Financial Accounting Testbank part 5

SUMMARY OF Learning OBJECTIVES BY QUESTION TYPE

Note: TF = True-False BE = Brief Exercise C = Completion

MC = Multiple Choice EX = Exercise MA = Matching

SA = Short-Answer Essay CE = Challenge Exercise

Matching Question: 230

IFRS Questions: 238-248

CHAPTER Learning OBJECTIVES

1. Prepare a worksheet. The steps in preparing a worksheet are: (a) Prepare a trial balance on the worksheet, (b) Enter the adjustments in the adjustments columns, (c) Enter adjusted balances in the adjusted trial balance columns, (d) Extend adjusted trial balance amounts to appropriate financial statement columns, and (e) Total the statement columns, compute net income (or net loss), and complete the worksheet.

2. Explain the process of closing the books. Closing the books occurs at the end of an accounting period. The process is to journalize and post closing entries and then rule and balance all accounts. In closing the books, companies make separate entries to close revenues and expenses to Income Summary, Income Summary to Retained Earnings, and Dividends to Retained Earnings. Only temporary accounts are closed.

3. Describe the content and purpose of a post-closing trial balance. A post-closing trial balance contains the balances in permanent accounts that are carried forward to the next accounting period. The purpose of this trial balance is to prove the equality of these balances.

4. State the required steps in the accounting cycle. The required steps in the accounting cycle are: (1) analyze business transactions, (2) journalize the transactions, (3) post to ledger accounts, (4) prepare a trial balance, (5) journalize and post adjusting entries, (6) prepare an adjusted trial balance, (7) prepare financial statements, (8) journalize and post closing entries, and (9) prepare a post-closing trial balance.

5. Explain the approaches to preparing correcting entries. One way to determine the correcting entry is to compare the incorrect entry with the correct entry. After comparison, the company makes a correcting entry to correct the accounts. An alternative to a correcting entry is to reverse the incorrect entry and then prepare the correct entry.

6. Identify the sections of a classified balance sheet. A classified balance sheet categorizes assets as current assets; long-term investments; property, plant, and equipment; and intangibles. Liabilities are classified as either current or long-term. There is also an owner's (owners’) equity section, which varies with the form of business organization.

^a 7. Prepare reversing entries. Reversing entries are the opposite of the adjusting entries made in the preceding period. Some companies choose to make reversing entries at the beginning of a new accounting period to simplify the recording of later transactions related to the adjusting entries. In most cases, only accrued adjusting entries are reversed.

TRUE-FALSE STATEMENTS

1. A worksheet is a mandatory form that must be prepared along with an income statement and balance sheet.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

2. If a worksheet is used, financial statements can be prepared before adjusting entries are journalized.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

3. If total credits in the income statement columns of a worksheet exceed total debits, the enterprise has net income.

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

4. It is not necessary to prepare formal financial statements if a worksheet has been prepared because financial position and net income are shown on the worksheet.

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

5. The adjustments on a worksheet can be posted directly to the accounts in the ledger from the worksheet.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

6. The adjusted trial balance columns of a worksheet are obtained by subtracting the adjustment columns from the trial balance columns.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

7. The balance of the depreciation expense account will appear in the income statement debit column of a worksheet.

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

8. Closing entries are unnecessary if the business plans to continue operating in the future and issue financial statements each year.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

9. The Dividends account is closed to the Income Summary account in order to properly determine net income (or loss) for the period.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

10. After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

11. Closing revenue and expense accounts to the Income Summary account is an optional bookkeeping procedure.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

12. Closing the Dividends account to Retained Earnings is not necessary if net income is greater than dividends during the period.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

13. The Dividends account is a permanent account whose balance is carried forward to the next accounting period.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

14. Closing entries are journalized after adjusting entries have been journalized.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

15. The amounts appearing on an income statement should agree with the amounts appearing on the post-closing trial balance.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

16. The post-closing trial balance is entered in the first two columns of a worksheet.

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

17. A business entity has only one accounting cycle over its economic existence.

Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

18. The accounting cycle begins at the start of a new accounting period.

Ans: T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

19. Both correcting entries and adjusting entries always affect at least one balance sheet account and one income statement account.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

20. Correcting entries are made any time an error is discovered even though it may not be at the end of an accounting period.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

21. An incorrect debit to Accounts Receivable instead of the correct account Notes Receivable does not require a correcting entry because total assets will not be misstated.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

22. In a corporation, Retained Earnings is a part of owners' equity.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

23. A company's operating cycle and fiscal year are usually the same length of time.

Ans: F, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

24. Cash and supplies are both classified as current assets.

Ans: T, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

25. Long-term investments would appear in the property, plant, and equipment section of the balance sheet.

Ans: F, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

26. A liability is classified as a current liability if the company is to pay it within the forthcoming year.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

27. A company's liquidity is concerned with the relationship between long-term investments and long-term debt.

Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

28. Current assets are customarily the first items listed on a classified balance sheet.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

29. The operating cycle of a company is determined by the number of years the company has been operating.

Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

30. The accumulated depreciation account shows the total amount of depreciation that the company has expensed thus far in the asset's life.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

^a 31. The use of reversing entries changes the amount reported in the financial statements.

Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

^a 32. Each reversing entry is the exact opposite of the adjusting entry made in the previous period.

Ans: T, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

^a 33. Reversing entries are an optional bookkeeping procedure.

Ans: T, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

34. After a worksheet has been completed, the statement columns contain all data that are required for the preparation of financial statements.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

35. To close net income to retained earnings, Income Summary is debited and Retained Earnings is credited.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

36. In one closing entry, Dividends is credited and Income Summary is debited.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

37. The post-closing trial balance will contain only retained earnings statement accounts and balance sheet accounts.

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

38. The operating cycle of a company is the average time required to collect the receivables resulting from producing revenues.

Ans: F, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

39. Current assets are listed in the order of liquidity.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

40. Current liabilities are obligations that the company is to pay within the coming year.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Answers to True-False Statements

MULTIPLE CHOICE QUESTIONS

41. Preparing a worksheet involves

a. two steps.

b. three steps.

c. four steps.

d. five steps.

Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

42. The adjustments entered in the adjustments columns of a worksheet are

a. not journalized.

b. posted to the ledger but not journalized.

c. not journalized until after the financial statements are prepared.

d. journalized before the worksheet is completed.

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

43. The information for preparing a trial balance on a worksheet is obtained from

a. financial statements.

b. general ledger accounts.

c. general journal entries.

d. business documents.

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

44. After the adjusting entries are journalized and posted to the accounts in the general ledger, the balance of each account should agree with the balance shown on the

a. adjusted trial balance.

b. post-closing trial balance.

c. the general journal.

d. adjustments columns of the worksheet.

Ans: A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

45. If the total debit column exceeds the total credit column of the income statement columns on a worksheet, then the company has

a. earned net income for the period.

b. an error because debits do not equal credits.

c. suffered a net loss for the period.

d. to make an adjusting entry.

Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

46. A worksheet is a multiple column form that facilitates the

a. identification of events.

b. measurement process.

c. preparation of financial statements.

d. analysis process.

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

47. Which of the following companies would be least likely to use a worksheet to facilitate the adjustment process?

a. Large company with numerous accounts

b. Small company with numerous accounts

c. All companies, since worksheets are required under generally accepted accounting principles

d. Small company with few accounts

Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

48. A worksheet can be thought of as a(n)

a. permanent accounting record.

b. optional device used by accountants.

c. part of the general ledger.

d. part of the journal.

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

49. The account, Supplies, will appear in the following debit columns of the worksheet.

a. Trial balance

b. Adjusted trial balance

c. Balance sheet

d. All of these

Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

50. When constructing a worksheet, accounts are often needed that are not listed in the trial balance already entered on the worksheet from the ledger. Where should these additional accounts be shown on the worksheet?

a. They should be inserted in alphabetical order into the trial balance accounts already given.

b. They should be inserted in chart of account order into the trial balance already given.

c. They should be inserted on the lines immediately below the trial balance totals.

d. They should not be inserted on the trial balance until the next accounting period.

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

51. When using a worksheet, adjusting entries are journalized

a. after the worksheet is completed and before financial statements are prepared.

b. before the adjustments are entered on to the worksheet.

c. after the worksheet is completed and after financial statements have been prepared.

d. before the adjusted trial balance is extended to the proper financial statement columns.

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

52. Assuming that there is a net loss for the period, debits equal credits in all but which section of the worksheet?

a. Income statement columns

b. Adjustments columns

c. Trial balance columns

d. Adjusted trial balance columns

Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

53. Adjusting entries are prepared from

a. source documents.

b. the adjustments columns of the worksheet.

c. the general ledger.

d. last year's worksheet.

Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

54. The net income (or loss) for the period

a. is found by computing the difference between the income statement credit column and the balance sheet credit column on the worksheet.

b. cannot be found on the worksheet.

c. is found by computing the difference between the income statement columns of the worksheet.

d. is found by computing the difference between the trial balance totals and the adjusted trial balance totals.

Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

55. The worksheet does not show

a. net income or loss for the period.

b. revenue and expense account balances.

c. the ending balance in the retained earnings account.

d. the trial balance before adjustments.

Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

56. If the total debits exceed total credits in the balance sheet columns of the worksheet, owner's equity

a. will increase because net income has occurred.

b. will decrease because a net loss has occurred.

c. is in error because a mistake has occurred.

d. will not be affected.

Ans: A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

57. The income statement and balance sheet columns of Iron and Wine Company's worksheet reflect the following totals:

Income Statement Balance Sheet

Dr. Cr. Dr. Cr.

Totals $72,000 $48,000 $60,000 $84,000

The net income (or loss) for the period is

a. $48,000 income.

b. $24,000 income.

c. $24,000 loss.

d. not determinable.

Ans: C, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

58. The income statement and balance sheet columns of Iron and Wine Company's worksheet reflect the following totals:

Income Statement Balance Sheet

Dr. Cr. Dr. Cr.

Totals $72,000 $48,000 $60,000 $84,000

To enter the net income (or loss) for the period into the above worksheet requires an entry to the

a. income statement debit column and the balance sheet credit column.

b. income statement credit column and the balance sheet debit column.

c. income statement debit column and the income statement credit column.

d. balance sheet debit column and the balance sheet credit column.

Ans: B, LO: 1, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

59. Only two adjustments appear in the adjustments column of a worksheet for Tempest Sailing Inc. One of these is to record $8,000 depreciation of equipment, and the other is to record the expiration of $1,500 of prepaid insurance. If the Trail Balance column totals are $145,320, what are the totals of the Adjusted Trial Balance columns?

a. $145,320.

b. $153,320.

c. $151,820.

d. $154,820.

Ans: b LO1 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

60. If sales are $540,000, expenses are $440,000 and dividends are $50,000, what is the balance of income Summary prior to closing?

a. It will have a credit balance of $50,000.

b. It will have a debit balance of $50,000.

c. It will have a debit balance of $100,000.

d. It will have a credit balance of $100,000.

Ans: d LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

61. Which of the following accounts would not be debited in the process of preparing closing entries for Bargain World, Inc

a. Income Summary.

b. Service Revenue.

c. Dividends.

d. Retained Earnings.

Ans: c LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

62. Which of the following journal entries is required to close the Income Summary account of a profitable company?

a. Debit Income Summary, credit Retained Earnings.

b. Credit Income Summary, debit Retained Earnings.

c. Debit Income Summary, credit Revenue.

d. Credit Income Summary, debit Common Stock.

Ans: a LO2 BT: AP Difficulty: Easy TOT: 2 min. AACSB: Analytic, AICPA BB: None, AICPA FN: Measurement, AICPA PC: problem solving

63. The following information is available for Baker Industries

What is the balance in Income Summary before it is closed to Retained Earnings for Baker Industries?

a. $56

b. $52

c. $41

d. $248

Ans: b LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

64. The following information is available for Baker Industries

What is the balance in Retained Earnings after posting closing entries at December 31 for Baker Industries?

a. $108

b. $97

c. $237

d. $4

Ans: b LO2 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

65. The following information is available for Baker Industries

What is the amount of total debits on the post-closing trial balance for Baker Industries?

a. $237

b. $248

c. $289

d. $224

Ans: a LO3 BT: K Difficulty: Easy TOT: 1.0 min. AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Reporting

66. Closing entries are necessary for

a. permanent accounts only.

b. temporary accounts only.

c. both permanent and temporary accounts.

d. permanent or real accounts only.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

67. Each of the following accounts is closed to Income Summary except

a. Expenses.

b. Dividends

c. Revenues.

d. All of these are closed to Income Summary.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

68. Closing entries are made

a. in order to terminate the business as an operating entity.

b. so that all assets, liabilities, and stock holder's equity accounts will have zero balances when the next accounting period starts.

c. in order to transfer net income (or loss) and dividends to the retained earnings account.

d. so that financial statements can be prepared.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

69. Closing entries are

a. an optional step in the accounting cycle.

b. posted to the ledger accounts from the worksheet.

c. made to close permanent or real accounts.

d. journalized in the general journal.

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

70. The income summary account

a. is a permanent account.

b. appears on the balance sheet.

c. appears on the income statement.

d. is a temporary account.

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

71. If Income Summary has a credit balance after revenues and expenses have been closed into it, the closing entry for Income Summary will include a

a. debit to the Retained Earnings account.

b. debit to the Dividends account.

c. credit to the Retained Earnings account.

d. credit to the Dividends account.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

72. Closing entries are journalized and posted

a. before the financial statements are prepared.

b. after the financial statements are prepared.

c. at management's discretion.

d. at the end of each interim accounting period.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

73. Closing entries

a. are prepared before the financial statements.

b. reduce the number of permanent accounts.

c. cause the revenue and expense accounts to have zero balances.

d. summarize the activity in every account.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

74. Which of the following is a true statement about closing the books of a corporation?

a. Expenses are closed to the Expense Summary account.

b. Only revenues are closed to the Income Summary account.

c. Revenues and expenses are closed to the Income Summary account.

d. Revenues, expenses, and the dividends account are closed to the Income Summary account.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

75. Closing entries may be prepared from all but which one of the following sources?

a. Adjusted balances in the ledger

b. Income statement and balance sheet columns of the worksheet

c. Balance sheet

d. Income and retained earnings statements

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

76. In order to close the Dividends account, the

a. income summary account should be debited.

b. income summary account should be credited.

c. Retained Earnings account should be credited.

d. Retained Earnings account should be debited.

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

77. In preparing closing entries

a. each revenue account will be credited.

b. each expense account will be credited.

c. the dividends account will be debited if there is net income for the period.

d. the dividends account will be debited.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

78. The most efficient way to accomplish closing entries is to

a. credit the income summary account for each revenue account balance.

b. debit the income summary account for each expense account balance.

c. credit the dividends balance directly to the income summary account.

d. credit the income summary account for total revenues and debit the income summary account for total expenses.

Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

79. The closing entry process consists of closing

a. all asset and liability accounts.

b. out the Retained Earnings account.

c. all permanent accounts.

d. all temporary accounts.

Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

80. The final closing entry to be journalized is typically the entry that closes the

a. revenue accounts.

b. Dividends account.

c. Retained Earnings account.

d. expense accounts.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

81. An error has occurred in the closing entry process if

a. revenue and expense accounts have zero balances.

b. the Retained Earnings account is credited for the amount of net income.

c. the Dividends account is closed to the Retained Earnings account.

d. the balance sheet accounts have zero balances.

Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

82. The Income Summary account is an important account that is used

a. during interim periods.

b. in preparing adjusting entries.

c. annually in preparing closing entries.

d. annually in preparing correcting entries.

Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

83. The balance in the income summary account before it is closed will be equal to

a. the net income or loss on the income statement.

b. the beginning balance in the retained earnings account.

c. the ending balance in the retained earnings account.

d. zero.

Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

84. After closing entries are posted, the balance in the retained earnings account in the ledger will be equal to

a. the beginning retained earnings reported on the retained earnings statement.

b. the amount of the retained earnings reported on the balance sheet.

c. zero.

d. the net income for the period.

Ans: B, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

85. The income statement for the month of June, 2013 of Camera Obscura Enterprises contains the following information:

Revenues $7,000

Expenses:

Salaries and Wages Expense $3,000

Rent Expense 1,000

Advertising Expense 800

Supplies Expense 300

Insurance Expense 100

Total expenses 5,200

Net income $1,800

The entry to close the revenue account includes a

a. debit to Income Summary for $1,800.

b. credit to Income Summary for $1,800.

c. debit to Income Summary for $7,000.

d. credit to Income Summary for $7,000.

Ans: D, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

86. The income statement for the month of June, 2013 of Camera Obscura Enterprises contains the following information:

Revenues $7,000

Expenses:

Salaries and Wages Expense $3,000

Rent Expense 1,000

Advertising Expense 800

Supplies Expense 300

Insurance Expense 100

Total expenses 5,200

Net income $1,800

The entry to close the expense accounts includes a

a. debit to Income Summary for $1,800.

b. credit to Rent Expense for $1,000.

c. credit to Income Summary for $5,200.

d. debit to Wages Expense for $3,000.

Ans: B, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

87. The income statement for the month of June, 2013 of Camera Obscura Enterprises contains the following information:

Revenues $7,000

Expenses:

Salaries and Wages Expense $3,000

Rent Expense 1,000

Advertising Expense 800

Supplies Expense 300

Insurance Expense 100

Total expenses 5,200

Net income $1,800

After the revenue and expense accounts have been closed, the balance in Income Summary will be

a. $0.

b. a debit balance of $1,800.

c. a credit balance of $1,800.

d. a credit balance of $7,000.

Ans: C, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

88. The income statement for the month of June, 2013 of Camera Obscura Enterprises contains the following information:

Revenues $7,000

Expenses:

Salaries and Wages Expense $3,000

Rent Expense 1,000

Advertising Expense 800

Supplies Expense 300

Insurance Expense 100

Total expenses 5,200

Net income $1,800

The entry to close Income Summary to Retained Earnings includes

a. a debit to Revenues for $7,000.

b. credits to Expenses totalling $5,200.

c. a credit to Income Summary for $1,800

d. a credit to Retained Earnings for $1,800.

Ans: D, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

89. The income statement for the month of June, 2013 of Camera Obscura Enterprises contains the following information:

Revenues $7,000

Expenses:

Salries and Wages Expense $3,000

Rent Expense 1,000

Advertising Expense 800

Supplies Expense 300

Insurance Expense 100

Total expenses 5,200

Net income $1,800

At June 1, 2013, Camera Obscura reported retained earnings of $35,000. The company paid no dividends during June. At June 30, 2013, the company will report retained earnings of

a. $29,800.

b. $35,000.

c. $36,800.

d. $42,000.

Ans: C, LO: 2, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

90. The income statement for the year 2013 of Fugazi Co. contains the following information:

Revenues $70,000

Expenses:

Salaries and Wages Expense $45,000

Rent Expense 12,000

Advertising Expense 8,000

Supplies Expense 6,000

Utilities Expense 2,500

Insurance Expense 2,000

Total expenses 75,500

Net income (loss) $(5,500)

The entry to close the revenue account includes a

a. debit to Income Summary for $5,500.

b. credit to Income Summary for $5,500.

c. debit to Revenues for $70,000.

d. credit to Revenues for $70,000.

Ans: C, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

91. The income statement for the year 2013 of Fugazi Co. contains the following information:

Revenues $70,000

Expenses:

Salaries and Wages Expense $45,000

Rent Expense 12,000

Advertising Expense 8,000

Supplies Expense 6,000

Utilities Expense 2,500

Insurance Expense 2,000

Total expenses 75,500

Net income (loss) $(5,500)

The entry to close the expense accounts includes a

a. debit to Income Summary for $5,500.

b. credit to Income Summary for $5,500.

c. debit to Income Summary for $75,500.

d. debit to Salaries and Wages Expense for $2,500.

Ans: C, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

92. The income statement for the year 2013 of Fugazi Co. contains the following information:

Revenues $70,000

Expenses:

Salaries and Wages Expense $45,000

Rent Expense 12,000

Advertising Expense 8,000

Supplies Expense 6,000

Utilities Expense 2,500

Insurance Expense 2,000

Total expenses 75,500

Net income (loss) $(5,500)

Multiple Choice 92. (Cont.)

After the revenue and expense accounts have been closed, the balance in Income Summary will be

a. $0.

b. a debit balance of $5,500.

c. a credit balance of $5,500.

d. a credit balance of $70,000.

Ans: B, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

93. The income statement for the year 2013 of Fugazi Co. contains the following information:

Revenues $70,000

Expenses:

Salaries and Wages Expense $45,000

Rent Expense 12,000

Advertising Expense 8,000

Supplies Expense 6,000

Utilities Expense 2,500

Insurance Expense 2,000

Total expenses 75,500

Net income (loss) $(5,500)

The entry to close Income Summary to Retained Earning includes

a. a debit to Revenue for $70,000.

b. credits to Expenses totalling $75,500.

c. a credit to Income Summary for $5,500.

d. a credit to Retained Earning for $5,500.

Ans: C, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

94. The income statement for the year 2013 of Fugazi Co. contains the following information:

Revenues $70,000

Expenses:

Salaries and Wages Expense $45,000

Rent Expense 12,000

Advertising Expense 8,000

Supplies Expense 6,000

Utilities Expense 2,500

Insurance Expense 2,000

Total expenses 75,500

Net income (loss) $(5,500)

At January 1, 2013, Fugazi reported retained earnings of $50,000. Divudends for the year totalled $10,000. At December 31, 2013, the company will report retained earning of

a. $15,500.

b. $34,500.

c. $40,000.

d. $45,500.

Ans: B, LO: 2, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

95. The income statement for the year 2013 of Fugazi Co. contains the following information:

Revenues $70,000

Expenses:

Salaries and Wages Expense $45,000

Rent Expense 12,000

Advertising Expense 8,000

Supplies Expense 6,000

Utilities Expense 2,500

Insurance Expense 2,000

Total expenses 75,500

Net income (loss) $(5,500)

After all closing entries have been posted, the Income Summary account will have a balance of

a. $0.

b. $5,500 debit.

c. $5,500 credit.

d. $34,500 credit.

Ans: A, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

96. The income statement for the year 2013 of Fugazi Co. contains the following information:

Revenues $70,000

Expenses:

Salaries and Wages Expense $45,000

Rent Expense 12,000

Advertising Expense 8,000

Supplies Expense 6,000

Utilities Expense 2,500

Insurance Expense 2,000

Total expenses 75,500

Net income (loss) $(5,500)

After all closing entries have been posted, the revenue account will have a balance of

a. $0.

b. $70,000 credit.

c. $70,000 debit.

d. $5,500 credit.

Ans: A, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

97. A post-closing trial balance is prepared

a. after closing entries have been journalized and posted.

b. before closing entries have been journalized and posted.

c. after closing entries have been journalized but before the entries are posted.

d. before closing entries have been journalized but after the entries are posted.

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

98. All of the following statements about the post-closing trial balance are correct except it

a. shows that the accounting equation is in balance.

b. provides evidence that the journalizing and posting of closing entries have been properly completed.

c. contains only permanent accounts.

d. proves that all transactions have been recorded.

Ans: D, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

99. A post-closing trial balance will show

a. only permanent account balances.

b. only temporary account balances.

c. zero balances for all accounts.

d. the amount of net income (or loss) for the period.

Ans: A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

100. A post-closing trial balance should be prepared

a. before closing entries are posted to the ledger accounts.

b. after closing entries are posted to the ledger accounts.

c. before adjusting entries are posted to the ledger accounts.

d. only if an error in the accounts is detected.

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

101. A post-closing trial balance will show

a. zero balances for all accounts.

b. zero balances for balance sheet accounts.

c. only balance sheet accounts.

d. only income statement accounts.

Ans: C, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

102. The purpose of the post-closing trial balance is to

a. prove that no mistakes were made.

b. prove the equality of the balance sheet account balances that are carried forward into the next accounting period.

c. prove the equality of the income statement account balances that are carried forward into the next accounting period.

d. list all the balance sheet accounts in alphabetical order for easy reference.

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

103. The balances that appear on the post-closing trial balance will match the

a. income statement account balances after adjustments.

b. balance sheet account balances after closing entries.

c. income statement account balances after closing entries.

d. balance sheet account balances after adjustments.

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

104. Which account listed below would be double ruled in the ledger as part of the closing process?

a. Cash

b. Retained

c. Dividends

d. Accumulated Depreciation—Equipment

Ans: C, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

105. A double rule applied to accounts in the ledger during the closing process implies that

a. the account is a temporary account.

b. the account is a balance sheet account.

c. the account balance is not zero.

d. a mistake has been made, since double ruling is prescribed.

Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

106. The heading for a post-closing trial balance has a date line that is similar to the one found on

a. a balance sheet.

b. an income statement.

c. a retained earnings statement.

d. the worksheet.

Ans: A, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

107. Which one of the following is usually prepared only at the end of a company's annual accounting period?

a. Preparing financial statements

b. Journalizing and posting adjusting entries

c. Journalizing and posting closing entries

d. Preparing an adjusted trial balance

Ans: C, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

108. The step in the accounting cycle that is performed on a periodic basis (i.e., monthly, quarterly) is

a. analyzing transactions.

b. journalizing and posting adjusting entries.

c. preparing a post-closing trial balance.

d. posting to ledger accounts.

Ans: B, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

109. Which one of the following is an optional step in the accounting cycle of a business enterprise?

a. Analyze business transactions

b. Prepare a worksheet

c. Prepare a trial balance

d. Post to the ledger accounts

Ans: B, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

110. The final step in the accounting cycle is to prepare

a. closing entries.

b. financial statements.

c. a post-closing trial balance.

d. adjusting entries.

Ans: C, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

111. Which of the following steps in the accounting cycle would not generally be performed daily?

a. Journalize transactions

b. Post to ledger accounts

c. Prepare adjusting entries

d. Analyze business transactions

Ans: C, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

112. Which of the following steps in the accounting cycle may be performed most frequently?

a. Prepare a post-closing trial balance

b. Journalize closing entries

c. Post closing entries

d. Prepare a trial balance

Ans: D, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

113. Which of the following depicts the proper sequence of steps in the accounting cycle?

a. Journalize the transactions, analyze business transactions, prepare a trial balance

b. Prepare a trial balance, prepare financial statements, prepare adjusting entries

c. Prepare a trial balance, prepare adjusting entries, prepare financial statements

d. Prepare a trial balance, post to ledger accounts, post adjusting entries

Ans: C, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

114. The two optional steps in the accounting cycle are preparing

a. a post-closing trial balance and reversing entries.

b. a worksheet and post-closing trial balances.

c. reversing entries and a worksheet.

d. an adjusted trial balance and a post-closing trial balance.

Ans: C, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

115. The first required step in the accounting cycle is

a. reversing entries.

b. journalizing transactions in the book of original entry.

c. analyzing transactions.

d. posting transactions.

Ans: C, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

116. Correcting entries

a. always affect at least one balance sheet account and one income statement account.

b. affect income statement accounts only.

c. affect balance sheet accounts only.

d. may involve any combination of accounts in need of correction.

Ans: D, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

117. Merriweather Post Pavillion received a $840 check from a customer for the balance due. The transaction was erroneously recorded as a debit to Cash $480 and a credit to Service Revenue $480. The correcting entry is

a. debit Cash, $840; credit Accounts Receivable, $840.

b. debit Cash, $360 and Accounts Receivable, $480; credit Service Revenue, $840.

c. debit Cash, $360 and Service Revenue, $480; credit Accounts Receivable, $840.

d. debit Accounts Receivable, $840; credit Cash, $360 and Service Revenue, $480.

Ans: C, LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

118. If errors occur in the recording process, they

a. should be corrected as adjustments at the end of the period.

b. should be corrected as soon as they are discovered.

c. should be corrected when preparing closing entries.

d. cannot be corrected until the next accounting period.

Ans: B, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

119. A correcting entry

a. must involve one balance sheet account and one income statement account.

b. is another name for a closing entry.

c. may involve any combination of accounts.

d. is a required step in the accounting cycle.

Ans: C, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

120. An unacceptable way to make a correcting entry is to

a. reverse the incorrect entry.

b. erase the incorrect entry.

c. compare the incorrect entry with the correct entry and make a correcting entry to correct the accounts.

d. correct it immediately upon discovery.

Ans: B, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

121. Zen Arcade paid the weekly payroll on January 2 by debiting Salaries and Wages Expense for $47,000. The accountant preparing the payroll entry overlooked the fact that Salaries and Wages Expense of $27,000 had been accrued at year end on December 31. The correcting entry is

a. Salaries and Wages Payable................................................ 27,000

Cash........................................................................... 27,000

b. Cash....................................................................................... 20,000

Salaries and Wages Expense................................... 20,000

c. Salaries and Wages Payable................................................ 27,000

Salaries and Wages Expense................................... 27,000

d. Cash....................................................................................... 27,000

Salaries and Wages Expense................................... 27,000

Ans: C, LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

122. Jawbreaker Company paid $640 on account to a creditor. The transaction was erroneously recorded as a debit to Cash of $460 and a credit to Accounts Receivable, $460. The correcting entry is

a. Accounts Payable.................................................................. 640

Cash........................................................................... 640

b. Accounts Receivable............................................................. 460

Cash........................................................................... 460

c. Accounts Receivable............................................................. 460

Accounts Payable...................................................... 460

d. Accounts Receivable............................................................. 460

Accounts Payable.................................................................. 640

Cash........................................................................... 1,100

Ans: D, LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

123. A lawyer collected $720 of legal fees in advance. He erroneously debited Cash for $270 and credited Accounts Receivable for $270. The correcting entry is

a. Cash....................................................................................... 270

Accounts Receivable............................................................. 450

Unearned Service Revenue...................................... 720

b. Cash....................................................................................... 720

Service Revenue....................................................... 720

c. Cash....................................................................................... 450

Accounts Receivable............................................................. 270

Unearned Service Revenue...................................... 720

d. Cash....................................................................................... 450

Accounts Receivable................................................. 450

Ans: C, LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

124. On May 25, Yellow House Company received a $650 check from Grizzly Bean for services to be performed in the future. The bookkeeper for Yellow House Company incorrectly debited Cash for $650 and credited Accounts Receivable for $650. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should:

a. debit Cash $650 and credit Unearned Service Revenue $650.

b. debit Accounts Receivable $650 and credit Service Revenue $650.

c. debit Accounts Receivable $650 and credit Cash $650.

d. debit Accounts Receivable $650 and credit Unearned Service Revenue $650.

Ans: D, LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

125. On March 8, Black Candy Company bought supplies on account from the Arcade Fire Company for $880. Black Candy Company incorrectly debited Equipment for $800 and credited Accounts Payable for $800. The entries have been posted to the ledger. the correcting entry should be:

a. Supplies................................................................................. 880

Accounts Payable............................................................ 880

b. Supplies................................................................................. 880

Accounts Payable............................................................ 800

Equipment........................................................................ 80

c. Supplies................................................................................. 880

Equipment........................................................................ 880

d. Supplies................................................................................. 880

Equipment........................................................................ 800

Accounts Payable............................................................ 80

Ans: D, LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

126. The following information is for Sunny Day Real Estate:

Sunny Day Real Estate

Balance Sheet

December 31, 2013

Cash $ 25,000 Accounts Payable $ 60,000

Prepaid Insurance 30,000 Salaries and Wages Payable 15,000

Accounts Receivable 50,000 Mortgage Payable 85,000

Inventory 70,000 Total Liabilities $160,000

Land Held for Investment 85,000

Land 120,000

Building $100,000 Common Sock $120,000

Less Accumulated Retained Earnings 250,000 370,000

Depreciation (20,000) 80,000

Trademark 70,000 Total Liabilities and

Total Assets $530,000 Stockholders' Equity $530,000

The total dollar amount of assets to be classified as current assets is

a. $105,000.

b. $175,000.

c. $190,000.

d. $260,000.

Ans: B, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

127. The following information is for Sunny Day Real Estate:

Sunny Day Real Estate

Balance Sheet

December 31, 2013

Cash $ 25,000 Accounts Payable $ 60,000

Prepaid Insurance 30,000 Salaries and Wages Payable 15,000

Accounts Receivable 50,000 Mortgage Payable 85,000

Inventory 70,000 Total Liabilities $160,000

Land Held for Investment 85,000

Land 120,000

Building $100,000 Common Sock $120,000

Less Accumulated Retained Earnings 250,000 370,000

Depreciation (20,000) 80,000

Trademark 70,000 Total Liabilities and

Total Assets $530,000 Stockholders' Equity $530,000

The total dollar amount of assets to be classified as property, plant, and equipment is

a. $200,000.

b. $220,000.

c. $285,000.

d. $305,000.

Ans: A, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

128. The following information is for Sunny Day Real Estate:

Sunny Day Real Estate

Balance Sheet

December 31, 2013

Cash $ 25,000 Accounts Payable $ 60,000

Prepaid Insurance 30,000 Salaries and Wages Payable 15,000

Accounts Receivable 50,000 Mortgage Payable 85,000

Inventory 70,000 Total Liabilities $160,000

Land Held for Investment 85,000

Land 120,000

Building $100,000 Common Sock $120,000

Less Accumulated Retained Earnings 250,000 370,000

Depreciation (20,000) 80,000

Trademark 70,000 Total Liabilities and

Total Assets $530,000 Stockholders' Equity $530,000

The total dollar amount of assets to be classified as investments is

a. $0.

b. $70,000.

c. $85,000.

d. $155,000.

Ans: C, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

129. The following information is for Sunny Day Real Estate:

Sunny Day Real Estate

Balance Sheet

December 31, 2013

Cash $ 25,000 Accounts Payable $ 60,000

Prepaid Insurance 30,000 Salaries and Wages Payable 15,000

Accounts Receivable 50,000 Mortgage Payable 85,000

Inventory 70,000 Total Liabilities $160,000

Land Held for Investment 85,000

Land 120,000

Building $100,000 Common Sock $120,000

Less Accumulated Retained Earnings 250,000 370,000

Depreciation (20,000) 80,000

Trademark 70,000 Total Liabilities and

Total Assets $530,000 Stockholders' Equity $530,000

The total dollar amount of liabilities to be classified as current liabilities is

a. $15,000.

b. $60,000.

c. $75,000.

d. $160,000.

Ans: C, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

130. The following information is for Bright Eyes Auto Supplies:

Bright Eyes Auto Supplies

Balance Sheet

December 31, 2013

Cash $ 20,000 Accounts Payable $ 65,000

Prepaid Insurance 40,000 Salaries and Wages Payable 25,000

Accounts Receivable 50,000 Mortgage Payable 75,000

Inventory 70,000 Total Liabilities $165,000

Land Held for Investment 90,000

Land 125,000

Building $100,000 Common Sock $120,000

Less Accumulated Retained Earnings 250,000 370,000

Depreciation (30,000) 70,000

Trademark 70,000 Total Liabilities and

Total Assets $535,000 Stockholders' Equity $535,000

The total dollar amount of assets to be classified as current assets is

a. $70,000.

b. $110,000.

c. $180,000.

d. $250,000.

Ans: C, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

131. The following information is for Bright Eyes Auto Supplies:

Bright Eyes Auto Supplies

Balance Sheet

December 31, 2013

Cash $ 20,000 Accounts Payable $ 65,000

Prepaid Insurance 40,000 Salaries and Wages Payable 25,000

Accounts Receivable 50,000 Mortgage Payable 75,000

Inventory 70,000 Total Liabilities $165,000

Land Held for Investment 90,000

Land 125,000

Building $100,000 Common Sock $120,000

Less Accumulated Retained Earnings 250,000 370,000

Depreciation (30,000) 70,000

Trademark 70,000 Total Liabilities and

Total Assets $535,000 Stockholders' Equity $535,000

The total dollar amount of assets to be classified as property, plant, and equipment is

a. $195,000.

b. $225,000.

c. $285,000.

d. $315,000.

Ans: A, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

132. The following information is for Bright Eyes Auto Supplies:

Bright Eyes Auto Supplies

Balance Sheet

December 31, 2013

Cash $ 20,000 Accounts Payable $ 65,000

Prepaid Insurance 40,000 Salaries and Wages Payable 25,000

Accounts Receivable 50,000 Mortgage Payable 75,000

Inventory 70,000 Total Liabilities $165,000

Land Held for Investment 90,000

Land 125,000

Building $100,000 Common Sock $120,000

Less Accumulated Retained Earnings 250,000 370,000

Depreciation (30,000) 70,000

Trademark 70,000 Total Liabilities and

Total Assets $535,000 Stockholders' Equity $535,000

The total dollar amount of assets to be classified as investments is

a. $0.

b. $70,000.

c. $90,000.

d. $125,000.

Ans: C, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

133. The following information is for Bright Eyes Auto Supplies:

Bright Eyes Auto Supplies

Balance Sheet

December 31, 2013

Cash $ 20,000 Accounts Payable $ 65,000

Prepaid Insurance 40,000 Salaries and Wages Payable 25,000

Accounts Receivable 50,000 Mortgage Payable 75,000

Inventory 70,000 Total Liabilities $165,000

Land Held for Investment 90,000

Land 125,000

Building $100,000 Common Sock $120,000

Less Accumulated Retained Earnings 250,000 370,000

Depreciation (30,000) 70,000

Trademark 70,000 Total Liabilities and

Total Assets $535,000 Stockholders' Equity $535,000

The total dollar amount of liabilities to be classified as current liabilities is

a. $25,000.

b. $65,000.

c. $90,000.

d. $165,000.

Ans: C, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

134. All of the following are property, plant, and equipment except

a. supplies.

b. machinery.

c. land.

d. buildings.

Ans: A, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

135. The first item listed under current liabilities is usually

a. accounts payable.

b. notes payable.

c. salaries and wages payable.

d. taxes payable.

Ans: B, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

136. Office Equipment is classified in the balance sheet as

a. a current asset.

b. property, plant, and equipment.

c. an intangible asset.

d. a long-term investment.

Ans: B, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

137. A current asset is

a. the last asset purchased by a business.

b. an asset which is currently being used to produce a product or service.

c. usually found as a separate classification in the income statement.

d. an asset that a company expects to convert to cash or use up within one year.

Ans: D, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

138. An intangible asset

a. does not have physical substance, yet often is very valuable.

b. is worthless because it has no physical substance.

c. is converted into a tangible asset during the operating cycle.

d. cannot be classified on the balance sheet because it lacks physical substance.

Ans: A, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

139. Liabilities are generally classified on a balance sheet as

a. small liabilities and large liabilities.

b. present liabilities and future liabilities.

c. tangible liabilities and intangible liabilities.

d. current liabilities and long-term liabilities.

Ans: D, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

140. Which of the following would not be classified a long-term liability?

a. Current maturities of long-term debt

b. Bonds payable

c. Mortgage payable

d. Lease liabilities

Ans: A, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

141. Which of the following liabilities are not related to the operating cycle?

a. Wages payable

b. Accounts payable

c. Utilities payable

d. Bonds payable

Ans: D, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

142. Intangible assets include each of the following except

a. copyrights.

b. goodwill.

c. land improvements.

d. patents.

Ans: C, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

143. It is not true that current assets are assets that a company expects to

a. realize in cash within one year.

b. sell within one year.

c. use up within one year.

d. acquire within one year.

Ans: D, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

144. The operating cycle of a company is the average time that is required to go from cash to

a. sales in producing revenues.

b. cash in producing revenues.

c. inventory in producing revenues.

d. accounts receivable in producing revenues.

Ans: B, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

145. On a classified balance sheet, current assets are customarily listed

a. in alphabetical order.

b. with the largest dollar amounts first.

c. in the order of liquidity.

d. in the order of acquisition.

Ans: C, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

146. Intangible assets are

a. listed under current assets on the balance sheet.

b. not listed on the balance sheet because they do not have physical substance.

c. long-lived assets that are often very valuable.

d. listed as a long-term investment on the balance sheet.

Ans: C, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

147. The relationship between current assets and current liabilities is important in evaluating a company's

a. profitability.

b. liquidity.

c. market value.

d. accounting cycle.

Ans: B, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

148. The most important information needed to determine if companies can pay their current obligations is the

a. net income for this year.

b. projected net income for next year.

c. relationship between current assets and current liabilities.

d. relationship between short-term and long-term liabilities.

Ans: C, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

149. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2013:

Accounts payable $ 19,000

Accounts receivable 11,000

Accumulated depreciation – equipment 28,000

Advertising expense 21,000

Cash 11,000

Common stock 40,000

Depreciation expense 12,000

Dividends 14,000

Insurance expense 3,000

Note payable, due 6/30/14 70,000

Prepaid insurance (12-month policy) 6,000

Rent expense 17,000

Retained earnings (1/1/13) 65,000

Salaries and wages expense 32,000

Service revenue 125,000

Supplies 4,000

Supplies expense 6,000

Equipment 210,000

What is the company’s net income for the year ending December 31, 2013?

a. $6,000

b. $20,000

c. $34,000

d. $125,000

Ans: C, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

150. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2013:

Accounts payable $ 19,000

Accounts receivable 11,000

Accumulated depreciation – equipment 28,000

Advertising expense 21,000

Cash 11,000

Common stock 40,000

Dividends 14,000

Depreciation expense 12,000

Insurance expense 3,000

Note payable, due 6/30/14 70,000

Prepaid insurance (12-month policy) 6,000

Rent expense 17,000

Retained earnings (1/1/13) 65,000

Salaries and wages expense 32,000

Service revenue 125,000

Supplies 4,000

Supplies expense 6,000

Equipment 210,000

What is the balance that would be reported for stockholders' equity at December 31, 2013?

a. $91,000

b. $105,000

c. $125,000

d. $139,000

Ans: C, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

151. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2013:

Accounts payable $ 19,000

Accounts receivable 11,000

Accumulated depreciation – equipment 28,000

Advertising expense 21,000

Cash 11,000

Common stock 40,000

Depreciation expense 12,000

Dividends 14,000

Insurance expense 3,000

Note payable, due 6/30/14 70,000

Prepaid insurance (12-month policy) 6,000

Rent expense 17,000

Retained earnings (1/1/13) 65,000

Salaries and wages expense 32,000

Service revenue 125,000

Supplies 4,000

Supplies expense 6,000

Equipment 210,000

What are total current assets at December 31, 2013?

a. $26,000

b. $28,000

c. $32,000

d. $38,000

Ans: C, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

152. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2013:

Accounts payable $ 19,000

Accounts receivable 11,000

Accumulated depreciation – equipment 28,000

Advertising expense 21,000

Cash 11,000

Common stock 40,000

Dividends 14,000

Depreciation expense 12,000

Equipment 190,000

Insurance expense 3,000

Note payable, due 6/30/14 70,000

Patents 20,000

Prepaid insurance (12-month policy) 6,000

Rent expense 17,000

Retained earnings (1/1/13) 65,000

Salaries and wages expense 32,000

Service revenue 125,000

Supplies 4,000

Supplies expense 6,000

What is the book value of the equipment at December 31, 2013?

a. $150,000

b. $162,000

c. $178,000

d. $190,000

Ans: B, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

153. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2013:

Accounts payable $ 19,000

Accounts receivable 11,000

Accumulated depreciation – equipment 28,000

Advertising expense 21,000

Cash 11,000

Common stock 40,000

Dividends 14,000

Depreciation expense 12,000

Insurance expense 3,000

Note payable, due 6/30/14 70,000

Prepaid insurance (12-month policy) 6,000

Rent expense 17,000

Retained earnings (1/1/13) 65,000

Salaries and wages expense 32,000

Service revenue 125,000

Supplies 4,000

Supplies expense 6,000

Equipment 210,000

What are total current liabilities at December 31, 2013?

a. $19,000

b. $70,000

c. $89,000

d. $106,000

Ans: C, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

154. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2013:

Accounts payable $ 19,000

Accounts receivable 11,000

Accumulated depreciation – equipment 28,000

Advertising expense 21,000

Cash 11,000

Common stock 40,000

Dividends 14,000

Depreciation expense 12,000

Insurance expense 3,000

Note payable, due 6/30/14 70,000

Prepaid insurance (12-month policy) 6,000

Rent expense 17,000

Retained earnings (1/1/13) 65,000

Salaries and wages expense 32,000

Service revenue 125,000

Supplies 4,000

Supplies expense 6,000

Equipment 210,000

What are total long-term liabilities at December 31, 2013?

a. $0

b. $19,000

c. $70,000

d. $89,000

Ans: A, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

155. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2013:

Accounts payable $ 19,000

Accounts receivable 11,000

Accumulated depreciation – equipment 28,000

Advertising expense 21,000

Cash 11,000

Common stock 40,000

Dividends 14,000

Depreciation expense 12,000

Equipment 190,000

Insurance expense 3,000

Note payable, due 6/30/14 70,000

Patents 20,000

Prepaid insurance (12-month policy) 6,000

Rent expense 17,000

Retained earnings (1/1/13) 65,000

Salaries and wages expense 32,000

Service revenue 125,000

Supplies 4,000

Supplies expense 6,000

What is total liabilities and stockholders' equity at December 31, 2013?

a. $194,000

b. $214,000

c. $228,000

d. $231,000

Ans: B, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

156. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2013:

Accounts payable $ 19,000

Accounts receivable 11,000

Accumulated depreciation – equipment 28,000

Advertising expense 21,000

Cash 11,000

Common stock 40,000

Dividends 14,000

Depreciation expense 12,000

Equipment 190,000

Insurance expense 3,000

Note payable, due 6/30/14 70,000

Patents 20,000

Prepaid insurance (12-month policy) 6,000

Rent expense 17,000

Retained earnings (1/1/13) 65,000

Salaries and wages expense 32,000

Service revenue 125,000

Supplies 4,000

Supplies expense 6,000

The sub-classifications for assets on the company’s classified balance sheet would include all of the following except:

a. Current Assets.

b. Property, Plant, and Equipment.

c. Intangible Assets.

d. Long-term Assets.

Ans: D, LO: 6, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

157. The following items are taken from the financial statements of the Postal Service for the year ending December 31, 2013:

Accounts payable $ 19,000

Accounts receivable 11,000

Accumulated depreciation – equipment 28,000

Advertising expense 21,000

Cash 11,000

Common stock 40,000

Dividends 14,000

Depreciation expense 12,000

Insurance expense 3,000

Note payable, due 6/30/14 70,000

Prepaid insurance (12-month policy) 6,000

Rent expense 17,000

Retained earnings (1/1/13) 65,000

Salaries and wages expense 32,000

Service revenue 125,000

Supplies 4,000

Supplies expense 6,000

Equipment 210,000

The current assets should be listed on Postal Service’s balance sheet in the following order:

a. cash, accounts receivable, prepaid insurance, equipment.

b. cash, prepaid insurance, supplies, accounts receivable.

c. cash, accounts receivable, prepaid insurance, supplies.

d. equipment, supplies, prepaid insurance, accounts receivable, cash.

Ans: C, LO: 6, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

158. Which statement about long-term investments is not true?

a. They will be held for more than one year.

b. They are not currently used in the operation of the business.

c. They include investments in stock of other companies and land held for future use.

d. They can never include cash accounts.

Ans: D, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

159. What is the order in which assets are generally listed on a classified balance sheet?

a. Current and long-term

b. Current; property, plant, and equipment; long-term investments; intangible assets

c. Current; property, plant, and equipment; intangible assets; long-term investments

d. Current; long-term investments; property, plant, and equipment; intangible assets

Ans: D, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

160. These are selected account balances on December 31, 2013.

Land (location of the corporation’s office building) $100,000

Land (held for future use) 150,000

Corporate Office Building 600,000

Inventory 200,000

Equipment 450,000

Office Furniture 150,000

Accumulated Depreciation 425,000

What is the total amount of property, plant, and equipment that will appear on the balance sheet?

a. $875,000

b. $1,025,000

c. $1,075,000

d. $1,300,000

Ans: A, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

161. The following selected account balances appear on the December 31, 2013 balance sheet of Superchunk Co.

Land (location of the corporation’s office building) $150,000

Land (held for future use) 225,000

Corporate Office Building 900,000

Inventory 300,000

Equipment 675,000

Office Furniture 225,000

Accumulated Depreciation 640,000

What is the total amount of property, plant, and equipment that will be reported on the balance sheet?

a. $1,310,000

b. $1,535,000

c. $1,610,000

d. $1,950,000

Ans: A, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

^a 162. A reversing entry

a. reverses entries that were made in error.

b. is the exact opposite of an adjusting entry made in a previous period.

c. is made when a business disposes of an asset it previously purchased.

d. is made when a company sustains a loss in one period and reverses the effect with a profit in the next period.

Ans: B, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

^a 163. If a company utilizes reversing entries, they will

a. be made at the beginning of the next accounting period.

b. not actually be posted to the general ledger accounts.

c. be made before the post-closing trial balance.

d. be part of the adjusting entry process.

Ans: A, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

164. The steps in the preparation of a worksheet do not include

a. analyzing documentary evidence.

b. preparing a trial balance on the worksheet.

c. entering the adjustments in the adjustment columns.

d. entering adjusted balances in the adjusted trial balance columns.

Ans: A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

165. Balance sheet accounts are considered to be

a. temporary stockholders' accounts.

b. permanent accounts.

c. nominal accounts.

d. equity accounts.

Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

166. Income Summary has a credit balance of $17,000 after closing revenues and expenses. The entry to close Income Summary is

a. credit Income Summary $17,000, debit Retained Earnings $17,000.

b. credit Income Summary $17,000, debit Dividends $17,000.

c. debit Income Summary $17,000, credit Dividends $17,000.

d. debit Income Summary $17,000, credit Retained Earnings $17,000.

Ans: D, LO: 2, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

167. The post-closing trial balance contains only

a. income statement accounts.

b. balance sheet accounts.

c. balance sheet and income statement accounts.

d. income statement, balance sheet, and stockholders' equity statement accounts.

Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

168. Which of the following is an optional step in the accounting cycle?

a. Adjusting entries

b. Closing entries

c. Correcting entries

d. Reversing entries

Ans: D, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

169. Which one of the following statements concerning the accounting cycle is incorrect?

a. The accounting cycle includes journalizing transactions and posting to ledger accounts.

b. The accounting cycle includes only one optional step.

c. The steps in the accounting cycle are performed in sequence.

d. The steps in the accounting cycle are repeated in each accounting period.

Ans: B, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

170. Correcting entries are made

a. at the beginning of an accounting period.

b. at the end of an accounting period.

c. whenever an error is discovered.

d. after closing entries.

Ans: C, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

171. On September 23, Sebagoh Company received a $350 check from Surfer Rosa Inc. for services to be performed in the future. The bookkeeper for Sebadoh Company incorrectly debited Cash for $350 and credited Accounts Receivable for $350. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should

a. debit Cash $350 and credit Unearned Service Revenue $350.

b. debit Accounts Receivable $350 and credit Unearned Service Revenue $350.

c. debit Accounts Receivable $350 and credit Cash $350.

d. debit Accounts Receivable $350 and credit Service Revenue $350.

Ans: B, LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

172. All of the following are stockholders' equity accounts except

a. Retained Earnings

b. Common Stock

c. Investment in Stock.

d. Dividends

Ans: C, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

173. Current liabilities

a. are obligations that the company is to pay within the forthcoming year.

b. are listed in the balance sheet in order of their expected maturity.

c. are listed in the balance sheet, starting with accounts payable.

d. should not include long-term debt that is expected to be paid within the next year.

Ans: A, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

^a 174. The use of reversing entries

a. is a required step in the accounting cycle.

b. changes the amounts reported in the financial statements.

c. simplifies the recording of subsequent transactions.

d. is required for all adjusting entries.

Ans: C, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Answers to Multiple Choice Questions

BRIEF EXERCISES

BE 175

Use the following income statement for the year 2013 for Belle Company to prepare entries to close the revenue and expense accounts for the company.

Service revenue $95,000

Expenses:

Salaries and Wages Expense $40,000

Rent Expense 12,500

Advertising Expense 8,700

Total expenses 61,200

Net income (loss) $ 33,800

Ans: N/A, LO: 2, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 175 (5 min.)

Service Revenue..................................................................................... 95,000

........... Income Summary........................................................................ 95,000

Income Summary.................................................................................... 61,200

........... Salaries and Wages Expense..................................................... 40,000

........... Rent Expense.............................................................................. 12,500

........... Advertising Expense.................................................................... 8,700

BE 176

Sebastien Company earned net income of $49,000 during 2013. The company paid dividends totalling $20,000 during the period. Prepare the entries to close Income Summary and the Dividends account.

Ans: N/A, LO: 2, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 176 (3 min.)

Income Summary.................................................................................... 49,000

........... Retained Earnings....................................................................... 49,000

Retained Earnings................................................................................... 20,000

........... Dividends..................................................................................... 20,000

BE 177

At April 1, 2013, Spiderland Company reported a balance of $20,000 in the Retained Earnings account. SpiderlandCompany earned revenues of $47,000 and incurred expenses of $32,000 during April 2013. The company paid dividends of $10,000 during the month.

(a) Prepare the entries to close Income Summary and the Dividends acccount at April 30, 2013.

(b) What is the balance in Retained Earnings on the April 30, 2013 post-closing trial balance?

Ans: N/A, LO: 2, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 177 (3 min.)

(a) Income Summary............................................................................ 15,000

Retained Earnings.............................................................. 15,000

Retained Earnings............................................................................ 10,000

Dividends............................................................................ 10,000

(b) $20,000 + $15,000 – $10,000 = $25,000

BE 178

Identify which of the following are temporary accounts of Sabrina Company.

(1) Retained Earnings

(2) Dividends

(3) Equipment

(4) Accumulated Depreciation

(5) Depreciation Expense

Ans: N/A, LO: 2, Bloom: K, Difficulty: Easy, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 178 (3 min.)

(2) Dividends, (5) Depreciation Expense

BE 179

Identify which of the following accounts would have balances on a post-closing trial balance.

(1) Service Revenue

(2) Income Summary

(3) Notes Payable

(4) Interest Expense

(5) Cash

Ans: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 179 (3 min.)

(3) Notes Payable, (5) Cash

BE 180

Prepare the necessary correcting entry for each of the following.

a... A payment on account of $540 was debited to Accounts Payable $450 and credited to Cash $450.

b... The collection of Accounts Receivable of $680 was recorded as a debit to Cash $680 and a credit to Service Revenue $680.

Ans: N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 180 (4 min.)

a. Accounts Payable.............................................................................. 90

Cash....................................................................................... 90

b. Service Revenue............................................................................... 680

Accounts Receivable............................................................. 680

BE 181

Prepare the necessary correcting entry for each of the following.

a... A payment of $5,000 for salaries was recorded as a debit to Supplies Expense and a credit to Cash.

b... A purchase of supplies on account for $1,000 was recorded as a debit to Equipment and a credit to Accounts Payable.

Ans: N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 181 (4 min.)

a. Salaries and Wages Expense........................................................... 5,000

Supplies Expense..................................................................... 5,000

b. Supplies............................................................................................. 1,000

Equipment................................................................................. 1,000

BE 182

The following accounts were included on Aeroplane Consultants adjusted trial balance at December 31, 2013:

Accounts payable $ 7,200

Accounts receivable 12,000

Cash 3,500

Common stock 15,000

Retained earnings 25,000

Dividends 10,000

Interest expense 3,000

Note payable, due 8/31/16 60,000

Supplies 1,000

Service revenue 39,000

Equipment 5,000

(a) What are total current assets?

(b) What are total current liabilities?

Ans: N/A, LO: 6, Bloom: AN, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 182 (4 min.)

(a) $12,000 + $3,500 + $1,000 = $16,500

(b) $7,200

BE 183

The following items are taken from the adjusted trial balance of Westley Company for the month ending July 31, 2013:

Accounts payable $ 2,000

Accounts receivable 3,300

Accumulated depreciation – equipment 8,000

Cash 2,100

Common stock 22,000

Depreciation expense 2,000

Equipment 54,000

Retained earnings 7/1/13 30,000

Service revenue 33,000

Supplies 1,200

Prepare the current assets section of Westley’s classified balance sheet.

Ans: N/A, LO: 6, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 183 (4 min.)

Current assets:

Cash $2,100

Accounts receivable 3,300

Supplies 1,200

Total current assets $6,600

BE 184

The following information is available for Elwes Company for the year ended December 31, 2013:

Accounts payable $ 2,300

Accumulated depreciation, equipment 4,000

Common stock 5,000

Retained earnings 4,300

Intangible assets 2,300

Notes payable (due in 5 years) 5,000

Accounts receivable 1,500

Cash 1,300

Short-term investments 1,000

Equipment 8,800

Long-term investments 5,700

Instructions

Use the above information to prepare a classified balance sheet for the year ended December 31, 2013.

Ans: N/A, LO: 6, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 184 (10 min.)

ELWES COMPANY

Balance Sheet

December 31, 2013

Assets

Current assets

Cash $1,300

Short-term investments 1,000

Accounts receivable 1,500

Total current assets $3,800

Investments

Long-term investments 5,700

Property, plant, and equipment

Equipment 8,800

Less Accumulated depreciation, equipment 4,000 4,800

Intangible assets 2,300

Total assets $16,600

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable $2,300

Long-term liabilities

Notes payable 5,000

Total liabilities $7,300

Stockholders' equity

Common stock 5,000

Retained earnings 4,300 9,300

Total liabilities and stockholders' equity $16,600

BE 185

The following lettered items represent a classification scheme for a balance sheet, and the numbered items represent accounts found on balance sheets. In the blank next to each account, write the letter indicating to which category it belongs.

A. Current assets E. Current liabilities

B. Long-term investments F. Long-term liabilities

C. Property, plant, and equipment G. Stockholders' equity

D. Intangible assets H. Not on the balance sheet

_____ 1. Accumulated Depreciation _____ 6. Inventory

_____ 2. Retained Earnings _____ 7. Patents

_____ 3. Interest Expense _____ 8. Prepaid Rent

_____ 4. Salaries and Wages Payable _____ 9. Mortgage Payable

_____ 5. Dividends _____ 10. Land Held for Investment

Ans: N/A, LO: 6, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 185 (5 min.)

1. C 6. A

2. G 7. D

3. H 8. A

4. E 9. F

5. H 10. B

^a BE 186

Inigo Company prepared the following adjusting entries at year end on December 31, 2013:

(a) Interest Expense............................................................................. 300

Interest Payable..................................................................... 300

(b) Interest Receivable......................................................................... 450

Interest Revenue................................................................... 450

(c) Salaries and Wages Expense........................................................ 3,500

Salaries and Wages Payable................................................ 3,500

In an effort to minimize errors in recording transactions, Inigo Company utilizes reversing entries. Prepare reversing entries on January 1, 2014.

Ans: N/A, LO: 7, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

^a Solution 186 (5 min.)

(a) Reverse the entry to accrue interest expense.

Interest Payable.............................................................................. 300

Interest Expense.................................................................... 300

(b) Reverse the entry to accrue interest revenue.

Interest Revenue............................................................................ 450

Interest Receivable................................................................ 450

(c) Reverse the entry to accrue salaries expense.

Salaries and Wages Payable......................................................... 3,500

Salaries and Wages Expense............................................... 3,500

EXERCISES

Ex. 187

The worksheet for Montoya Company has been completed through the adjusted trial balance. You are ready to extend each amount to the appropriate financial statement column. Indicate for each account, the financial statement column to which the account should be extended by placing a check mark (Ö) in the appropriate column.

———————————————————————————————————————————

Income Statement Balance Sheet

Account Financial Accounting Testbank part 5 Dr. Cr. Dr. Cr.

———————————————————————————————————————————

(1) Cash

———————————————————————————————————————————

(2) Retained Earnings

———————————————————————————————————————————

(3) Mortgage Payable

———————————————————————————————————————————

(4) Interest Receivable

———————————————————————————————————————————

(5) Supplies

———————————————————————————————————————————

(6) Accounts Payable

———————————————————————————————————————————

(7) Short-term Investments

———————————————————————————————————————————

(8) Maintenance and Repairs Expense

———————————————————————————————————————————

(9) Unearned Service Revenue

———————————————————————————————————————————

(10) Equipment

———————————————————————————————————————————

(11) Depreciation Expense

———————————————————————————————————————————

(12) Interest Revenue

———————————————————————————————————————————

(13) Salaries and Wages Expense

———————————————————————————————————————————

(14) Dividends

———————————————————————————————————————————

(15) Accum. Deprec.—Equipment

———————————————————————————————————————————

(16) Utilities Expense

———————————————————————————————————————————

(17) Salaries and Wages Payable

———————————————————————————————————————————

(18) Accounts Receivable

———————————————————————————————————————————

(19) Notes Payable

———————————————————————————————————————————

(20) Service Revenue

———————————————————————————————————————————

Ans: N/A, LO: 1, Bloom: C, Difficulty: Medium, Min: 10, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 188 (10 min.)

Income Statement Balance Sheet

Account Financial Accounting Testbank part 5 Dr. Cr. Dr. Cr.

———————————————————————————————————————————

(1) Cash Ö

———————————————————————————————————————————

(2) Retained Earnings Ö

———————————————————————————————————————————

(3) Mortgage Payable Ö

———————————————————————————————————————————

(4) Interest Receivable Ö

———————————————————————————————————————————

(5) Supplies Ö

———————————————————————————————————————————

(6) Accounts Payable Ö

———————————————————————————————————————————

(7) Short-term Investments Ö

———————————————————————————————————————————

(8) Maintenance and Repairs Expense Ö

———————————————————————————————————————————

(9) Unearned Service Revenue Ö

———————————————————————————————————————————

(10) Equipment Ö

———————————————————————————————————————————

(11) Depreciation Expense Ö

———————————————————————————————————————————

(12) Interest Revenue Ö

———————————————————————————————————————————

(13) Salaries and Wages Expense Ö

———————————————————————————————————————————

(14) Dividends Ö

———————————————————————————————————————————

(15) Accum. Deprec.—Equipment Ö

———————————————————————————————————————————

(16) Utilities Expense Ö

———————————————————————————————————————————

(17) Salaries and Wages Payable Ö

———————————————————————————————————————————

(18) Accounts Receivable Ö

———————————————————————————————————————————

(19) Notes Payable Ö

———————————————————————————————————————————

(20) Service Revenue Ö

———————————————————————————————————————————

Ex. 188

Indicate the worksheet column (income statement Dr., balance sheet Cr., etc.) to which each of the following accounts would be extended.

Account Worksheet Column

a. Accounts Receivable ________________

b. Accumulated Depreciation—Equip. ________________

c. Service Revenue ________________

d. Interest Expense ________________

e. Dividends ________________

f. Unearned Service Revenue ________________

Ans: N/A, LO: 1, Bloom: C, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 188 (5 min.)

a. Balance sheet Dr.

b. Balance sheet Cr.

c. Income statement Cr.

d. Income statement Dr.

e. Balance sheet Dr.

f. Balance sheet Cr.

Ex. 189

The worksheet for Gibler Rental Company appears below. Using the adjustment data below, complete the worksheet. Add any accounts that are necessary.

Adjustment data:

(a) Prepaid rent expired during August, $2.

(b) Depreciation expense on equipment for the month of August, $8.

(c) Supplies on hand on August 31 amounted to $6.

(d) Salaries and wages expense incurred at August 31 but not yet paid amounted to $10.

Ex. 189 (Cont.)

Ans: N/A, LO: 1, Bloom: AN, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 189 (15 min.)

Ex. 190

The account balances appearing on the trial balance (below) were taken from the general ledger of Irick's Copy Shop at September 30.

Additional information for the month of September which has not yet been recorded in the accounts is as follows:

(a) A physical count of supplies indicates $300 on hand at September 30.

(b) The amount of insurance that expired in the month of September was $200.

(c) Depreciation on equipment for September was $400.

(d) Rent owed on the copy shop for the month of September was $600 but will not be paid until October.

Instructions

Using the above information, complete the worksheet on the following page for Irick's Copy Shop for the month of September.

Ans: N/A, LO: 1, Bloom: AN, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 190 (15 min.)

Ex. 191

The adjustments columns of the worksheet for Mandy Company are shown below.

Adjustments

Account Financial Accounting Testbank part 5s Debit Credit

Accounts Receivable 900

Prepaid Insurance 650

Accumulated Depreciation 770

Salaries and Wages Payable 1,200

Service Revenue 900

Salaries and Wages Expense 1,200

Insurance Expense 650

Depreciation Expense 770

3,520 3,520

Ex. 191 (Cont.)

Instructions

(a) Prepare the adjusting entries.

(b) Assuming the adjusted trial balance amount for each account is normal, indicate the financial statement column to which each balance should be extended.

Ans: N/A, LO: 1, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 191 (10 min.)

(a)

Accounts Receivable................................................................... 900

Service Revenue................................................................... 900

Insurance Expense...................................................................... 650

Prepaid Insurance................................................................. 650

Depreciation Expense................................................................. 770

Accumulated Depreciation.................................................... 770

Salaries and Wages Expense..................................................... 1,200

Salaries and Wages Payable................................................ 1,200

(b)

Income Statement Balance Sheet

Dr. Cr. Dr. Cr.

Accounts Receivable X

Prepaid Insurance X

Accum. Depreciation X

Salaries and Wages Payable X

Service Revenue X

Salaries and Wages Expense X

Insurance Expense X

Depreciation Expense X

Ex. 192

Selected worksheet data for Patinkin Company are presented below.

Adjusted

Account Financial Accounting Testbank part 5s Trial Balance Trial Balance

Dr. Cr. Dr. Cr.

Accounts Receivable ? 31,000

Prepaid Insurance 24,000 18,000

Supplies 7,000 ?

Accumulated Depreciation 12,000 ?

Salaries and Wages Payable ? 7,600

Service Revenue 88,000 100,000

Insurance Expense ?

Depreciation Expense 8,000

Supplies Expense 5,200

Salaries and Wages Expense ? 49,000

Ex. 192 (Cont.)

Instructions

(a) Fill in the missing amounts.

(b) Prepare the adjusting entries that were made.

Ans: N/A, LO: 1, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 192 (10 min.)

(a) Accounts Receivable—$19,000 ($31,000 – $12,000).

Supplies—$1,800 ($7,000 – $5,200).

Accumulated Depreciation—$20,000 ($12,000 + $8,000).

Salaries and Wages Payable—$0 No liability recorded until adjustments are made.

Insurance Expense—$6,000 ($24,000 – $18,000).

Salaries and Wages Expense—$41,400 ($49,000 – $7,600).

(b)

Accounts Receivable................................................................... 12,000

Service Revenue................................................................... 12,000

Insurance Expense...................................................................... 6,000

Prepaid Insurance................................................................. 6,000

Supplies Expense........................................................................ 5,200

Supplies................................................................................. 5,200

Depreciation Expense................................................................. 8,000

Accumulated Depreciation.................................................... 8,000

Salaries and Wages Expense..................................................... 7,600

Salaries and Wages Payable................................................ 7,600

Ex. 193

These financial statement items are for Rugen Company at year-end, July 31, 2013.

Salaries and wages payable $ 2,980 Notes payable (long-term) $ 3,000

Salaries and wages expense 45,700 Cash 7,200

Utilities expense 19,100 Accounts receivable 9,780

Equipment 38,000 Accumulated depreciation 6,000

Accounts payable 4,100 Dividends 4,000

Service revenue 57,200 Depreciation expense 4,000

Rent revenue 6,500 Retained earnings 28,000

(Aug. 1, 2012)

Common stock 20,000

Instructions

(a) Prepare an income statement and a retained earnings statement for the year. The owner did not make any new investments during the year.

(b) Prepare a classified balance sheet at July 31.

Ans: N/A, LO: 1,6, Bloom: AP, Difficulty: Hard, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 193 (15 min.)

(a) RUGEN COMPANY

Income Statement

For the Year Ended July 31, 2013

———————————————————————————————————————————

Revenues

Service revenue.............................................................................. $57,200

Rent revenue.................................................................................. 6,500

Total revenues........................................................................ $63,700

Expenses

Salaries and wages expense......................................................... 45,700

Utilities expense.............................................................................. 19,100

Depreciation expense..................................................................... 4,000

Total expense.......................................................................... 68,800

Net loss.................................................................................................... $ (5,100)

RUGEN COMPANY

Retained Earnings Statement

For the Year Ended July 31, 2013

———————————————————————————————————————————

Retained earnings, August 1, 2012......................................................... $28,000

Less: Net loss ......................................................................................... $5,100

Dividends........................................................................................ 4,000 9,100

Retained earnings, July 31, 2013............................................................ $18,900

(b) RUGEN COMPANY

Balance Sheet

July 31, 2013

———————————————————————————————————————————

Assets

Current assets

Cash ............................................................................................... $7,200

Accounts receivable....................................................................... 9,780

Total current assets................................................................. $16,980

Property, plant, and equipment

Equipment....................................................................................... 38,000

Less: Accumulated depreciation.................................................... 6,000 32,000

Total assets.............................................................................. $48,980

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable........................................................................... $4,100

Salaries and wages payable.......................................................... 2,980

Total current liabilities................................................................ $ 7,080

Long-term liabilities

Notes payable................................................................................. 3,000

Total liabilities............................................................................. 10,080

Stockholders' equity

Common stock............................................................................... 20,000

Retained earnings........................................................................... 18,900 38,900

Total liabilities and stockholders' equity.................................... $48,980

Ex. 194

Prepare the necessary closing entries based on the following selected accounts.

Accumulated Depreciation $10,000

Depreciation Expense 7,000

Retained Earnings 20,000

Dividends 12,000

Salaries and Wages Expense 18,000

Service Revenue 31,000

Ans: N/A, LO: 2, Bloom: AN, Difficulty: Medium, Min: 8, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 194 (8–10 min.)

Service Revenue..................................................................................... 31,000

Income Summary........................................................................ 31,000

Income Summary.................................................................................... 25,000

Depreciation Expense................................................................. 7,000

Salaries and Wages Expense..................................................... 18,000

Income Summary.................................................................................... 6,000

Retained Earnings....................................................................... 6,000

Retained Earnings................................................................................... 12,000

Dividends..................................................................................... 12,000

Ex. 195

All revenue and expense accounts have been closed at the end of the calendar year for Patton Company. The Income Summary account has total debits of $520,000 and total credits of $600,000. As of the same date, Retained Earnings has a balance of $115,000, and the Dividends account has a balance of $48,000.

Instructions

(a) Journalize the entries required to complete the closing of the accounts.

(b) Prepare a retained earnings statement for the year ended December 31, 2013.

Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 195 (10 min.)

(a) Income Summary........................................................................... 80,000

Retained Earnings................................................................. 80,000

(To close net income to retained earnings)

Retained Earnings.......................................................................... 48,000

Dividends............................................................................... 48,000

(To close dividends to retained earnings)

Solution 195 (cont.)

(b) PATTON COMPANY

Retained Earnings Statement

For the Year Ended December 31, 2012

Retained Earnings, January 1 $115,000

Add: Net income 80,000

195,000

Less: Dividends 48,000

Retained Earnings, December 31 $147,000

Ex. 196

At March 31, account balances after adjustments for Vizzini Cinema are as follows:

Account Balances

Accounts (After Adjustment)

Cash $ 6,000

Supplies 4,000

Equipment 50,000

Accumulated Depreciation—Equipment 12,000

Accounts Payable 5,000

Common Stock 6,000

Retained Earnings 14,000

Dividends 12,000

Ticket Revenues 60,000

Popcorn Revenues 32,000

Candy Revenues 21,000

Advertising Expense 18,000

Supplies Expense 19,000

Depreciation Expense 4,000

Rent Expense 28,000

Salaries and Wages Expense 24,000

Utilities Expense 5,000

Instructions

Prepare the closing journal entries for Vizzini Cinema.

Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 196 (10 min.)

Mar. 31 Admission Ticket Revenues................................................... 60,000

Popcorn Revenues................................................................. 32,000

Candy Revenues..................................................................... 21,000

Income Summary......................................................... 113,000

(To close revenue accounts)

Solution 196 (cont.)

31 Income Summary................................................................... 98,000

Advertising Expense..................................................... 18,000

Supplies Expense......................................................... 19,000

Depreciation Expense.................................................. 4,000

Rent Expense............................................................... 28,000

Salaries and Wages Expense...................................... 24,000

Utilities Expense........................................................... 5,000

(To close expense accounts)

31 Income Summary................................................................... 15,000

Retained Earnings........................................................ 15,000

(To transfer net income to retained earnings)

31 Retained Earnings................................................................... 12,000

Dividends...................................................................... 12,000

(To close dividends to retained earnings)

Ex. 197

Presented below is an adjusted trial balance for Shawn Company, at December 31, 2013.

Cash $5,700 Accounts payable $10,000

Accounts receivable 20,000 Notes payable 9,000

Prepaid insurance 15,000 Accumulated depreciation—

Equipment 35,000 Equipment 14,000

Depreciation expense 7,000 Unearned service revenue 16,000

Dividends 1,500 Common Stock 10,000

Advertising expense 1,400 Retained earnings 14,000

Rent expense 800 Service revenue 27,000

Salaries and wages expense 12,000

Insurance expense 1,600

$100,000 $100,000

Instructions

(a) Prepare closing entries for December 31, 2013.

(b) Determine the balance in the Retained Earnings account after the entries have been posted.

Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 197 (10 min.)

(a) Computation of Net Income:

Service revenue $27,000

Depreciation expense $7,000

Salaries and wages expense 12,000

Insurance expense 1,600

Advertising expense 1,400

Rent expense 800 22,800

Net Income $4,200

Solution 197 (cont.)

Dec. 31 Service Revenue................................................................... 27,000

Income Summary......................................................... 27,000

(To close revenue account)

31 Income Summary.................................................................. 22,800

Depreciation Expense.................................................. 7,000

Advertising Expense..................................................... 1,400

Rent Expense............................................................... 800

Salaries and Wages Expense...................................... 12,000

Insurance Expense....................................................... 1,600

(To close expense accounts)

31 Income Summary.................................................................. 4,200

Retained Earnings........................................................ 4,200

(To close net income to retained earnings)

31 Retaine Earnings................................................................... 1,500

Dividends...................................................................... 1,500

(To close dividends to retained earnings)

(b) Retained Earnings

1,500 24,000

4,200

Bal. 26,700

Ex. 198

The adjusted account balances of the Fitness Center at July 31 are as follows:

Accounts Account Balances Accounts Account Balances

Cash $11,000 Service Revenue $100,000

Accounts Receivable 15,000 Interest Revenue 8,000

Supplies 4,000 Depreciation Expense 27,000

Prepaid Insurance 8,000 Insurance Expense 6,000

Buildings 300,000 Salaries and Wages Expense 35,000

Accumulated Depreciation— Supplies Expense 9,000

Buildings 120,000 Utilities Expense 12,000

Accounts Payable 19,000

Common Stock 90,000

Retained Earnings 105,000

Dividends 15,000

Instructions

Prepare the end of the period closing entries for the Fitness Center.

Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 198 (10 min.)

July 31 Service Revenue................................................................... 100,000

Interest Revenue................................................................... 8,000

Income Summary......................................................... 108,000

(To close revenue accounts)

31 Income Summary.................................................................. 89,000

Depreciation Expense.................................................. 27,000

Insurance Expense....................................................... 6,000

Salaries and Wages Expense...................................... 35,000

Supplies Expense......................................................... 9,000

Utilities Expense........................................................... 12,000

(To close expense accounts)

31 Income Summary.................................................................. 19,000

Retained Earnings........................................................ 19,000

(To close net income to retained earnings)

31 Retained Earnings................................................................. 15,000

Dividends...................................................................... 15,000

(To close dividends to retained earnings)

Ex. 199

The income statement of Fezzik's Shoe Repair is as follows:

FEZZIK’S SHOE REPAIR

Income Statement

For the Month Ended April 30, 2013

Revenue

Service Revenue............................................................................ $8,500

Expenses

Salaries and Wages Expense........................................................ $4,200

Depreciation Expense.................................................................... 350

Utilities Expense............................................................................. 400

Rent Expense................................................................................. 600

Supplies Expense........................................................................... 1,050

Total Expenses....................................................................... 6,600

Net Income.............................................................................................. $1,900

On April 1, the Retained Earnings account had a balance of $12,900. During April, the company paid $3,000 in dividends.

Instructions

(a) Prepare closing entries at April 30.

(b) Prepare a retained earnings statement for the month of April.

Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 199 (10 min.)

(a) Service Revenue.............................................................................. 8,500

Income Summary................................................................... 8,500

Income Summary............................................................................ 6,600

Salaries and Wages Expense................................................ 4,200

Supplies Expense................................................................... 1,050

Rent Expense......................................................................... 600

Utilities Expense..................................................................... 400

Depreciation Expense............................................................ 350

Income Summary............................................................................ 1,900

Retained Earnings................................................................... 1,900

Retained Earnings............................................................................ 3,000

Dividends................................................................................. 3,000

(b) FEZZIK'S SHOE REPAIR

Retained Earnings Statement

For the Month Ended April 30, 2013

Retained earnings, April 1 $12,900

Add: Net Income 1,900

14,800

Less: Dividends 3,000

Retained earnings, April 30 $11,800

Ex. 200

Identify which of the following accounts would appear in a post-closing trial balance.

Accumulated Depreciation—Equipment Dividends

Depreciation Expense Service Revenue

Interest Payable Equipment

Ans: N/A, LO: 3, Bloom: C, Difficulty: Easy, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 200 (3 min.)

The following accounts would appear in a post-closing trial balance:

Accumulated Depreciation—Equipment

Interest Payable

Equipment

Ex. 201

The trial balances of Orton Company follow with the accounts arranged in alphabetic order. Analyze the data and prepare (a) the adjusting entries and (b) the closing entries made by Orton Company.

Trial Balances

Unadjusted Adjusted Post-Closing

Accounts Payable $10,000 $10,000 $10,000

Accounts Receivable 2,200 3,200 3,200

Accumulated Depreciation—Equipment 13,000 17,000 17,000

Advertising Expense 0 16,300 0

Cash 60,000 60,000 60,000

Common Stock 30,000 30,000 30,000

Depreciation Expense 0 4,000 0

Dividends 11,000 11,000 0

Equipment 75,000 75,000 75,000

Prepaid Advertising 17,800 1,500 1,500

Prepaid Rent 15,000 11,000 11,000

Rent Expense 0 4,000 0

Retained Earnings 52,200 52,200 52,200

Service Revenue 96,000 105,000 0

Supplies 3,200 700 700

Supplies Expense 2,000 4,500 0

Unearned Service Revenue 23,000 15,000 15,000

Salaries and Wages Expense 38,000 45,000 0

Salaries and Wages Payable 0 7,000 7,000

Ans: N/A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 201 (20 min.)

(a) Adjusting Entries

Depreciation Expense.................................................................... 4,000

Accumulated Depreciation—Equipment............................... 4,000

Advertising Expense....................................................................... 16,300

Prepaid Advertising............................................................... 16,300

Unearned Service Revenue........................................................... 8,000

Service Revenue................................................................... 8,000

Accounts Receivable...................................................................... 1,000

Service Revenue................................................................... 1,000

Rent Expense................................................................................. 4,000

Prepaid Rent.......................................................................... 4,000

Supplies Expense........................................................................... 2,500

Supplies................................................................................. 2,500

Salaries and Wages Expense........................................................ 7,000

Salaries and Wages Payable................................................ 7,000

Solution 201 (cont.)

(b) Closing Entries

Service Revenue............................................................................ 105,000

Income Summary.................................................................. 105,000

Income Summary........................................................................... 73,800

Advertising Expense.............................................................. 16,300

Depreciation Expense........................................................... 4,000

Rent Expense........................................................................ 4,000

Supplies Expense.................................................................. 4,500

Salaries and Wages Expense............................................... 45,000

Income Summary........................................................................... 31,200

Retained Earnings................................................................. 31,200

Retained Earnings.......................................................................... 11,000

Dividends............................................................................... 11,000

Ex. 202

Indicate the proper sequence of the steps in the accounting cycle by placing numbers 1-8 in the blank spaces.

____ a. Analyze business transactions.

____ b. Journalize and post adjusting entries.

____ c. Journalize and post closing entries.

____ d. Journalize the transactions.

____ e. Prepare a post-closing trial balance.

____ f. Prepare a trial balance.

____ g. Prepare financial statements.

____ h. Post to ledger accounts.

Ans: N/A, LO: 4, Bloom: C, Difficulty: Easy, Min: 4, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 202 (4 min.)

a. 1 e. 8

b. 6 f. 4

c. 7 g. 5

d. 2 h. 3

Ex. 203

Prepare the necessary correcting entry for each of the following.

a... A collection on account of $380 from a customer was credited to Accounts Receivable $830 and debited to Cash $830.

b... The purchase of supplies on account for $310 was recorded as a debit to Equipment $310 and a credit to Accounts Payable $310.

Ans: N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 203 (5 min.)

a. Accounts Receivable......................................................................... 450

Cash.......................................................................................... 450

b. Supplies............................................................................................. 310

Equipment................................................................................. 310

Ex. 204

An examination of the accounts of Savage Company for the month of June revealed the following errors after the transactions were journalized and posted.

1. A check for $800 from R. Wright, a customer on account, was debited to Cash $800 and credited to Service Revenue, $800.

2. A payment for Advertising Expense costing $430 was debited to Utilities Expense, $340 and credited to Cash $340.

3. A bill for $850 for Supplies purchased on account was debited to Equipment, $580 and credited to Accounts Payable $580.

Instructions

Prepare correcting entries for each of the above assuming the erroneous entries are not reversed. Explain how the transaction as originally recorded affected net income for the month of June.

Ans: N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 204 (10 min.)

1. Service Revenue..................................................................................... 800

Accounts Receivable...................................................................... 800

(To correct error in recording collection of accounts receivable)

The transaction as originally recorded overstated net income by $800.

2. Advertising Expense................................................................................ 430

Utilities Expense............................................................................. 340

Cash................................................................................................ 90

(To correct errors in recording advertising expense)

The transaction as originally recorded overstated net income by $90.

Solution 204 (cont.)

3. Supplies................................................................................................... 850

Equipment....................................................................................... 580

Accounts Payable........................................................................... 270

(To correct error in recording office supplies)

The transaction as originally recorded had no effect on net income.

Ex. 205

As Mel Smith was doing his year-end accounting, he noticed that the bookkeeper had made errors in recording several transactions. The erroneous transactions are as follows:

(a) A check for $700 was issued for goods previously purchased on account. The bookkeeper debited Accounts Receivable and credited Cash for $700.

(b) A check for $380 was received as payment on account. The bookkeeper debited Accounts Payable for $830 and credited Accounts Receivable for $830.

(c) When making the entry to record the year's depreciation expense, the bookkeeper debited Accumulated Depreciation—Equipment for $1,000 and credited Cash for $1,000.

(d) When accruing interest on a note payable, the bookkeeper debited Interest Receivable for $200 and credited Interest Payable for $200.

Instructions

Prepare the appropriate correcting entries. (Do not reverse the original entries.)

Ans: N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 205 (5 min.)

(a) Accounts Payable........................................................................... 700

Accounts Receivable............................................................. 700

(b) Cash ............................................................................................... 380

Accounts Receivable...................................................................... 450

Accounts Payable.................................................................. 830

(c) Cash ............................................................................................... 1,000

Depreciation Expense.................................................................... 1,000

Accumulated Depreciation—Equipment............................... 2,000

(d) Interest Expense............................................................................. 200

Interest Receivable................................................................ 200

Ex. 206

Peter Cook, CPA, was asked by Carol Kane to review the accounting records and prepare the financial statements for her upholstering shop. Peter reviewed the records and found three errors.

1. Cash paid on accounts payable for $830 was recorded as a debit to Accounts Payable $380 and a credit to Cash $380.

2. The purchase of supplies on account for $600 was debited to Equipment $600 and credited to Accounts Payable $600.

3. The company paid dividends of $1,300 and the bookkeeper debited Accounts Receivable for $130 and credited Cash $130.

Ex. 206 (Cont.)

Instructions

Prepare an analysis of each error showing the

(a) incorrect entry.

(b) correct entry.

(c) correcting entry.

Ans: N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 206 (15 min.)

1. (a) Incorrect Entry

Accounts Payable............................................................... 380

Cash........................................................................... 380

(b) Correct Entry

Accounts Payable............................................................... 830

Cash........................................................................... 830

(c) Correcting Entry

Accounts Payable............................................................... 450

Cash........................................................................... 450

2. (a) Incorrect Entry

Equipment........................................................................... 600

Accounts Payable...................................................... 600

(b) Correct Entry

Supplies.............................................................................. 600

Accounts Payable...................................................... 600

(c) Correcting Entry

Supplies.............................................................................. 600

Equipment.................................................................. 600

3. (a) Incorrect Entry

Accounts Receivable.......................................................... 130

Cash........................................................................... 130

(b) Correct Entry

Dividends............................................................................ 1,300

Cash........................................................................... 1,300

(c) Correcting Entry

Dividends............................................................................ 1,300

Accounts Receivable................................................. 130

Cash........................................................................... 1,170

Ex. 207

Wakefield Company discovered the following errors made in January 2012.

1. A payment of salaries expense of $800 was debited to Equipment and credited to Cash, both for $800.

2. A collection of $2,000 from a client on account was debited to Cash $200 and credited to Service Revenue $200.

3. The purchase of equipment on account for $680 was debited to Equipment $860 and credited to Accounts Payable $860.

Instructions

Correct the errors by reversing the incorrect entry and preparing the correct entry.

Ans: N/A, LO: 5, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Solution 207 (10 min.)

1. Cash 800

Equipment............................................................................ 800

Salaries and Wages Expense.................................................. 800

Cash .................................................................................... 800

2. Service Revenue...................................................................... 200

Cash 200

Cash ......................................................................................... 2,000

Accounts Receivable........................................................... 2,000

3. Accounts Payable..................................................................... 860

Equipment............................................................................ 860

Equipment................................................................................. 680

Accounts Payable................................................................ 680

Ex. 208

The following items were taken from the financial statements of Buttercup Company. (All dollars are in thousands.)

Mortgage payable $ 1,443 Accumulated depreciation 3,655

Prepaid expenses 880 Accounts payable 1,444

Property, plant, and equipment 11,000 Notes payable after 2014 1,200

Long-term investments 1,100 Common stock 5,000

Short-term investments 3,690 Retained earnings 8,480

Notes payable in 2014 1,000 Accounts receivable 1,696

Cash 2,100 Inventories 1,756

Ex. 208 (Cont.)

Instructions

Prepare a classified balance sheet in good form as of December 31, 2013.

Ans: N/A, LO: 6, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 208 (10 min.)

BUTTERCUP COMPANY

Balance Sheet

December 31, 2013

(in thousands)

———————————————————————————————————————————

Assets

Current assets

Cash................................................................................................ $ 2,100

Short-term investments.................................................................. 3,690

Accounts receivable....................................................................... 1,696

Inventories...................................................................................... 1,756

Prepaid expenses........................................................................... 880

Total current assets................................................................. $10,122

Long-term investments............................................................................ 1,100

Property, plant, and equipment

Property, plant, and equipment...................................................... 11,000

Less: Accumulated depreciation.................................................... 3,655 7,345

Total assets.............................................................................. $18,567

Liabilities and Stockholdes' Equity

Current liabilities

Notes payable in 2014.................................................................... $ 1,000

Accounts payable........................................................................... 1,444

Total current liabilities.............................................................. $ 2,444

Long-term liabilities

Mortgage payable........................................................................... 1,443

Notes payable (after 2014)............................................................. 1,200

Total long-term liabilities........................................................... 2,643

Total liabilities ......................................................................................... 5,087

Stockholdes' equity

Common stock............................................................................... 5,000

Retained earnings........................................................................... 8,480 13,480

Total liabilities and stockholders' equity.................................. $18,567

Ex. 209

Compute the dollar amount of current assets based on the following account balances.

Accounts Receivable $19,000

Accumulated Depreciation—Equipment 27,000

Cash 8,400

Equipment 93,000

Prepaid Rent 7,000

Short-term Investments 15,000

Ans: N/A, LO: 6, Bloom: AN, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 209 (4 min.)

Current assets amount = $49,400 ($19,000 + $8,400 + $7,000 + $15,000)

Ex. 210

The financial statement columns of the worksheet for Miracle Max at December 31, 2013, are as follows:

MIRACLE MAX

Worksheet

For the Year Ended December 31, 2013

Income Statement Balance Sheet

Accounts Debit Credit Debit Credit

Cash 15,000

Accounts Receivable 7,000

Supplies 4,000

Prepaid Insurance 6,000

Equipment 209,000

Accumulated Depreciation—Equipment 29,000

Accounts Payable 19,000

Notes Payable 70,000

Salaries and wages Payable 3,000

Common Stock 50,000

Retained Earnings 62,000

Dividends 14,000

Service Revenue 123,000

Advertising Expense 21,000

Depreciation Expense 12,000

Insurance Expense 3,000

Rent Expense 17,000

Salaries and Wages Expense 42,000

Supplies Expense 6,000

Totals 101,000 123,000 255,000 233,000

Net Income 22,000 22,000

123,000 123,000 255,000 255,000

Instructions

(a) Calculate the retained earnings balance that would appear on a balance sheet at December 31, 2012.

(b) Prepare a classified balance sheet for Miracle Max at December 31, 2013 assuming the note payable is a long-term liability.

Ans: N/A, LO: 6, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 210 (15 min.)

(a) Retained Earnings, January 1 $62,000

Add: Net Income 22,000

84,000

Less: Dividends 14,000

Retained Earnings, December 31 $70,000

Solution 210 (Cont.)

(b) MIRACLE MAX

Balance Sheet

December 31, 2013

———————————————————————————————————————————

Assets

Current assets

Cash........................................................................................ $ 15,000

Accounts receivable................................................................ 7,000

Supplies................................................................................... 4,000

Prepaid insurance................................................................... 6,000

Total current assets......................................................... 32,000

Property, plant, and equipment

Equipment............................................................................... $209,000

Less: Accumulated depreciation—Equipment........................ 29,000 180,000

Total assets...................................................................... $212,000

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable.................................................................... $ 19,000

Salaries and wages payable................................................... 3,000

Total current liabilities...................................................... 22,000

Long-term liabilities

Notes payable......................................................................... 70,000

Total liabilities................................................................... 92,000

Stockholders' equity

Common stock........................................................................ $50,000

Retained earnings................................................................... 70,000 120,000

Total liabilities and stockholders' equity.......................... $212,000

Ex. 211

The financial statement columns of the worksheet for Booer Company as of December 31, 2013 are as follows:

BOOER COMPANY

Worksheet

For the Year Ended December 31, 2013

Income Statement Balance Sheet

Accounts Debit Credit Debit Credit

Cash 10,000

Accounts Receivable 26,000

Supplies 4,500

Prepaid Insurance 7,000

Equipment 41,000

Accumulated Depreciation—Equipment 4,800

Patents 7,500

Accounts Payable 22,200

Notes Payable (due 2017) 20,000

Common Stock 30,000

Retained Earnings 15,300

Dividends 4,200

Service Revenue 26,400

Salaries and Wages Expense 5,200

Depreciation Expense 4,800

Insurance Expense 5,000

Interest Expense 3,500

Totals 18,500 26,400 100,200 92,300

Net Income 7,900 7,900

26,400 26,400 100,200 100,200

Instructions

Prepare a classified balance sheet for Booer Company.

Ans: N/A, LO: 6, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Solution 211 (15 min.)

BOOER COMPANY

Balance Sheet

December 31, 2013

Assets

Current assets

Cash................................................................................................ $10,000

Accounts receivable....................................................................... 26,000

Supplies.......................................................................................... 4,500

Prepaid insurance........................................................................... 7,000

Total current assets............................................................... 47,500

Property, Plant, and Equipment

Equipment....................................................................................... $41,000

Less: Accumulated depreciation—equipment................................ 4,800 36,200

Intangible assets

Patents............................................................................................ 7,500

Total assets............................................................................ $91,200

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable........................................................................... $22,200

Long-term liabilities

Notes payable................................................................................. 20,000

Total liabilities......................................................................... 42,200

Stockholders' Equity

Common stock............................................................................... $30,000

Retained earnings........................................................................... 19,000 49,000*

Total liabilities and stockholders' equity................................ $91,200

* Retained earnings = $19,000 ($15,300 + $7,900 – $4,200).

^a Ex. 212

Reisner Company prepared the following adjusting entries at year end on December 31, 2012:

(a) Interest Expense............................................................................. 200

Interest Payable..................................................................... 200

(b) Unearned Service Revenue........................................................... 1,500

Service Revenue................................................................... 1,500

(c) Insurance Expense......................................................................... 1,200

Prepaid Insurance................................................................. 1,200

(d) Interest Receivable......................................................................... 100

Interest Revenue................................................................... 100

(e) Supplies Expense........................................................................... 250

Supplies................................................................................. 250

(f) Salaries and Wages Expense........................................................ 3,000

Salaries and Wages Payable................................................ 3,000

Ex. 212 (Cont.)

In an effort to minimize errors in recording transactions, Reisner Company utilizes reversing entries.

Instructions

Prepare reversing entries on January 1, 2013, for the adjusting entries given where appropriate.

Ans: N/A, LO: 7, Bloom: AN, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

^a Solution 212 (15 min.)

Reversing entries are appropriate for adjusting entries related to accrued revenues and accrued expenses. Three of the entries given are accruals and need to be reversed.

(a) Reverse the entry to accrue interest expense.

Interest Payable.............................................................................. 200

Interest Expense.................................................................... 200

(d) Reverse the entry to accrue interest revenue.

Interest Revenue............................................................................ 100

Interest Receivable................................................................ 100

(f) Reverse the entry to accrue salaries and wages expense.

Salaries and Wages Payable......................................................... 3,000

Salaries and Wages Expense............................................... 3,000

^a Ex. 213

On December 31, 2013 the adjusted trial balance of the Yellin Personnel Agency shows the following selected data:

Accounts Receivable, $8,000

Service Revenue, $70,000

Interest Expense, $10,500

Interest Payable, $2,500

Utilities Expense, $4,800

Accounts Payable, $2,400

Analysis indicates that adjusting entries were made for (a) $8,000 of employment commission revenue earned but not billed, (b) $3,500 of accrued but unpaid interest, and (c) $2,700 of utilities expense accrued but not paid.

Instructions

(a) Prepare the closing entries at December 31, 2013.

(b) Prepare the reversing entries on January 1, 2014.

(c) Enter the adjusted trial balance data in T-accounts. Post the entries in (a) and (b) and rule and balance the accounts.

(d) Prepare the entries to record (1) the collection of the accrued commission on January 8, (2) payment of the utility bill on January 10, and (3) payment of all the interest due ($4,200) on January 15.

(e) Post the entries in (d) to the temporary accounts.

(f) What is the interest expense for the month of January 2014?

Ans: N/A, LO: 7, Bloom: AN, Difficulty: Medium, Min: 25, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

^a Solution 213 (25 min.)

(a) (1) Service Revenue...................................................................... 70,000

Income Summary............................................................ 70,000

(2) Income Summary..................................................................... 15,300

Interest Expense.............................................................. 10,500

Utilities Expense.............................................................. 4,800

(3) Income Summary..................................................................... 54,700

Retained Earnings........................................................... 54,700

(b) (1) Service Revenue...................................................................... 8,000

Accounts Receivable....................................................... 8,000

(2) Interest Payable........................................................................ 3,500

Interest Expense.............................................................. 3,500

(3) Accounts Payable..................................................................... 2,700

Utilities Expense.............................................................. 2,700

(c) and (e)

Accounts Receivable Service Revenue

(A) 8,000 (R) 8,000 (C) 70,000 (A) 70,000

(R) 8,000 (D) 8,000

Interest Expense Interest Payable

(A) 10,500 (C) 10,500 (R) 3,500 (A) 3,500

(D) 4,200 (R) 3,500

Utilities Expense Accounts Payable

(A) 4,800 (C) 4,800 (R) 2,700 (A) 2,700

(D) 2,700 (R) 2,700

Legend

A = Adjusted trial balance amount

C = Closing

R = Reversing

D = January Transaction entries

(d) (1) Jan. 8 Cash........................................................................ 8,000

Service Revenue........................................... 8,000

(2) Jan. 10 Utilities Expense..................................................... 2,700

Cash............................................................... 2,700

(3) Jan. 15 Interest Expense..................................................... 4,200

Cash............................................................... 4,200

(f) Interest expense for January is $700 ($4,200 – $3,500).

^a Ex. 214

Transaction and adjustment data for Doty Company for the calendar year end is as follows:

1. December 24 (initial salary entry): $12,000 of salaries earned between December 1 and December 24 are paid.

2. December 31 (adjusting entry): Salaries earned between December 25 and December 31 are $2,000. These will be paid in the January 8 payroll.

3. January 8 (subsequent salary entry): Total salary payroll amounting to $7,000 was paid.

Instructions

Prepare two sets of journal entries as specified below. The first set of journal entries should assume that the company does not use reversing entries, and the second set should assume that reversing entries are utilized by the company.

Assume no reversing entries Assume reversing entries

(a) Initial Salary Entry

Dec. 24

(b) Adjusting Entry

Dec. 31

(c) Closing Entry

Dec. 31

(d) Reversing Entry

Jan. 1

(e) Subsequent Salary Entry

Jan. 8

Ans: N/A, LO: 7, Bloom: AN, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

^a Solution 214 (20 min.)

Assume no reversing entries Assume reversing entries

(a) Initial Salary Entry

Dec. 24

Salaries and Wages Expense 12,000 Salaries and Wages Expense 12,000

Cash 12,000 Cash 12,000

(b) Adjusting Entry

Dec. 31

Salaries and Wages Expense 2,000 Salaries and Wages Expense 2,000

Salaries and Wages Payable 2,000 Salaries and Wages Payable 2,000

(c) Closing Entry

Dec. 31

Income Summary 14,000 Income Summary 14,000

Salaries and Wages Expense 14,000 Salaries and Wages Expense 14,000

(d) Reversing Entry

Jan. 1

None Salaries and Wages Payable 2,000

Salaries and Wages Expense 2,000

(e) Subsequent Salary Entry

Jan. 8

Salaries and Wages Payable 2,000 Salaries and Wages Expense 7,000

Salaries and Wages Expense 5,000 Cash 7,000

Cash 7,000

CE 215

The adjusted trial balance for Molina Company is presented below.

Molina made an error during year when they debited Utilities Expense for $2,000 instead of Equipment for a cash purchase of equipment. In addition, Molina failed to accrue $4,000 of Service Revenue.

Instructions

(a) Prepare an income statement and a retained earnings statement for the year.

(b) Prepare a classified balance sheet at July 31.

Solution 215

MOLINA COMPANY

Income Statement

For the Year Ended July 31, 2013

———————————————————————————————————————————

Revenues

Service revenue ($69,000 + $4,000) ............................................. $73,000

Rent revenues................................................................................ 11,000

Total revenues....................................................................... 84,000

Expenses

Salaries and wages expense......................................................... $60,000

Utilities expense ($10,000 - $2,000).............................................. 8,000

Depreciation expense..................................................................... 5,000

Total aexpenses.................................................................... 73,000

Net income.............................................................................................. $11,000

Solution 215 (Cont.)

MOLINA COMPANY

Retained Earnings Statement

For the Year Ended July 31, 2013

———————————————————————————————————————————

Retained Earnings, August 1, 2012....................................................... $27,500

Net income............................................................................................. $11,000

Dividends .............................................................................................. (17,000) (6,000)

Retained Earnings, July 31, 2013.......................................................... $21,500

MOLINA COMPANY

Balance sheet

July 31, 2013

———————————————————————————————————————————

Assets

Current assets

Cash................................................................................................ $18,000

Account Receivable ($9,000 + $4,000).......................................... 13,000

Total Current assets............................................................... $31,000

Property, Plant, and equipment

Equipment....................................................................................... $28,000

Less: Accumulated depreciation.................................................... 8,000 20,000

Total aexpenses.................................................................... $51,000

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable........................................................................... $5,500

Unearned rent revenue.................................................................. 2,000

Total Current liabilities............................................................ $ 7,500

Stockholders' equity

Common stock............................................................................... 22,000

Retained earnings........................................................................... 21,500

Total stockholders' equity...................................................... 43,500

Total liabilities and stockholders' equity................................ $51,000

CE 216

Remington Company discovered the following errors made in January 2013

1. A payment of Salaries and wages of $1,000 was debited to Equipment and credited to cash, both for $1,000. Remington recorded $200 of depreciation on this "equipment".

2. A collection of $3,000 from a client on account was debited to cash $300 and credited to Service Revenue $300.

3. The purchase of supplies on account for $840 was debited to Supplies $480 and credited to Accounts Payable $480.

4. The purchase of short-term investments for $1,500 cash was debited to prepaid Rent and credited to Cash. At yearend, $500 of the "prepaid rent" was recorded as rent expense.

Instructions

(a) Correct the errors by reversing the incorrect entry and preparing the correct entry.

(b) Correct the errors without reversing the incorrect entry.

Solution 216

a) 1. Cash .................................................................................. 1,000

Equipment................................................................ 1,000

Salaries and Wages Expense............................................... 1,000

Cash......................................................................... 1,000

Accumulated Depreciation.................................................... 200

Depreciation Expenses............................................ 200

2. Service Revenue................................................................... 300

Cash......................................................................... 300

Cash 3,000

Accounts Receivable................................................ 3,000

3. Accounts payable.................................................................. 480

Supplies.................................................................... 480

Supplies................................................................................. 840

Accounts payable..................................................... 840

4. Cash 1,500

Prepaid..................................................................... 1,500

Short-term Investments......................................................... 1,500

Cash......................................................................... 1,500

Prepaid Rent.......................................................................... 500

Rent Expense........................................................... 500

b) 1. Salaries and Wages Expense............................................... 1,000

Equipment................................................................ 1,000

Accumulated Depreciation.................................................... 200

Depreciation Expense.............................................. 200

2. Service Revenue................................................................... 300

Cash 2,700

Accounts Receivable................................................ 3,000

3. Supplies................................................................................. 360

Account Payable...................................................... 360

4. Short-term Investments......................................................... 1,500

Prepaid Rent............................................................ 1,000

Rent Expense........................................................... 500

CE 217

The following items were taken from the financial statements Wyatt Company. (All dollars are in thousands.)

2013 net income was 1,000 and dividends paid were $700.

Instructions

Prepare a classified balance sheet in good form as of December 31, 2013.

Solution 217

WYATT COMPANY

Balance Sheet

December 31, 2013

(in thousands)

———————————————————————————————————————————

Assets

Current assets

Cash ............................................................................................. $4,648

Short-term investments.................................................................. 3,490

Accounts receivable....................................................................... 1,734

Inventory......................................................................................... 1,456

Prepaid insurance........................................................................... 900

Total current assets............................................................... $12,228

Long-term investments............................................................................ 464

Property, plant, and equipment

Equipment....................................................................................... 14,300

Less: Accumulated depreciation.................................................... 5,600 8,700

Intangible assets

Patants............................................................................................ 600

Total assets............................................................................ $21,992

Solution 217 (Cont.)

Liabilities and Stockholders' Equity

Current liabilities

Notes payable in 2014.................................................................... $474

Accounts payable........................................................................... 2,444

Total current liabilities............................................................ $2,918

Long-term liabilities

Long-term debt............................................................................... 1,950

Notes payable (after 2014)............................................................. 1,024

Total long-term liabilities........................................................ 2,974

Total liabilities........................................................................................... 5,892

Stockholders' equity................................................................................

Common stock............................................................................... 10,000

Retained earnings ($5,800 + $1,000 - $700)................................ 6,100

Total stockholders' equity...................................................... 16,100

Total liabilities and stockholders'

equity................................................................................... $21,992

COMPLETION STATEMENTS

218. The first step in preparing a worksheet is to prepare a ______________ from the general ledger accounts.

Ans: N/A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

219. The account balances appearing in the adjusted trial balance columns are extended to the ______________ columns and the ______________ columns.

Ans: N/A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

220. The process of transferring net income (or loss) for the period to Retained Earnings is accomplished by making ______________ entries.

Ans: N/A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

221. At the end of an accounting period, all revenue and expense accounts are closed to a temporary account called ______________.

Ans: N/A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

222. The Dividends account is closed to the ______________ account at the end of the accounting period.

Ans: N/A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

223. After all closing entries have been journalized and posted, the final step in the accounting cycle is to prepare a ______________ trial balance.

Ans: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

224. The preparation of a ______________ and ______________ entries are two optional steps in the accounting cycle.

Ans: N/A, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

225. Two permanent accounts that are part of the stockholders' equity in a corporation are ______________ and ______________.

Ans: N/A, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

226. The four major classifications of assets in a classified balance sheet are: ________________, ________________, ________________ and ________________.

Ans: N/A, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

227. The ______________ of a company is the average time that it takes to purchase inventory, sell it on account, and then collect cash from customers.

Ans: N/A, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

228. Assets that do not have a physical substance yet often are very valuable are called ______________ assets.

Ans: N/A, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

229. Liabilities are generally classified as either ______________ or ______________ on a classified balance sheet.

Ans: N/A, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Answers to Completion Statements

218. trial balance 225. Common Stock, Retained Earnings

219. income statement, balance sheet 226. Current Assets; Long-Term Investments;

220. closing Property, Plant, and Equipment;

221. Income Summary Intangible Assets

222. Retained Earnings 227. operating cycle

223. post-closing 228. intangible

224. worksheet, reversing 229. current, long-term

MATCHING

230. Match the items below by entering the appropriate code letter in the space provided.

A. Worksheet F. Common Stock

B. Permanent accounts G. Current assets

C. Closing entries H. Operating cycle

D. Income Summary I. Long-term liabilities

E. Reversing entry J. Correcting entries

_____ 1. Obligations that a company expects to pay after one year.

_____ 2. A part of owners' equity in a corporation.

_____ 3. An optional tool which facilitates the preparation of financial statements.

_____ 4. A temporary account used in the closing process.

_____ 5. Balance sheet accounts whose balances are carried forward to the next period.

_____ 6. The average time that it takes to go from cash to cash in producing revenues.

_____ 7. Entries to correct errors made in recording transactions.

_____ 8. The exact opposite of an adjusting entry made in a previous period.

_____ 9. Entries at the end of an accounting period to transfer the balances of temporary accounts to a permanent stockholders' equity account.

_____ 10. Assets that a company expects to pay or convert to cash or use up within one year.

Ans: N/A, LO: 6, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Reporting

Answers to Matching

1. I 6. H

2. F 7. J

3. A 8. E

4. D 9. C

5. B 10. G

SHORT-ANSWER ESSAY QUESTIONS

S-A E 231

A worksheet is an optional working tool used by accountants to facilitate the preparation of financial statements. Consider the steps followed in preparing a worksheet. How does the use of a worksheet assist the accountant. Could financial statements be prepared without a worksheet? Evaluate how the process would differ. Consider factors such as timeliness, accuracy, and efficiency in your evaluation.

Ans: N/A, LO: 1, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA

Solution 231

The worksheet organizes the accountant's work in preparing the income statement and the balance sheet. The worksheet contains the general ledger trial balance, the adjusting entries, and an adjusted trial balance (if 10-column). The columns for these trial balances and entries allow the accountant to prove the equality of the debits and credits at each step of the process. From the adjusted trial balance the balance sheet and income statement amounts are obtained and entered in the appropriate columns.

Preparing financial statements without the use of a worksheet would be less organized and probably more prone to errors. And, if errors are made, they will probably be less easy to detect and locate, and, therefore, less efficient and more time consuming.

S-A E 232

Journalizing and posting closing entries is a required step in the accounting cycle. Discuss why it is necessary to close the books at the end of an accounting period. If closing entries were not made, how would the preparation of financial statements be affected?

Ans: N/A, LO: 2, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: Reporting

Solution 232

Closing entries are prepared to close the income statement accounts (the temporary accounts) of the current year in order to start the next year. Income statement (temporary) accounts are cumulative in nature but only for a year. The closing entries are what separate the accounting periods. The next year's accumulation of income statement data can begin once the accounts are cleared and the balances transferred through the closing entries to stockholders' equity.

S-A E 233

Give the definition of current assets and current liabilities and provide two examples of each.

Ans: N/A, LO: 6, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Solution 233

Current assets are assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer. Examples of current assets include short-term investments, accounts receivable, and inventory. Current liabilities are obligations that the company is to pay within the current year. Examples of current liabilities are accounts payable, wages payable, and taxes payable.

S-A E 234

(a) What is the term used to describe the owner's equity section of a corporation? (b) Identify the two owners' equity accounts in a corporation and indicate the purpose of each.

Ans: N/A, LO: 6, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Solution 234

(a) The owner's equity section for a corporation is called stockholders' equity.

(b) The two accounts and the purpose of each are: (1) Common stock is used to record investments of assets in the business by the owners (stockholders). (2) Retained earnings is used to record net income retained in the business.

S-A E 235

Distinguish between a reversing entry and an adjusting entry. Are reversing entries required?

Ans: N/A, LO: 7, Bloom: K, Difficulty: Easy, Min: 5, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Solution 235

A reversing entry is the exact opposite of an adjusting entry and is made at the beginning of the new accounting period. Reversing entries are an optional step in the accounting cycle.

S-A E 236 (Ethics)

Under Protection provides underground storage facilities for companies desiring off-site storage of sensitive documents, computer records, and other items. They have developed a sophisticated surveillance and security system which they initially used in their own facilities, and have recently started to market elsewhere as well.

The underground storage facilities are made from natural caves in some instances (reinforced and modified as appropriate) and from excavations of natural rock formations in others. The land was purchased over ten years ago for a total of $2.5 million. The modifications have cost approximately $15 million more. The company has never depreciated its storage facilities because the market value of the property has continued to rise. Presently, the market price is between $30 and $40 million.

Betsy Brantley, a new accounting manager, questioned this depreciation policy. Will Gray, the controller, has told him that he needn't worry about it. For one thing, he says, this is really a special form of Land account, which should not be depreciated at all. For another, this is a privately held company, and so they don't need to worry about misleading investors. All the owners know about and approve the depreciation policy.

Required:

What are the ethical issues in this situation?

Ans: N/A, LO: 5, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Ethics, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Communication, IMA: Business Economics

Solution 236

The ethical issue is one of integrity. Even though the storage facilities are underground, that does not mean that they can be accounted for simply as land. The structural improvements and surveillance mechanisms will not last forever, and therefore their cost should be allocated over the periods that are benefited. Net income is being overstated because the depreciation expense, at zero, is being understated.

A second issue is the harm that may be incurred by outside parties because of the misrepresentation in the financial statements. Even though the owners know about the (lack of) depreciation, they may still use their financial statements to obtain loans. Private investors and bankers should be able to rely on the financial statements.

A third issue is that of the integrity of the accountants themselves. If they are being asked to ignore a basic principle of accounting so openly now, they should certainly ask themselves what lies ahead.

S-A E 237 (Communication)

You have recently started to work for Storry Malcom, manufacturers of cemetery markers and monuments. During your first month at work, you inadvertently recorded as revenue, about $4,000 of prepayments from Budger Company. The financial statements had been released within the company when you discovered your error. The month-end closing had not been completed, however, and you were able to correct the accounts without incident.

Required:

Prepare a short note to accompany the re-released financial statements explaining the mistake.

Ans: N/A, LO: 5, Bloom: K, Difficulty: Easy, Min: 5, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Communication, IMA: Reporting

Solution 237

M E M O

TO: Department Managers

FROM: Lisa Cross, Accounting

RE: Month-End Reports

****ATTACHED FINANCIAL STATEMENTS REPLACE THOSE ISSUED JULY 5****

*****DESTROY ALL EARLIER COPIES OF JUNE 30 FINANCIAL STATEMENTS****

An error was made in the recording of Budger Company's prepayment. The entire $4,000 was recorded as revenue. Since Budger's order had not been completed or shipped, it should have been recorded as unearned revenue, which is a liability. Note that net income is reduced to only $xxxxx as a result of this change.

If you have sent any of your summary reports to corporate headquarters, please contact the Accounting Department immediately for correction codes.

I am sincerely sorry for any inconvenience or delays caused by this error.

Ifrs QUESTIONS

238. The classified balance sheet is

a. required under GAAP but not under IFRS.

b. required under IFRS in the same format as under GAAP.

c. required under IFRS but not under GAAP.

d. required under IFRS with certain variations in format as compared to GAAP.

Ans: D, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

239. IFRS requires the use of

a. the term balance sheet.

b. the term statement of financial position.

c. neither balance sheet nor statement of financial position, but recommends use of the term balance sheet.

d. neither balance sheet nor statement of financial position, but recommends use of the term statement of financial position.

Ans: D, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

240. IFRS

a. requires a specific format for the balance sheet (statement of financial position) that is identical to U.S. GAAP.

b. requires a specific format for the balance sheet (statement of financial position) that is different from U.S. GAAP.

c. requires no specific format for the balance sheet (statement of financial position) but most companies that follow IFRS prepare the statement identical to U.S. GAAP.

d. requires no specific format for the balance sheet (statement of financial position) but most companies that follow IFRS prepare the statement in a different format from U.S. GAAP.

Ans: D, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

241 Most companies that follow IFRS present balance sheet (statement of financial position) information in this order:

a. current assets; investments; property, plant and equipment; intangible assets; current liabilities; long term liabilities; stockholders' equity.

b. intangible assets; property, plant and equipment; investments; current assets; current liabilities; stockholders' equity; long term liabilities.

c. current assets; noncurrent assets; current liabilities; noncurrent liabilities; equity.

d. noncurrent assets; current assets; equity; noncurrent liabilities; current liabilities.

Ans: D, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

242. Under IFRS and under GAAP, current assets are listed in

IFRS GAAP

a. order of liquidity order of liquidity

b. reverse order of liquidity order of liquidity.

c. order of liquidity reverse order of liquidity

d. reverse order of liquidity reverse order of liquidity

Ans: B, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

243. The subtotal net assets is used in

a. both GAAP and IFRS.

b. GAAP but not IFRS.

c. IFRS but not GAAP.

d. neither IFRS nor GAAP.

Ans: C, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

244. Both IFRS and GAAP require disclosure about

a. accounting policies followed.

b. judgements that management has made in the process of applying the entity's accounting policies.

c. the key assumptions and estimation uncertainty.

d. all of the above.

Ans: D, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

245. Under IFRS

a. comparative prior-period information must be presented, but financial statements need not be provided annually.

b. comparative prior-period informaton must be presented, and financial statements must be provided annually.

c. comparative prior-period information is not required, and financial statements need not be provided annually.

d. comparative prior-period information is not required, but financial statements must be provided annually.

Ans: B, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

246. The use of fair value to report assets

a. is not allowed under GAAP or IFRS.

b. is required by GAAP and IFRS.

c. is increasing under GAAP and IFRS, but GAAP has adopted it more broadly.

d. is increasing under GAAP and IFRS, but IFRS has adopted it more broadly.

Ans: D, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

247. Under IFRS

a. companies can apply fair value to property, plant, and equipment and natural resources.

b. companies can apply fair value to property, plant, and equipment but not to natural resources.

c. companies can apply fair value to neither property, plant, and equipment nor natural resources.

d. companies can apply fair value to natural resources but not to property, plant, and equipment.

Ans: A, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

248. The IASB and FASB are working on a converged statement of financial position using the headings of

a. assets, liabilities, and stockholders' equity.

b. revenues and expenses.

c. assets, liabilities, revenues, expenses and stockholders' equity.

d. operating, investing, and financing.

Ans: D, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting