Closing Entries – Test Bank | Edition 11th - Financial Accounting 11e | Test Bank with Answer Key by John Hoggett by John Hoggett, Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield. DOCX document preview.
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Testbank
to accompany
Accounting
11th edition
by
Hoggett et al.
© John Wiley & Sons Australia, Ltd 2020
Chapter 5: Completing the accounting cycle — closing and reversing entries
Multiple-choice questions
1. In which order do these steps in the accounting cycle occur?
i Prepare reversing entries
ii Prepare financial statements
iii Prepare closing entries
iv Prepare an adjusted trial balance
v Prepare adjusting entries
a. iv, iv, iii, ii, i
b. iii, v, i, iv, ii
c. v, iii, iv, i, ii
d. v, iii, i, ii, iv
General Feedback:
Learning objective 5.1: describe all the steps in the complete accounting cycle.
2. In which order do these steps in the accounting cycle occur?
I Prepare adjusting entries
II Prepare financial statements
III Record business transactions in the journal
IV Post to the ledger
V Journalise closing entries
a. III, II, IV, V, I
b. I, II, III, IV, V
c. IV, II, I, III, V
d. III, IV, I, V, II
General Feedback:
Learning objective 5.1: describe all the steps in the complete accounting cycle.
3. Which of the following is not a temporary account?
a. Drawings
b. Rent expense
c. Cash at bank
d. Interest revenue
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
4. What is the correct order for the steps in the closing process?
I Close the drawings account to the owner's capital account
II Balance the owner's capital account
III Transfer the profit or loss to the owner's capital account
IV Close the income and expense accounts to the profit or loss summary account
a. III, IV, II, I
b. IV, III, II, I
c. IV, III, I, II
d. IV, III, I, II
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
5. Which of the following is a permanent account?
a. Depreciation
b. Sales revenue
c. Prepaid rent
d. Rent expense
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
6. Income and expense accounts can be referred to as:
a. temporary accounts.
b. normal accounts.
c. profit accounts
d. permanent accounts
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
7. Accounting entries made to reduce the temporary accounts to zero balances are known as:
a. adjusting entries..
b. closing entries.
c. reversing entries
d. correcting entries .
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
8. Income and expenses are accumulated for only one year and are therefore known as:
a. temporary accounts
b. current accounts.
c. yearly accounts.
d. short-term accounts.
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
9. Which accounts are closed in the closing process?
a. All ledger accounts
b. All income and expense accounts
c. All unadjusted accounts
d. All statement of financial position accounts
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
10. Closing an account means:
a. removing the account from the ledger.
b. transferring the balance to the trial balance.
c. transferring the balance to the statement of financial position.
d. reducing the balance to zero.
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
11. __________ entries are recorded at the end of a financial year to reduce expense and income accounts to zero balances.
a. correcting.
b. adjusting.
c. end of period.
d. closing.
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
12. Prince Ltd's year-end trial balance includes the following accounts.
I. Cash
II. Sales revenue
III. Accounts receivable
IV. Owner's capital
V. Interest expense
VI. Interest payable
VII. Prepayments
Which of these are temporary accounts?
a. II, and V only
b. III and VI only
c. III, VI, and VII only
d. II, V and VII only
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
13. Which of the following statements about closing entries is correct?
a. Computerised accounting systems have eliminated the need to close off the income and expense accounts.
b. Closing entries are only made at the end of the accounting year.
c. The profit or loss summary account is used regularly when processing transactions for sales and expenses.
d. Closing entries are made at the end of each accounting period whatever its length.
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
Feedback: Closing entries are only made at the end of the longest accounting period of the organisation, which is generally a year. a and c are incorrect. With computerised accounting systems the expense and income accounts still need to be closed but the process is much simpler than doing the task manually. The profit or loss summary account is only used as part of the closing process not for processing ordinary transactions.
14. Closing entries refer to:
a. establishing a zero balance in the cash at bank account.
b. transferring income and expense account balances to the profit or loss summary account, which is then closed to the equity account.
c. establishing zero balances in the statement of financial performance accounts.
d. establishing zero balances in all ledger accounts.
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
15. The Profit or Loss Summary account is what type of account?
a. current account
b. short-term account
c. asset account
d. temporary account
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
16. Statement of financial position accounts are known as accounts because their balance at the end of one accounting period becomes their opening balance at the start of the next period.
a. permanent.
b. open.
c. carry forward.
d. long-term
General Feedback:
Learning objective 5.2 explain why temporary ledger accounts need to be closed.
17. The salaries expense account on the worksheet shows an opening balance of $15 000. The worksheet includes a reversing entry for $1800 for salaries prepaid in the previous year and $1400 for salaries accrued in the current year. The balance of the salaries expense account that will be transferred to the statement of financial performance column is:
a. $15 400.
b. $18 200.
c. $14 600.
d. $11 800.
General Feedback:
Learning objective 5.3: explain how to record adjusting entries from a worksheet.
18. Before calculating the profit for the period, the totals of the statement of financial performance columns on the worksheet are: total debits $70 000 and total credits $60 000. The amount of the profit or loss is:
a. $70 000 profit
b. $60 000 profit
c. $10 000 profit
d. $10 000 loss
General Feedback:
Learning objective 5.3: explain how to record adjusting entries from a worksheet.
19. Interim statements are:
a. used by creditors to deal with an emergency.
b. prepared between the annual reports, usually monthly, quarterly or half-yearly.
c. only prepared for external users.
d. summary financial statements.
General Feedback:
Learning objective 5.3: explain how to record adjusting entries from a worksheet.
20. Which of the following is not recorded on a worksheet?
a. Profit or loss for the period
b. Adjusting entries
c. Drawings
d. Closing entries
General Feedback:
Learning objective 5.3: explain how to record adjusting entries from a worksheet.
21. Adjusting entries prepared for interim financial statements are:
a. always recorded in the ledger
b. often recorded on a worksheet.
c. none of these options. There are no adjusting entries made when interim financial statements are prepared.
d. always recorded in the journal.
General Feedback:
Learning objective 5.3: explain how to record adjusting entries from a worksheet.
22. Which of the following is the correct treatment on the worksheet for the nominated item?
a. Profit earned, debit the statement of financial performance and credit the statement of financial position.
b. Depreciation account, debit the statement of financial position and credit the adjustments.
c. Cash at bank account, credit the adjustments and debit the statement of financial position.
d. GST payable account, credit the statement of financial performance and credit the statement of financial position
General Feedback:
Learning objective 5.3: explain how to record adjusting entries from a worksheet.
23. Which of the following accounts is closed to the profit or loss summary account?
a. Accrued wages
b. GST receivable
c. Owner's drawings
d. Depreciation expense
General Feedback:
Learning objective 5.3: explain how to record adjusting entries from a worksheet.
24. A post-closing trial balance is prepared so that:
a. all pre-closing account balances can be confirmed as correct.
b. the adjusting entries can be completed.
c. the entity can determine if any adjusting entries have been missed.
d. the equality of debits and credits in the general ledger can be tested to ensure the opening position is correct for the next period
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
25. Telephone expenses for the year are $13 200. This amount is made up of cash payments of $12 500 and accrued telephone expenses of $700. What is the amount of telephone expenses that is closed to the profit and loss summary account?
a. $13 200
b. $12 500
c. $700
d. Nil
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
26. Which of the following is the correct closing entry for a profit of $78 400?
a. No closing entry is required
b. DR Owner's capital account $78 400; CR Profit or loss summary account $78 400
c. DR Owner's capital account $78 400; CR Bank $78 400
d. DR Profit or loss summary account $78 400; CR Owner's capital account $78 400
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
27. Which of these is not a purpose of a post-closing trial balance?
a. Making sure the ledger is correct as the starting point for the next financial period.
b. Determining how much profit the entity has made.
c. Checking that all the revenue and expense accounts have been closed-off.
d. Testing for the equality of debits and credits in the general ledger.
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
Feedback: The post-closing trial balance is prepared after the statement of financial performance has been prepared and is not prepared to determine profit.
28. Closing entries are recorded:
a. on the worksheet..
b. in the journal and the ledger.
c. in the journal only.
d. in the ledger only
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
29. Bob Saunders, a sole trader, incurred a loss of $24 000 during his first year of business. The closing entry recorded in the general journal for the loss is:
a. 
b. 
c. 
d. 
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
30. The accounts of John's Flowers show the following end of year balances.
Cash $2000
GST receivable 350
Salaries payable 80
Supplies expense 1500
Interest expense 25
Prepaid rent 300
Salaries expense 4500
Accounts payable 225
During the closing process the total debit to the profit or loss summary account would be:
a. $6 025
b. $6 570
c. $6 350
d. $6 500
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
Feedback: Supplies Expense $1500, Interest Expense $25, Salaries Expense $4500
31. Which statement relating to closing entries is incorrect?
a. The closing process is simple with a computerised accounting system
b. Closing entries are only made once a year.
c. Closing entries are made each time interim financial reports are prepared.
d. The need for closing entries arises from the accounting period assumption.
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
32. Closing which of the following accounts results in a debit entry to the profit or loss summary account?
a. Insurance expense
b. Sales
c. Drawings
d. Interest revenue
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
33. The balance in the profit or loss summary account before it is closed represents:
a. profit (or loss) less drawings
b. profit (or loss) for the period..
c. total owner's capital.
d. total expenses.
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
34. The main reason for preparing a post-closing trial balance is to:
a. confirm that the ledger is in balance at the start of the new accounting period.
b. determine if any closing entries have been missed.
c. prepare the financial reports.
d. determine if any adjusting entries have been missed.
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
35. The post-closing trial balance contains only:
a. asset and equity accounts.
b. statement of financial performance accounts.
c. statement of financial position accounts.
d. temporary accounts
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
36. Which statement relating to the profit or loss summary account is incorrect?
a. The balance in each income and expense account is transferred to the profit or loss summary account.
b. The balance in the profit or loss summary account is transferred to the owner's capital account.
c. The profit or loss summary account is established to summarise the balances in the income and expense accounts.
d. The profit or loss summary account is a permanent account.
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
37. The correct closing entry for the bank account is:
a. No closing entry is required
b. DR Bank; CR Owner's capital account
c. DR Profit or loss summary account; CR Bank
d. DR Owner's capital account; CR Bank
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
Feedback: No closing entry is required. Statement of financial position accounts are not closed.
38. Which of the following accounts should be closed off to the profit or loss summary account at the end of the financial period?
a. All of these accounts.
b. Insurance expense
c. Sales income
d. Depreciation
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
39. The correct closing entry for sales income of $60 000 is:
a. DR Profit or loss summary account $60 000; CR Sales income $60 000
b. DR Capital $60 000; CR Sales income $60 000
c. DR Sales income $60 000; CR Capital $60 000
d. DR Sales income $60 000; CR Profit or loss summary account $60 000
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
40. Which adjustment would never require a reversing entry?
a. Accrued wages
b. Depreciation
c. Income received in advance (cash received originally recorded in an income account)
d. Prepaid rent
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
41. A trial balance produced after the completion of the closing process is called a:
a. post-closing trial balance.
b. completed trial balance.
c. closed trial balance.
d. ending trial balance.
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
42. If a loss has been incurred for the year, the profit or loss summary account, before it is closed off, has a_________ balance.
a. positive
b. credit
c. negative
d. debit
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
43. A post-closing trial balance provides:
a. a summary of the adjusting entries yet to be recorded.
b. confirmation that the ledger is in balance at the start of the new accounting period.
c. a list of out-of-balance accounts.
d. the starting point for the preparation of the financial reports.
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
44. The balance of the rent expense account is $1800. The correct closing entry recorded in the general journal is:
a. 
b. 
c. 
d. 
General Feedback:
Learning objective 5.4: describe the closing process, and enter closing entries in accounting
records and prepare a post-closing trial balance.
45. Which of the following statements relating to reversing entries is incorrect?
a. They reverse the effects of closing entries.
b. They reverse the effect of certain adjusting entries.
c. They are made to simplify the recording of regular transactions in the next period.
d. They are recorded on the first day of the new accounting year.
General Feedback:
Learning objective 5.5: account for accrual items in subsequent periods using reversing entries.
46. Assume reversing entries are made by the entity. If wages of $2600 were accrued at the end of the year and the first payment of wages the following year was $33 100 how would this payment be recorded?
a. DR Salaries expense $33 100; CR Cash $33 100
b. DR Salaries expense $35 700; CR Salaries payable $2600; CR Cash $33 100
c. DR Salaries payable $2600; DR Salaries expense $33 100; CR Cash $35 700
d. DR Salaries payable $2600; DR Salaries expense $30 500; CR Cash $33 100
General Feedback:
Learning objective 5.5: account for accrual items in subsequent periods using reversing entries.
47. Which of the following statements is true?
a. reversing entries are compulsory.
b. all accruals must be reversed.
c. reversing entries are optional and are only made to simplify the recording process at the start of the new accounting period.
d. reversing entries are made on the last day of the financial year.
General Feedback:
Learning objective 5.5: account for accrual items in subsequent periods using reversing entries.
Feedback: If no reversing entries are made, in the subsequent period when cash is received or paid for accruals, it must be split up according to which period it belongs to.
48. The end of the financial year for Reynolds Ltd is 31 December. At that date, salaries and wages expenses of $580 000 is closed to the profit and loss summary account. This balance includes $550 000 for salaries and wages paid in cash during the year and accrued wages at the end of the year of $30 000. Reynolds Ltd records a reversing entry for the accrued wages on 1 January. The first payment to employees for salaries and wages in the new financial year is $35 000. This payment would be recorded as:
a. DR Accrued Salaries and wages $30 000; CR Bank $30 000
b. DR Salaries and wages expense $35 000; CR Bank $35 000
c. DR Salaries and wages expense $5 000; CR Bank $5 000
d. DR Salaries and wages expense $35 000; DR Accrued salaries and wages $30 000; CR Bank $65 000
General Feedback:
Learning objective 5.5: account for accrual items in subsequent periods using reversing entries.
49. Entries made at the beginning of the next accounting period to reverse the effect of various adjustments, are called:
a. simplified entries.
b. re-adjusting entries.
c. negative entries.
d. reversing entries.
General Feedback:
Learning objective 5.5: account for accrual items in subsequent periods using reversing entries.
50. Which of the following statements relating to reversing entries is correct?
a. There are alternative ways of dealing with the effect of accruals in subsequent periods without using reversing entries.
b. Reversing entries are never appropriate for accrual type entries.
c. Reversing entries are rarely used
d. Depreciation is an adjustment that requires reversing in the subsequent period.
General Feedback:
Learning objective 5.5: account for accrual items in subsequent periods using reversing entries.
51. Which of the following categories of adjusting entries are always reversed when an entity uses reversing entries in their accounting system?
I. Accrued Expenses
II. Accrued Revenue
III. Depreciation
a. I and II only.
b. All of these.
c. III only.
d. I and III only.
General Feedback:
Learning objective 5.5: account for accrual items in subsequent periods using reversing entries.
52. Assume that no reversing entries are made by the entity. How would the entity record the transaction for payment of wages if $5200 was accrued for wages at the end of the year and the first payment of wages in the following year was $63 900?
a. DR Salaries payable $5200; DR Salaries expense $58 700; CR Cash $63 900
b. DR Salaries expense $69 100; CR Salaries payable $5200; CR Cash $63 900
c. DR Salaries expense $63 900; CR Salaries payable $5200; CR Cash $58 700
d. DR Salaries expense $63 900; CR Cash $63 900
General Feedback:
Learning objective 5.5: account for accrual items in subsequent periods using reversing entries.
53. The retained earnings balance of The Jackman Company was $50 000 on the first day of the accounting year. Profit during the year was $120 000. At the end of the accounting year a dividend of $15 000 was declared. The dividend will be paid the following year. The year-end balance of retained earnings is:
a. $155 000.
b. $185 000.
c. $120 000.
d. $105 000.
General Feedback:
Learning objective 5.6: prepare the equity accounts for a partnership and for a company.
54. The two main categories of equity on a company's statement of financial position are separated into:
a. Retained earnings and reserves
b. Retained earnings and dividends
c. Share capital and dividends
d. Share capital and retained earnings
General Feedback:
Learning objective 5.6: prepare the equity accounts for a partnership and for a company.
55. Declared dividends are recognised as:
a. an expense
b. an asset.
c. a reduction in retained earnings.
d. a reduction in share capital
General Feedback:
Learning objective 5.6: prepare the equity accounts for a partnership and for a company.
56. The statement of financial performance and the statement of financial position for sole traders and partnerships are essentially the same except for transactions that directly affect:
a. equity.
b. profit.
c. assets.
d. income.
General Feedback:
Learning objective 5.6: prepare the equity accounts for a partnership and for a company.
57. High Country Ltd issued 50 000 shares for $1 each on 23 May. The correct entry to record this transaction is:
a. DR Bank $50 000; CR Shareholder's equity $50 000
b. DR Bank $50 000; CR Retained earnings $50 000
c. DR Share capital $50 000; CR Bank $50 000
d. DR Bank $50 000; CR Share capital $50 000
General Feedback:
Learning objective 5.6: prepare the equity accounts for a partnership and for a company.
58. Which of the following statements is correct with regards to closing the accounts of a partnership?
a. Partnership profit is credited to each partner's capital account according to the profit sharing agreement.
b. Partnership accounts use a retained earnings account instead of a profit or loss summary account.
c. A partnership loss for the period is carried forward and is not transferred to the partner's capital accounts.
d. Partners are owners; therefore, partner's salaries must be treated as drawings.
General Feedback:
Learning objective 5.6: prepare the equity accounts for a partnership and for a company.
59. Cash distributions authorised by the directors and paid to the owners of a company are called:
a. bonuses.
b. distributions.
c. dividends.
d. accumulated profits.
General Feedback:
Learning objective 5.6: prepare the equity accounts for a partnership and for a company.
60. Retained earnings is what type of account?
a. Income
b. Expenses
c. Asset
d. Equity
General Feedback:
Learning objective 5.6: prepare the equity accounts for a partnership and for a company.
61. In accounting for a partnership, capital and drawings accounts are:
a. separate for all shareholders.
b. combined for all partners.
c. separate for each partner.
d. part of retained earnings.
General Feedback:
Learning objective 5.6: prepare the equity accounts for a partnership and for a company.
62. At the end of the reporting period, a company is required to prepare which additional financial report?
a. Statement of liabilities
b. Statement of retained profits
c. Statement of equity
d. Statement of changes in equity
General Feedback:
Learning objective 5.6: prepare the equity accounts for a partnership and for a company.
63. Dividends declared near the end of an accounting period require two accounting entries:
One - when the dividend is declared; and
Two - when the dividend is paid.
The correct entry to record the declaration of a cash dividend of 10c a share calculated on 200 000 shares is:
a. DR Bank $20 000; CR Share capital $20 000
b. DR Retained earnings $20 000; CR Dividend payable $20 000
c. DR Dividend payable $20 000; CR Retained earnings $20 000
d. DR Dividend payable $20 000; CR Bank $20 000
General Feedback:
Learning objective 5.6: prepare the equity accounts for a partnership and for a company.
64. On 1 November Yasmine Company Pty Ltd issued 100 000 shares for $5 each. The correct entry to record this transaction is:
a. DR Cash $500 000; CR Share capital $500 000
b. DR Shareholder's equity $500 000; CR Cash $500 000
c. DR Cash $500 000; CR Share capital $500 000
d. DR Cash $500 000; CR Shareholder's equity $500 000
General Feedback:
Learning objective 5.6: prepare the equity accounts for a partnership and for a company.
Document Information
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