulty: 1 Easy
Bloom's: Remember
16
64) Which of the following accounts is a permanent account?
A) Fees earned.
B) Office supplies expense.
C) Interest revenue.
D) Accounts payable.
E) Salaries expense.
Answer: D
Bloom's: Remember
65) When closing entries are made:

A) All ledger accounts are closed to start the new accounting period.
B) All temporary accounts are closed but permanent accounts are not closed.
C) All asset accounts are closed but liability accounts are not closed.
D) All permanent accounts are closed but temporary accounts are not closed.
E) All balance sheet accounts are closed.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
66) 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.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
17
67) Which of the following statements is incorrect?
A) Permanent account is another name for revenue 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) Permanent 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.
Answer: A
Bloom's: Understand
68) 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.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
18
69) 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) Brings the revenue and expense accounts to 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.
Answer: D
Bloom's: Understand
70) 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.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
19
71) The closing process is necessary in order to:
A) Ensure compliance with payroll regulations.
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.
Answer: D
Bloom's: Understand
72) 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 does not choose 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 guidelines.
Answer: D
Bloom's: Understand
73) The steps performed each reporting period in preparing financial statements, 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.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
20
74) 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.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
75) A classified balance sheet:

A) Measures a company's ability to pay its bills on time.
B) Organizes assets and liabilities into important subgroups that provide more information.
C) Broadly groups items into assets, liabilities, and equity.
D) Reports operating, investing, and financing activities.
E) Reports the effect of profit and withdrawals on owner's capital.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
76) The assets section of a classified balance sheet usually includes the subgroups:
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.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
21
77) The usual order for the asset subgroups 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.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
78) 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 groups items into the broad categories of asset, liability, and equity.
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 is not usually provided to outside parties.
Answer: C
Bloom's: Understand
79) 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 noncurrent liabilities.
E) Current liabilities and noncurrent liabilities.
Answer: E
Difficulty: 1 Easy
Bloom's: Remember
22
80) Which of the following is classified as a current asset?
A) Office equipment.
B) Patent.
C) Unearned revenue.
D) Accounts receivable.
E) Land.
Answer: D
Bloom's: Understand
81) Which of the following is classified as a plant asset?

A) Equipment.
B) Patent.
C) Cash.
D) Office supplies.
E) Merchandise inventory.
Answer: A
Bloom's: Understand
82) The current ratio:

A) Is used to measure a company's collection period.
B) Is used to measure the relationship between assets and long-term debt.
C) Measures the effect of operating income on profit.
D) Is used to help assess a company's ability to pay its debts in the near future.
E) Is calculated by dividing current assets by equity.
Answer: D
Bloom's: Remember
23
83) All of the following regarding the 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 whether 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 challenges in covering short-term obligations if it is less than 1.
Answer: C
Bloom's: Understand
84) The Unadjusted Trial Balance columns of a company's work sheet shows the Store Supplies
account with a balance of $750. The Adjustments columns show a credit of $425 for supplies
used during the period. The amount shown as Store Supplies in the Balance Sheet columns of the
work sheet is:
A) $325 debit.
B) $325 credit.
C) $425 debit.
D) $750 debit.
E) $425 credit.
Answer: A
Explanation: Unadjusted Store Supplies − Supplies used = Supplies unused
$750 − $425 = $325 debit
Bloom's: Apply
24
85) An optional aid used to prepare a company's unadjusted trial balance, adjusting entries,
adjusted trial balance, and financial statements is a(n):
A) Adjusted trial balance.
B) Work sheet.
C) Post-closing trial balance.
D) Unadjusted trial balance.
E) General ledger.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
86) Accumulated Depreciation and Fees Earned would be sorted to which respective columns in
completing a work sheet?
A) Balance Sheet and Statement of Owner's Equity-Credit; and Income Statement-Credit.
B) Balance Sheet and Statement of Owner's Equity-Debit; and Income Statement-Debit.
C) Income Statement-Debit and Income Statement-Credit.
D) Balance Sheet and Statement of Owner's Equity-Debit; and Balance Sheet and Statement of
Owner's Equity-Credit.
E) Balance Sheet and Statement of Owner's Equity-Debit; and Income Statement-Credit.
Answer: A
Bloom's: Understand
25
87) Which of the following statements is incorrect?
A) Work sheets 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.
D) On 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.
Answer: D
Bloom's: Understand
88) A company shows a $600 balance in Prepaid Rent in the Unadjusted Trial Balance columns
of the work sheet. The Adjustments columns show expired rent 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.
Answer: A
Difficulty: 3 Hard
Bloom's: Apply
AICPA: BB Industry; FN Measurement
26
89) Statements that show the financial statements as if proposed transactions had already
occurred are called:
A) Pro forma statements.
B) Professional statements.
C) Simplified statements.
D) Temporary statements.
E) Interim statements.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
90) In preparing a work sheet an adjusted trial balance amount is mistakenly sorted to the wrong
work sheet column. Upon completion of the worksheet, the Balance Sheet columns will balance,
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.
Answer: C
Difficulty: 3 Hard
Bloom's: Understand
27
91) If the Balance Sheet and Statement of Owner's Equity columns of a work sheet fail to
balance when the net income is added to the Balance Sheet and Statement of Owner's Equity
Credit column, the cause could be:
A) An expense entered in the Balance Sheet and Statement of Owner's Equity Debit column.
B) A revenue 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 entered in the Balance Sheet and Statement of Owner's Equity Credit column.
Answer: E
Bloom's: Understand
28
92) A company's December 31 work sheet for the current period appears below. Based on the
information provided, what is net income for the current period?
A) $1,400.
B) $1,855.
C) $1,905.
D) $2,060.
E) $4,670.
29
Answer: B
Explanation:
Fees Earned ($5,850 + $375 + $300) $ 6,525

Rent Expense (1,500)
Salaries Expense ($2,100 + $315) (2,415)
Insurance Expense (150)
Utilities Expense (345)
Supplies Expense (70)
Depreciation Expense, Equipment (190)
Net Income $ 1,855
Difficulty: 3 Hard
Bloom's: Apply
30
93) A company's December 31 work sheet for the current period appears below. Based on the
information provided, what is net income for the current period?
Unadjusted Trial
Balance Adjustments
Debit Credit Debit Credit
Cash 1,975
Accounts receivable 1,000 875
Prepaid insurance 1,600 650
Supplies 330 115
Equipment 8,320
Accumulated depreciation—equipment 720 190
Accounts payable 1,140
Owner, Capital 9,110
Owner, Withdrawals 1,050
Fees earned 7,250 875
Rent expense 1,300
Salaries expense 2,300
Utilities expense 345
Insurance expense 650
Supplies expense 115
Depreciation expense—equipment 190
Totals 18,220 18,220 1,830 1,830
A) $3,305.
B) $4,180.
C) $2,350.
D) $2,540.
E) $3,225.
31
Answer: E
Explanation:
Fees Earned ($7250 + $875) $ 8,125

Rent Expense (1,300)
Salaries Expense (2,300)
Insurance Expense (650)
Utilities Expense (345)
Supplies Expense (115)
Depreciation Expense, Equipment (190)
Net Income $ 3,225
Bloom's: Apply
94) 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.
Answer: D
Bloom's: Understand
32
95) 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.
Answer: C
Explanation:
Unadjusted Balances $ 84,000 $ 84,000

1. Inc. Supplies Exp., Dec. Supplies* 0
2. Inc. Rent Exp., Dec. Prepaid Rent* 0
3. Inc. Salaries Exp., Inc. Salaries Payable 500 500
4. Inc. Deprec. Exp., Inc. Accum. Depr. 800 800
5. Inc. Accts. Receivable, Inc. Fees Revenue 400 400
Adjusted Balances $ 85,700 $ 85,700
* Adjustments for Prepaid Expenses do not change totals. $s are shifted between accounts with
normal debit balances (assets and expenses).
Difficulty: 3 Hard
Bloom's: Apply
33
96) 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.
Answer: B
Bloom's: Understand
AICPA: BB Industry; FN Leveraging Technology
97) In the process of completing a work sheet, the accountant determines 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.
Answer: D
Bloom's: Understand
34
98) 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.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
99) K. Canopy, the proprietor of Canopy Services, withdrew $5,700 from the business during the
current year. The entry to close the withdrawals account at the end of the year is:
A) Debit K Canopy, Withdrawals $5,700; credit Cash, $5,700
B) Debit K. Canopy, Capital $5,700; credit K. Canopy, Withdrawals $5,700
C) Debit K. Canopy, Withdrawals $5,700; credit K. Canopy, Capital $5,700
D) Debit K. Canopy, Capital $5,700, credit Salary Expense $5,700
E) Debit Income Summary $5,700; credit K. Canopy, Capital $5,700
Answer: B
Bloom's: Apply
35
100) Tara Westmont, the proprietor of Tiptoe Shoes, had annual revenues of $185,000, expenses
of $103,700, and withdrew $18,000 from the business during the current year. The owner's
capital account before closing had a balance of $297,000. The entry to close the Income
Summary account at the end of the year, after revenue and expense accounts have been closed,
is:
A) Debit T. Westmont, Capital $297,000; credit Income Summary $297,000
B) Debit T. Westmont, Capital $63,300; credit Income Summary $63,300
C) Debit Income Summary $63,300; credit T. Westmont, Capital $63,300
D) Debit Income Summary $81,300, credit T. Westmont, Capital $81,300
E) Debit T. Westmont, Capital $81,300; credit Income Summary $81,300
Answer: D
Explanation: Revenue − Expenses = Net income to close to owner's equity
$185,000 − $103,700 = $81,300
Bloom's: Apply
capital account before closing had a balance of $297,000. The Net Income for the year is:
A) $185,000
B) $63,300
C) $81,300
D) $360,300
E) $378,300
Answer: C
Explanation: Revenues $185,000 − Expenses $103,700 = Net Income $81,300
Bloom's: Apply
36
capital account before closing had a balance of $297,000. The ending owner's capital balance
after closing is:
A) $185,000
B) $63,300
C) $81,300
D) $360,300
E) $378,300
Answer: D
Explanation: Beginning Owner's Capital + Revenues − Expenses − Owner Withdrawals =
Ending Owner's Capital
$297,000 + 185,000 − 103,700 − 18,000 = $360,300
Bloom's: Apply
103) 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.
Answer: B
Bloom's: Apply
37
104) The following information is available from the adjusted trial balance of the Harris
Vacation Rental Agency. After closing entries are posted, what will be the balance in the Sue
Harris, Capital account?
Total revenues $ 125,000

Total expenses 60,000
Sue Harris, Capital 80,000
Sue Harris, Withdrawals 15,000
A) $65,000.
B) $80,000.
C) $130,000.
D) $145,000.
E) $280,000.
Answer: C
Explanation: Ending Capital Balance = Beginning Capital Balance + Revenues − Expenses −
Withdrawals
Ending Capital Balance = $80,000 + $125,000 − $60,000 − $15,000 = $130,000
Bloom's: Apply
38
105) The following information is available for the Higgins Travel Agency. After closing entries
are posted, what will be the balance in the C. Higgins, Capital account?
Net Income $ 42,500

C. Higgins, Capital 130,000
C. Higgins, Withdrawals 12,000
A) $75,500.
B) $184,500.
C) $99,500.
D) $160,500.
E) $130,000.
Answer: D
Explanation: Ending Capital Balance = Beginning Capital Balance + Net Income −
Withdrawals
Ending Capital Balance = $130,000 + $42,500 − $12,000 = $160,500
Bloom's: Apply
106) The following information is available for the Noir Detective Agency. After closing
entries are posted, what will be the balance in the G. Noir, Capital account?
Net Loss $ 17,600

G. Noir, Capital 289,000
G. Noir, Withdrawals 32,000
A) $239,400.
B) $274,600.
C) $303,400.
D) $289,000.
E) $257,000.
Answer: A
Explanation: Ending Capital Balance = Beginning Capital Balance − Net Loss − Withdrawals
Ending Capital Balance = $289,000 − $17,600 − $32,000 = $239,400
Bloom's: Apply
39
107) The F. Mercury, Capital account has a credit balance of $37,000 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 F. Mercury, Capital account after all closing entries
are made?
A) $37,000.
B) $35,400.
C) $43,400.
D) $28,000.
E) $52,400.
Answer: C
Explanation: Ending Capital Balance = Beginning Capital Balance + Revenues − Expenses −
Withdrawals
Ending Capital Balance = $37,000 + $55,200 − $39,800 − $9,000 = $43,400
Bloom's: Apply
made. Total revenues for the period are $55,200, total expenses are $39,800, and withdrawals are
$9,000. What is the correct closing entry for the revenue accounts?
A) Debit Income Summary $55,200; credit Revenue accounts $55,200.
B) Debit Revenue accounts $37,000; credit F. Mercury, Capital $37,000.
C) Debit Revenue accounts $55,200; credit F. Mercury, Capital $37,000.
D) Debit Revenue accounts $55,200; credit Income Summary $55,200.
E) Debit Income Summary $37,000; credit F. Mercury Capital $37,000.
Answer: D
Bloom's: Apply
40
made. Total revenues for the period are $55,200, total expenses are $39,800, and withdrawals are
$9,000. What is the correct closing entry for the expense accounts?
A) Debit Income Summary $39,800; credit Expense accounts $39,800.
B) Debit Expense accounts $37,000; credit F. Mercury, Capital $37,000.
C) Credit Expense accounts $39,800; debit F. Mercury, Capital $39,800.
D) Debit Expense accounts $39,800; credit Income Summary $39,800.
E) Debit Income Summary $39,800; credit F. Mercury Capital $39,800.
Answer: A
Bloom's: Apply
110) The Income Summary account is used to:

A) Adjust and update asset and liability accounts.
B) Close the revenue and expense accounts.
C) Determine the appropriate withdrawal amount.
D) Replace the income statement under certain circumstances.
E) Replace the capital account in some businesses.
Answer: B
Bloom's: Understand
111) Jen Rogers 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 Jen Rogers, Withdrawals and credit Cash for $35,000.
C) Debit Income Summary and credit Jen Rogers, Withdrawals for $35,000.
D) Debit Jen Rogers, Capital and credit Jen Rogers, Withdrawals for $35,000.
E) Debit Jen Rogers, Withdrawals and credit Jen Rogers, Capital for $35,000.
Answer: D
Difficulty: 3 Hard
Bloom's: Apply
41
112) 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 Wilson Peters, Capital in the process of
closing the Income Summary account? (Assume all accounts have normal balances.)
Wilson Peters, Capital $ 7,000

Wilson Peters, Withdrawals 9,600
Revenue 29,000
Rent expense 3,600
Depr. Expense-equipment 500
Accum depr.-equipment 1,500
A) $16,780 debit.
B) $7,180 credit.
C) $16,780 credit.
D) $18,280 credit.
E) $23,780 credit.
Answer: C
Explanation: Items closed to Income Summary:
$ 29,000 Credit
3,600 Debit
7,200 Debit
920 Debit
500 Debit
credit, closed with a debit of $16,780; credit to Wilson
$ 16,780
Peters, Capital
Difficulty: 3 Hard
Bloom's: Apply
42
113) 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.
Answer: D
Bloom's: Understand
114) At the beginning of the year, a company's balance sheet reported the following balances:
Total Assets = $225,000; Total Liabilities = $125,000; and Owner's Capital = $100,000. 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) $116,000.
B) $136,000.
C) $24,000.
D) $96,000.
E) $104,000.
Answer: D
Explanation: Beginning Owner's Capital $100,000 + Revenues $46,000 − Expenses $30,000 −
Owner Withdrawals $20,000 = Ending Owner's Capital $96,000.
Difficulty: 3 Hard
Bloom's: Apply
43
115) At the beginning of the year, Sigma 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) $171,000.
D) $120,000.
E) $123,000.
Answer: E
Explanation: Beginning Owner's Capital = Total Assets $195,000 − Total Liabilities $75,000 =
$120,000.
Beginning Owner's Capital $120,000 + Revenues $226,000 − Expenses $175,000 − Owner
Withdrawals $48,000 = Ending Owner's Capital $123,000.
Difficulty: 3 Hard
Bloom's: Apply
116) After preparing and posting the closing entries for revenues and expenses, the income
summary account has a debit balance of $33,000. The entry to close the income summary
account will be:
A) Debit Owner Withdrawals $33,000; credit Income Summary $33,000.
B) Debit Income Summary $33,000; credit Owner Withdrawals $33,000.
C) Debit Income Summary $33,000; credit Owner Capital $33,000.
D) Debit Owner Capital $33,000; credit Income Summary $33,000.
E) Credit Owner Capital $33,000; debit Owner Withdrawals $33,000.
Answer: D
Bloom's: Apply
44
117) The trial balance prepared after all closing entries have been journalized and posted is
called the:
A) Unadjusted trial balance.
B) Post-closing trial balance.
C) General ledger.
D) Adjusted trial balance.
E) Work sheet.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
118) Which of the following accounts showing a balance on the post-closing trial balance
indicate an error?
A) Office Equipment.
B) Accumulated Depreciation-Office Equipment.
C) Depreciation Expense-Office Equipment.
D) N. Young, Capital.
E) Salaries Payable.
Answer: C
Bloom's: Understand
119) Which of the following accounts showing a balance on the post-closing trial balance
indicate an error?
A) Land.
B) S. Stills, Withdrawal.
C) Accounts Payable.
D) Unearned Revenue.
E) Prepaid Insurance.
Answer: B
Bloom's: Understand
45
120) A post-closing trial balance reports:
A) All permanent ledger accounts with balances.
B) All temporary ledger accounts with balances.
C) All temporary and permanent ledger accounts with balances.
D) Only revenue and expense accounts.
E) Only asset accounts.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
121) 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) The work sheet can be substituted for 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.
Answer: B
Bloom's: Understand
122) 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.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
46
123) Kline Company accrued wages of $7,350 that were earned by employees unpaid at the year-
end. Assuming Kline uses reversing entries, which of the following entries correctly reverses the
accrued wages at the beginning of the following year?
A) Debit Wages Expense $7,350; credit Cash $7,350.
B) Debit Wages Expense $7,350; credit Wages Payable $7,350.
C) Debit Wages Payable $7,350; credit Cash $7,350.
D) Debit Cash $7,350; credit Wages Expense $7,350.
E) Debit Wages Payable $7,350; credit Wages Expense $7,350.
Answer: E
Bloom's: Remember
124) Which of the following is not true?

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 should not be the exact opposite of previous period adjusting entries.
Answer: E
Bloom's: Understand
125) 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 temporarily 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.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
47
126) The purpose of reversing entries is to:
A) Simplify a company's recording of certain journal entries in the future.
B) Correct errors made in previous journal entries.
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.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember

A) A worksheet aids in the preparation of financial statements.
B) A worksheet reduces possible errors when working with many accounts and adjustments.
C) A worksheet is not useful in planning and organizing an audit of financial statements.
D) A worksheet links accounts and adjustments to financial statements.
E) A worksheet shows the effects of proposed or "what-if" transactions.
Answer: C
Bloom's: Understand

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.
Answer: B
Bloom's: Understand
48
129) Temporary accounts include all of the following except:
A) Consulting revenue.
B) Withdrawals.
C) Rent expense.
D) Prepaid rent.
E) Income Summary.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
130) Permanent accounts include all of the following except:

A) Accumulated Depreciation—Equipment.
B) Prepaid Insurance.
C) Unearned Revenue.
D) Accounts Receivable.
E) Depreciation Expense—Equipment.
Answer: E
Difficulty: 1 Easy
Bloom's: Remember
131) Which of the following statements about a company's operating cycle is not true:
A) Non-current 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) Current items are those expected to come due within one year or the company's operating
cycle, whichever is longer.
D) Most companies use a one-year period to classify current and noncurrent items.
E) Most operating cycles are less than one year.
Answer: A
Bloom's: Understand
49
132) Which of the following types of businesses might have an operating cycle longer than one
year?
A) Ski resort.
B) Clothing retailer.
C) Florist.
D) Wheat farmer.
E) Commercial airplane manufacturer.
Answer: E
Bloom's: Understand
50
133) Use the information in the adjusted trial balance presented below to calculate current assets
for Taron Company:
Account Title Dr Cr
Cash $ 23,000
Accounts receivable 16,000
Prepaid insurance 6,600
Equipment 100,000
Accumulated depreciation—Equipment $ 50,000
Land 95,000
Interest payable 2,400
Unearned revenue 5,000
Long-term notes payable 30,000
Z. Taron, Capital 136,200
Totals $ 240,600 $ 240,600
A) $21,200.
B) $45,600.
C) $24,400.
D) $95,600.
E) $41,200.
Answer: B
Explanation: Current Assets = Cash + Accounts Receivable + Prepaid Insurance
Current Assets = $23,000 + $16,000 + $6,600 = $45,600
Difficulty: 3 Hard
Bloom's: Apply
51
134) Use the information in the adjusted trial balance presented below to calculate the current
ratio for Taron Company:
Account Title Dr Cr
Cash $ 23,000
Equipment 100,000
Land 95,000
Unearned revenue 5,000
Totals $ 240,600 $ 240,600
A) 1.87.
B) .54.
C) 3.92.
D) 1.77.
E) 1.60.
Answer: A
Current Ratio = ($23,000 + $16,000 + $6,600)/($17,000 + $2,400 + $5,000)
Current Ratio = $45,600/$24,400 = 1.87
Difficulty: 3 Hard
Bloom's: Apply
52
135) Use the information in the adjusted trial balance presented below to calculate total current
liabilities for Taron Company:
Account Title Dr Cr
Cash $ 23,000
Equipment 100,000
Land 95,000
Accounts payable (due in 1 week) 17,000
Interest payable (due in 1 month) 2,400
Unearned revenue (service to be provided in 2 months) 5,000
Totals $ 240,600 $ 240,600
A) $50,000.
B) $67,000.
C) $24,400
D) $30,000
E) $35,000
Answer: C
Explanation: Current Liabilities = Accounts Payable + Interest Payable + Unearned Revenue
Current Liabilities = $17,000 + $2,400 + $5,000 = $24,400
Bloom's: Understand
AICPA: BB Global; FN Reporting
53
136) Based on the following information from Schrute Company's balance sheet, calculate the
current ratio.
Current assets $ 87,000

Investments 50,000
Plant assets 220,000
Current liabilities 39,000
Long-term liabilities 90,000
A. Schrute, Capital 228,000
A) .44.
B) 3.51.
C) 3.33.
D) 1.06.
E) 2.23.
Answer: E
Current Ratio = $87,000/$39,000 = 2.23
Difficulty: 3 Hard
Bloom's: Apply
54
137) The following information is available for Zephyr Company before closing the accounts.
After all of the closing entries are made, what will be the balance in the Zephyr, Capital account?
Net Income $ 115,000

Zephyr, Capital 110,000
Zephyr, Withdrawals 39,000
A) $115,000.
B) $225,000.
C) $264,000.
D) $186,000.
E) $956,000.
Answer: D
Explanation: Ending Capital Balance = Beginning Capital Balance + Net Income −
Withdrawals
Ending Capital Balance = $110,000 + $115,000 − $39,000 = $186,000
Bloom's: Apply
55
138) The following information is available for Brendon Company before closing the accounts.
What will be the amount in the Income Summary account that should be closed to Brendon,
Capital?
J. Brendon, Capital $ 112,000

J. Brendon, Withdrawals 32,000
Fees earned 187,000
Depreciation Expense—Equipment 12,000
Wages expense 71,400
Interest expense 3,300
Insurance expense 11,700
Rent expense 24,200
A) $80,000.
B) $64,400.
C) $43,000.
D) $32,400.
E) $42,400.
Answer: B
Explanation: Income Summary = Revenues − Expenses
Income Summary = $187,000 − $12,000 − $71,400 − $3,300 − $11,700 − $24,200 = $64,400
Difficulty: 3 Hard
Bloom's: Apply
139) For the year ended December 31, a company had revenues of $187,000 and expenses of
$109,000. The owner withdrew $37,000 during the year. Which of the following entries could
not be a closing entry?
B) Debit Owner's Capital $37,000; credit Owner 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.
Answer: E
Bloom's: Apply
56
140) Flagg 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.
Answer: D
Difficulty: 3 Hard
Bloom's: Apply
141) Flagg 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 entry on January 3 to record payment assuming
the 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.
Answer: B
Difficulty: 3 Hard
Bloom's: Apply
57
142) Which of the following accounts would be included in a post-closing trial balance?
A) Accounts Receivable.
B) S. Stills, Withdrawal.
C) Consulting Fees Earned.
D) Depreciation Expense—Equipment.
E) Salaries Expense.
Answer: A
Difficulty: 1 Easy
Bloom's: Understand
143) Palmer Company is at the end of its annual accounting period. The accountant has
journalized and posted all external transactions and all adjusting entries, has prepared an adjusted
trial balance, and completed the financial statements. The next step in the accounting cycle is:
A) Prepare a work sheet.
B) Prepare reversing entries.
C) Close temporary accounts.
D) Prepare a post-closing trial balance.
E) Prepare an unadjusted trial balance.
Answer: C
Bloom's: Remember
58
144) For the year ended December 31, a company has revenues of $317,000 and expenses of
$196,000. The owner withdrew $50,000 during the year. The balance in the owner's capital
account before closing is $81,000. Which of the following entries would be used to close the
withdrawal account?
B) Debit Owner's Capital $50,000; credit Owner Withdrawals $50,000.
C) Debit Owner's Capital $81,000; credit Income Summary $81,000.
D) Debit Income Summary $81,000, credit Owner's Withdrawals $81,000.
E) Debit Owner's Withdrawals $50,000; credit Owner's Capital $50,000.
Answer: B
Bloom's: Apply
145) Which of the following accounts could not be classified as a current liability?
A) Unearned revenues.
B) Accounts payable.
C) Notes payable (due in 11 months).
D) Current portion of long-term note payable.
E) Notes payable (due in 5 years).
Answer: E
Bloom's: Understand
59
146) Match the following terms with the appropriate definition.
A. Permanent accounts F. Work sheet

B. Accounting cycle G. Closing entries
C. Temporary accounts H. Post-closing trial balance
D. Classified balance sheet I. Operating cycle
E. Income summary J. Pro forma financial statements
____ 1. Organizes assets and liabilities into subgroups, including separation of current and
noncurrent.
____ 2. 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.
____ 3. A temporary account only used for the closing process that contains a credit for the sum
of all revenues and a debit for the sum of all expenses.
____ 4. A widely used working paper that is a useful tool for preparers in working with
accounting information, usually not available to external decision makers.
____ 5. A list of permanent accounts and their balances after all closing entries.
____ 6. The steps in preparing financial statements.
____ 7. Entries used to transfer end-of-period balances in revenue, expense, and withdrawals
accounts to the permanent owner's capital account.
____ 8. Statements that show the effects of proposed transactions as if the transactions had
already occurred.
____ 9. Accounts that report on activities related to one or more future accounting periods; they
carry their ending balances into future periods.
____10. Accounts that accumulate data related to one accounting period only; they include
revenues, expenses, withdrawals, and the Income Summary account.
Answer: 1. D; 2. I; 3. E; 4. F; 5. H; 6. B; 7. G; 8. J; 9. A; 10. C
Difficulty: 1 Easy
Topic: Closing Process ; Accounting Cycle; Benefits of a Work Sheet (Spreadsheet); Preparing
Closing Entries; Post-closing Trial Balance
Learning Objective: 04-C1 Explain why temporary accounts are closed each period.; 04-C2
Identify steps in the accounting cycle.; 04-P1 Prepare a work sheet and explain its usefulness.;
04-P2 Describe and prepare closing entries.; 04-P3 Explain and prepare a post-closing trial
balance.
Bloom's: Remember
60
147) Match the following terms with the appropriate definition.
A. Plant assets
B. Owner's capital
C. Classified balance sheet
D. Intangible assets
E. Current ratio
F. Closing entries
G. Current liabilities
H. Long-term investments
I. Current assets
J. Unclassified balance sheet
____ 1. The owner's claim on the assets of a company.

____ 2. Tangible assets that are long-lived and used to produce or sell products or services.
____ 3. 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.
____ 4. 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.
____ 5. Long-term resources that benefit business operations, usually lack physical form, and
have uncertain benefits.
____ 6. Assets that are held for more than the longer of one year or the operating cycle of the
company and are not used in operations.
____ 7. A balance sheet that organizes the assets and liabilities into important subgroups.
____ 8. Obligations due to be paid or settled within one year or the operating cycle of a business,
whichever is longer.
____ 9. A balance sheet that broadly groups items into assets, liabilities and equity.
____10. 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.
Answer: 1. B; 2. A; 3. I; 4. F; 5. D; 6. H; 7. C; 8. G; 9. J; 10, E
Difficulty: 1 Easy
Topic: Current Ratio; Closing Process; Classified Balance Sheet
company's financial condition.; 04-C1 Explain why temporary accounts are closed each period.;
04-C3 Explain and prepare a classified balance sheet.
Bloom's: Remember
61
148) Classified balance sheets commonly include the following categories.
a. Current assets
b. Long-term investments
c. Plant assets
d. Intangible assets
e. Current liabilities
f. Long-term liabilities
g. Equity.
Indicate the typical classification of each item below by placing the letter of the correct balance
sheet category a through g in the blank space next to the item.
1) ____ Equipment used in business operations

2) ____ Store Supplies
3) ____ Investment maturing in two years
4) ____ Long-term Note Payable
5) ____ Prepaid Rent
6) ____ D. Flanders, Capital
7) ____ Accounts Payable
8) ____ Current portion of long-term debt
9) ____ Trademarks
10) ____ Wages Payable
11) ____ Accounts Receivable
12) ____ Cash
Answer: 1. C; 2. A; 3. B; 4. F; 5. A; 6. G; 7. E; 8. E; 9. D; 10. E; 11. A; 12. A

Bloom's: Understand
149) Explain why temporary accounts are closed each period.
Answer: Temporary accounts accumulate data related to one accounting period. They are
closed at the end of each accounting period to prepare revenue, expense and withdrawal accounts
for the next reporting period by bringing the balances in those accounts to zero. Secondly, the
closing process is used to update the owner's capital account to include the increases from
revenues and decreases from expenses and withdrawals.
Bloom's: Understand
62
150) Explain the difference between temporary and permanent accounts.
Answer: Temporary 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 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.
Bloom's: Understand
151) List the steps in the accounting cycle.
Answer: The accounting cycle consists of ten steps: (1) analyze transactions, (2) journalize, (3)
post, (4) prepare unadjusted trial balance, (5) adjust, (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).
Bloom's: Remember
152) How is a classified balance sheet different from an unclassified balance sheet? List the
usual order of the categories on a classified balance sheet.
Answer: An unclassified balance sheet broadly groups items into 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.
Bloom's: Understand
AACSB/Accessibility: Communications / Keyboard Navigation
63
153) How is the current ratio calculated? How is it used to evaluate a company?
Answer: 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.
Bloom's: Understand
154) Describe a work sheet and explain why it is useful.
Answer: A work sheet is a useful tool that preparers use in working with accounting
information. It aids in the preparation 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. The worksheet reduces the possibility
of errors when working with many accounts and adjustments and shows the effects of proposed
transactions.
Bloom's: Understand
64
155) List and explain the steps in preparing a 10-column worksheet.
Answer:
1. Enter the unadjusted trial balance. List the titles and account numbers of every account that
will be expected to appear on the financial statements and enter their balances from the ledger; 2.
Enter adjustments; 3. Prepare the adjusted trial balance by combining the unadjusted trial balance
columns with the adjustments; 4. Sort the adjusted trial balance columns into the Income
Statement columns and Balance Sheet and Statement of Owner's Equity columns; 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.
Bloom's: Understand
156) What is the purpose of closing entries? Describe the closing process.
Answer: 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.
Bloom's: Understand
157) What is the purpose of a post-closing trial balance?
Answer: 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.
Bloom's: Understand
65
158) Explain the purpose of reversing entries.
Answer: 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. They are the exact opposite of the original accrual entry in the prior period. The purpose
of the reversing entries is to simplify a company's recordkeeping
Bloom's: Understand
66
159) In the table below, indicate with an "X" in the proper column whether the account is a
temporary account or a permanent account.
Account Temporary Permanent

a. Cash
b. Prepaid rent
c. Unearned revenue
d. Accounts receivable
e. Insurance expense
f. S. Holder, Capital
g. S. Holder, Withdrawals
h. Rent expense
i. Fees earned
j. Supplies
k. Supplies expense
l. Depreciation expense–Equipment
m. Accumulated depreciation–Equipment…..
Answer:
Account Temporary Permanent

a. Cash X
b. Prepaid rent X
c. Unearned revenue X
d. Accounts receivable X
e. Insurance expense X
f. S. Holder, Capital X
g. S. Holder, Withdrawals X
h. Rent expense X
i. Fees earned X
j. Supplies X
k. Supplies expense X
1. Depreciation expense–Equipment X
m. Accumulated depreciation–Equipment. X
Bloom's: Understand
67
160) A number of accounts are listed below. Use the table to classify each account by indicating
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, whether it is
closed with a debit or credit. The first one is done as an example.
68
Answer:
Bloom's: Understand
69
161) The steps in the accounting cycle are shown below. List them in the correct 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
Answer:
1) Analyze transactions
2) Journalize transactions
3) Post transactions
4) Prepare an unadjusted trial balance
5) Adjust the ledger accounts
6) Prepare adjusted trial balance
7) Prepare the financial statements
8) Close the temporary accounts
9) Prepare a post-closing trial balance
Bloom's: Understand
70
162) a) Prepare a classified balance sheet for Martin Air Freight based on the adjusted trial
balance shown below. b) Prepare the required closing entries.
Martin Air Freight

Adjusted Trial Balance
December 31
Debit Credit
Cash.............................................................................. $ 18,200
Accounts receivable ..................................................... 34,200
Supplies........................................................................ 2,100
Long-term investments ................................................ 25,000
Shipping equipment...................................................... 45,000
Accumulated depreciation–Shipping equipment
equipment........ $ 11,080
Patent........................................................... 16,000
Accounts payable ......................................................... 16,200
Wages payable ............................................................. 4,120
Long-term notes payable * ................................................ 20,000
J. Martin, Capital ....................................................... 40,400
J. Martin, Withdrawals .............................................. 15,000
Shipping fees earned .................................................... 145,000
Rent expense ................................................................ 8,000
Wages expense............................................................. 62,000
Supplies expense........................................................... 2,500
Depreciation expense–Shipping equipment ................. 4,050
Interest expense............................................................ 1,000
Utilities expense........................................................... 3,750
Totals............................................................................ $236,800 $236,800
*$2,000 of the long-term note payable is due during the next year.
71
Answer:
72
Debit Credit
Shipping Fees Earned 145,000
Income Summary 145,000
To close revenues
Rent expense 8,000
Supplies expense 2,500
Depreciation expense–Shipping
equipment 4,050
Interest expense 1,000
Utilities expense 3,750
To close expenses
J. Martin, Capital 63,700
To close income summary
J. Martin, Capital 15,000
J. Martin, Withdrawals 15,000
To close withdrawals
Difficulty: 3 Hard
Topic: Classified Balance Sheet; Preparing Closing Entries
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.; 04-P2 Describe and
prepare closing entries.
Bloom's: Apply
73
163) The calendar year-end adjusted trial balance for Blessinger Co. follows:
BLESSINGER CO.
December 31
Cash $ 112,000
Prepaid rent 15,000
Prepaid Insurance 9,000
Office supplies 3,300
Office equipment 38,000
$ 3,200
Accumulated depreciation–Equipment 3,200
Building 288,000
Accumulated depreciation–Building 42,000
Land 700,000
Salaries payable 14,500
Long-term note payable 72,000
P. Blessinger, Capital 910,000
P. Blessinger, Withdrawals 200,500
Service fees earned 430,800
Rent expense 5,000
Depreciation expense–Equipment 800
Depreciation expense–Building 7,000
Totals $1,500,800 $1,500,800
Required:
(a) Prepare a classified year-end balance sheet. (Note: A $9,000 installment on the long-term
note payable is due within one year.)
(b) Prepare the required closing entries.
74
Answer:
*NI = $430,800 - $90,000 - $5,200 - $5,000 - $800 - $7,000 = $322,800Ending Capital =

$910,000 + $322,800 - $200,500 = $1,032,300
75
Debit Credit
Service Fees Earned 430,800
To close revenues
Rent expense 5,000
To close expenses
To close income summary
To close withdrawals
Difficulty: 3 Hard
Topic: Classified Balance Sheet; Preparing Closing Entries
Learning Objective: 04-C3 Explain and prepare a classified balance sheet.; 04-P2 Describe and
prepare closing entries.
Bloom's: Apply
AACSB/Accessibility: Analytical Thinking; Reflective Thinking / Keyboard Navigation
AICPA: BB Industry; BB Resource Management; BB Critical Thinking; FN Reporting; FN
Risk Analysis
76
164) The calendar year-end adjusted trial balance for Blessinger Co. follows:
BLESSINGER CO.
December 31
Cash $ 112,000
Prepaid rent 15,000
Accumulated depreciation–Equipment $3,200
Building 288,000
Land 700,000
Rent expense 5,000
Totals $1,500,800 $1,500,800
Required:
(a) Determine the amounts of current assets and current liabilities. (Note: A $9,000 installment
on the long-term note payable is due within one year.)
(b) Calculate the current ratio. Comment on the ability of Blessinger Co. to meets its short-term
debts.
77
Answer:
(a) Current assets = Cash + Accounts Receivable + Prepaid Rent + Prepaid Insurance + Office
Supplies
$112,000 + 27,000 + $15,000 + $9,000 + $3,300 = $166,300
Current liabilities = Accounts Payable + Salaries Payable + Interest
Payable + Current Portion of Long-term Debt
$25,800 + 14,500 + $2,500 + $9,000 = $51,800
(b) $166,300/$51,800 = 3.2
Blessinger Co. has a current ratio of 3.2 to 1, which means it has more than three times the
current assets as current liabilities. It should have no difficulty paying its short-term debts since
cash alone is more than current liabilities.
Topic: Current Ratio; Classified Balance Sheet
company's financial condition.; 04-C3 Explain and prepare a classified balance sheet.
Bloom's: Apply
AICPA: BB Industry; BB Resource Management; BB Critical Thinking; FN Reporting; FN
Risk Analysis
165) Calculate the current ratio in each of the following separate cases and identify the company
case with the strongest liquidity position.
Current Assets Current Liabilities
Case 1 $ 55,000 $ 30,000
Case 2 $141,500 $ 85,000
Case 3 $ 45,000 $ 59,000
Answer: Current Ratio = Current Assets/Current Liabilities

Case 1 = $55,000/$30,000 = 1.8Case 2 = $141,500/$85,000 = 1.7Case 3 = $45,000/$59,000 =
0.8
Case 1 has the strongest liquidity position because it has the highest current ratio.
Bloom's: Apply
AICPA: BB Resource Management; FN Risk Analysis
78
166) Calculate the current ratio for each of the following companies and identify the company
with the strongest liquidity position.
Current Assets Current Liabilities

Company A $1,752,000 $1,267,000
Company L $863,500 $481,000
Company T $366,800 $419,000

Company A = $1,752,000/$1,267,000 = 1.4
Company L = $863,500/$481,000 = 1.8
Company T = $366,800/$419,000 = 0.9
Company L has the strongest liquidity position because it has the highest current ratio.
Bloom's: Apply
79
167) Use the following partial work sheet from Carmelo Bowl 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.)
80
Answer:
CARMELO BOWL
Income Statement
For Year Ended June 30
Bowling Revenue $137,675
Expenses:
Depreciation expense–
Scoring equipment $10,825
Rent expense 1,600
Office supplies expense 400
Repairs expense 350
Telephone expense 750
Total expenses 15,925
Net Income $121,750
CARMELO BOWL
Statement of Owner's Equity
For Year Ended June 30
G. Carmelo, Beginning Balance $ 50,000
Plus net income 121,750
$171,750
Less withdrawals (46,425)
G. Carmelo, Ending balance $125,325
81
CARMELO BOWL
Balance Sheet
June 30
Assets
Current Assets
Cash $ 11,275
Office supplies 800
Total current assets $17,225
Plant Assets
Scoring Equipment 130,000
Less: Accumulated depreciation 21,700
Total plant assets 108,300
Total Assets $125,525
Liabilities
Current liabilities
Salaries payable $ 200
Total current liabilities $ 200
Equity
G. Carmelo, Capital 125,325
Total Liabilities & Owner's Equity $125,525
Difficulty: 3 Hard
Topic: Benefits of a Work Sheet (Spreadsheet); Classified Balance Sheet
Learning Objective: 04-P1 Prepare a work sheet and explain its usefulness.; 04-C3 Explain and
prepare a classified balance sheet.
Bloom's: Apply
82
168) The unadjusted trial balance of R. Tryon, 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.
83
Answer:
Difficulty: 3 Hard
Bloom's: Apply
84
169) 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.
Answer:
Difficulty: 3 Hard
Bloom's: Apply
85
170) Shown below are selected data taken from the unadjusted and adjusted trial balances for the
Dryer Company for the current year ended December 31. Determine the items A through H
below.
Answer:
Difficulty: 3 Hard
Bloom's: Apply
86
171) A company's December 31 work sheet appears below with summary amounts in the Income
Statement and Balance Sheet columns. Prepare the four necessary closing entries.
Answer:
Dec. 31 Revenue………………………….. 19,500
Income Summary………… 19,500
31 Income Summary……………….. 16,500
Salaries Expense………. 11,250
Other Operating Expenses… 5,250
31 Income Summary……………. … 3,000
Kate Smith, Capital………. 3,000
31 Kate Smith, Capital……………… 1,500
Kate Smith, Withdrawals…… 1,500
Difficulty: 3 Hard
Bloom's: Apply
87
172) The adjusted trial balance of Carson's Internet Services follows:
CARSON'S INTERNET SERVICES

December 31
Cash $ 1,170
Supplies 1,930
Prepaid insurance 600
Computer equipment 20,600
Accumulated depreciation–Computer equipment $ 5,400
Accounts payable 325
C. Gaines, Capital 13,925
C. Gaines, Withdrawals 4,800
Services revenue 21,720
Depreciation expense 2,000
Rent expense 1,200
Supplies expense 800
Utilities expense 950
Totals $41,370 $41,370
(a) Prepare the four closing entries necessary.
(b) What is the balance of Carson Gaines' capital account after the closing entries are posted?
88
Answer:
Difficulty: 3 Hard
Bloom's: Apply
89
173) Following are selected accounts and their balances for a company after the adjustments
made on May 31, the end of its fiscal year. (All accounts have normal balances.)
L. Storm, Capital……… $30,000

L. Storm, Withdrawals……… 6,000
Fees earned………. 20,000
Salaries expense……… 7,000
Insurance expense………. 350
Utilities expense……….. 75
Supplies expense………. 500
Supplies payable……… 400
Salaries payable……….. 300
Depreciation expense………. 425
Prepare all the necessary closing entries for this company.
Answer:
Fees Earned 20,000
Salaries Expense 7,000
Insurance Expense 350
Utilities Expense 75
Supplies Expense 500
Depreciation Expense 425
L. Storm, Capital 11,650
L. Storm, Capital 6,000
L. Storm, Withdrawals 6,000
Bloom's: Apply
90
174) The adjusted trial balance of the Waterstone Company follows:
Waterstone Company
December 31
Debit Credit
Cash 8,000
Equipment 18,000
Accumulated depreciation–Equipment 3,600
Unearned repair fees 1,200
T. Waterstone, Capital 11,400
T. Waterstone, Withdrawals 4,000
Repair fees earned 27,500
Depreciation expense 1,800
Totals 45,700 45,700
Prepare the closing entries for Waterstone Company.
Answer:
Dec. 31 Repair Fees Earned 27,500
31 Income Summary 13,300

Depreciation Expense 1,800
Insurance Expense 1,500

T. Waterstone, Capital 14,200
31 T. Waterstone, Capital 4,000

T. Waterstone, Withdrawals 4,000
Difficulty: 3 Hard
Bloom's: Apply
91
175) The Income Statement columns of the work sheet prepared for Crawford Delivery Service
at current year-end are shown below. In addition, L. Crawford, Capital had a credit balance of
$117,000 and L. Crawford, Withdrawals had a debit balance of $30,000 at year-end. Prepare
closing journal entries for this company.
Income Statement
Dr. Cr.
Delivery Revenue $98,900
Office salaries expense $28,100
Rent expense 14,400
Office supplies expense 1,900
Depreciation expense–Office equipment 6,000
Totals $51,600 $98,900
Net income 47,300
Totals $98,900 $98,900
Answer:
Dec. 31 Delivery Revenue 98,900
Office Salaries Expense 28,100
Rent Expense 14,400
Office Supplies Expense 1,900
Depr. Expense–Office
Equipment 6,000
L. Crawford, Capital 47,300
31 L. Crawford, Capital 30,000
L. Crawford, Withdrawals 30,000
Difficulty: 3 Hard
Bloom's: Apply
92
176) The Income Statement columns of the work sheet prepared for Jolly Auto Service at current
year-end are shown below. In addition, B. Jolly, Capital had a credit balance of $235,000 and B.
Jolly, Withdrawals had a debit balance of $40,000 at year-end. Prepare closing journal entries for
this company.
Income Statement
Dr. Cr.
Service revenue $130,200
Wages expense $43,100
Rent expense 16,200
Shop supplies expense 3,500
Depreciation expense–Shop equipment 7,000
Totals $71,600 $130,200
Net income 58,600
Totals $130,200 $130,200
Answer:
31 Service Revenue 130,200
Rent expense 16,200
Shop supplies expense 3,500
Depr. Expense–Shop Equipment 7,000
B. Jolly, Capital 58,600
31 B. Jolly, Capital 40,000
B. Jolly, Withdrawals 40,000
Bloom's: Apply
93
177) Presented below are the year-end balances at December 31 of Becca's Dry Cleaning
Service. (All accounts have normal balances.)
Accounts receivable $ 12,000

Accumulated depreciation–equipment 30,000
Cash 42,000
Depreciation expense–equipment 12,000
Equipment 125,000
Service revenue 200,000
Notes payable 65,000
B. Stanton, Capital 17,000
B. Stanton, Withdrawals 18,000
Salary expense 97,000
Supplies 1,500
Supplies expense 16,000
Unearned service revenues 500
Utilities expense 9,500
(a) Prepare the necessary closing entries at December 31.

(b) Prepare a post-closing trial balance at December 31.
94
Answer:
(a)
Dec. 31 Service Revenues 200,000
Depreciation Expense — Equip 12,000
Supplies Expense 16,000
Utilities Expense 9,500

B. Stanton, Capital 58,500
31 B. Stanton, Capital 18,000
B. Stanton, Withdrawals 18,000
(b)
Becca's Dry Cleaning Service
Post-Closing Trial Balance
December 31
Account Debit Credit
Cash $ 42,000
Supplies 1,500
Equipment 125,000
Accumulated depreciation–equipment $ 30,000
Notes payable 65,000
Unearned service revenues 500
B. Stanton, Capital ($17,000 + $58,500 - $18,000) _______ 57,500
Totals $182,000 $182,000
Difficulty: 3 Hard
Topic: Preparing Closing Entries; Post-Closing Trial Balance
Learning Objective: 04-P2 Describe and prepare closing entries.; 04-P3 Explain and prepare a
post-closing trial balance.
Bloom's: Apply
95
178) Paradise Travel's adjusted trial balance as of the end of its annual accounting period is
shown below:
Paradise Travel
December 31
Dr. Cr.
Cash $ 25,000
Accumulated depreciation–Office equipment $5,000
D. Chambers, Capital 30,260
D. Chambers, Withdrawals 1,000
Fees earned 75,000
Rent expense 16,800
Depreciation expense–Office equipment 3,960
Advertising expense 4,000
Office supplies expense 2,800
Totals $135,260 $135,260
(a) Prepare the necessary closing entries.

(b) Prepare a post-closing trial balance.
96
Answer:
(a)
Fees Earned 75,000
Rent Expense 16,800
Depreciation Expense–Office Equip 3,960
Advertising Expense 4,000
Office Supplies Expense 2,800
1,000
D. Chambers, Withdrawals
(b)
Paradise Travel
Post-Closing Trial Balance
December 31
Account Debit Credit
Cash $25,000
Accumulated depreciation–Office equipment $5,000
D. Chambers, Capital ($30,260 + $14,640 — $1,000) 43,900
Totals $73,900 $73,900
Difficulty: 3 Hard
Topic: Preparing Closing Entries; Post-Closing Trial Balance
Learning Objective: 04-P2 Describe and prepare closing entries.; 04-P3 Explain and prepare a
post-closing trial balance.
Bloom's: Apply
97
179) Employees of Potteryworld 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 for Potteryworld at December 31 of the current
year.
(b) Assuming that Potteryworld makes reversing entries, prepare the necessary reversing entry,
including the appropriate date.
Answer:
a. Dec. 31 Salaries Expense ............... 3,500
Salaries Payable………... 3,500
b. Jan. 1 Salaries Payable................ 3,500
Salaries Expense……….. 3,500
Difficulty: 3 Hard
Bloom's: Apply
180) The following information has been gathered for Major Properties 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) Major had previously recorded $3,200 of unearned rental revenue. 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 Major Properties
Co. uses reversing entries.
Answer:
(a) Reversed.
(b) Not reversed.
(c) Not reversed.
(d) Reversed.
Bloom's: Understand
98
181) The unadjusted trial balance of Rapido 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.
99
Answer:
Difficulty: 3 Hard
Bloom's: Apply
100
182) The following December 31 year-end adjusted trial balance is for Heath Wilmer Co.. The
credit balance in Heath Wilmer, Owner Capital at the beginning of the year, January 1, was
$320,000. The owner, Heath Wilmer, invested an additional $300,000 during the current year.
The land held for future expansion was also purchased during the current year.
Heath Wilmer Co.

December 31
Cash $ 90,000
Investments in stocks 150,000
Land held for future expansion 300,000
Accumulated depreciation–Equipment $4,000
Building 600,000
Intangible assets–licensing agreement 50,000
Heath Wilmer, Capital 620,000
Heath Wilmer, Withdrawals 60,000
Rent expense 25,000
Depreciation expense–Equipment 2,000
Totals $1,523,000 $1,523,000
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 Heath Wilmer Co. to meets its short-
term debts.
(b) Calculate the debt ratio and comment on the financial position and risk analysis of Heath
Wilmer Co.
(c) Using the account balances to analyze the financial position of Heath Wilmer 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?
101
Answer:
Heath Wilmer Company
Classified Balance Sheet
December 31
Assets
Current assets
Cash $ 90,000
Total current assets $116,000
Long-term investments
Investments in stocks $150,000
Total long-term investments 450,000
Plant assets
Office equipment $ 18,000
Less: accumulated depreciation 4,000 $14,000
Building 600,000
Less: accumulated depreciation 170,000 430,000
Total plant assets 444,000
Intangible assets–licensing agreement 50,000
Total assets $1,060,000
Liabilities
Current liabilities
Accounts payable $17,800
Current portion of long-term debt 22,000
Total current liabilities $ 56,200
Long-term liabilities
Total liabilities $ 258,200
Equity
Heath Wilmer, Capital 801,800
Total liabilities and equity $1,060,000
Net income $470,800 - $180,000 - $12,000 - $25,000 - $2,000 - $10,000 = $241,800

Ending Capital = $620,000 + $241,800 - $60,000 = $801,800
102
2. (a) Current ratio = current assets/current liabilities
116,000/56,200 = 2.1 to 1
Heath Wilmer Co.'s current ratio is good and indicates that the company has more than enough in
current assets to meet its short-term debts.
(b) Debt ratio = Total Liabilities/Total Assets
258,200/1,060,000 = .24 to 1
The debt 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.
(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.
Difficulty: 3 Hard
Topic: Current Ratio; Classified Balance Sheet
company's financial condition.; 04-C3 Explain and prepare a classified balance sheet.
Bloom's: Apply
AICPA: BB Resource Management; BB Critical Thinking; FN Reporting; FN Risk Analysis
103
183) Mandarin Company frequently has accrued expenses at the end of its fiscal year that should
be recorded for proper financial statement presentation. Mandarin 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. The company 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 Mandarin does not prepare reversing entries.
(c) Assuming that Mandarin prepares reversing entries, reverse the adjusting entry made on June
30.
(d) Assuming that Mandarin prepares reversing entries, payment of the salaries on July 4.
Answer:
a) June 30 Salaries expense 50,000
b) July 4 Salaries Payable 50,000

Cash 250,000
c) July 1 Salaries payable 50,000
d) July 4 Salaries expense 250,000
Cash 250,000
Difficulty: 3 Hard
Bloom's: Apply
104
184) Tunica Company's fiscal year ends on September 30 of the current year. Tunica frequently
has accrued revenues at the end of its fiscal year that are recorded for proper financial statement
presentation. The company 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
Tunica does not prepare reversing entries.
(c) Assuming that Tunica prepares reversing entries, reverse the adjusting entry made on
September 30.
(d) Assuming that Tunica prepares reversing entries, receipt of the payment for the total contract
amount on October 9.
Answer:
Difficulty: 3 Hard
Bloom's: Apply
105
185) Compute Darling Company's current ratio using the following information:
Accounts receivable $20,000 Long-term notes payable $ 80,000

Salaries payable 5,000 Building 170,000
Prepaid Rent 7,000 Accounts payable 15,000
Cash 12,000 Land 75,000

Current Ratio = ($20,000 + $7,000 + $12,000)/($5,000 + $15,000) = 1.95
Bloom's: Apply
186) Compute Chase Company's current ratio using the following information:
Cash $20,000 Accounts Payable $ 8,000

Accounts Receivable 5,000 Salaries Payable 12,000
Prepaid Rent 7,000 Note Payable (due in 2 years) 150,000
Equipment 12,000

Current Ratio = ($20,000 + $5,000 + $7,000)/($8,000 + $12,000) = 1.6
Bloom's: Apply
106
187) The unadjusted trial balance of Barber Housekeeping Service is entered on the partial work
sheet below.
Required: 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 $3,000 of unused supplies still on hand.
(c) Depreciation on automobiles, $30,000.
(d) Advertising for November and December in the amount of $8,000 remains unpaid and
unrecorded.
107
Answer:
Difficulty: 3 Hard
Bloom's: Apply
108
188) Complete the work sheet below for Barber Housekeeping Services by extending the
account balances from the adjusted trial balance columns into the appropriate financial statement
columns and by entering the amount of net income for the reporting period:
Answer:
Difficulty: 3 Hard
Bloom's: Apply
109
189) The following adjusted trial balance is for Carla Co. at year-end December 31. The credit
balance in Carla West, Capital at the beginning of the year, January 1, was $320,000. The owner,
Carla West, invested an additional $100,000 during the current year. The land held for future
expansion was also purchased during the current year.
Carla Co.
December 31
Cash $ 60,000
Prepaid rent 7,000
Investments in stocks 120,000
Accumulated depreciation–Equipment $ 38,000
Building 280,000
Land 180,000
Patents 150,000
C. West, Capital 420,000
C. West, Withdrawals 60,000
Rent expense 36,000
Depreciation expense–Equipment 12,000
Depreciation expense–Building 15,000 _________

Totals $1,436,000 $1,436,000
Required:
Prepare a classified balance sheet as of December 31. (Note: A $21,000 installment on the long-
term note payable is due within one year.)
110
Answer:
Net income $470,800 - $195,000 - $18,000 - $36,000 - $12,000 - $15,000 = $194,800

Ending Capital = $420,000 + $194,800 - $60,000 = $554,800
Difficulty: 3 Hard
Bloom's: Apply
111
190) The closing process resets ________, ________, and ________ account balances to zero at
the end of each accounting period.
Answer: revenue; expense; withdrawal

(Answers can appear in any order)
Difficulty: 1 Easy
Bloom's: Remember
191) The ________ account is a temporary account used only in the closing process.
Answer: Income Summary

Difficulty: 1 Easy
Bloom's: Remember
192) Revenues, expenses, withdrawals, and Income Summary are called ________ accounts
because they are closed at the end of each accounting period.
Answer: temporary
Difficulty: 1 Easy
Bloom's: Remember
193) 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.
Answer: permanent
Difficulty: 1 Easy
Bloom's: Remember
112
194) The ________ refers to the steps in preparing financial statements for users.
Answer: accounting cycle

Difficulty: 1 Easy
Bloom's: Remember
195) ________ are long-term resources used to produce or sell products and services; they
generally lack physical form and their benefits are highly uncertain.
Answer: Intangible assets

Difficulty: 1 Easy
Bloom's: Remember
196) The current portion of long-term debt is classified in the ________ section of a classified
balance sheet.
Answer: current liabilities

Difficulty: 1 Easy
Bloom's: Remember
197) A current ratio of 2.1 suggests that a company has ________ current assets to cover current
liabilities.
Answer: sufficient
Bloom's: Understand
113
198) A ________ is an optional working paper that helps in preparing financial statements, is
useful in preparing interim statements, and is helpful in showing the effects of proposed
transactions.
Answer: work sheet

Difficulty: 1 Easy
Bloom's: Remember
199) A company's post-closing trial balance has a debit total of $475,000 and a credit total of
$457,000. This indicates that ________.
Answer: an error was made in the closing process

Topic: Post-closing Trial Balance
Bloom's: Understand
200) Reversing entries are linked to ________ and ________ that were created by adjusting
entries at the end of the prior accounting period.
Answer: accrued assets; accrued liabilities

(Answers listed above can appear in any order as shown)
Difficulty: 1 Easy
Bloom's: Remember
114

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Fundamental Accounting Principles, 24e (Wild)

Chapter 4 Completing the Accounting Cycle

50) The withdrawals account is normally closed by debiting it.

60) Reversing entries are optional.

63) Which of the following accounts is a temporary account:

65) When closing entries are made:

72) Closing entries are required:

75) A classified balance sheet:

81) Which of the following is classified as a plant asset?

82) The current ratio:

Fees Earned ($5,850 + $375 + $300) $ 6,525

Fees Earned ($7250 + $875) $ 8,125

1. Office supplies used during the period, $1,200.

The Adjusted Trial Balance columns total is:

Unadjusted Balances $ 84,000 $ 84,000

Total revenues $ 125,000

Net Income $ 42,500

Net Loss $ 17,600

110) The Income Summary account is used to:

Wilson Peters, Capital $ 7,000

121) Which of the following statements is true?

122) Reversing entries:

124) Which of the following is not true?

125) Reversing entries:

127) Which of the following is not true?

128) Which of the following is not true?

130) Permanent accounts include all of the following except:

Current assets $ 87,000

Net Income $ 115,000

J. Brendon, Capital $ 112,000

A. Permanent accounts F. Work sheet

____ 1. The owner's claim on the assets of a company.

1) ____ Equipment used in business operations

Answer: 1. C; 2. A; 3. B; 4. F; 5. A; 6. G; 7. E; 8. E; 9. D; 10. E; 11. A; 12. A

149) Explain why temporary accounts are closed each period.

151) List the steps in the accounting cycle.

154) Describe a work sheet and explain why it is useful.

157) What is the purpose of a post-closing trial balance?

Account Temporary Permanent

Account Temporary Permanent

Martin Air Freight

*NI = $430,800 - $90,000 - $5,200 - $5,000 - $800 - $7,000 = $322,800Ending Capital =

Answer: Current Ratio = Current Assets/Current Liabilities

Current Assets Current Liabilities

Answer: Current Ratio = Current Assets/Current Liabilities

G. Carmelo, Ending balance $125,325

CARSON'S INTERNET SERVICES

(a) Prepare the four closing entries necessary.

L. Storm, Capital……… $30,000

Prepare all the necessary closing entries for this company.

Prepare the closing entries for Waterstone Company.

31 Income Summary 13,300

31 Income Summary 14,200

31 T. Waterstone, Capital 4,000

Accounts receivable $ 12,000

(a) Prepare the necessary closing entries at December 31.

31 Income Summary 58,500

(a) Prepare the necessary closing entries.