Á ÆÓ ÓïChapter 04

Chapter 004 Completing the Accounting Cycle
Summary of Questions by Difficulty Level (DL) and Learning Objective (LO)

True/False
Item
DL
LO
Item
DL
LO
Item
DL
LO
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
Easy
Easy
Easy
Easy
Easy
Med
Med
Med
Med
Med
Med
Med
Med
Hard
Easy
Easy
Med
Hard
Easy
Easy
Easy
C1
C1
C1
C1
C1
C1
C1
C1
C1
C1
C1
C1
C1
C1
C2
C2
C2
C2
C3
C3
C3
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
Easy
Med
Med
Med
Med
Med
Med
Easy
Easy
Easy
Med
Med
Hard
Easy
Easy
Easy
Easy
Easy
Med
Med
Med
C3
C3
C3
C3
C3
C3
C3
C3
A1
A1
A1
A1
A1
P1
P1
P1
P1
P1
P1
P1
P1
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
Med
Med
Med
Med
Med
Med
Med
Easy
Med
Med
Med
Med
Med
Med
Hard
Hard
Easy
Easy
Med
Easy
Easy
P1
P1
P1
P1
P1
P1
P1
P2
P2
P2
P2
P2
P2
P2
P2
P2
P3
P3
P3
P4
P4
4-1

Multiple Choice
Item
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
DL
LO
Item
DL
LO
Item
DL
LO
Easy
Easy
Med
Med
Med
Med
Med
Med
Med
Med
Med
Easy
Easy
Med
Med
Med
Med
C1
C1
C1
C1
C1
C1
C1
C1
C1
C2
C2
C3
C3
C3
C3
C3
A1
81.
82.
83.
84.
85.
86.
87.
88.
89.
90.
91.
92.
93.
94.
95.
96.
97.
Hard
Easy
Med
Med
Med
Med
Med
Med
Med
Med
Med
Med
Med
Hard
Med
Med
Med
A1
P1
P1
P1
P1
P1
P1
P1
P1
P1
P1
P1
P1
P1
P2
P2
P2
98.
99.
100.
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
111.
112.
113.
114.
Med
Med
Med
Med
Hard
Med
Hard
Hard
Hard
Med
Med
Med
Med
Med
Med
Med
Med
P2
P2
P2
P2
P2
P2
P2
P2
P2
P3
P3
P3
P3
P4
P4
P4
P4
Matching
Item
DL
LO
Item
DL
LO
Item
DL
LO
115.
Med
C1,C2
P1-P3
116.
Med
C1-C3
A1
117.
Med
C3
Short Essay
Item
DL
LO
Item
DL
LO
Item
DL
LO
118.
119.
120.
121.
Med
Med
Med
Med
C1
C1
C2
C3
122.
123.
124.
125.
Med
Med
Hard
Med
A1
P1
P1
P2
126.
127.
128.
Med
Med
Hard
P2
P3
P4
4-2

Problems
Item
129.
130.
131.
132.
133.
134.
135.
DL
LO
Item
DL
LO
Item
DL
LO
Med
Med
Med
Hard
Hard
Med
Med
C1
C1
C2
C3
C3,A1
A1
P1
136.
137.
138.
139.
140.
141.
142.
Hard
Hard
Hard
Easy
Med
Med
Med
P1
P1
P1
P2
P2
P2
P2
143.
144.
145.
146.
147.
Med
Hard
Hard
Easy
Med
P2
P2,P3
P2,P3
P4
P4
Completion Problems
Item
DL
LO
Item
DL
LO
Item
DL
LO
148.
149.
150.
151.
Easy
Easy
Easy
Easy
C1
C1
C1
C1
152.
153.
154.
155.
Easy
Med
Med
Med
C2
C3
C3
A1
156.
157.
158.
Easy
Med
Hard
P1
P3
P4
Item
DL
LO
Item
DL
LO
Item
DL
LO
159.
160.
Hard
Hard
P1
C3
161.
162.
Hard
Hard
C3, A1
P4
163.
Hard
P4
Problems
4-3
True / False Questions

1. Accounts that appear in the balance sheet are often called temporary (nominal) accounts.
FALSE
AACSB: Communications
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: Easy
Learning Objective: C1
2. Income Summary is a temporary account only used for the closing process.
TRUE
AICPA BB: Industry
Difficulty: Easy
3. Revenue accounts should begin each accounting period with zero balances.
TRUE
AICPA BB: Industry
Difficulty: Easy
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
AICPA BB: Industry
Difficulty: Easy
4-4
5. The closing process takes place after financial statements have been prepared.
TRUE
AICPA BB: Industry
Difficulty: Easy
6. Revenue and expense accounts are permanent (real) accounts and should not be closed at
the end of the accounting period.
FALSE
AICPA BB: Industry
Difficulty: Medium
7. Closing entries result in revenues and expenses being reflected in the owner's capital
account.
TRUE
AICPA BB: Industry
Difficulty: Medium
8. The closing process is a step in the accounting cycle that prepares accounts for the next
accounting period.
TRUE
AICPA BB: Industry
Difficulty: Medium
4-5
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
AICPA BB: Industry
Difficulty: Medium
10. Closing entries are required at the end of each accounting period to close all ledger
accounts.
FALSE
AICPA BB: Industry
Difficulty: Medium
11. Closing entries are designed to transfer the end-of-period balances in the revenue
accounts, the expense accounts, and the withdrawals account to owner's capital.
TRUE
AICPA BB: Industry
Difficulty: Medium
12. The Income Summary account is a permanent account that will be carried forward period
after period.
FALSE
AICPA BB: Industry
Difficulty: Medium
4-6
13. Closing entries are necessary so that owner's capital will begin each period with a zero
balance.
FALSE
AICPA BB: Industry
Difficulty: Medium
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
AICPA BB: Industry
Difficulty: Hard
15. The first step in the accounting cycle is to analyze transactions and events to prepare for
journalizing.
TRUE
AICPA BB: Industry
Difficulty: Easy
16. The accounting cycle refers to the sequence of steps in preparing the work sheet.
FALSE
AICPA BB: Industry
Difficulty: Easy
4-7
17. The first five steps in the accounting cycle include analyzing transactions, journalizing,
posting, preparing an unadjusted trial balance, and recording adjusting entries.
TRUE
AICPA BB: Industry
Difficulty: Medium
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
AICPA BB: Industry
Difficulty: Hard
19. A classified balance sheet organizes assets and liabilities into important subgroups that
provide more information to decision makers.
TRUE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
20. An unclassified balance sheet provides more information to users than a classified balance
sheet.
FALSE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
4-8
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
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
22. Intangible assets are long-term resources that benefit business operations that usually lack
physical form and have uncertain benefits.
TRUE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
23. Assets are often classified into current assets, long-term investments, plant assets, and
intangible assets.
TRUE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
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
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
4-9
25. Long-term investments can include land held for future expansion.
TRUE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
26. Plant assets and intangible assets are usually long-term assets used to produce or sell
products and services.
TRUE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
27. Current liabilities include accounts receivable, unearned revenues, and salaries payable.
FALSE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
28. Cash and office supplies are both classified as current assets.
TRUE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
4-10
29. Plant assets are also called fixed assets or property, plant, and equipment.
TRUE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
30. The current ratio is used to help assess a company's ability to pay its debts in the near
future.
TRUE
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Risk Analysis
Difficulty: Easy
Learning Objective: A1
31. The current ratio is computed by dividing current liabilities by current assets.
FALSE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy
32. Harley-Davidson's current assets are $400 million and its current liabilities are $250
million. Its current ratio is 0.63.
FALSE
$400/$250 = 1.6
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-11
33. A company has current assets of $15,000 and current liabilities of $9,500. Its current ratio
is 1.6
TRUE
$15,000/$9,500 = 1.6
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
34. Harley-Davidson's current ratio is 1.3. The industry average for the current ratio is 1.2.
This indicates that Harley-Davidson can cover its short term liabilities with its short term
assets.
TRUE
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
35. A work sheet is a tool to help bring together information needed in adjusting the accounts
and preparing the financial statements.
TRUE
AACSB: Technology
AICPA BB: Industry
AICPA FN: Leveraging Technology
Difficulty: Easy
Learning Objective: P1
4-12
36. Adjustments must be entered in the journal and posted to the ledger after the work sheet is
prepared.
TRUE
AACSB: Technology
AICPA BB: Industry
Difficulty: Easy
37. The work sheet is a book of original entry used to record transactions and events as they
occur.
FALSE
AACSB: Technology
AICPA BB: Industry
Difficulty: Easy
38. The work sheet is a required financial statement.

FALSE
AACSB: Technology
AICPA BB: Industry
Difficulty: Easy
39. A work sheet is a substitute for the set of financial statements.

FALSE
AACSB: Technology
AICPA BB: Industry
Difficulty: Easy
4-13
40. All necessary numbers to prepare the income statement can be taken from the income
statement columns of the work sheet, including the net income or net loss.
TRUE
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
41. On a work sheet, a loss is indicated if the total of the Income Statement Debit column
exceeds the total of the Income Statement Credit column.
TRUE
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
42. If all columns balance upon completion of a work sheet, you can be sure that no errors
were made in preparing the work sheet.
FALSE
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
43. Closing entries are normally entered in the general journal and then posted to the work
sheet.
FALSE
AICPA BB: Industry
Difficulty: Medium
4-14
44. Adjusting entries are normally entered in the general journal before they are posted to the
work sheet.
FALSE
AICPA BB: Industry
Difficulty: Medium
45. On a work sheet, the adjusted balances of revenues and expenses are sorted to the Income
Statement columns of the work sheet.
TRUE
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
46. On the work sheet, net income is entered in the Income Statement Credit column as well
as the Balance Sheet or Statement of Owner's Equity Debit column.
FALSE
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
47. All necessary numbers to prepare the balance sheet can be found in the balance sheet
columns of the work sheet including ending owner's capital.
FALSE
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
4-15
48. A worksheet can be helpful in showing the effects of proposed or "what if" transactions, as
well as being useful in helping to prepare end-of-period financial statements.
TRUE
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
49. Since it is an important financial statement, the trial balance must be prepared according
to specified accounting procedures.
FALSE
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
50. An expense account is normally closed by debiting Income Summary and crediting the
expense account.
TRUE
AICPA BB: Industry
Difficulty: Easy
51. The withdrawals account is normally closed by debiting it.

FALSE
AICPA BB: Industry
Difficulty: Medium
4-16
52. After posting the entries to close all revenue accounts and all expense accounts, the
Income Summary account of Waif Services has a $4,000 debit balance. This result implies
that Waif Services earned a net income of $4,000.
FALSE
AICPA BB: Industry
Difficulty: Medium
53. After posting the entries to close all revenue and expense accounts, Hatfield Company's
Income Summary account has a credit balance of $6,000, and its Hatfield, Withdrawals
account has a debit balance of $2,500. These balances indicate that net income for the current
accounting period amounted to $3,500.
FALSE
AICPA BB: Industry
Difficulty: Medium
54. The Income Summary account is closed to the owner's capital account.
TRUE
AICPA BB: Industry
Difficulty: Medium
55. When expenses exceed revenues, there is a net loss and the Income Summary account
would have a credit balance.
FALSE
AICPA BB: Industry
Difficulty: Medium
4-17
56. The Income Summary account is used to close the permanent accounts at the end of an
accounting period.
FALSE
AICPA BB: Industry
Difficulty: Medium
57. The steps in the closing process are (1) close credit balances in revenue accounts to
Income Summary; (2) close credit balances in expense accounts to Income Summary; (3)
close Income Summary to Owner's Capital; (4) close Withdrawals to Owner's Capital.
FALSE
AICPA BB: Industry
Difficulty: Hard
58. The usual third closing entry is to close Owner's Capital to the Owner's Withdrawals
account.
FALSE
AICPA BB: Industry
Difficulty: Hard
59. A post-closing trial balance is a list of permanent accounts and their balances from the
ledger after all closing entries are journalized and posted.
TRUE
AICPA BB: Industry
Difficulty: Easy
4-18
60. The aim of a post-closing trial balance is to verify that (1) total debits equal total credits
for temporary accounts, and (2) all temporary accounts have zero balances.
FALSE
AICPA BB: Industry
Difficulty: Easy
61. A company's post-closing trial balance has a debit total of $40,350 and a credit total of
$40,650. Accordingly, the company should review for errors in the closing process.
TRUE
AICPA BB: Industry
Difficulty: Medium
62. Reversing entries are optional.

TRUE
AICPA BB: Industry
Difficulty: Easy
63. Reversing entries adjust the accrued assets and accrued liabilities that were created by
adjusting entries at the end of the prior accounting period.
TRUE
AICPA BB: Industry
Difficulty: Easy
4-19
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.
AICPA BB: Industry
Difficulty: Easy
65. When closing entries are made:

A. All ledger accounts are closed to start the new accounting period.
B. All temporary accounts are closed but 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.
AICPA BB: Industry
Difficulty: Easy
66. Revenues, expenses, and withdrawals accounts, which are closed at the end of each
accounting period are:
A. Real accounts.
B. Temporary accounts.
C. Closing accounts.
D. Permanent accounts.
E. Balance sheet accounts.
AICPA BB: Industry
Difficulty: Medium
4-20
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.
AICPA BB: Industry
Difficulty: Medium
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.
AICPA BB: Industry
Difficulty: Medium
69. Closing the temporary accounts at the end of each accounting period:
A. Serves to transfer the effects of these accounts to the owner's capital account on the
balance sheet.
B. Prepares the withdrawals account for use in the next period.
C. 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.
AICPA BB: Industry
Difficulty: Medium
4-21
70. Journal entries recorded at the end of each accounting period to prepare the revenue,
expense, and withdrawals accounts for the upcoming period and to update the owner's capital
account for the events of the period just finished are referred to as:
A. Adjusting entries.
B. Closing entries.
C. Final entries.
D. Work sheet entries.
E. Updating entries.
AICPA BB: Industry
Difficulty: Medium
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.
C. ensure that the company complies with state laws.
D. ensure that net income or net loss and owner withdrawals for the period are closed into the
owner's capital account.
E. ensure that management is aware of how well the company is operating.
AICPA BB: Industry
Difficulty: Medium
72. Closing entries are required:

A. if management has decided to cease operating the business.
B. only if the company adheres to the accrual method of accounting.
C. if a company's bookkeeper 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.
AICPA BB: Industry
Difficulty: Medium
4-22
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.
AICPA BB: Industry
Difficulty: Medium
74. Which of the following is the usual final step in the accounting cycle?
A. Journalizing transactions.
B. Preparing an adjusted trial balance.
C. Preparing a post-closing trial balance.
D. Preparing the financial statements.
E. Preparing a work sheet.
AICPA BB: Industry
Difficulty: Medium
75. A classified balance sheet:

A. Measures a company's ability to pay its bills on time.
B. Organizes assets and liabilities into important subgroups.
C. Presents revenues, expenses, and net income.
D. Reports operating, investing, and financing activities.
E. Reports the effect of profit and withdrawals on owner's capital.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
4-23
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. Current liabilities, long-term investments, plant assets, and intangible assets.
E. Current assets, liabilities, plant assets, and intangible assets.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Easy
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.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
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.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
4-24
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.
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
80. 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.
D. 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.
AICPA BB: Industry
Difficulty: Medium
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 creditor's decision about whether to lend money to a company.
E. All of these.
AICPA BB: Industry
Difficulty: Hard
4-25
82. The Unadjusted Trial Balance columns of a company'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.
AACSB: Technology
AICPA BB: Industry
Difficulty: Easy
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.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
4-26
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 Owner's Equity-Credit; Balance Sheet or Statement of
Owner's Equity Debit; and Income Statement-Credit.
B. Balance Sheet or Statement of Owner's Equity-Debit; Balance Sheet or Statement of
Owner's 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.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
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.
D. On the work sheet, the adjusted amounts are sorted into columns according to whether the
accounts are used in preparing the unadjusted trial balance or the adjusted trial balance.
E. A worksheet is not a substitute for financial statements.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
4-27
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.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
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.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
4-28
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.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
89. If the Balance Sheet and Statement of Owner's 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
Owner's Equity Credit column, the cause could be:
A. An expense amount entered in the Balance Sheet and Statement of Owner's Equity Debit
column.
B. A revenue amount entered in the Balance Sheet and Statement of Owner's Equity Credit
column.
C. An asset amount entered in the Income Statement and Statement of Owner's Equity Debit
column.
D. A liability amount entered in the Income Statement and Statement of Owner's Equity
Credit column.
E. An expense amount entered in the Balance Sheet and Statement of Owner's Equity Credit
column.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-29

90. The following items appeared on a company's December 31 work sheet for the current
period. Based on the following information, what is net income for the current period?
A. $1,400.
B. $1,855.
C. $1,905.
D. $2,060.
E. $4,670.
4-30
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
91. Which of the following errors would cause the Balance Sheet and Statement of Owner's
Equity columns of a work sheet to be out of balance?
A. Entering an asset amount in the Income Statement Debit column.
B. Entering a liability amount in the Income Statement Credit column.
C. Entering an expense amount in the Balance Sheet and Statement of Owner's Equity Debit
column.
D. Entering a revenue amount in the Balance Sheet and Statement of Owner's Equity Debit
column.
E. Entering a liability amount in the Balance Sheet and Statement of Owner's Equity Credit
column.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-31
92. The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments
columns contain entries for the following:
1. Office supplies used during the period, $1,200.
2. Expiration of prepaid rent, $700.
3. Accrued salaries expense, $500.
4. Depreciation expense, $800.
5. Accrued service fees receivable, $400.
The Adjusted Trial Balance columns total is:
A. $80,400.
B. $84,000.
C. $85,700.
D. $85,900.
E. $87,600.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-32
93. The balances in the unadjusted columns of a work sheet will agree with:
A. the balances reflected in the company's financial statements.
B. the balances reflected in the company's unadjusted trial balance.
C. whatever balances management has decided to report.
D. the balances in the company's post-closing trial balance.
E. the balances management budgeted for the accounting period.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
94. In the process of completing a work sheet, you determine that the Income Statement debit
column totals $83,000, while the Income Statement credit column totals $65,000. To enter net
income (or net loss) for the period into the work sheet would require an entry to
A. the Adjustments debit column and the Adjustments credit column.
B. the Unadjusted Trial Balance debit column and the Adjustments credit column.
C. it is not practical to enter Net Income (or Net Loss) on the work sheet.
D. the Balance Sheet & Statement of Owner's Equity debit column and the Income Statement
credit column.
E. the Income Statement debit column and the Balance Sheet & Statement of Owner's Equity
credit column.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
4-33
95. The special account used only in the closing process to temporarily hold the amounts of
revenues and expenses before the net difference is added to (or subtracted from) the owner's
capital account is the:
A. Income Summary account.
B. Closing account.
C. Balance column account.
D. Contra account.
E. Nominal account.
AICPA BB: Industry
Difficulty: Medium
96. J. Awn, the proprietor of Awn Services, withdrew $8,700 from the business during the
current year. The entry to close the withdrawals account at the end of the year, is:
A.
B.
C.
D.
E.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-34
97. A company had revenues of $75,000 and expenses of $62,000 for the accounting period.
Which of the following entries could not be a closing entry?
A.
B.
C.
D.
E. All of these are possible closing entries.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: Medium
98. The following information is available for the Travis Travel Agency. After these closing
entries what will be the balance in the Jay Travis, Capital account?
A. $ 65,000.
B. $ 80,000.
C. $130,000.
D. $145,000.
E. $280,000.
$80,000 + $125,000 - $60,000 - $15,000 = $130,000
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-35
99. The J. Godfrey, Capital account has a credit balance of $17,000 before closing entries are
made. If total revenues for the period are $55,200, total expenses are $39,800, and
withdrawals are $9,000, what is the ending balance in the J. Godfrey, Capital account after all
closing entries are made?
A. $ 8,000.
B. $15,400.
C. $23,400.
D. $17,000.
E. $32,400.
$17,000 + $55,200 - $39,800 - $9,000 = $23,400
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
100. The Income Summary account is used:

A. To adjust and update asset and liability accounts.
B. To close the revenue and expense accounts.
C. To determine the appropriate withdrawal amount.
D. To replace the income statement under certain circumstances.
E. To replace the capital account in some businesses.
AICPA BB: Industry
Difficulty: Medium
4-36
101. Dina Kader withdrew a total of $35,000 from her business during the current year. The
entry needed to close the withdrawals account is:
A. Debit Income Summary and credit Cash for $35,000.
B. Debit Dina Kader, Withdrawals and credit Cash for $35,000.
C. Debit Income Summary and credit Dina Kader, Withdrawals for $35,000.
D. Debit Dina Kader, Capital and credit Dina Kader, Withdrawals for $35,000.
E. Debit Dina Kader, Withdrawals and credit Dina Kader, Capital for $35,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-37
102. A company's ledger accounts and their end-of-period balances before closing entries are
posted are shown below. What amount will be posted to Tricia DeBarre, Capital in the process
of closing the Income Summary account? (Assume all accounts have normal balances.)
A. $16,780 debit.
B. $ 7,180 credit.
C. $16,780 credit.
D. $18,280 credit.
E. $23,780 credit.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
4-38
103. It is obvious that an error occurred in the preparation and/or posting of closing entries if:
A. all revenue and expense accounts have zero balances.
B. the owner's capital account is debited for the amount of the net loss for the period.
C. the income summary account is debited for the amount of net income for the period.
D. all balance sheet accounts have zero balances.
E. only permanent accounts appear on the post-closing trial balance.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
104. At the beginning of 2009, a company's balance sheet reported the following balances:
Total Assets = $125,000; Total Liabilities = $75,000; and Owner's Capital = $50,000. During
2009, the company reported revenues of $46,000 and expenses of $30,000. In addition,
owner's withdrawals for the year totaled $20,000. Assuming no other changes to owner's
capital, the balance in the owner's capital account at the end of 2009 would be:
A. $66,000.
B. $86,000.
C. $(4,000).
D. $46,000.
E. cannot be determined from the information provided.
Owner's Capital = $50,000 at beginning of 2009. Add revenues of $46,000 during 2009,
subtract expenses of $30,000 during 2009 and subtract owner withdrawals of $20,000 during
2009. The ending balance in the owner's capital account at the end of 2009 would be $46,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
4-39
105. At the beginning of 2009, Beta Company's balance sheet reported Total Assets of
$195,000 and Total Liabilities of $75,000. During 2009, the company reported total revenues
of $226,000 and expenses of $175,000. Also, owner withdrawals during 2009 totaled $48,000.
Assuming no other changes to owner's capital, the balance in the owner's capital account at
the end of 2009 would be:
A. $174,000.
B. $78,000.
C. cannot be determined from the information provided.
D. $120,000.
E. $123,000.
Owner's Capital at the beginning of 2009 is $120,000 (Total Assets of $195,000 - Total
Liabilities of $75,000). Add revenues of $226,000 during 2009, subtract expenses of $175,000
and subtract owner withdrawals of $48,000 and ending owner's capital at the end of 2009
would be $123,000.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
106. After preparing and posting the closing entries to close revenues (and gains) and
expenses (and losses) into the income summary, the income summary account has a debit
balance of $33,000. The entry to close the income summary account will include:
A. a debit of $33,000 to owner withdrawals.
B. a credit of $33,000 to owner withdrawals.
C. a debit of $33,000 to income summary.
D. a debit of $33,000 to owner capital.
E. a credit of $33,000 to owner capital.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
4-40
107. A trial balance prepared after the closing entries have been journalized and posted is the:
A. Unadjusted trial balance.
B. Post-closing trial balance.
C. General ledger.
D. Adjusted trial balance.
E. Work sheet.
AICPA BB: Industry
Difficulty: Medium
108. An error is indicated if the following account has a balance appearing on the post-closing
trial balance:
A. Office Equipment.
B. Accumulated Depreciation-Office Equipment.
C. Depreciation Expense-Office Equipment.
D. Ted Nash, Capital.
E. Salaries Payable.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
109. A post-closing trial balance reports:

A. All ledger accounts with balances, none of which can be temporary accounts.
B. All ledger accounts with balances, none of which can be permanent accounts.
C. All ledger accounts with balances, which include some temporary and some permanent
accounts.
D. Only revenue and expense accounts.
E. Only asset accounts.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-41
110. Which of the following statements is true?

A. Owner's capital must be closed each accounting period.
B. A post-closing trial balance should include only permanent accounts.
C. Information on the work sheet can be used in place of preparing financial statements.
D. By using a work sheet to prepare adjusting entries you need not post these entries to the
ledger accounts.
E. Closing entries are only necessary if errors have been made.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
111. Reversing entries:

A. Are optional.
B. Are mandatory.
C. Correct errors in journal entries.
D. Are required by GAAP.
E. Are prepared on the worksheet.
AICPA BB: Industry
Difficulty: Medium

A. Are optional.
B. Are linked to accrued assets and liabilities that were created by adjusting entries at the end
of the previous accounting period.
C. Are used to simplify a company's recordkeeping.
D. Are dated the first day of the new accounting period.
E. All of these.
AICPA BB: Industry
Difficulty: Medium
4-42

A. are necessary when journal entries have been incorrectly recorded.
B. are a required step in the accounting cycle.
C. will often result in abnormal account balances in some accounts.
D. are required only if the company uses accounting software to record journal entries.
E. must be made before preparing the post-closing trial balance.
AICPA BB: Industry
Difficulty: Medium
114. The purpose of reversing entries is to:

A. simplify the recording of certain journal entries in the future.
B. correct an error made in a previous journal entry.
C. ensure that closing entries have been properly posted to the ledger accounts.
D. make certain that only permanent accounts are carried forward into the next accounting
period.
E. complete a required step in the accounting cycle.
AICPA BB: Industry
Difficulty: Medium
4-43
Matching Questions
115. Match the following terms with the appropriate definition.
Accounts that reflect on activities related to one or
more future periods; they include all balance sheet
accounts.
Recurring steps performed each accounting period,
starting with analyzing and recording of transactions in the
2. Pro forma
journal and continuing through the post-closing trial
statements
balance (or reversing entries).
Accounts that are used to record transactions and
events for one accounting period only; they include
3. Closing entries
revenues, expenses, and withdrawals.
Analyses and other informal reports prepared by
accountants when organizing the information presented in
4. Work sheet
reports and financial statements.
A temporary account used only in the closing process
5. Accounting
and to where the balances of revenue and expense
cycle
accounts are transferred.
A spreadsheet used to draft an unadjusted trial balance,
6. Post-closing trial
adjusting entries, adjusted trial balance, and financial
balance
statements.
Entries recorded at the end of each accounting period
to transfer end-of-period balances in revenue, expense,
7. Permanent
and withdrawals accounts to the permanent owner's capital
accounts
account.
A list of permanent accounts and their balances from
8. Operating cycle
the ledger after all closing entries are journalized and
of a business
posted.
The time span from when cash is used to acquire goods
9. Income
and services until cash is received from the sale of those
summary
goods and services.
10. Working
Statements that show the effects of proposed
papers
transactions as if the transactions had already occurred.
1. Temporary
accounts
AICPA BB: Industry
Difficulty: Medium
Learning Objective: C1-C2
Learning Objective: P1-P3
4-44
5
1
10
9
4
3
6
8
2
116. Match the following terms with the appropriate definition.
1. Current ratio
2. Owner's capital
3. Classified
balance sheet
4. Closing entries
5. Plant assets
6. Unclassified
balance sheet
7. Current
liabilities
8. Current assets
9. Intangible
assets
10. Long-term
investments
Tangible long-lived assets used to produce or sell

products or services.
The owner's claim on the assets of a company.
A balance sheet that organizes the assets and liabilities
into important subgroups.
Long-term assets used to produce or sell products or
services; these assets usually lack physical form and their
benefits are uncertain.
A ratio that is used to help evaluate a company's ability
to pay its short-term obligations, calculated by dividing
current assets by current liabilities.
Entries recorded at the end of each accounting period to
transfer end-of-period balances in revenue, expense, and
withdrawals accounts to the permanent owner's capital
account.
Debts that are due to be paid or settled within one year
or the operating cycle of a business whichever is longer.
Assets such as notes receivable or investments in stocks
which are held for the longer of one year or the operating
cycle of the company.
Cash or other assets that are expected to be sold,
collected, or used within one year or the company's
operating cycle whichever is longer.
A balance sheet that broadly groups assets, liabilities
and equity items.
AICPA BB: Industry
Difficulty: Medium
Learning Objective: C1-C3
4-45
5
2
3
9
1
4
7
10
8
6
117. Classified balance sheets commonly include the following categories.

a. Current assets
b. Long-term investments
c. Plant assets
d. Intangible assets
e. Current liabilities
f. Long-term liabilities
g. Equity.
Indicate the typical classification of each item listed below by placing the letter of the correct
balance sheet category a through g in the blank space next to the item.
1. Buildings used in business operations
2. Office Supplies
3. Cash
4. Accounts payable.
5. Land held for future plant expansion
6. Patents.
7. Prepaid insurance
8. Long-term note payable
9. Current portion of long-term debt
10. Wages payable.
11. Margarita Acosta, Capital
12. Accounts Receivable
c
a
b
f
a
g
e
e
d
e
a
a
AICPA BB: Industry
Difficulty: Medium
4-46
1
2
5
8
12
11
4
9
6
10
7
3
Short Answer Questions

118. Explain why temporary accounts are closed each period.
Temporary accounts are closed at the end of each accounting period for two main reasons.
First, it prepares revenue, expense and withdrawal accounts for the next reporting period by
bringing the balances in those accounts to zero. Second, the closing process is used to update
the owner's capital account to include the increases from revenues and decreases from
expenses and withdrawals.
AICPA BB: Industry
Difficulty: Medium
119. Explain the difference between temporary and permanent accounts.

Temporary, or nominal, accounts accumulate data related to one accounting period. They
include all income statement accounts, withdrawals, and Income Summary. Temporary
accounts are closed at the end of each accounting period. Permanent, or real, accounts, on the
other hand, report on activities related to one or more future accounting periods. They carry
their balances to the next period. All balance sheet accounts are permanent accounts.
AICPA BB: Industry
Difficulty: Medium
4-47
120. List the steps in the accounting cycle.

The accounting cycle consists of ten steps: (1) analyze transactions, (2) journalize entries, (3)
post entries to the ledgers, (4) prepare an unadjusted trial balance, (5) prepare adjusting
entries, (6) prepare an adjusted trial balance, (7) prepare financial statements, (8) close the
temporary accounts, (9) prepare a post-closing trial balance, and (10) prepare reversing entries
(optional).
AICPA BB: Industry
Difficulty: Medium
121. How is a classified balance sheet different from an unclassified balance sheet? List the
order of the usual classifications on a classified balance sheet.
An unclassified balance sheet broadly groups assets, liabilities, and equity. A classified
balance sheet organizes assets, liabilities, and equity into important subgroups that provide
more useful information to decisions makers. Classified balance sheets usually report four
groups of assets: current assets, long-term investments, plant assets, and intangible assets.
Liabilities are usually divided into current and long-term. For sole proprietorships and
partnerships equity is reported under capital accounts. For corporations, the equity section is
divided into capital stock and retained earnings.
AICPA BB: Industry
Difficulty: Medium
4-48
122. How is the current ratio calculated? How is it used to evaluate a company?
The current ratio is current assets divided by current liabilities. It is used to help evaluate a
company's ability to pay its short term obligations. It can be used by suppliers and creditors to
help them decide whether to allow a company to buy on credit, and whether to loan them
money.
AICPA BB: Industry
Difficulty: Medium
123. Describe a work sheet and explain why it is useful.

A work sheet is a useful tool for organizing the preparation and analysis of financial
statements. It contains five pairs of debit and credit columns for the trial balance, adjusting
entries, adjusted trial balance, income statement accounts, and balance sheet (and owner's
equity) accounts.
AACSB: Technology
AICPA BB: Industry
Difficulty: Medium
4-49
124. List and explain the steps in preparing a 10-column worksheet.

1. Enter the unadjusted trial balance. List all account titles that will be expected to appear on
the financial statements and enter their balances from the ledger.
2. Enter adjustments.
3. Prepare the adjusted trial balance by combining the unadjusted trial balance columns with
the adjustments.
4. Sort the adjusted trial balance columns into the Income Statement columns and Balance
Sheet and Statement of Owner's Equity columns.
5. Total the Income Statement columns and Balance Sheet and Statement of Owner's Equity
columns. The difference between the Income Statement columns is the net income or net loss.
The difference between the Balance Sheet and Statement of Owner's Equity columns will also
be the amount of the net income or net loss. Add the net income to the Income Statement debit
column and total the columns. Add the net income to the Balance Sheet and Statement of
Owner's Equity credit column and total the columns.
AACSB: Technology
AICPA BB: Industry
Difficulty: Hard
125. What is the purpose of closing entries? Describe the closing process.
The purpose of closing entries is to transfer the end of period balances in the temporary
accounts to the equity account(s). The closing process has four steps: (1) Close credit balances
in revenue accounts to income summary, (2) close debit balances in expense accounts to
income summary, (3) close withdrawals to the owner's capital account, (4) close income
summary to the owner's capital account.
AICPA BB: Industry
Difficulty: Medium
4-50
126. Journalizing and posting closing entries is a required step in the accounting cycle.
Explain why it is necessary to close the books at the end of an accounting period.
Closing entries are necessary to close the income statement accounts (the temporary or
nominal accounts) at the end of the year in order to start the next year with the proper
balances in those accounts. The closing entries are what separate one accounting period from
another.
AICPA BB: Industry
Difficulty: Medium
127. What is the purpose of a post-closing trial balance?

A post-closing trial balance is a list of permanent accounts and their balances after all the
closing entries are journalized and posted. It is used to verify the equality of debits and credits
of the permanent account balances. It also verifies that the temporary accounts have zero
balances.
AICPA BB: Industry
Difficulty: Medium
128. Explain the purpose of reversing entries.

Reversing entries are an optional step in the accounting cycle. They apply to accrued assets
and accrued liabilities. The purpose of the reversing entries is to simplify a company's
recordkeeping.
AICPA BB: Industry
Difficulty: Hard
4-51
Problems
129. In the table below, indicate with an "X" in the proper column whether the account is a
(nominal) temporary account or a (real) permanent account.
4-52
AICPA BB: Industry
Difficulty: Medium
4-53
Listed below are a number of accounts. Use the table

below to classify each account. Indicate whether it is a
temporary or permanent account, whether it is included in
the Income Statement or Balance sheet, and if it is closed
at the end of the accounting period, and, if so, how it is
closed. The first one is done as an example.
130.
4-54
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-55
131. The following are the steps in the accounting cycle. List them in the order in which they
are completed:
Prepare adjusted trial balance
Post transactions
Prepare an unadjusted trial balance
Journalize transactions
Prepare the financial statements
Close the temporary accounts
Adjust the ledger accounts
Prepare a post-closing trial balance
Analyze transactions
1) Analyze transactions
2) Journalize transactions
3) Post transactions
4) Prepare an unadjusted trial balance
5) Adjust the ledger accounts
6) Prepare adjusted trial balance
7) Prepare the financial statements
8) Close the temporary accounts
9) Prepare a post-closing trial balance
AICPA BB: Industry
Difficulty: Medium
4-56

132. Based on the adjusted trial balance shown below, prepare a classified balance sheet for
Focus Package Delivery.
* $2,000 of the long-term note payable is due during the next year.
4-57
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
4-58

133. The calendar year-end adjusted trial balance for Acosta Co. follows:
Required:
(a) Prepare a classified year-end balance sheet. (Note: A $7,000 installment on the long-term
note payable is due within one year.)
(b) Calculate the current ratio. Comment on the ability of Acosta Co. to meets its short-term
debts.
4-59

(a)
*NI = $370,800 - $90,000 - $5,200 - $5,000 - $800 - $7,000 = $262,800

Ending Capital = $1,010,000 + $262,800 - $200,500 = $1,072,300
(b)
4-60
Acosta Co. has a current ratio of 4.5 to 1, which means it should have no difficulty paying its
short-term debts. Cash alone is more than adequate to meet short-term debts.
AACSB: Analytic, Reflective Thinking

AICPA BB: Industry, Resource Management, Critical Thinking
AICPA FN: Reporting, Risk Analysis
Difficulty: Hard
134. Calculate the current ratio in each of the following separate cases.
Case 1. 2.5
Case 2. 1.9
Case 3. 0.85
Case 4. 1.04
Case 5. 0.90
AACSB: Analytic
AICPA BB: Resource Management
Difficulty: Medium
4-61

135. Use the following partial work sheet from Matthews Lanes to prepare its income
statement, statement of owner's equity and a balance sheet (Assume the owner did not make
any investments in the business this year.)
4-62
4-63
AICPA BB: Industry
AICPA FN: Reporting
Difficulty: Medium
4-64

136. The unadjusted trial balance of E. Pace, Consultant is entered on the partial work sheet
below. Complete the work sheet using the following information:
(a) Salaries earned by employees that are unpaid and unrecorded, $500.
(b) An inventory of supplies showed $800 of unused supplies still on hand.
(c) Depreciation on equipment, $1,300.
4-65
AACSB: Technology, Analytic

AICPA BB: Industry
Difficulty: Hard
4-66

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 owner's equity columns.
4-67

AICPA BB: Industry
Difficulty: Hard
4-68

138. Shown below are selected data taken from the unadjusted and adjusted trial balances for
the Simonson Company for the current year ended December 31. Determine the items A
through H below.
4-69

AICPA BB: Industry
Difficulty: Hard
4-70
139. The summary amounts below appear in the Income Statement and Balance Sheet
columns of a company's December 31 work sheet. Prepare the necessary closing entries.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Easy
4-71

140. The adjusted trial balance of Sara's Web Services follows:
(a) Prepare the closing entries for Sara's Web Services.

(b) What is the balance of Sara's capital account after the closing entries are posted?
4-72
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-73
141. Following are selected accounts and their balances for a company after the adjustments
as of May 31, the end of its fiscal year. (All accounts have normal balances.)
Prepare all the necessary closing entries for this company.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-74
142. The adjusted trial balance of the Thomas Company follows:
Prepare the closing entries for Thomas Company.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-75
143. The items that follow appeared in the Income Statement columns of the work sheet
prepared for Armstrong Delivery Service at current year-end. In addition, L. Armstrong,
Capital had a credit balance of $117,000 and L. Armstrong, Withdrawals had a debit balance
of $30,000 at year end. Prepare closing journal entries for this company.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-76

144. Presented below are the year-end balances at December 31 of Laura's Laundry Service.
(All accounts have normal balances.)
(a) Prepare
the necessary closing entries at December 31.

(b) Prepare a post-closing trial balance at December 31.
4-77

(a)
(b)
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
4-78

145. Shown below is Adventure Travel's adjusted trial balance as of the end of its annual
accounting period:
(a) Prepare the necessary closing entries.

(b) Prepare a post-closing trial balance.
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(a)
(b)
AACSB: Analytic
AICPA BB: Industry
Difficulty: Hard
4-80
146. Employees of Artworld Co. have earned but have not been paid $3,500 in salaries for the
last week of the current calendar year.
(a) Prepare the necessary adjusting journal entry(ies) for Artworld at December 31 of the
current year.
(b) Assuming that Artworld makes reversing entries, prepare the necessary reversing entry.
Include the appropriate date for the reversing entry(ies).
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making, Measurment
Difficulty: Easy
147. The following information has been gathered for Stylish Co. to assist in preparing its
year-end adjusting entries at December 31:
(a) The company has earned $2,500 of rental revenue that has not yet been received or
recorded.
(b) Stylish has recorded $3,200 of unearned service fees. At year-end, $1,500 of this amount
has been earned.
(c) Depreciation on equipment for the year is $7,800.
(d) Employees have earned but have not yet been paid $2,750 in salaries.
Identify which of the above accounting adjustment would be reversed assuming Stylish Co.
uses reversing entries.
(a) Reversed.
(b) Not reversed.
(c) Not reversed.
(d) Reversed.
AACSB: Analytic
AICPA BB: Industry
Difficulty: Medium
4-81
Fill in the Blank Questions

148. The closing process resets ________, __________, and ________ account balances to
zero at the end of each accounting period.
Revenue, expense, withdrawals
AICPA BB: Industry
Difficulty: Easy
149. The ___________________ account is used only in the closing process.

Income Summary
AICPA BB: Industry
Difficulty: Easy
150. Revenues, expenses, withdrawals, and Income Summary are called _________________
accounts because they are closed at the end of each accounting period.
Temporary (or nominal)
AICPA BB: Industry
Difficulty: Easy
151. Balance sheet accounts are called ____________________ accounts because they carry
their balances to the next accounting period, and are not closed as long as the company
continues to own the asset, owe the liability and have equity.
Permanent (or real)
AICPA BB: Industry
Difficulty: Easy
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152. The ______________ refers to the steps in preparing financial statements for users.
Accounting cycle
AICPA BB: Industry
Difficulty: Easy
153. Intangible assets are long-term resources used to produce or sell products and services;
they generally lack ______________ and their benefits are highly ____________.
Physical form; uncertain
AICPA BB: Industry
Difficulty: Medium
154. The current portion of long-term debt is classified with the

_________________________.
Current Liabilities
AICPA BB: Industry
Difficulty: Medium
155. A current ratio of 2.1 suggests that a company has ____________ current assets to cover
current liabilities.
Sufficient
AICPA BB: Industry
Difficulty: Medium
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156. A ____________________ helps in preparing financial statements, is useful in preparing

interim statements, and is helpful in showing the effects of proposed transactions.
Work sheet
AICPA BB: Industry
Difficulty: Easy
157. A company's post-closing trial balance has a debit total of $475,000 and a credit total of
$457,000. This indicates that __________________________.
An error was made in the closing process.
AICPA BB: Industry
Difficulty: Medium
158. Reversing entries are linked to ____________________ and _____________ that were
created by adjusting entries at the end of the prior accounting period.
Accrued assets, accrued liabilities
AICPA BB: Industry
Difficulty: Hard
4-84
Problems
159. The unadjusted trial balance of Quick

Delivery is entered on the partial work sheet
below. Complete the work sheet using the
following information:
(a) Salaries earned by employees that are
unpaid and unrecorded, $5,000.
(b) An inventory of supplies showed $1,000 of
unused supplies still on hand.
(c) Depreciation on delivery vans, $24,000.
(d) Services paid in advance by customers of
$10,000 have now been provided to customers.
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4-86

AICPA BB: Industry
Difficulty: Hard
4-87

160. The following year-end adjusted trial balance is for Tom Janes Co. at the end of
December 31. The credit balance in Tom Janes, Capital at the beginning of the year, January
1, was $320,000. The owner, Tom Janes, invested an additional $300,000 during the current
year. The land held for future expansion was also purchased during the current year.
Required:
Prepare a classified year-end balance sheet. (Note: A $22,000 installment on the long-term
note payable is due within one year.)
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Net income $470,800 - $180,000 - $12,000 - $25,000 - $2,000 - $10,000 = $241,800

Ending Capital = $620,000 + $241,800 - $60,000 = $801,800
AACSB: Analytic
AICPA BB: Industry, Resource Management
AICPA FN: Reporting
Difficulty: Hard
4-89
161. Using the information presented in problem 160:

(a) Calculate the current ratio. Comment on the ability of Tom Janes Co. to meets its shortterm debts.
(b) Calculate the debt ratio and comment on the financial position and risk analysis of Tom
Janes Co.
(c) Using the account balances to analyze the financial position of Tom Janes Co., why would
the owner need to invest an additional $300,000 in the business when the business is already
profitable and the owner had an existing capital balance of $320,000?
(a) Current ratio = current assets/current liabilites
116,000/56,200 = 2.1 to 1
Tom Janes Co.'s current ratio is good and indicates that the company has more than enough in
current assets to meet its short-term debts.
(b) Debt ratio = Total Liabilities/Total Assets
258,200/1,060,000 = .24 to 1
The debit ratio is low and indicates that the company does not have a high degree of risk
associated with the company's use of liabilities to finance the company. The company has a
low degree of financial leverage, the assets of the company have been purchased through
equity financing rather than debt financing. The company should have no problem meeting
required future payments of liabilities.
(c) To keep the debt ratio low, the owner may have decided to use his own capital to finance
the purchase of assets. Also, the majority of capital contributed prior to the current year had
been used to purchase other plant and long-term assets. To finance the purchase of the land
held for future expansion, the bank may have required the owner to increase equity before
granting the long-term note payable. If the long-term note had previously existed, then the
owner invested the cash to purchase the land held for future expansion.
AACSB: Analytic, Reflective Thinking

AICPA BB: Resource Management, Critical Thinking
Difficulty: Hard
4-90
162. Excalibur frequently has accrued expenses at the end of its fiscal year that should be
recorded for proper financial statement presentation. Excalibur pays on a weekly basis and
has $50,000 of accrued salaries incurred but not paid for June 30, its fiscal year-end. This
consists of one day's accrued salaries for the week. Excalibur will pay its employees $250,000
on July 4; the one day of accrued salaries and the remaining four days for July salaries.
Record the following entries:
(a) Accrual of the salaries on June 30.
(b) Payment of the salaries on July 4, assuming that Excalibur does not prepare reversing
entries.
(c) Assuming that Excalibur prepares reversing entries, reverse the adjusting entry made on
June 30.
(d) Assuming that Excalibur prepares reversing entries, payment of the salaries on July 4.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making, Measurement
Difficulty: Hard
4-91
163. Epee Inc. frequently has accrued revenues at the end of its fiscal year that should be
recorded for proper financial statement presentation. Epee Inc.'s fiscal year ends on
September 30 of the current year. Epee Inc. has determined through an evaluation of invoices
and services rendered that $32,000 of services has been provided as of September 30, but not
yet billed. The total contract to be billed for services when completed will be $60,000. Record
the following entries:
(a) Accrual of the revenues on September 30.
(b) Receipt of payment from customers on October 9 for the services rendered, assuming that
Epee does not prepare reversing entries.
(c) Assuming that Epee prepares reversing entries, reverse the adjusting entry made on
September 30.
(d) Assuming that Epee prepares reversing entries, receipt of the payment for the total contract
amount on October 9.
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making, Measurement
Difficulty: Hard
4-92

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Chapter 004 Completing the Accounting Cycle

Summary of Questions by Difficulty Level (DL) and Learning Objective (LO)

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

True / False Questions

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

38. The work sheet is a required financial statement.

39. A work sheet is a substitute for the set of financial statements.

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

51. The withdrawals account is normally closed by debiting it.

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

62. Reversing entries are optional.

Chapter 004 Completing the Accounting Cycle

Multiple Choice Questions

65. When closing entries are made:

Chapter 004 Completing the Accounting Cycle

67. Which of the following statements is incorrect?

Chapter 004 Completing the Accounting Cycle

71. The closing process is necessary in order to:

72. Closing entries are required:

Chapter 004 Completing the Accounting Cycle

75. A classified balance sheet:

Chapter 004 Completing the Accounting Cycle

76. The assets section of a classified balance sheet usually includes:

Chapter 004 Completing the Accounting Cycle

80. The current ratio:

81. The current ratio:

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

85. Which of the following statements is incorrect?

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

100. The Income Summary account is used:

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

Chapter 004 Completing the Accounting Cycle

109. A post-closing trial balance reports:

Chapter 004 Completing the Accounting Cycle

110. Which of the following statements is true?

111. Reversing entries:

112. Reversing entries: