Ch3 Adjusting and Closing – Test Bank | 2nd Canadian Ed - MCQ Test Bank | Financial Accounting - 2nd Canadian Edition by Jeffrey Waybright by Jeffrey Waybright. DOCX document preview.
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Financial Accounting, 2nd Cdn. Ed. (Waybright)
Chapter 3 Adjusting and Closing Entries
3.1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
1) The accounting period artificially divides the life of a business into longer periods.
Diff: 1
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Recall
Blooms: Knowledge
2) Annual financial statements usually cover a calendar year, which is a set of 12 successive months, and therefore could differ from or comply with a fiscal year.
Diff: 1
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Concept
Blooms: Knowledge
3) IFRS requires the use of accrual accounting.
Diff: 1
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Recall
Blooms: Knowledge
4) Because inventories are high, Sears should end its fiscal year in either November or December.
Diff: 1
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Concept
Blooms: Comprehension
5) It does not matter when a fiscal year starts as long as it is twelve consecutive months long.
Diff: 1
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Recall
Blooms: Knowledge
6) Accounting for revenue on an accrual basis means that no entry of revenue is made until the cash is actually received.
Diff: 2
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Concept
Blooms: Comprehension
7) Recording office supplies as an asset after paying for them would be considered a deferral.
Diff: 1
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Concept
Blooms: Comprehension
8) What time period does the accounting period cover?
A) Week
B) Month
C) Quarter
D) Year
E) All of the above
Diff: 1
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Concept
Blooms: Knowledge
9) The majority of businesses normally end their fiscal year on:
A) June 30.
B) September 30.
C) December 31.
D) April 1.
E) some other date.
Diff: 1
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Concept
Blooms: Comprehension
10) Part of accrual accounting depends upon recording ________ entries at the end of the fiscal year.
Diff: 2
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Concept
Blooms: Comprehension
11) There are two types of accounting methods, cash and accrual. Identify the accounting method.
a) If revenues are recognized and recorded when earned, the company is using the ________ basis of accounting.
b) If a business records expenses when paid, the company is using the ________ basis of accounting
Diff: 2
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Concept
Blooms: Comprehension
12) Accounting financial statements that cover periods that are less than a year are usually referred to as ________.
Diff: 2
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Concept
Blooms: Comprehension
13) Does the time period principle ensure that financial statements are reliable or relevant or both? Explain your reasoning.
Diff: 2
LO: 3-1 Understand the time period assumption and differentiate between revenue and expense recognition under both accrual and cash accounting
Skill: Application
Blooms: Knowledge
3.2 Understand the four types of adjustments and prepare adjusting entries
1) Adjusting entries are used to update accounts at the end of an accounting period.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
2) Adjusting entries are made only for accrued revenues and accrued expenses.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Recall
Blooms: Knowledge
3) An example of a contra-account would be accumulated depreciation.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Recall
Blooms: Knowledge
4) Land must be adjusted for depreciation at the end of the period.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Recall
Blooms: Knowledge
5) Unearned ticket revenue must be adjusted to show how much of the deferred (unearned) revenue has been earned during the period.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Recall
Blooms: Knowledge
6) The supplies account must be adjusted to reflect how many supplies were used during the period.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Recall
Blooms: Knowledge
7) The type of accounting required by IFRS is:
A) modified cash.
B) hybrid cash.
C) cash.
D) accrual.
E) international cash.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Recall
Blooms: Knowledge
8) It is necessary to post:
A) asset and liability entries.
B) revenue and expense entries.
C) adjusting entries.
D) all journal entries.
E) only retained earning entries.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
9) At the end of the period, which is prepared first?
A) Income statement
B) Balance sheet
C) Adjusting entries
D) Unadjusted trial balance
E) Retained earnings statement
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
10) Which of the following accounts would be adjusted?
A) Cash
B) Depreciation Expense
C) Land
D) Notes Payable
E) Petty Cash
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
11) Fixed assets that are depreciated are sometimes called:
A) accounts payable.
B) current assets.
C) long-term assets.
D) long-term liabilities.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
12) Which of the following accounts would never be part of an adjusting entry?
A) Prepaid rent
B) Supplies
C) Inventory
D) Cash
E) Depreciation
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
13) The total dollars in an accumulated depreciation account are:
A) added to the corresponding asset account.
B) divided into the corresponding asset account.
C) subtracted from the corresponding asset account.
D) subtracted from the corresponding liability account.
E) divided into the corresponding liability account.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Application
Blooms: Application
14) A $3,000 deposit was paid to an auto body repair shop to fix the transmission of a car. The auto body shop would book this transaction as follows:
A) DR Cash - $3,000; CR: Revenue - $3,000
B) DR Accounts Receivable - $3,000; CR: Unearned Revenue - $3,000
C) DR Cash - $3,000; CR: Unearned Revenue - $3,000
D) DR Cash - $3,000; CR: Revenue - $3,000
E) No entry is needed
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Application
Blooms: Knowledge
15) What would the impact of recording a customer deposit as revenue instead of unearned revenue have on the assets, liabilities, and shareholders' equity?
A) Assets - Overstated; Liabilities - Overstated; Shareholders' Equity - Overstated
B) Assets - No Effect; Liabilities - Overstated; Shareholders' Equity - Overstated
C) Assets - No Effect; Liabilities - Understated; Shareholders' Equity - Overstated
D) Assets - No Effect; Liabilities - Overstated; Shareholders' Equity - Understated
E) No effect on assets, liabilities, and shareholders' equity because this is not an error
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Application
Blooms: Knowledge
16) Item costs that have been incurred, but not yet paid, are called ________.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
17) Adjusting entries for supplies and prepaid rent would be adjustments for ________.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Recall
Blooms: Knowledge
18) Interest revenue would be an example of a(n) ________.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Recall
Blooms: Knowledge
19) The value of an asset after all allowable depreciation has been taken is called ________.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
20) Income taxes payable would be an example of a(n) ________.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
21) Prepaid rent would be an example of a(n) ________.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
22) Unearned subscriptions revenue would be an example of a(n) ________.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
23) Accounts receivable would be an example of a(n) ________.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
24) Wages payable would be an example of a(n) ________.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
25) Items for which we have received payment, but have not yet delivered the service, are called ________.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
26) Taxes payable would be an example of a(n) ________.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
27) Collecting rent from a client three months in advance would be an example of a(n) ________.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
28) Prepaying supplies in advance would be an example of a(n) ________.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
29) Depreciation would be an example of a(n) ________.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
30) Season ticket monies received in advance would be an example of a(n) ________.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
31) If a piece of equipment was purchased on September 1, it would have ________ months depreciation included in the adjusting entry for the year ended December 31.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Application
Blooms: Application
32) The difference between the cost of office equipment and accumulated depreciation is called ________.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
33) A 20-month insurance policy was purchased for $1,500 on May 1. How much insurance will be expensed on December 31?
Calculation:
(1,500 / 20) × 8 = 600
May to December is equal to 8 months.
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Application
Blooms: Application
34) A plot of land with a cost of $15,000, a salvage value of $3,000, and expected life of 20 years was purchased on September 1. What will be the depreciation expense recorded on December 31?
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Analysis
35) Supplies on hand were $777 of the original $1,034. Calculate the adjusting amount for supplies for year 2.
Calculation:
1,034 - 777 = 257
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Application
Blooms: Application
36) A machine costing $45,000 has a life of 12 years. The salvage value is $10,000. It was purchased on February 1. Calculate the depreciation expense for the year.
Calculation:
[(45,000 - 10,000)/12 × 11/12] = 2,673.61
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Application
Blooms: Application
37) A piece of equipment cost $1,000 and has a salvage value of $200. It has an 8-year life. Calculate the annual depreciation expense under straight-line depreciation.
Calculation:
(1,000 - 200) / 8 years = $100
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Application
Blooms: Application
38) A machine with a salvage value of $4,000 and a cost of $36,000 was purchased on January 1, 2015. What is the depreciation expense for 2015 if the company uses straight-line depreciation for 10 years?
Calculation: (36,000 - 4,000) / 10 = 3,200
Diff: 3
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Analysis
39) At the beginning of the period, the supplies account has a balance of $500. At the end of the period, the balance in the account is $275. Prepare the adjusting entry.
DATE | ACCOUNTS | POST REF. | DR | CR |
Dec. 31 | Supplies Expense | 225 | ||
Supplies | 225 |
Calculation:
500 - 275 = 225
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Application
Blooms: Application
40) During a recent week, incurred wages were $700. However, $280 of the wages had not been paid. Prepare the adjusting entry for wages.
DATE | ACCOUNTS | POST REF. | DR | CR |
XXXXX | Wages Expense | 280 | ||
Wages Payable | 280 |
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Application
Blooms: Application
41) Rick Company bought a 2-year insurance policy on August 1 for $150 per month. Prepare the adjusting entry on December 31.
DATE | ACCOUNTS | POST REF. | DR | CR |
Dec. 31 | Insurance Expense | 750 | ||
Prepaid Insurance | 750 |
Calculation:
August 1 to December 31 is equal to 5 months.
5 months × $150 per month = $750
Diff: 3
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Analysis
42) Supplies on hand were $900 at the start of the year. At the end of the year, it was determined that $350 of supplies had been used. What is the adjusting entry for supplies?
DATE | ACCOUNTS | POST REF. | DR | CR |
XXX XX | Supplies Expense | 350 | ||
Supplies | 350 |
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Analysis
43) Classify the following items as prepaid expenses (PE), unearned revenue (UR), accrued expenses (AE), or accrued revenue (AR).
To record revenue earned and received in advance | |
To record wages incurred but not paid | |
To record revenue earned but not yet received | |
To record the expiration of prepaid insurance | |
To record annual depreciation expense |
To record revenue earned and received in advance | UR |
To record wages incurred but not paid | AE |
To record revenue earned but not yet received | AR |
To record the expiration of prepaid insurance | PE |
To record annual depreciation expense | PE |
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Concept
Blooms: Comprehension
44) Journalize the following entries for December 31. Explanations are not required.
a. Wages incurred but not yet paid for $256.
b. Interest earned but not yet received for $190.
c. Depreciation expense on machinery for $388.
DATE | ACCOUNTS | POST REF. | DR | CR |
Dec. 31 | Wages Expense | 256 | ||
Wage Payable | 256 | |||
Dec. 31 | Interest Receivable | 190 | ||
Interest Revenue | 190 | |||
Dec. 31 | Depreciation Expense- Machinery | 388 | ||
Accum. Depr. - Machinery | 388 |
Diff: 3
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Analysis
45) Journalize the following entries for September 30. Explanations are not required.
a. Expired prepaid rent for the year was $3,400.
b. Supplies used during the year were $1,022.
DATE | ACCOUNTS | POST REF. | DR | CR |
Sept. 30 | Rent Expense | 3,400 | ||
Prepaid Rent | 3,400 | |||
Sept. 30 | Supplies Expense | 1,022 | ||
Supplies | 1,022 |
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Application
Blooms: Application
46) Journalize the following entries for December 31. Explanations are not required.
a. Income tax incurred but not yet paid for $1,346.
b. Supplies used for $568.
c. Earned subscription revenue of $800 out of $1,000 of unearned revenue.
DATE | ACCOUNTS | POST REF. | DR | CR |
Dec. 31 | Income Tax Expense | 1,346 | ||
Income Tax Payable | 1,346 | |||
Dec. 31 | Supplies Expense | 568 | ||
Supplies | 568 | |||
Dec. 31 | Unearned Subscriptions Revenue | 800 | ||
Subscription Revenue | 800 |
Diff: 3
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Analysis
47) Record the following entries for March 31. Explanations are not required.
a. Interest incurred but not yet paid of $76.
b. Wages incurred but not yet paid of $498.
c. A count of supplies shows a balance of $589 on hand of the original $734.
DATE | ACCOUNTS | POST REF. | DR | CR |
Mar. 31 | Interest Expense | 76 | ||
Interest Payable | 76 | |||
Mar. 31 | Wages Expense | 498 | ||
Wages Payable | 498 | |||
Mar. 31 | Supplies Expense | 145 | ||
Supplies | 145 |
Calculations:
Supplies Expense = 734 - 589 = 145
Diff: 3
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Analysis
48) Record the following entries for March 31. Explanations are not required.
a. The balance of the prepaid rent account is $1,200 of the original $3,000.
b. The balance of the unearned revenue account is $5,000 of the original $7,500.
c. Depreciation on machinery is 15% of the depreciable cost of $10,000.
DATE | ACCOUNTS | POST REF. | DR | CR |
Mar. 31 | Rent Expense | 1,800 | ||
Prepaid Rent | 1,800 | |||
Mar. 31 | Unearned Revenue | 2,500 | ||
Revenues | 2,500 | |||
Mar. 31 | Depreciation Expense - Machinery | 1,500 | ||
Accum. Depr. - Machinery | 1,500 |
Calculations:
Rent Expense = 3,000 - 1,200 = 1,800
Revenues = 7,500 - 5,000 = 2,500
Depreciation = 10,000 × .15 = 1,500
Diff: 3
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Analysis
49) Journalize the following entries for December 31. Explanations are not required.
a. Depreciation expense on office equipment was $639.
b. Used supplies for the year was $1,057.
c. Earned subscription revenue for the year was $875.
DATE | ACCOUNTS | POST REF. | DR | CR |
Dec. 31 | Depreciation Expense - Off. Equipment | 639 | ||
Accum. Depr. - Off. Equipment | 639 | |||
Dec. 31 | Supplies Expense | 1,057 | ||
Supplies | 1,057 | |||
Dec. 31 | Unearned Subscription Revenue | 875 | ||
Subscription Revenue | 875 |
Diff: 2
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Analysis
50) Journalize the following entries for December 31. Explanations are not required.
a. Beginning supplies were $2,096. Ending supplies were $923.
b. Beginning interest expense was $0. Accrued interest expense is $777.
c. Wages incurred but not yet paid are $1,135.
DATE | ACCOUNTS | POST REF. | DR | CR |
Dec. 31 | Supplies Expense | 1,173 | ||
Supplies | 1,173 | |||
Dec. 31 | Interest Expense | 777 | ||
Interest Payable | 777 | |||
Dec. 31 | Wages Expense | 1,135 | ||
Wages Payable | 1,135 |
Diff: 3
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Analysis
51) Journalize the following entries for March 31. Explanations are not required.
a. A machine costing $7,000 with no salvage value was purchased on March 1 and straight-line depreciation is being used. The life is 5 years.
b. Unearned revenue was earned at the rate of $300 per month, starting November 1.
c. Wages incurred but not paid are $2,300.
DATE | ACCOUNTS | POST REF. | DR | CR |
Mar. 31 | Depreciation Expense - Machine | 1,167 | ||
Accum. Depreciation - Machine | 1,167 | |||
Mar. 31 | Unearned Revenue | 600 | ||
Revenue | 600 | |||
Mar. 31 | Wages Expense | 2,300 | ||
Wages Payable | 2,300 |
Diff: 3
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Analysis
52) Energy Air was not meeting its earnings expectations. The lead accountant decided to capitalize maintenance expenses in order to bring earnings in line with expectations. What impact will this adjustment have on the financial statements? What are the ethical implications of this issue?
Diff: 3
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Knowledge
53) AGF sells radiology information systems to hospitals. Virginia Clinic purchased 200 radiology information systems from AGF for $3,000,000. The information systems included hardware, software, and a one year maintenance agreement. Virginia Clinic paid a $300,000 deposit for the information systems. AGF recognized the full amount as revenue. Did AGF account for this deposit properly? If not, explain the proper treatment and the impact of the error on assets, liabilities, and shareholders' equity.
Diff: 3
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Critical Thinking
Blooms: Knowledge
3.3 Prepare financial statements from an adjusted trial balance
1) Using the adjusted trial balance, the first financial statement to prepare is the income statement.
Diff: 1
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Recall
Blooms: Knowledge
2) Financial statements can be directly prepared from an adjusted trial balance.
Diff: 1
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Recall
Blooms: Knowledge
3) The adjusted trial balance is prepared before the adjusting entries are completed and posted.
Diff: 1
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Recall
Blooms: Knowledge
4) After preparing the adjusted trial balance, those figures are used to complete the balance sheet only.
Diff: 1
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Recall
Blooms: Knowledge
5) Net income or net loss can be determined by the adjusted trial balance figures.
Diff: 1
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Recall
Blooms: Knowledge
6) Adjusting entries are completed before the unadjusted trial balance is prepared.
Diff: 1
LO: 3-2 Understand the four types of adjustments and prepare adjusting entries
Skill: Recall
Blooms: Knowledge
7) The dollar figures in the adjusted columns are added to or subtracted from the unadjusted trial balance amounts to determine the adjusted trial balance figures.
Diff: 1
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Recall
Blooms: Knowledge
8) An adjusted trial balance:
A) is a financial statement required under GAAP.
B) cannot be used to prepare financial statements.
C) proves that the total debits equal the total credits after all the adjustments have been made.
D) shows only the accounts that were adjusted.
E) is the same as a balance sheet.
Diff: 1
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
9) The adjusted trial balance contains the following accounts:
A) liability accounts only.
B) asset accounts only.
C) general ledger accounts only.
D) balance sheet accounts only.
E) income statement accounts only.
Diff: 1
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
10) The adjusted trial balance will directly show:
A) the total in the cash account.
B) the final total in the retained earnings account.
C) the total of the adjustments.
D) the accounts that were adjusted.
E) the income.
Diff: 1
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
11) The adjusted trial balance shows:
A) accounts that may still be out of balance.
B) revenues and expense amounts only.
C) assets, liabilities, and revenue amounts only.
D) numbers ready to be transferred to the financial statements.
E) assets, liabilities, and shareholder's equity amounts only.
Diff: 1
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
12) The adjusted trial balance total:
A) is equal to the unadjusted trial balance total.
B) is greater than the unadjusted trial balance total.
C) is less than the unadjusted trial balance total.
D) has no direct relationship to the unadjusted trial balance total.
E) is equal to the unadjusted trial balance.
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
13) The balance in the depreciation expense account on the adjusted trial balance:
A) is equal to the unadjusted trial balance total.
B) has no relationship to the trial balance.
C) is greater than the unadjusted trial balance total.
D) is less than the unadjusted trial balance total.
E) has no relationship to the unadjusted trial balance total.
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
14) The adjusted trial balance for the supplies account:
A) is equal to the unadjusted trial balance total.
B) is greater than the unadjusted trial balance total.
C) is less than the unadjusted trial balance total.
D) has no relationship to the unadjusted trial balance total.
E) has no relationship to the trial balance total.
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
15) The adjusted trial balance for the accumulated depreciation account:
A) is equal to the unadjusted trial balance total.
B) is greater than the unadjusted trial balance total.
C) is less than the unadjusted trial balance total.
D) has no relationship to the unadjusted trial balance total.
E) has no relationship to the trial balance total.
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
16) The adjusted trial balance proves that:
A) all adjusting entries have been recorded correctly.
B) debit totals equal credit totals.
C) no adjusting entry has been entered twice.
D) the balance of the adjusted trial balance is correct.
E) there are no errors.
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
17) The adjusted trial balance for the land account:
A) must be equal to the unadjusted trial balance total.
B) must be greater than the unadjusted trial balance total.
C) must be less than the unadjusted trial balance total.
D) has no relationship to the unadjusted trial balance total.
E) must never be equal to the unadjusted trial balance total.
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
18) Prior to recording adjusting entries, revenues exceed expenses by $70,000. The adjusting entries for accrued wages of $7,000 and depreciation expense of $6,000 were made. Profit for the year would be:
A) $57,000
B) $63,000
C) $70,000
D) $77,000
E) $83,000
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Knowledge
19) Prior to recording adjusting entries, revenues exceed expenses by $75,000. The adjusting entries for a customer deposit of $3,000 and depreciation expense of $7,000 were made. Profit for the year would be:
A) $65,000
B) $68,000
C) $71,000
D) $75,000
E) $78,000
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Knowledge
20) Prior to recording adjusting entries, revenues exceed expenses by $100,000. The adjusting entries for a sale on account of of $9,000 and depreciation expense of $16,000 were made. Profit for the year would be:
A) $84,000
B) $93,000
C) $100,000
D) $109,000
E) $125,000
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Knowledge
21) All financial statements must include three title lines. Name the three lines in the order they should appear.
2. Title of financial statement
3. A specific date or period
Diff: 1
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
22) The adjusted trial balance is the basis for the preparation of the ________.
Diff: 1
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
23) The income statement that is prepared from the adjusted trial balance begins with the ________.
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
24) The statement of retained earnings that is prepared from the adjusted trial balance begins with the ________.
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Concept
Blooms: Comprehension
25) How does an adjusted trial balance assist with financial statement preparation?
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Critical Thinking
Blooms: Knowledge
26) The unadjusted trial balance for supplies shows a $434 balance and a $132 adjustment. The adjusted trial balance for supplies would be a ________.
Calculation:
434 - 132 = 302
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
27) The unadjusted trial balance for prepaid insurance shows a $1,350 balance. $500 of the balance was unexpired at year end. The adjusted trial balance for prepaid insurance is a ________.
Calculation:
1,350 - 500 = 850
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
28) The unadjusted trial balance for depreciation expense shows a $780 balance. The expense was adjusted by $235. The adjusted trial balance figure for depreciation expense is now a ________.
Calculation:
780 + 235 = 1,015
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
29) The unadjusted trial balance for prepaid rent shows a $12,000 balance. At the end of the year, $7,000 of the rent had been used. The adjusted trial balance for prepaid rent is a ________.
Calculation:
12,000 - 7,000 = 5,000
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
30) The unadjusted trial balance lists supplies with a $678 balance. After taking an inventory of supplies, it was found that $390 were on hand. The adjustment for supplies expense is a ________.
Calculation:
678 - 390 = 288
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
31) The unadjusted trial balance shows Accumulated Depreciation-Computer with a credit balance of $190. After determining depreciation expense is $45, the adjusted trial balance in the accumulated depreciation account for the computer will be a ________.
Calculation:
190 - 45 = 235
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
32) The unadjusted trial balance for wages expense is $750. Accrued wages for the period are $1,045. The adjusted trial balance for wages expense is now a ________.
Calculation:
750 + 1,045 = 1,795
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
33) Unearned ticket revenue is $5,034 on the unadjusted trial balance. During the period, $3,309 of that money has now been earned. The adjusted trial balance for unearned ticket revenue is a ________.
Calculation:
5,034 - 3,309 = 1,725
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
34) The adjusted trial balance for supplies was $333. The unadjusted trial balance for supplies was $509. The amount of supplies expense would be a ________.
Calculation:
509 - 333 = 176
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
35) Interest expense had an adjusted trial balance of $1178. The adjusting entry was to interest payable for $382. The unadjusted trial balance for interest expense was a ________.
Calculation:
1,178 - 382 = 796
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
36) The adjusted trial balance for prepaid insurance is a $724 debit. Insurance expense for the period was $1,136. What was the unadjusted trial balance for prepaid insurance?
Calculation:
1,136 + 724 = 1,860
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
37) Given the following information, compute the retained earnings balance for Farah's Tax Service for the month of October, 2015.
Net Income | $6,784 |
Retained Earnings October 1, 2015 | $3,778 |
Dividends | $680 |
Calculation | |
Retained Earnings, October 1, 2015 | $3,778 |
Plus Net Income | 6,784 |
Less Dividends | 680 |
Retained Earnings, October 31, 2015 | $9,882 |
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
38) Given the following information, compute the retained earnings balance for Ruby's Hair Service for the month of January, 2015.
Net Income | $10,772 |
Retained Earnings January 1, 2015 | $3,004 |
Dividends | $547 |
Calculation | |
Retained Earnings, January 1, 2015 | $3,004 |
Plus Net Income | 10,772 |
Less Dividends | 547 |
Retained Earnings, January 31, 2015 | $13,229 |
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
39) Given the following information, prepare a statement of retained earnings for Kara's Calendar Company for the month of February, 2015.
Net Income | $6,134 |
Retained Earnings February 1, 2015 | $2,223 |
Dividends | $923 |
Retained Earnings, February 1, 2015 | $2,223 | |
Plus Net Income | $6,134 | |
Less Dividend | 923 | 5,211 |
Retained Earnings, February 28, 2015 | $7,434 |
Diff: 2
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Application
Blooms: Application
40) Data from the adjusted trial balance of Isaiah's Lawn Service are provided below.
Prepare the pre-tax operating income for Isaiah's Lawn Service for the month of March 2015.
Account Title | Debit | Credit |
Cash | $2,000 | |
Accounts Receivable | 1,000 | |
Prepaid Insurance | 800 | |
Prepaid Supplies | 1,400 | |
Mowing Equipment | 6,500 | |
Accum. Depr. - Mowing Equipment | $1,000 | |
Accounts Payable | 1,000 | |
Notes Payable | 500 | |
Wages Payable | 800 | |
Common Shares | 1,500 | |
Retained Earnings | 4,270 | |
Mowing Fees | 10,050 | |
Gasoline Expense | 2,000 | |
Advertising Expense | 170 | |
Insurance Expense | 900 | |
Supplies Expense | 300 | |
Depreciation Expense - Mowing Equipment | 650 | |
Wages Expense | 950 | |
Miscellaneous Expense | 150 |
|
TOTALS | $17,120 | $17,120 |
Income Statement
For the Month Ended March 31, 2015
Revenue | ||
Mowing Fees | : | $10,050 |
Expenses: | ||
Gasoline Expense | $2,000 | |
Advertising Expense | 170 | |
Insurance Expense | 900 | |
Supplies Expense | 300 | |
Depreciation Expense - Mowing Equipment | 650 | |
Wages Expense | 950 | |
Miscellaneous Expense | 150 | 5,120 |
Operating Income | $4,930 |
Diff: 3
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Critical Thinking
Blooms: Analysis
41) Data from the adjusted trial balance of The Fireworks Company are provided below.
Prepare the income statement for The Fireworks Company for the month of December 2013. The tax rate is 30%.
Account Title | Debit | Credit |
Cash | $3,600 | |
Accounts Receivable | 1,309 | |
Prepaid Insurance | 775 | |
Prepaid Supplies | 1,423 | |
Firework Equipment | 6,502 | |
Accum. Depr. Equipment | $1,500 | |
Accounts Payable | 1,000 | |
Notes Payable | 500 | |
Wages Payable | 800 | |
Common Shares | 1,500 | |
Retained Earnings | 4,270 | |
Firework Fees | 9,250 | |
Firework Fuel Expense | 2,024 | |
Advertising Expense | 174 | |
Insurance Expense | 900 | |
Supplies Expense | 329 | |
Depreciation Expense - Equipment | 650 | |
Wages Expense | 992 | |
Miscellaneous Expense | 143 |
|
TOTALS | $18,820 | $18,820 |
Income Statement
For the Month Ended December 31, 2013
Revenue | ||
Firework Fees | $9,250 | |
Expenses | ||
Firework Fuel Expense | $2,024 | |
Advertising Expense | 174 | |
Insurance Expense | 900 | |
Supplies Expense | 329 | |
Depreciation Expense - Equipment | 650 | |
Wages Expense | 992 | |
Miscellaneous Expense | 143 | 5,212 |
Operating Income | 4,038 | |
Income Tax (30%) | 1,211 | |
Net Income | $2,827 |
Diff: 3
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Critical Thinking
Blooms: Analysis
42) Use the data below from the adjusted trial balance for Miller's Express Cleaning to prepare an income statement, a statement of retained earnings, and a statement of change in financial position for the year ended December 31, 2013.
2,026 Cash
7,530 Accounts Payable
4,000 Retained Earnings Jan 1
153Utilities Expense
1,200 Advertising Expense
15,290 Equipment (Net) Includes 5,000 in Amortization
13,835 Service Revenue
2,000 Common Shares
1,750 Dividends
1,216 Prepaid Insurance
4,080 Accounts Receivable
1,650 Wages Expense
Income Statement
For the Year Ended December 31 , 2013
Revenue: | ||
Service Revenue | $13,835 | |
Expenses: | ||
Advertising Expense | $1,200 | |
Utilities Expense | 153 | |
Wages Expense | 1,650 | 3,003 |
Operating Income | $10,832 |
Millers's Express Cleaning
Statement of Retained Earnings
For the Year Ended December 31, 2013
Retained Earnings, January 1, 2013 | $4,000 | |
Plus Net Income | $10,832 | |
Less Dividends | 1,750 | 9,082 |
Retained Earnings, December 31, 2013 | $13,082 |
Diff: 3
LO: 3-3 Prepare financial statements from an adjusted trial balance
Skill: Critical Thinking
Blooms: Analysis
43) Data from the adjusted trial balance of The Fireworks Company are provided below.
Prepare the statement of financial position for The Fireworks Company for the month of December 2012. The company's tax rate is 30%.
Account Title | Debit | Credit |
Cash | $3,600 | |
Accounts Receivable | 1.309 | |
Prepaid Insurance | 775 | |
Prepaid Supplies | 1.423 | |
Firework Equipment | 6.502 | |
Accum. Depr. Equipment | $1,500 | |
Accounts Payable | 1,000 | |
Notes Payable | 500 | |
Wages Payable | 800 | |
Common Shares | 1,500 | |
Retained Earnings | 4,270 | |
Firework Fees | 9,250 | |
Firework Fuel Expense | 2,024 | |
Advertising Expense | 174 | |
Insurance Expense | 900 | |
Supplies Expense | 329 | |
Depreciation Expense - Equipment | 650 | |
Wages Expense | 992 | |
Miscellaneous Expense | 143 |
|
TOTALS | $18,820 | $18,820 |
The Fireworks Company
Statement of Financial Position
December 31, 2012
ASSETS | LIABILITIES | |||
Current Assets | Accounts Payable | $1,000 | ||
Cash | $3,600 | Notes Payable | 500 | |
Accounts Receivable | 1,309 | Wages Payable | 800 | |
Prepaid Insurance | 775 | Income Taxes Payable | 1,212 | |
Prepaid Supplies | 1,423 | Total Liabilities | $3,512 | |
Total Current Assets | $7,107 | |||
SHAREHOLDER'S EQUITY | ||||
Firework - Equipment | 6,502 | Common Shares | $1,500 | |
Less: Accumulated Depreciation | 1,500 | 5,002 | Retained Earnings | 7097 |
Total Shareholders' Equity | 8,597 | |||
Total Assets | $12,109 | Total Liabilities & Shareholders' Equity | $12,109 |
Calculations:
Operating Income: 9,250 - 5,212 = 4,038
Income Tax 30%: 1,211
Net Income: 4,039 - 1,212 = 2,827
Retained Earnings: 4,270 + 2,827 = 7,097)
Income Tax Payable: 4,039 × 30% = 1,212)
Diff: 3
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Critical Thinking
Blooms: Analysis
44) Data from the adjusted trial balance of The Fireworks Company are provided below.
Prepare the statement of retained earnings for The Fireworks Company for the month of December 2012. The tax rate is 30%.
Account Title | Debit | Credit |
Cash | $3,600 | |
Accounts Receivable | 1.309 | |
Prepaid Insurance | 775 | |
Prepaid Supplies | 1.423 | |
Firework Equipment | 6.502 | |
Accum. Depr. Equipment | $1,500 | |
Accounts Payable | 1,000 | |
Notes Payable | 500 | |
Wages Payable | 800 | |
Common Shares | 1,500 | |
Retained Earnings | 4,270 | |
Firework Fees | 9,250 | |
Firework Fuel Expense | 2,024 | |
Advertising Expense | 174 | |
Insurance Expense | 900 | |
Supplies Expense | 329 | |
Depreciation Expense - Equipment | 650 | |
Wages Expense | 992 | |
Miscellaneous Expense | 143 |
|
TOTALS | $18,820 | $18,820 |
The Fireworks Company
Statement of Retained Earnings
For the Month Ended December 31, 2012
Retained Earnings, December 1, 2012 | $4,270 | |
Add: Net Income | 2,827 | |
Subtotal | 7,097 | |
Less: Dividends | 0 | |
Retained Earnings, December 31,2012 | $7,097 |
Calculation
Operating Income 4,038
Tax 30% -1,211
Net Income 2,827
Diff: 3
LO: 3-3, 3-4
Skill: Critical Thinking
Blooms: Analysis
3.4 Prepare closing entries and post-closing trial balance
1) Retained earnings is a temporary account.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Recall
Blooms: Knowledge
2) Dividend accounts are closed by crediting them and debiting retained earnings.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Recall
Blooms: Knowledge
3) After posting the closing entries to close all revenue accounts and all expense accounts, the Retained Earnings account of Windsor Wafers has a $10,000 debit balance. This shows that the company earned a net income of $10,000.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Application
Blooms: Knowledge
4) After posting the closing entries to close all revenue and expense accounts, Pearson's Retained Earnings account has a credit balance of $10,000, and the Pearson, Dividends account has a debit balance of $2,500. These balances indicate that net income for the accounting period amounted to $7,500.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Application
Blooms: Knowledge
5) Dividends is closed with a debit to that account.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Recall
Blooms: Knowledge
6) To prove the equality of the debit and credit balances in the general ledger accounts after the closing entries have been journalized and posted, you need to prepare the adjustments.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Recall
Blooms: Knowledge
7) The post-closing trial balance is a listing of the general ledger accounts that have balances at the end of the accounting period.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Recall
Blooms: Knowledge
8) Assets, liabilities, and retained earnings are permanent accounts that are closed at the end of the accounting period.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Recall
Blooms: Knowledge
9) Expense accounts are closed by crediting them and debiting retained earnings.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Recall
Blooms: Knowledge
10) Revenues, expenses, and dividends are called permanent accounts.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Recall
Blooms: Knowledge
11) Revenue accounts are closed by crediting them and debiting retained earnings.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Recall
Blooms: Knowledge
12) The account to which revenue and expenses are closed is called ________.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Recall
Blooms: Knowledge
13) Dividends paid and net losses are:
A) additions to retained earnings.
B) subtractions from retained earnings.
C) additions to net income.
D) subtractions from net income.
E) additions to assets.
Diff: 2
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Comprehension
14) Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and dividends accounts for the upcoming year and to update the retained earnings account for the events of the year just finished are:
A) adjusting entries.
B) closing entries.
C) general ledger journal entries.
D) workbook adjusting entries.
E) None of the above.
Diff: 2
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Comprehension
15) Closing the revenue, expense, and dividend accounts:
A) yields the amount of net income or net loss for the period.
B) yields the change in retained earnings for the period.
C) yields the change in the permanent accounts for the period.
D) yields the final balance in shareholder's equity for the period.
E) yields the change in balance sheet accounts.
Diff: 2
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Comprehension
16) Revenues are:
A) additions to retained earnings.
B) subtractions from retained earnings.
C) additions to net income.
D) subtractions from net income.
E) additions to expenses.
Diff: 2
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Comprehension
17) Respectively, cash, rent expense, and accounts payable are:
A) all permanent accounts.
B) permanent, temporary, and temporary accounts.
C) temporary, permanent, and temporary accounts.
D) permanent, temporary, and permanent accounts.
E) all temporary accounts.
Diff: 2
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Comprehension
18) Respectively, dividends, revenues, and expenses are:
A) temporary, permanent, and temporary accounts.
B) temporary, temporary, and permanent accounts.
C) all temporary accounts.
D) all permanent accounts.
E) permanent, temporary, and permanent accounts.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Comprehension
19) Respectively, inventory, accounts receivable, and accounts payable are:
A) temporary, permanent, and temporary accounts.
B) temporary, temporary, and permanent accounts.
C) all temporary accounts.
D) all permanent accounts.
E) permanent, temporary, and permanent accounts.
Diff: 2
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Comprehension
20) Closing entries are prepared for which of the following reasons?
A) To get the accounts ready for the next accounting period
B) To get the worksheet ready for the next accounting period
C) To get the journal ready for the next accounting period
D) To get the financial statements ready for the next accounting period
E) To get the journal ready for the current accounting period
Diff: 2
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Comprehension
21) Which of the following accounts appear on the post-closing trial balance?
A) Rent Expense
B) Sales Revenue
C) Cash
D) Dividends
E) Service Fees
Diff: 2
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Comprehension
22) The post-closing trial balance should match the balances in the:
A) general journal.
B) income statement.
C) general ledger.
D) statement of retained earnings.
E) unadjusted trial balance.
Diff: 2
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Comprehension
23) The account to which dividends are closed is called ________.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Recall
Blooms: Knowledge
24) Preparing the post-closing trial balance is the ________ step in the accounting cycle.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Recall
Blooms: Knowledge
25) ________ entries transfer net income or net loss and dividends to the retained earnings account.
Diff: 2
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Comprehension
26) The three classes of accounts that are NOT closed are ________.
Diff: 1
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Comprehension
27) The total revenues of $6,500, total expenses of $3,500, and dividends of $500 were recorded in the closing entries. Calculate the net income.
Calculation:
6,500 - 3,500 = 3,000
Diff: 2
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Critical Thinking
Blooms: Analysis
28) The total revenues of $6,500, total expenses of $3,500, and dividends of $500 were recorded in the closing entries. Calculate the net change in retained earnings for the month.
Calculation:
6,500 - 3,500 - 500 = 2,500
Diff: 2
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Critical Thinking
Blooms: Analysis
29) Using the adjusted trial balance provided, prepare the three closing entries for December 31. Explanations are not required.
Account Title | Debit | Credit |
Cash | $2,750 | |
Accounts Receivable | 1,250 | |
Prepaid Insurance | 550 | |
Prepaid Supplies | 1,423 | |
Equipment | 4,500 | |
Accum. Depr. Equipment | $1,500 | |
Accounts Payable | 935 | |
Taxes Payable | 223 | |
Wages Payable | 800 | |
Common Shares | 2,500 | |
Retained Earnings | 4,270 | |
Dividends | 500 | |
Revenue | 3,870 | |
Advertising Expense | 175 | |
Insurance Expense | 850 | |
Supplies Expense | 330 | |
Depreciation Expense - Equipment | 650 | |
Wages Expense | 975 | |
Miscellaneous Expense | 145 |
|
TOTALS | $14,098 | $14,098 |
Date | Account | PR | Debit | Credit |
Dec 31 | Revenue | 3,870 | ||
Retained Earnings | 3,870 | |||
Dec 31 | Retained Earnings | 3,125 | ||
Advertising Expense | 175 | |||
Insurance Expense | 850 | |||
Supplies Expense | 330 | |||
Depreciation Expense - Equipment | 650 | |||
Wages Expense | 975 | |||
Miscellaneous Expense | 145 | |||
Dec 31 | Retained Earnings | 500 | ||
Dividends | 500 |
Diff: 3
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Critical Thinking
Blooms: Analysis
30) Compute the missing information from this post-closing trial balance.
Cash | $34,689 | |
Accounts Receivable | 9,467 | |
Prepaid Rent | 5,000 | |
Prepaid Insurance | ? | |
Supplies | 944 | |
Accounts Payable | $5,389 | |
Wages Payable | ? | |
Common Shares | 37,049 | |
Retained Earnings | 8,234 | |
======== | ======= | |
Total | $52,356 | $52,356 |
Cash | $34,689 | |
Accounts Receivable | 9,467 | |
Prepaid Rent | 5,000 | |
Prepaid Insurance | 2,256 | |
Supplies | 944 | |
Accounts Payable | $5,389 | |
Wages Payable | 1,684 | |
Common Shares | 37,049 | |
Retained Earnings | 8,234 | |
======== | ======= | |
Total | $52,356 | $52,356 |
Calculations:
Prepaid Insurance: 52,356 - 50,100 = 2,256
Wages Payable: 52,356 - 50,672 = 1,684
Diff: 3
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Critical Thinking
Blooms: Analysis
31) Using the adjusted trial balance provided, prepare the three closing entries and the post-closing trial balance for December 31. Explanations are not required.
Date | Account | PR | Debit | Credit |
Dec 31 | Revenue | 32,152 | ||
Retained Earnings | 32,152 | |||
Dec 31 | Retained Earnings | 21,272 | ||
Salaries Expense | 10,782 | |||
Rent Expense | 6,000 | |||
Depreciation Expense | 4,300 | |||
Interest Expense | 190 | |||
| ||||
| ||||
Dec 31 | Retained Earnings | 4,200 | ||
Dividends | 4,200 | |||
Cash | $12,255 | |
Accounts Receivable | 17,518 | |
Prepaid Rent | 6,000 | |
Equipment | 21,500 | |
Accumulated Depreciation | $8,600 | |
Notes Payable | 3,800 | |
Accounts Payable | 5,400 | |
Interest Payable | 95 | |
Common Stock | 26,000 | |
Retained Earnings | 13,378 | |
Total | $57,273 | $57,273 |
Diff: 3
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Critical Thinking
Blooms: Analysis
32) Why are dividends closed separately from expenses to retained earnings?
Diff: 3
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Knowledge
33) What is the purpose of a post-closing trial balance?
Diff: 3
LO: 3-4 Prepare closing entries and post-closing trial balance
Skill: Concept
Blooms: Knowledge
3.5 Prepare a worksheet
1) A worksheet has five sets of double columns for debits and credits.
Diff: 1
LO: 3-5 Prepare a worksheet
Skill: Recall
Blooms: Knowledge
2) Accountants must prepare a worksheet at the end of each accounting period.
Diff: 1
LO: 3-5 Prepare a worksheet
Skill: Recall
Blooms: Knowledge
3) A worksheet is a useful tool in closing an accounting period.
Diff: 1
LO: 3-5 Prepare a worksheet
Skill: Recall
Blooms: Knowledge
4) Calculate the missing numbers.
Diff: 3
LO: 3-5 Prepare a worksheet
Skill: Critical Thinking
Blooms: Analysis
5) The unadjusted trial balance for Gates & Fences Inc. for June 30 is provided below.
Additional information for adjusting entries is provided below.
Prepare a worksheet for June 30, 2013.
Income Tax | 778 |
Deferred Revenue | 300 |
Accrued Wages | 500 |
Supplies Used | 250 |
Depreciation on Equipment | 500 |
Account Title | Debit | Credit |
Cash | $4,375 | |
Accounts Receivable | 1,250 | |
Prepaid Insurance | 550 | |
Prepaid Supplies | 1,423 | |
Equipment | 4,500 | |
Accum. Depr. Equipment | $1,500 | |
Accounts Payable | 935 | |
Taxes Payable | ||
Wages Payable | 800 | |
Common Shares | 2,500 | |
Retained Earnings | 4,270 | |
Dividends | 500 | |
Revenue | 4,718 | |
Advertising Expense | 275 | |
Insurance Expense | 300 | |
Supplies Expense | 330 | |
Depreciation Expense - Equipment | 500 | |
Wages Expense | 575 | |
Miscellaneous Expense | 145 |
|
TOTALS | $14,723 | $14,723 |
Diff: 3
LO: 3-5 Prepare a worksheet
Skill: Critical Thinking
Blooms: Analysis
3.6 Cumulative Questions
1) Harry started Harry's Tutoring on January 1, 2013. The account balances on January 15, 2013 are shown below. All accounts have normal balances. To start the business, Harry issued one hundred (100) common shares.
Cash 1,000
Accounts Receivable 1,000
Accounts Payable 500
Supplies 100
Taxes Payable 0
Common Shares 1,000
Taxes Expense 0
Tutoring Revenue 1,150
Insurance Expense 0
Supplies Expense 50
Wages Expense 500
Prepaid Insurance 0
Wages Payable 0
The following transactions occurred from January 15 to January 31.
January 15 Paid $300 for a six-month insurance policy.
January 18 Performed tutoring services, $250 on account.
January 20 Collected $250 from a customer on account.
January 21 Performed tutoring services, $200 on account.
January 25 Paid employee salary, $50 cash.
January 26 Performed tutoring services, $300 cash.
January 27 Purchased office supplies on account, $50.
a) Record each transaction in the general journal. Explanations are not required.
b) Prepare the unadjusted trial balance as of January 31, 2013.
c) Journalize and post the adjusting entries based on the following information.
Accrue Salary, $50.
Record the expiration of one month's insurance.
Supplies on hand, $75.
The income tax rate is 40%.
d) Prepare an adjusted trial balance as of January 31, 2013.
a) General Journal
Date | Account | PR | Debit | Credit |
Jan. 15 | Prepaid Insurance | 300 | ||
Cash | 300 | |||
Jan. 18 | Accounts Receivable | 250 | ||
Tutoring Revenue | 250 | |||
Jan. 20 | Cash | 250 | ||
Accounts Receivable | 250 | |||
Jan. 21 | Accounts Receivable | 200 | ||
Tutoring Revenue | 200 | |||
Jan. 25 | Wages Expense | 50 | ||
Cash | 50 | |||
Jan. 26 | Cash | 300 | ||
Tutoring Revenue | 300 | |||
Jan. 27 | Supplies | 50 | ||
Accounts Payable | 50 |
c) Adjusting Entries
Date | Account | PR | Debit | Credit |
Jan. 31 | Wages Expense | 50 | ||
Wages Payable | 50 | |||
Jan. 31 | Insurance Expense ( 300/6=50) | 50 | ||
Prepaid Insurance | 50 | |||
Jan. 31 | Supplies Expense (100-75 = 25) | 25 | ||
Supplies | 25 | |||
Jan. 31 | Income Tax Payable | 450 | ||
Income Tax Expense | 450 |
Calculation : Income Tax Payable 1,900 - 50 - 550 - 75 - 50 - 50 = 1,125 × .40 = 450
b) & d) Unadjusted and Adjusted Trial Balance
Diff: 3
LO: 2-3, 2-4, 3-2
Skill: Synthesis
Blooms: Synthesis
2) Whitney's Music School account balances on January 31, 2013 are shown below. All accounts have normal balances. The income tax rate is 30%.
Cash | 10,000 | Accounts Receivable | 6,250 |
Prepaid Insurance | 1500 | Salaries Expense | 4,000 |
Accounts Payable | 1,850 | Supplies | 500 |
Common Shares | 1,000 | Revenue | 20,000 |
Insurance Expense | 100 | Supplies Expense | 500 |
a) Prepare the unadjusted trial balance as of December 31, 2013.
b) Journalize and post the adjusting journal entries based on the following information.
1. Accrue Salary, $1,500
2. Record the expiration insurance, $500
3. Supplies on hand, $100
c) Prepare an adjusted trial balance as of December 31, 2013.
d) Journalize and post the closing entries.
e) Prepare a post-closing trial balance at December 31, 2013.
Unadjusted Adjustments Adjusted Closing Entries Post Closing
Trial Balance Trial Balance Trial Balance
Acct Title Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Cash | $10,000 | $10,000 | $10,000 | |||||||
Accounts Receivable | 6,250 | 6,250 | 6,250 | |||||||
Prepaid Insurance | 1,500 | $500 | 1,000 | 1,000 | ||||||
Supplies | 500 | 400 | 100 | 100 | ||||||
Accounts Payable | $1,850 | $1,850 | $1,850 | |||||||
Taxes Payable | 3,900 | 3,900 | 3,900 | |||||||
Salaries Payable | 1,500 | 1,500 | 1,500 | |||||||
Common Shares | 1,000 | 1,000 | 1,000 | |||||||
Retained Earnings | $9,100 | 9,100 | ||||||||
Revenue | 20,000 | 20,000 | $20,000 | |||||||
Insurance Expense | 100 | $500 | 600 | 600 | ||||||
Supplies Expense | 500 | 400 | 900 | 900 | ||||||
Salaries Expense | 4,000 | 1,500 | 5,500 | 5,500 | ||||||
Income Tax Expense | ------ | ------ | 3,900 ----- | ----- | 3,900 ------ | ----- | ----- | 3,900 ----- | ------ | ------ |
TOTALS | $22,850 | $22,850 | $6,300 | $6,300 | $28,250 | $28,250 | $20,000 | $20,000 | $17,350 | $17,350 |
b) & d)
Date | Account | PR | Debit | Credit |
b) | ||||
Jan. 31 | Salary Expense | 1,500 | ||
Salary Payable | 1,500 | |||
To accrue for Salary December. | ||||
Jan 31 | Insurance Expense | 500 | ||
Prepaid Insurance | 500 | |||
To record expired insurance. | ||||
Jan 31 | Supplies Expense | 400 | ||
Supplies | 400 | |||
To record supplies used December. | ||||
d) | ||||
Jan 31 | Revenue | 20,000 | ||
Supplies Expense | 900 | |||
Insurance Expense | 600 | |||
Income Tax Expense | 3,900 | |||
Salary Expense | 5,500 | |||
To close the month of December 2013. | 9,100 |
c)
Whitney's Music School
Statement of Retained Earnings
For the Month Ended December 31,2013
Retained Earnings, December 1, 2013 | $0 | |
Plus Net Income | $9,100 | |
Less Dividend | 0 | 9,100 |
Retained Earnings, December 31, 2013 | $9,100 |
Whitney's Music School
Income Statement
For the Month Ended December 31 , 2013
Revenue: | $20,000 | |
Expenses: | ||
Supplies Expense | $900 | |
Insurance Expense | 600 | |
Income Tax Expense | 3,900 | |
Salary Expense | 5,500 | 11,900 |
Operating Income | $9,100 |
Diff: 3
LO: 1-5, 3-2, 3-3, 3-4
Skill: Critical Thinking
Blooms: Analysis
3) Vegan Vegetables Company account balances on December 31 after adjusting entries are shown below. All accounts have normal balances.
Cash | 15,000 | Accounts Receivable | 8,000 |
Prepaid Insurance | 1,400 | Salaries Expense | 12,500 |
Accounts Payable | 9,000 | Supplies | 100 |
Common Shares | 10,000 | Revenue | 25,000 |
Insurance Expense | 500 | Supplies Expense | 500 |
Rent Expense | 6,000 |
a) Determine the type of account and its normal balance.
b) Prepare the unadjusted trial balance as of December 31, 2013.
c) Prepare the two adjusting entries:
Supplies Expense, $75; Insurance Expense, $200
a)
Account Title | Type | Normal Balance |
Cash | Asset | Debit |
Accounts Receivable | Asset | Debit |
Supplies | Asset | Debit |
Prepaid Insurance | Asset | Debit |
Accounts Payable | Liability | Credit |
Common Shares | Equity | Credit |
Revenue | Revenue / Retained Earnings | Credit |
Supplies Expense | Expense/ Retained Earnings | Debit |
Rent Expense | Expense/ Retained Earnings | Debit |
Salaries Expense | Expense/ Retained Earnings | Debit |
Insurance Expense | Expense/ Retained Earnings | Debit |
b)
Vegan Vegetables Company
December 31,2013
Unadjusted Trial Balance
Account Title | Debit | Credit |
Cash | $15,000 | |
Accounts Receivable | 8,000 | |
Supplies | 100 | |
Prepaid Insurance | 1,400 | |
Accounts Payable | $9,000 | |
Common Shares | 10,000 | |
Revenue | 25,000 | |
Supplies Expense | 500 | |
Rent Expense | 6,000 | |
Insurance Expense | 500 | |
Salaries Expense | 12,500 | |
------- | ------- | |
Total | $44,000 | $44,000 |
c)
Date | Account | PR | Debit | Credit |
Dec. 31 | Supplies Expense | 75 | ||
Supplies | 75 | |||
To expense supplies for December. | ||||
Dec. 31 | Insurance Expense | 200 | ||
Prepaid Insurance | 200 | |||
To record expired insurance. |
Diff: 3
LO: 2-2, 2-3, 3-2
Skill: Synthesis
Blooms: Synthesis
Document Information
Connected Book
MCQ Test Bank | Financial Accounting - 2nd Canadian Edition by Jeffrey Waybright
By Jeffrey Waybright