True / False Questions
1. Accounts that appear in the balance sheet are often called temporary (nominal) accounts. FALSE 2. Income Summary is a temporary account only used for the closing process. TRUE 3. Revenue accounts should begin each accounting period with zero balances. TRUE 4. Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and expense accounts ready for use in the next period? TRUE 5. The closing process takes place after financial statements have been prepared. TRUE 6. Revenue and expense accounts are permanent (real) accounts and should not be closed at the end of the accounting period? FALSE 7. Closing entries result in revenues and expenses being reflected in the owner's capital account. TRUE 8. The closing process is a step in the accounting cycle that prepares accounts for the next accounting period. TRUE 9. The closing process is a two-step process. First revenue, expense, and withdrawals are set to a zero balance. Second, the process summarizes a period's assets and expenses. FALSE
10. Closing entries are required at the end of each accounting period to close all ledger accounts. FALSE 11. Closing entries are designed to transfer the end-of-period balances in the revenue accounts, the expense accounts, and the withdrawals account to ownefs capital TRUE 12. The Income Summary account is a permanent account that will be carried forward period after period. FALSE 13. Closing entries are necessary so that owner's capital will begin each period with a zero balance. FALSE 14. Permanent accounts carry their balances into the next accounting period? Moreover, asset, liability and revenue accounts are not closed as long as a company continues in business. FALSE 15. The first step in the accounting cycle is to analyze transactions and events to prepare for journalizing. TRUE 16. The accounting cycle refers to the sequence of steps in preparing the work sheet. FALSE 17. The first five steps in the accounting cycle include analyzing transactions,
journalizing, posting, preparing an unadjusted trial balance, and recording adjusting entries. TRUE 18. The last four steps in the accounting cycle include preparing the adjusted trial balance, preparing financial statements and recording closing and adjusting entries. FALSE
19? A classified balance sheet organizes assets and liabilities into important subgroups that provide more information to decision makers. TRUE 20. An unclassified balance sheet provides more information to users than a classified balance sheet. FALSE 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. TRUE 22. Intangible assets are long-term resources that benefit business operations that usually lack physical form and have uncertain benefits. TRUE 23. Assets are often classified into current assets, long-term investments, plant assets, and intangible assets. TRUE 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. FALSE 25. Long-term investments can include land held for future expansion. TRUE 26. Plant assets and intangible assets are usually long-term assets used to produce or sell products and services. TRUE 27. Current liabilities include accounts receivable, unearned revenues, and salaries payable. FALSE 2& Cash and office supplies are both classified as current assets. TRUE
29. Plant assets are also called fixed assets or property, plant, and equipment. TRUE 30. The current ratio is used to help assess a company's ability to pay its debts in the near future. TRUE
Multiple Choice Questions
64. Another name for temporary accounts is: A. Real accounts. B. Contra accounts. C? Accrued accounts.
D. Balance column accounts. E? Nominal accounts.
65. When closing entries are made:
A. All ledger accounts are closed to start the new accounting period. K All temporary accounts are closed but not the permanent accounts. C. All real accounts are closed but not the nominal accounts.
D. All permanent accounts are closed but not the nominal accounts. E. All balance sheet accounts are closed.
66. Revenues, expenses, and withdrawals accounts, which are closed at the end of each accounting period are: A. Real accounts.
K Temporary accounts- C. Closing accounts. D. Permanent accounts. E. Balance sheet accounts.
67. Which of the following statements is incorrect?
A. Permanent accounts is another name for nominal accounts.
B? Temporary accounts carry a zero balance at the beginning of each accounting period. C? The Income Summary account is a temporary account.
D. Real accounts remain open as long as the asset, liability, or equity items recorded in the accounts continue in existence.
E. The closing process applies only to temporary accounts.
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.
69. Closing the temporary accounts at the end of each accounting period:
A? Serves to transfer the effects of these accounts to the owners capital account on the balance sheet.
B. Prepares the withdrawals account for use in the next period. C? Gives the revenue and expense accounts zero balances.
D. Causes owner's capital to reflect increases from revenues and decreases from expenses and withdrawals. E? All of these.
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 ownefs capital account for the events of the period just finished are referred to as: A. Adjusting entries? K Closing entries. C. Final entries.
D. Work sheet entries. E. Updating entries.
71. The closing process is necessary in order to:
A? calculate net income or net loss for an accounting period.
B. ensure that all permanent accounts are closed to zero at the end of each accounting period.
CL ensure that the company complies with state laws.
ensure that net income or net loss and owner withdrawals for the period are closed into the ownefs capital account.
E. ensure that management is aware of how well the company is operating?
72. Closing entries are required:
A. 讦 management has decided to cease operating the business.
B. only if the company adheres to the accrual method of accounting. C. if a compan/s bookkeeper forgets to prepare reversing entries. D? if the temporary accounts are to reflect correct amounts for each accounting period. E. in order to satisfy the Internal Revenue Service.
73. The recurring steps performed each reporting period, starting with analyzing and
recording transactions in the journal and continuing through the post-closing trial balance, is referred to as the: A? Accounting period. B. Operating cycle. C. Accounting cycle. D. Closing cycle.
E. Natural business year.
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 shee匚
75. A classified balance sheet:
A. Measures a company's ability to pay its bills on time. K Organizes assets and liabilities into important subgroups- C? Presents revenues, expenses, and net income.
D? Reports operating, investing, and financing activities.
E. Reports the effect of profit and withdrawals on ownefs capital.
76. The assets section of a classified balance sheet usually includes:
A. Current assets, long-term investments, plant assets, and intangible assets. B. Current assets, long-term assets, revenues, and intangible assets. C? Current assets, long-term investments, plant assets, and equity.
D. CuiTent liabilities, long-term investments, plant assets, and intangible assets. E. Current assets, liabilities, plant assets, and intangible assets.
77. The usual order for the asset section of a classified balance sheet is:
A. Current assets, prepaid expenses, long-term investments, intangible assets- B. Long-term investments, current assets, plant assets, intangible assets. C? Current assets, long-term investments, plant assets, intangible assets. D. Intangible assets, current assets, long-term investments, plant assets. E. Plant assets, intangible assets, long-term investments, current assets.
78. A classified balance sheet differs from an unclassified balance sheet in that A. a unclassified balance sheet is never used by large companies. B. a classified balance sheet normally includes only three subgroups.
C. a classified balance sheet presents information in a manner that makes it easier to calculate a company's current ratio.
D. a classified balance sheet will include more accounts than an unclassified balance sheet for the same company on the same date.
E. a classified balance sheet cannot be provided to outside parties. 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 long-term liabilities. E> current liabilities and long-term liabilities.
8(). The current ratio:
A. Is used to measure a company's profitability.
B? Is used to measure the relation between assets and long-term debt. C. Measures the effect of operating income on profit.
De Is used to help evaluate a company's ability to pay its debts in the near future? E. Is calculated by dividing current assets by equity.
81. The current ratio:
A. Is calculated by dividing current assets by current liabilities.
B. Helps to assess a company's ability to pay its debts in the near future. C? Can reveal problems in a company if it is less than 1.
D? Can affect a creditors decision about whether to lend money to a company. E? All of these.
AACSB: Communications AICPA BB: Industry AICPA FN: Risk Analysis Difficulty: Hard Earning Objective: Al
82. The Unadjusted Trial Balance columns of a compan/s work sheet show the balance in the Office Supplies account as $750. The Adjustments columns show that $425 of these supplies were used during the period. The amount shown as Office Supplies in the Balance Sheet columns of the work sheet is: A? $325 debit. B. $325 credit. C. $425 debit. D. $750 debit. E. $750 credit.
83. A 10-column spreadsheet used to draft a company!s unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements, and which is an optional tool in the accounting process is a(n): A. Adjusted trial balance. B? Work sheet.
C. Post-closing trial balance. D. Unadjusted trial balance. E. General ledger?
84. Accumulated Depreciation, Accounts Receivable, and Service Fees Earned would be sorted to which respective columns in completing a work sheet?
A. Balance Sheet or Statement of Ownefs Equity-Credit; Balance Sheet or Statement of Owner's Equity Debit; and Income Statement-Credit.
B. Balance Sheet or Statement of Ownefs Equity-Debit; Balance Sheet or Statement of Ownefs Equity-Credit; and Income Statement-Credit.
C. Income Statement-Debit; Balance Sheet or Statement of Owner's Equity-Debit; and Income Statement-Credit.
D? Income Statement-Debit; Income Statement-Debit; and Balance Sheet or Statement of Owner's Equity-Credit.
E. Balance Sheet or Statement of Owner's Equity-Credit; Income Statement-Debit; and Income Statement-Credit.
85. Which of the following statements is incorrect?
A. Working papers are useful aids in the accounting process.
B? On the work sheet, the effects of the accounting adjustments are shown on the account balances?
C. After the work sheet is completed, it can be used to help prepare the financial statements.
De 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
86. A company shows a $600 balance in Prepaid Insurance in the Unadjusted Trial
Balance columns of the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results in: A? $200 decrease in net income. B. $200 increase in net income.
C? $200 difference between the debit and credit columns of the Unadjusted Trial Balance.
D. $200 of prepaid insurance?
E. An error in the financial statements.
87. Statements that show the effects of proposed transactions as if the transactions had already occurred are called: A. Pro forma statements. B. Professional statements. C? Simplified statements- D. Temporary statements. E. Interim statements.
88. If in preparing a work sheet an adjusted trial balance amount is mistakenly sorted to the wrong work sheet column. The Balance Sheet columns will balance on completing the work sheet but with the wrong net income, if the amount sorted in error is: A. An expense amount placed in the Balance Sheet Credit column. B. A revenue amount placed in the Balance Sheet Debit column. C. A liability amount placed in the Income Statement Credit column. D. An asset amount placed in the Balance Sheet Credit column. E. A liability amount placed in the Balance Sheet Debit column.
89. If the Balance Sheet and Statement of Ownefs Equity columns of a work sheet fail to balance when the amount of the net income is added to the Balance Sheet and Statement of Ownefs Equity Credit column, the cause could be:
A. An expense amount entered in the Balance Sheet and Statement of Ownefs Equity Debit column.
B. A revenue amount entered in the Balance Sheet and Statement of Ownefs Equity Credit column.
C. An asset amount entered in the Income Statement and Statement of Owner's Equity Debit column.
D. A liability amount entered in the Income Statement and Statement of Owner's Equity Credit column. E? An expense amount entered in the Balance Sheet and Statement of Ownefs Equity Credit column.
Problems
129. In the table below, indicate with an nXH in the proper column whether the account is a (nominal) temporary account or a (real) permanent account.
Account a. Cash .......................................................... ...................................... b? Prepaid insurance c. Unearned fees ........................................... d. Accounts receivable .................................. e. Insurance expense ..................................... f. O. Ner, Capital .......................................... g- O. Ner. Withdrawals ................................. h? Rent expense ............................................. ? Fees earned ............................................... 1. j. Supplies .................................................... ....................................... k? Supplies expense Depreciation expense 一 Building ............ 1. m. Accumulated depreciation 一 Building .. Temporary (Nominal) Permanent (Real)
132. Based on the adjusted trial balance shown below, prepare a classified balance sheet for Focus Package Delivery.
Focus Package Delivery Classified Balance Sheet December 31 Assets
CuiTent assets
Cash .......................................................................................... $ 1&200 Accounts receivable ....................................................................... 34,200 Supplies ........................................................................................... 2,100 Total current assets ............................................................. Long-term investments ............................................................ Plant assets Delivery equipment .................................................................... $45,000 Less: accumulated depreciation ......................................... 11.080 Intangible assets .......................................................................
Total assets ...............................................................................
Liabilities
Current liabilities
Current portion of long-term debt .............................................. $ 2?000 Accounts payable ................................................................ 16,200 Wages payable .................................................................... 4」20 Total current liabilities........................................................ Long-term liabilities
Long-term note payable ...................................................... Total liabilities .........................................................................
Equity K. Ferman. Capital ................................................................... Total liabilities and equity ........................................................
■ ■ ? ]? ■ ■ ? ■■ ???
$2,000 of the long-term note payable is due during the next year.
$54,500 25,000
33,920
6000 $129.420 $ 22,320 18.000 $ 40,320 89 J 00 $129.420
135. Use the following partial work sheet from Matthews Lanes to prepare its income statement, statement of ownefs equity and a balance sheet (Assume the owner did not make any investments in the business this year.)
MATTHEWS LANES
Work Sheet
For Year Ended June 30
Balance Sheet
Income Statement OwneFs Equity Dr
Account
and Statement of
Cn
Cash ............................................... Accounts Receivable ..................... Office Supplies .............................. Prepaid Insurance .......................... Scoring Equipment ........................ Accumulated depreciation-
Scoring equipment .................... Salaries payable ............................. M. Matthews. Capital ....................................................... M. Matthews. Withdrawals ....................................................... Bowling revenue ............................ 13Z675 Depreciation expense-
Scoring equipment .................... ，.…10.825 Salaries expense ............................. .… 1,800 Insurance expense .......................... ，?… 200 Rent expense .................................. .... 1,600
Office supplies expense ................. ，.… 400 Repairs expense ............................. ，?… 350 Telephone expense ........................ ，?… 750 Totals ............................................. .…15,925 137,675 Net income ..................................... …121550
Totals ............................................. ，?…137.675 137,675
Dr 11,275 1,750 800 3,400 130,000
Cn
46,425
21,700
200 50,000
193,650 193.650 71,900 121550 193.650
MATTHEWS LANES Income Statement
________________________ For Year Ended June 30 Bowling Revenue __________ $137,675
Expenses:
Depreciation expense- Scoring equipment .............................................................. $10,825 Salaries expense ............................................................. 1,800
Insurance expense ......................................................................... 200 Rent expense .................................................................. 1,600
Office supplies expense ................................................................ 400 Repairs expense ............................................................................ 350 Telephone expense ........................................................................ 750 Total expenses .............................................................................................. 15.925 Net Income ..................................................................................................... $121.750 MATTHEWS LANES Statement of Owner's Equity For Year Ended June 30
M. Matthews, Beginning Balance ....................................... $ 50,000 Plus net income ................................................................... 121,750 Less
withdrawals ....................................................................
$171,750 (46-425)
M. Matthews, Ending balance........................................................................ $125.325
MATTHEWS LANES Balance Sheet June 30
ASSETS Cash
Accounts receivable
Office supplies
Prepaid Insurance
Scoring Equipment
Less: Accumulated Depr
Total Assets
LIABILITIES Salaries payable
Total Liabilities
EQUITY
M. Matthews, Capital
Total Liabilities & Owner9s Equity
$ 13(X000
2L700
$ 200
$ 11,275 1,750 800 3,400
108,300 $125.525
$ 200
$125,325 $125,525
137. 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 ownefs equity columns.
Platen Company Work Sheet For the year ended December 31 Account Unadjusted Trial Balance Debit Credit Cash ................................ 40 Accounts receivable ........ Prepaid insurance ............ 25 Supplies .......................... 14 Ofiice equipment............. 340 Accum. Depr., Office equipment ................... 45 Accounts payable ............ 57 Rent payable .................. C. Platen, Capital ............ 132 C. Platen, Withdrawals.? 35 Fees earned .............. 300 Rent expense ................... 60 Utilities expense .............. 20 hisurance expense ........... Supplies expense ............. Deprec? exp, Office equipment ................... Totals .............................. 534 534 Net income ...................... Totals .............................. Adjusted Trial Balance Adjustments Debit Credit Debit Credit Income Statement Debit Credit Balance Sheet and Statement of Owner Equity Debit Credit 8 340 57 132 35 380 90 10 45
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