Chapter 4—Completing the Accounting Cycle
39. The post-closing trial balance differs from the adjusted trial balance in that it
a. does not take into account closing entries b. does not take into account adjusting entries c. does not include balance sheet accounts d. does not include income statement accounts
ANS: D DIF: 2 OBJ: 04
40. The following accounts were taken from the Adjusted Trial Balance columns of the work
sheet:
Accumulated Depreciation $ 2,000 Fees Earned 15,000 Depreciation Expense 1,000 Insurance Expense 500 Prepaid Insurance 4,500 Supplies 1,200 Supplies Expenses 3,500
Net income for the period is a. $2,300 b. $10,000 c. $4,300 d. $5,000
ANS: B DIF: 4 OBJ: 04
41. A summary of selected ledger accounts appear below for Ted's Auto Services for the 2005
calendar year end.
Ted, Capital 12/31 7,000 1/1 5,000 12/31 17,000 Ted, Drawing 6/30 2,000 12/31 7,000 11/30 5,000 Income Summary 12/31 15,000 12/31 32,000 12/31 17,000 Net income for the period is a. $17,000 b. $22,000 c. $7,000 d. $15,000
ANS: A
DIF: 3 OBJ: 04
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Chapter 4—Completing the Accounting Cycle
42. A fiscal year
a. ordinarily begins on the first day of a month and ends on the last day of the following twelfth month
b. for a business is determined by the federal government
c. always begins on January 1 and ends on December 31 of the same year d. should end at the height of the business's annual operating cycle
ANS: A DIF: 3 OBJ: 05
43. The ability of a company to pay its debts is called
a. working capital b. current ratio
c. return on investment d. solvency
ANS: D DIF: 1 OBJ: 06
44. A current ratio of 4.3 means that
a. there are $4.30 in current assets available to pay each dollar of current liabilities b. the company cannot pay its debts as they come due
c. there are $4.30 in current assets for every $4.30 in current liabilities d. there are $4 in current assets for every $3 in current liabilities
ANS: A DIF: 4 OBJ: 06
45. Reversing entries are
a. required by generally accepted accounting principles b. made for all deferred adjusting entries
c. made at the end of the accounting period prior to the closing entries d. made at the beginning of the accounting period
ANS: D DIF: 2 OBJ: App
46. A reversing entry reverses a(n)
a. closing entry b. transaction entry c. adjusting entry d. correcting entry
ANS: C DIF: 2 OBJ: App
47. If reversing entries are used, which of the adjusting entries below should be reversed?
a. Insurance Expense, debit: Prepaid Insurance, credit b. Unearned Revenue, debit; Fees Earned, credit
c. Office Supplies Expense, debit; Office Supplies, credit d. Accounts Receivable, debit; Fees Earned, credit
ANS: D DIF: 3 OBJ: App
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Chapter 4—Completing the Accounting Cycle
48. Reversing entries should be made for
a. adjusting entries recording depreciation b. adjusting entries for all deferrals c. adjusting entries recording salaries d. all of the above
ANS: C DIF: 3 OBJ: App
PROBLEM
1. The balances for the accounts listed below appeared in the Adjusted Trial Balance columns of
the work sheet. Indicate whether each balance should be extended to (a) the Income Statement columns or (b) the Balance Sheet columns. (1) Salaries Payable ____ (7) Kim Lee, Drawing ____ (2) Fees Earned ____ (8) Equipment ____ (3) Accounts Payable ____ (9) Accounts Receivable ____ (4) Kim Lee, Capital ____ (10) Accumulated Depreciation____ (5) Supplies Expense ____ (11) Salary Expense ____ (6) Unearned Rent ____ (12) Depreciation Expense ____
ANS:
(a) Income statement: 2, 5, 11, 12 (b) Balance sheet: 1, 3, 4, 6, 7, 8, 9, 10
DIF: 1 OBJ: 02
2. Indicate whether each of the following would be reported in the financial statements as a(n) (a)
current asset, (b) current liability, (c) revenue, or (d) expense: (1) Supplies ____ (5) Supplies Expense____ (2) Unearned Fees ____ (6) Prepaid Insurance ____ (3) Prepaid Advertising ____ (7) Accounts Payable ____ (4) Advertising Expense ____ (8) Fees Earned ____
ANS:
(1) current asset (2) current liability (3) current asset (4) expense (5) expense (6) current asset (7) current liability (8) revenue
DIF: 2 OBJ: 03
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Chapter 4—Completing the Accounting Cycle
3. The following accounts were taken from the Adjusted Trial Balance columns of the work sheet for June 30, 2005 for Brodie Co.:
Accumulated Depreciation $ 25,000 Fees Earned 85,000 Depreciation Expense 9,500 Rent Expense 44,000 Prepaid Insurance 7,000 Supplies 500 Supplies Expense 2,500
Prepare an income statement.
ANS:
Brodie Co. Income Statement
For the Year Ended June 30, 2005
Fees earned $85,000 Expenses: Rent expense $44,000 Depreciation expense 9,500 Supplies expense 2,500 Total expenses 56,000 Net income $29,000 =======
DIF: 2 OBJ: 03
4. The following revenue and expense account balances were taken from the Income Statement columns of the work sheet for Marion Services Co. for December 31, 2005:
Depreciation Expense $ 5,950 Insurance Expense 3,900 Miscellaneous Expense 2,200 Rent Expense 34,000 Service Revenue 102,500 Supplies Expense 4,150 Utilities Expense 6,000 Wages Expense 53,750
Prepare an income statement.
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Chapter 4—Completing the Accounting Cycle
ANS:
Marion Services Co. Income Statement
For the Year Ended December 31, 2005
Service revenue $ 102,500 Operating expenses: Wages expense $53,750 Rent expense 34,000 Utilities expense 6,000 Depreciation expense 5,950 Insurance expense 3,900 Supplies expense 4,150 Miscellaneous expense 2,200 Total operating expenses 109,950 Net loss $(7,450) ========
DIF: 2 OBJ: 03
5. Selected ledger accounts appear below for Construction Services for 2005.
Flynn, Capital Flynn, Drawing 12/31 15,000 1/1 20,000 3/31 12,000 12/31 15,000 12/31 45,000 12/22 3,000
Income Summary 12/31 19,000 12/31 64,000 12/31 45,000
Prepare a statement of owner's equity.
ANS:
Construction Services Statement of Owner's Equity
For the Year Ended December 31, 2005
Flynn, capital, 1/1/2005 $20,000 Net income $ 45,000 Less withdrawals 15,000 Increase in owner’s equity 30,000 Flynn, capital, 12/31/2005 $50,000 =======
DIF: 3 OBJ: 03
104
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