Chapter 4: Completing the Accounting Cycle

Question 1

1. Which of the following statements is incorrect concerning the worksheet?

(a) The worksheet is essentially a working tool of the
accountant.
(b) The worksheet is distributed to management and
other interested parties.
(c) The worksheet cannot be used as a basis for posting to ledger accounts.
(d) Financial statements can be prepared directly
from the worksheet before journalizing and posting the adjusting entries

Answer 1

1. (b) The worksheet is a working tool of the accountant; it is not distributed to management and other interested parties.
   The other choices are all true statements.

Question 2

2. In a worksheet, net income is entered in the following columns:

(a) income statement (Dr) and balance sheet (Dr).
(b) income statement (Cr) and balance sheet (Dr).
(c) income statement (Dr) and balance sheet (Cr).
(d) income statement (Cr) and balance sheet (Cr).

Answer 2

2. (c) Net income is entered in the Dr column of the income statement and the Cr column of the balance sheet.

Question 3

3. In the unadjusted trial balance of its worksheet for the year ended December 31, 2017, Knox Company
   reported Equipment of $120,000. The year-end adjusting entries require an adjustment of $15,000 for depreciation expense for the equipment. After the adjusted trial balance is completed, what amount should be shown in the financial statement columns?

(a) A debit of $105,000 for Equipment in the balance
sheet column.
(b) A credit of $15,000 for Depreciation Expense—
Equipment in the income statement column.
(c) A debit of $120,000 for Equipment in the balance
sheet column.
(d) A debit of $15,000 for Accumulated Depreciation—
Equipment in the balance sheet column.

Answer 3

3. (c) A debit of $120,000 for Equipment would appear in the balance sheet column.

Question 4

4. An account that will have a zero balance after closing entries have been journalized and posted is:

(a) Service Revenue.
(b) Supplies.
(c) Prepaid Insurance.
(d) Accumulated Depreciation—Equipment.

Answer 4

4. (a) The Service Revenue account will have a zero balance after closing entries have been journalized and posted because it is a temporary account

Question 5

5. When a net loss has occurred, Income Summary is:

(a) debited and Owner’s Capital is credited.
(b) credited and Owner’s Capital is debited.
(c) debited and Owner’s Drawings is credited.
(d) credited and Owner’s Drawings is debited.

Answer 5

5. (b) The effect of a net loss is a credit to Income Summary and a debit to Owner’s Capital.

Question 6

6. The closing process involves separate entries to close (1) expenses, (2) drawings, (3) revenues, and (4) income summary. The correct sequencing of the
   entries is:

(a) (4), (3), (2), (1).
(b) (1), (2), (3), (4).
(c) (3), (1), (4), (2).
(d) (3), (2), (1), (4).

Answer 6

6. (c) The correct order is (3) revenues, (1) expenses, (4) income summary, and (2) drawings

Question 7

7. Which types of accounts will appear in the post-closing
   trial balance?
   (a) Permanent (real) accounts.
   (b) Temporary (nominal) accounts.
   (c) Accounts shown in the income statement columns
   of a worksheet.
   (d) None of these answer choices is correct.

Answer 7

7. (a) Permanent accounts appear in the post-closing trial balance.

Question 8

8. All of the following are required steps in the accounting cycle except:

(a) journalizing and posting closing entries.
(b) preparing fi nancial statements.
(c) journalizing the transactions.
(d) preparing a worksheet.

Answer 8

8. (d) Preparing a worksheet is not a required step in the accounting cycle.

Question 9

9. The proper order of the following steps in the accounting cycle is:

(a) prepare unadjusted trial balance, journalize
transactions, post to ledger accounts, journalize
and post adjusting entries.
(b) journalize transactions, prepare unadjusted trial
balance, post to ledger accounts, journalize and
post adjusting entries.
(c) journalize transactions, post to ledger accounts,
prepare unadjusted trial balance, journalize and
post adjusting entries.
(d) prepare unadjusted trial balance, journalize and
post adjusting entries, journalize transactions,
post to ledger accounts.

Answer 9

9. (c) The proper order of the steps in the accounting cycle is (1) journalize transactions, (2) post to ledger accounts, (3) prepare unadjusted trial balance, and (4) journalize and post adjusting entries.

Question 10

10. When Ramirez Company purchased supplies worth
    $500, it incorrectly recorded a credit to Supplies for
    $5,000 and a debit to Cash for $5,000. Before correcting this error:

(a) Cash is overstated and Supplies is overstated.
(b) Cash is understated and Supplies is understated.
(c) Cash is understated and Supplies is overstated.
(d) Cash is overstated and Supplies is understated.

Answer 10

10. (d) This entry causes Cash to be overstated and Supplies to be understated. Supplies should have been debited (increasing supplies) and Cash should have been credited (decreasing cash).

Question 11

11. Cash of $100 received at the time the service was performed was journalized and posted as a debit to Cash $100 and a credit to Accounts Receivable $100. Assuming the incorrect entry is not reversed, the correcting entry is:

(a) debit Service Revenue $100 and credit Accounts
Receivable $100.
(b) debit Accounts Receivable $100 and credit Service
Revenue $100.
(c) debit Cash $100 and credit Service Revenue $100.
(d) debit Accounts Receivable $100 and credit Cash
$100.

Answer 11

11. (b) The correcting entry is to debit Accounts Receivable $100 and credit Service Revenue $100.

Question 12

12. The correct order of presentation in a classifi ed balance sheet for the following current assets is:

(a) accounts receivable, cash, prepaid insurance,
inventory.
(b) cash, inventory, accounts receivable, prepaid
insurance.
(c) cash, accounts receivable, inventory, prepaid
insurance.
(d) inventory, cash, accounts receivable, prepaid
insurance.

Answer 12

12. (c) Companies list current assets on balance sheet in the order of liquidity: cash, accounts receivable, inventory, and prepaid insurance.

Question 13

13. A company has purchased a tract of land. It expects to build a production plant on the land in approximately
    5 years. During the 5 years before construction, the
    land will be idle. The land should be reported as:

(a) property, plant, and equipment.
(b) land expense.
(c) a long-term investment.
(d) an intangible asset.

Answer 13

13. (c) Long-term investments include long-term assets such as land that a company is not currently using in its operating activities

Question 14

14. In a classifi ed balance sheet, assets are usually classifi ed using the following categories:

(a) current assets; long-term assets; property, plant,
and equipment; and intangible assets.
(b) current assets; long-term investments; property,
plant, and equipment; and tangible assets.
(c) current assets; long-term investments; tangible
assets; and intangible assets.
(d) current assets; long-term investments; property,
plant, and equipment; and intangible assets.

Answer 14

14. (d) These are the categories usually used in a classified balance sheet.

Question 15

15. Current assets are listed:

(a) by expected conversion to cash.
(b) by importance.
(c) by longevity.
(d) alphabetically

Answer 15

15. (a) Current assets are listed in order of their liquidity, not (b) by importance, (c) by longevity, or (d)alphabetically.

Question 16

16. On December 31, Kevin Hartman Company correctly
    made an adjusting entry to recognize $2,000 of accrued salaries payable. On January 8 of the next
    year, total salaries of $3,400 were paid. Assuming the
    correct reversing entry was made on January 1, the
    entry on January 8 will result in a credit to Cash
    $3,400 and the following debit(s):

(a) Salaries and Wages Payable $1,400 and Salaries
and Wages Expense $2,000.
(b) Salaries and Wages Payable $2,000 and Salaries
and Wages Expense $1,400.
(c) Salaries and Wages Expense $3,400.
(d) Salaries and Wages Payable $3,400.

Answer 16

16. (c) The use of reversing entries simplifi es the recording of the fi rst payroll following the end of the year by eliminating the need
    to make an entry to the Salaries and Wages Payable account.