CH 04

Chapter 4
Completing the Accounting Cycle
OBJECTIVES
Obj 1 Describe the flow of accounting information from the unadjusted trial balance into
the adjusted trial balance and financial statements.
Obj 2 Prepare financial statements from adjusted account balances.
Obj 3 Prepare closing entries.
Obj 4 Describe the accounting cycle.
Obj 5 Illustrate the accounting cycle for one period.
Obj 6 Explain what is meant by the fiscal year and the natural business year.
QUESTION GRID
True / False
No. Objective Difficulty No. Objective Difficulty No. Objective Difficulty
1 04-01 Easy 25 04-02 Easy 49 04-04 Easy
2 04-01 Easy 26 04-03 Easy 50 04-04 Easy
3 04-01 Easy 27 04-03 Easy 51 04-04 Moderate
4 04-01 Moderate 28 04-03 Easy 52 04-04 Easy
7 04-02 Easy 31 04-03 Easy 55 04-06 Easy
9 04-02 Moderate 33 04-03 Easy 57 04-APP Easy
11 04-02 Easy 35 04-03 Easy 59 04-APP Moderate
12 04-02 Moderate 36 04-03 Moderate 60 04-APP Easy
14 04-02 Easy 38 04-03 Easy 62 04-APP Easy
16 04-02 Moderate 40 04-03 Easy 64 04-APP Moderate
24 04-02 Easy 48 04-03 Moderate 72 04-APP Easy
167
168  Chapter 4/Completing the Accounting Cycle
Matching
1 04-05 Moderate 4 04-05 Moderate 7 04-05 Moderate
3 04-05 Moderate 6 04-05 Moderate
Multiple Choice
2 04-01 Difficult 30 04-03 Difficult 58 04-04 Easy Ex-
3 04-01 Difficult 31 04-03 Easy 59 04-06 Moderate er-
4 04-01 Moderate 32 04-03 Easy 60 04-06 Moderate
5 04-02 Moderate 33 04-03 Easy 61 04-06 Moderate
7 04-02 Moderate 35 04-03 Moderate 63 04-APP Moderate
9 04-02 Easy 37 04-03 Moderate 65 04-APP Easy
10 04-02 Easy 38 04-03 Moderate 66 04-APP Moderate
18 04-02 Moderate 46 04-03 Difficult 74 04-APP Moderate
20 04-02 Moderate 48 04-03 Difficult 76 04-APP Moderate
26 04-02 Moderate 54 04-03 Moderate 82 04-APP Difficult
28 04-03 Moderate 56 04-04 Moderate
cise/Other
1 04-01 Easy 5 04-02 Easy 9 04-04 Difficult
4 04-02 Easy 8 04-03 Moderate
Problem
Chapter 4/Completing the Accounting Cycle  169

1 04-02 Easy 9 04-02 Difficult 17 04-03 Difficult
2 04-02 Easy 10 04-02 Difficult 18 04-03 Moderate
3 04-02 Moderate 11 04-02|04-03 Difficult 19 04-03 Difficult
4 04-02 Easy 12 04-03 Moderate 20 04-03 Difficult
5 04-02 Moderate 13 04-03 Difficult 21 04-03 Difficult
6 04-02 Easy 14 04-03 Moderate 22 04-05 Difficult
7 04-02 Difficult 15 04-03 Moderate 23 04-APP Difficult
8 04-02 Difficult 16 04-03 Moderate 24 04-APP Difficult
Chapter 4—Completing the Accounting Cycle
TRUE/FALSE
1. After analyzing transactions, the next step would be to post the transactions in the ledger.
ANS: F DIF: Easy OBJ: 04-01
NAT: AACSB Analytic | AICPA FN-Measurement
2. The most important output of the accounting cycle is the financial statements.
ANS: T DIF: Easy OBJ: 04-01
3. The work sheet is not considered a part of the formal accounting records.
4. Cross-referencing is useful in assuring that the debits and credits are in balance.
ANS: F DIF: Moderate OBJ: 04-01
5. When accounts do not appear on the unadjusted trial balance but are needed to post
adjustments, they are simply added to the account title column.
ANS: T DIF: Moderate OBJ: 04-01
6. Once the adjusted trial balance is in balance, the flow of accounts will now go into the
financial statements.
7. There is really no benefit in preparing financial statements in any particular order.

8. Round tripping is a fraudulent scheme where business A artificially inflates revenue by

lending money to customer B who uses that money to buy products from A.
9. On the income statement, miscellaneous expenses are usually presented as the last item
without regard to the dollar amount.
10. The usual presentation of the statement of retained earnings is (1) Beginning retained
earnings, (2) Net income or loss, (3) Dividends, (4) Investment by Stockholder, (5) Ending
retained earnings.
11. The difference between a classified balance sheet and one that is not classified is that the
classified one has subheadings.
12. Cash and other assets that may reasonably be expected to be realized in cash, sold, or
consumed through the normal operations of a business, usually longer than one year, are
called current assets.
13. Prepaid Insurance is an example of a current asset.

14. Land is an example of a plant asset.

15. Liabilities that will be due within one year or less and that are to be paid out of current assets
are called current liabilities.
16. The amount of the net income for a period appears on both the income statement and the
balance sheet for that period.
17. Accrued taxes payable are generally reported on the balance sheet as a current liability.
18. At the end of the fiscal period, prepaid expenses are reported on the Income Statement as
expenses.
19. Office Equipment is an example of a current asset account.

20. Capital Stock and Dividends are reported in the stockholders’ equity section of the balance
sheet.
21. Deferred expenses that benefit a relatively short period of time are listed on the balance
sheet as current assets.
22. Unearned revenues that will be earned in a relatively short period of time are listed on the
balance sheet as current assets.
23. Accrued expenses are ordinarily listed on the balance sheet as current assets.
24. Accrued revenues are ordinarily listed on the balance sheet as current liabilities.
25. The income statement is prepared from the adjusted trial balance or the income statement
columns on the work sheet.
26. Examples of temporary accounts are supplies and prepaid expenses which are in the ledger
for just a short time before they expire.
27. Accumulated Depreciation is a permanent account.

28. The dividend account is a temporary account.

29. The balance sheet accounts are referred to as real or permanent accounts.
30. Journalizing and posting the adjustments and closing entries updates the ledger for the new
accounting period.
31. The income summary account is closed to the retained earnings account.
32. The accumulated depreciation account is closed to the income summary account.
33. The dividends account is closed to the income summary account.

34. The trial balance prepared after all the closing entries have been posted is called a pre-
closing trial balance.
35. Entries required to close the balances of the temporary accounts at the end of the period are
called final entries.
36. In a corporation, a closing entry for the dividends account may not be necessary.
37. Journalizing and posting closing entries must be completed before financial statements can
be prepared.
38. During the closing process, some balance sheet accounts are closed and end the period with
a zero balance.
39. Closing entries are entered directly on to the work sheet.

40. The post-closing trial balance will generally have fewer accounts than the trial balance.
41. A post-closing trial balance contains only asset and liability accounts.
42. A post-closing trial balance should be prepared before the financial statements are prepared.
43. Assets, liabilities, and stockholders’ equity are real accounts and do not get closed at the end
of the period.
44. The income summary account is also known as the clearing account.
45. All income statement accounts will be closed at the end of the period.
46. Balance Sheet are not considered real accounts.

47. It is not necessary to post the closing entries to the general ledger.
48. Once an account has been closed for the period, inserting a line in the balance columns
zero’s out the account making it ready for the following period.
49. The last step of the accounting cycle is to prepare a post-closing trial balance.
50. The accounting cycle begins with preparing an unadjusted trial balance.
51. Financial statements should be prepared before the closing entries are journalized and
posted.
52. The unadjusted, adjusted, and final trial balances are prepared during the accounting cycle of
a period.
53. Any twelve-month accounting period adopted by a company is known as its fiscal year.
NAT: AACSB Analytic | AICPA BB-Industry
54. A fiscal year that ends when business activities have reached their lowest point is called the
natural business year.
55. All companies must use a calendar year as their fiscal year.
56. The majority of businesses end their fiscal year on December 31.
57. The work sheet is not considered a part of the formal accounting records.
ANS: T DIF: Easy OBJ: 04-App
58. The work sheet is a working paper that accountants can use to summarize adjusting entries
and the account balances for the financial statements.
59. In a computerized accounting system, a work sheet may not be necessary because the
software program automatically posts entries to the accounts and prepares financial
statements.
ANS: T DIF: Moderate OBJ: 04-App
60. The trial balance may be listed on the work sheet instead of being prepared separately.
61. The totals of the Adjusted Trial Balance columns on a work sheet will always be the sum of
the Trial Balance column totals and the Adjustments column totals.
ANS: F DIF: Moderate OBJ: 04-App
62. A work sheet heading is dated for a period of time.

63. On the work sheet, the retained earnings and dividend account balances are extended to the
Balance Sheet columns.
64. After the account balances have been extended from the Adjusted Trial Balance columns on
the work sheet, the difference between the initial totals of the Balance Sheet debit and credit
columns is Net Income or Net Loss.
65. After Net Income or Loss is entered on the work sheet, the debit column total must equal the
credit column total for the Balance Sheet pair of columns.
66. A net loss is shown on the work sheet in the credit columns of both the Income Statement
columns and the Balance Sheet columns.
67. Net income is shown on the work sheet in the Income Statement debit column and the
Balance Sheet credit column.
68. If the totals of the Income Statement debit and credit columns of a work sheet are $22,750
and $25,000, respectively, after all account balances have been extended, the amount of the
net loss is $2,250.
69. The worksheet and the financial statements both require dollar signs.
ANS: F DIF: Easy OBJ: 04-App
70. The balance in the retained accounts account on the worksheet will equal the amount
presented in the balance sheet.
71. Since the adjustments are entered on the work sheet, it is not necessary to record them in the
journal or post them to the ledger.
ANS: F DIF: Easy OBJ: 04-App
72. The chart of accounts, the journal, and the ledger are essential parts of the accounting
system.
MATCHING
Identify the following transactions as either:

a. Journal entries
b. Adjusting journal entries
c. Closing journal entries
1. Cash 500
Fees Earned 500
2. Income Summary 465
Retained earnings 465
3. Utilities Expense 123
Cash 123
4. Wages Expense 790
Wages Payable 790
5. Unearned revenue 498
Fees Earned 498
6. Income Summary 677
Rent Expense 240
Supplies Expense 220
Utilities Expense 130
Miscellaneous Exp 87
7. Dividends 175
Cash 175
8. Accounts Receivable 400
Fees earned 400
(Customer billed for services performed)
1. ANS: A DIF: Moderate OBJ: 04-05

2. ANS: C DIF: Moderate OBJ: 04-05
4. ANS: B DIF: Moderate OBJ: 04-05
5. ANS: B DIF: Moderate OBJ: 04-05
6. ANS: C DIF: Moderate OBJ: 04-05
MULTIPLE CHOICE
1. In the accounting cycle, the last step is

a. preparing the financial statements
b. journalizing and posting the adjusting entries
c. preparing a post-closing trial balance
d. journalizing and posting the closing entries
ANS: C DIF: Moderate OBJ: 04-01
2. During the end-of-period processing which of the following best describes the logical order
of this process
a. Preparation of adjustments, adjusted trial balance, financial statements
b. Preparation of Income Statement, adjusted trial balance, Balance Sheet
c. Preparation of adjusted trial balance, cross-referencing, journalizing
d. Preparation of adjustments, adjusted trial balance, posting
ANS: A DIF: Difficult OBJ: 04-01
3. What is the major difference between the Unadjusted Trial Balance and the Adjusted Trial
Balance?
a. The Adjusted Trial Balance will show the net income (loss) as an additional account.
b. Both will need to be in balance in order to continue with the end-of-period processing
c. The Adjusted Trial Balance includes the postings of the adjustments for the period in the
balance of the accounts.
d. The Unadjusted Trial Balance will be used to record the adjustments for the period.
ANS: C DIF: Difficult OBJ: 04-01
4. Once the adjusting entries are posted, the Adjusted Trial Balance will prepared to
a. verify that the debits and credits are in balance.
b. verify that all of the adjustments were posted in the correct accounts.
c. verify that the net income (loss) is correct for the period.
d. verify the correct flow of accounts into the financial statements.
ANS: A DIF: Moderate OBJ: 04-01
5. When preparing the statement of retained earnings, the beginning retained earnings balance
can always be found
a. in the Income Statement columns of the work sheet
b. in the statement of cash flows
c. in the general ledger
d. in the Balance Sheet columns of the work sheet
6. Accumulated Depreciation appears on the

a. balance sheet in the current assets section
b. balance sheet in the property, plant and equipment section
c. balance sheet in the long-term liabilities section
d. income statement as an operating expense
ANS: B DIF: Moderate OBJ: 04-02
7. Notes Receivable due in 345 days appear on the

b. balance sheet in the fixed assets section
c. balance sheet in the current liabilities section
d. income statement as an expense
8. Unearned Fees appear on the

b. balance sheet as a current liability
c. balance sheet in the stockholders’ equity section
d. income statement as revenue
ANS: B DIF: Easy OBJ: 04-02
9. Which one of the fixed asset accounts listed below will not have a related contra asset
account?
a. Office Equipment
b. Land
c. Delivery Equipment
d. Building
10. Prepaid insurance is reported on the balance sheet as a

a. current asset
b. fixed asset
c. current liability
d. long-term liability
ANS: A DIF: Easy OBJ: 04-02
11. The income statement is prepared from the

a. adjusted trial balance
b. income statement columns of the work sheet
c. either the adjusted trial balance or the income statement columns of the work sheet
d. both the adjusted trial balance and the income statement columns of the work sheet
12. Round-tripping is when

a. a selling company sells to a customer company with huge discounts.
b. a selling company pretends to sell to a fictitious company with the intend of inflating
revenues
c. a selling company lends money to a customer company to increase assets.
d. a selling company lends money to a customer company to be used to purchase goods
from the selling company.
ANS: D DIF: Difficult OBJ: 04-02
13. The Statement of Retained Earnings should be prepared

a. before the income statement and after the balance sheet
b. before the income statement and balance sheet
c. after the income statement and balance sheet
d. after the income statement and before the balance sheet
14. The income statement should be prepared

a. before the statement of retained earnings and balance sheet
b. after the statement of retained earnings and before the balance sheet
c. after the statement of retained earnings and balance sheet
d. after the balance sheet and before the statement of retained earnings
15. When preparing the Statement of Retained Earnings the beginning balance should be
followed by ____ to arrive and the ending balance of retained earnings.
a. investments plus net income (loss)
b. investments less dividends
c. net income (loss) less dividends
d. investments plus net income (loss) less dividends
The following is the adjusted trial balance for Steely Company.
Steely Company
Adjusted Trial Balance
For the Year ended December 31, 2008
Cash 6,130
Accounts Receivable 2,300
Prepaid Expenses 750
Equipment 13,400
Accumulated Depreciation 1,200
Accounts Payable 1,700
Notes Payable 5,000
Capital Stock 12,000
Dividends 870
Fees Earned 6,600
Wages Expense 1,450
Rent Expense 900
Depreciation Expense 150
Miscellaneous Expense 75
Totals 26,500 26,500
16. Determine the net income (loss) for the period.

a. Net Income 26,500
b. Net Loss 870
c. Net Loss 3,550
d. Net Income 3,550
ANS: D DIF: Moderate OBJ: 04-02
17. Determine the stockholders’ equity ending balance for the period.
a. $14,680
b. $11,130
c. $15,550
d. $2,680
ANS: A DIF: Difficult OBJ: 04-02
18. Determine total assets.

a. $26,500
b. $15,380
c. $21,380
d. $22,580
19. Determine the current assets.

a. $22,580
b. $9,180
c. $21,380
d. $26,500
20. Determine the total liabilities for the period.

a. $6,700
b. $1,700
c. $5,000
d. $18,700
21. The Balance Sheet should be prepared

a. before the income statement and the statement of retained earnings
b. before the income statement and after the statement of retained earnings
c. after the income statement and the statement of retained earnings
d. after the income statement and before the statement of retained earnings
22. The Statement of Retained Earnings begins with the beginning balance followed by
a. plus Net Income (loss) less dividends
b. plus Net Income (loss) plus investments
c. plus investments less dividends
d. plus investments plus Net Income (loss) less dividends
23. The Income Statement will include the following accounts

a. Revenues less Expenses (ordered largest to smallest amount) with Miscellaneous
Expense listed last
b. Revenues less Expenses (ordered smallest to largest amounts) with Miscellaneous
Expense listed last
c. Revenues less Expenses (ordered in alphabetical order)
d. Revenues less Expenses (order is not important)
24. The classified Balance Sheet will subsection the assets section as follows
a. Current Assets and Other Assets
b. Current Assets and Property, Plant, and Equipment
c. Current Assets and Long-Term Assets
d. Other Assets and Property, Plant and Equipment
25. The classified Balance Sheet will divide its Liabilities Section as the following subsections
a. Current Liabilities and Long-Term Liabilities
b. Current Liabilities and Other Liabilities
c. Other Liabilities and Long-Term Liabilities
d. Present Liabilities and Tomorrow’s Liabilities
26. Long-term liabilities are those liabilities that

a. will be paid in less than one year
b. are due to paid in 5 to 10 years
c. are due to be paid in more than one year
d. are liabilities owed to the owner and will never be paid
27. The stockholders’ equity is

a. added to assets and the two are equal to liabilities
b. added to liabilities and the two are equal to assets
c. subtracted from liabilities and the net amount is equal to assets
d. subtracted from stockholders’ equity and the net amount is equal to net income
28. Balance sheet accounts

a. represent amounts accumulated during a specific period of time
b. are called real accounts
c. have zero balances after the closing entries have been posted
d. are equal to assets and liabilities
29. On which financial statement will Income Summary be shown?

a. Statement of retained earnings
b. Balance Sheet
c. Income Statement
d. No financial statement
30. Which is the following that is not true about closing entries?
a. There are four closing entries that update the stockholders’ equity account.
b. After the second closing entry, the income summary account is equal to the net income or
(loss) for the period.
c. All real accounts are closed at the end of the period.
d. By closing nominal accounts at the end of the period to zero, it is possible to isolate next
period’s information correctly.
31. The income summary account is also called

a. the closing account
b. the clearing account
c. the nominal account
d. the temporary account
32. After posting the second closing entry to the income summary account, the balance will be
equal to
a. zero.
b. stockholders’ equity.
c. revenues for the period
d. the net income or (loss) for the period.
ANS: D DIF: Easy OBJ: 04-03
33. What is the last account that should be listed in the Post Closing Trial Balance?
a. Income Summary
b. Retained Earnings
c. Cash
d. Fees Earned
34. Which of the following account groups are all considered nominal accounts?
a. Cash, Fees Earned, Unearned Revenues
b. Prepaid Expenses, Unearned Revenues, Fees Earned
c. Capital Stock, Dividends, Income Summary
d. Dividends, Fees Earned, Rent Expense
35. There are four closing entries. The first one is to close ____, the second one is to close ____,
the third one is to close ____, and the last one is to close ____.
a. Revenues, expenses, income summary, dividends account
b. Expenses, assets, income summary, capital stock account
c. Capital stock account, dividends account, income summary, assets
d. Dividends account, income summary, expenses, revenues
36. All of the closing entries will adjust ____ to update that account.
a. the dividends account
b. the retained earnings account
c. the cash account
d. the income summary account
37. Closing entries

a. need not be journalized if adjusting entries are prepared
b. need not be posted if the financial statements are prepared from the work sheet
c. are not needed if adjusting entries are prepared
d. must be journalized and posted
38. Closing entries are dated in the journal as of

a. the date they are actually journalized, although they are generally prepared after the end
of the accounting period
b. the last day of the accounting period, although they are actually journalized after the end
c. the first day of the accounting period, although they are actually journalized after the end
d. the first day of the subsequent accounting period
39. Which of the accounts below would be closed by posting a debit to the account?
a. Unearned Revenue
b. Fees Earned
c. Dividends
d. Rent Expense
40. Which of the following accounts should be closed to Income Summary at the end of the
fiscal year?
a. Supplies Expense
b. Accumulated Depreciation
c. Prepaid Insurance
d. Unearned Rent
41. Which of the following accounts will not be closed to Income Summary at the end of the
fiscal year?
a. Salaries Expense
b. Fees Earned
c. Unearned Rent
d. Depreciation Expense
42. Which of the following accounts will be closed to the retained earnings account at the end of
the fiscal year?
a. Rent Expense
b. Fees Earned
c. Income Summary
d. Depreciation Expense
43. The entry to close the appropriate insurance account at the end of the accounting period is
a. debit Income Summary; credit Prepaid Insurance
b. debit Prepaid Insurance; credit Income Summary
c. debit Insurance Expense; credit Income Summary
d. debit Income Summary; credit Insurance Expense
44. Which of the following accounts ordinarily appears in the post-closing trial balance?
a. Dividends
b. Supplies Expense
c. Fees Earned
d. Unearned Rent
ANS: D DIF: Easy OBJ: 04-03
45. 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
46. 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: Difficult OBJ: 04-03
47. A summary of selected ledger accounts appear below for Ted's Auto Services for the 2007
calendar year end.
Capital Stock
12/31 7,000 1/1 5,000
12/31 17,000
Dividends
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
48. Red Rock Stone purchased a one-year liability insurance policy on January 1st of this year
for $3,600 and recorded it as a prepaid expense. From the selections of a. through d., select
the value that would be utilized in the closing entry for insurance expense and prepaid
insurance during the closing process at the end of the first fiscal period on January 31st.
a. $3,600.
b. $360.
c. $300.
d. $360.
49. The journal entry to close the Fees Earned, $100, and Rent Revenue, $25, accounts on
December 31st during the closing process would be:
a. Dec 31 Fees Earned 100
Rent Revenue 25
Income Summary 125
b. Dec 31 Income Summary 125
Fees Earned 100
Rent Revenue 25
c. Dec 31 Revenues 125
Income Summary 125
d. Dec 31 Income Summary 125
Revenues 125
Mantle Company
Worksheet
For the Year Ended December 31, 2008
Adjusted Trial Balance Income Statement Balance Sheet

Account Title Debit Credit Debit Credit Debit Credit

Cash 16,000 16,000
Accounts Receivable 6,000 6,000
Supplies 2,000 2,000
Equipment 19,000 19,000
Accumulated Depr- 6,000 6,000
Equip
Accounts Payable 10,000 10,000
Wages Payable 2,000 2,000
Capital Stock 11,000 11,000
Dividends 1,000 1,000
Fees Earned 47,000 47,000
Wages Expense 21,000 21,000
Rent Expense 6,000 6,000
Depreciation Expense 5,000 5,000
Totals 76,000 76,000 32,000 47,000 44,000 29,000
Net Income (Loss) 15,000 15,000
47,000 47,000 44,000 44,000
50. The journal entry to close revenues would be:

a. debit Income Summary $47,000, credit Fees Earned $47,000
b. debit Retained Earnings $47,000, credit Fees Earned $47,000
c. debit Fees Earned $47,000; credit Income Summary $47,000
d. credit Fees Earned $47,000; credit Capital Stock $47,000
51. Based on the preceding trial balance, the entry to close expenses would be:
a. Wages Expense $21,000
Rent Expense 6,000
Income Summary 32,000
b. Expenses 32,000
c. Wages Expense $21,000
Rent Expense 6,000
Retained Earnings 32,000
d. Income Summary 32,000
Wages Expense $21,000
Rent Expense 6,000
52. Based on the preceding trial balance, the entry to close income summary would be:
a. debit Income Summary $15,000; credit Retained Earnings $4,000
b. debit Income Summary $47,000; credit Retained Earnings $47,000
c. debit Income Summary $15,000, credit Retained Earnings $15,000
d. debit Retained Earnings $4,000; credit Income Summary $4,000
53. Based on the preceding trial balance, the entry to close the dividends would be:
a. debit Retained Earnings $1,000, credit Dividends $1,000
b. debit Retained Earnings $4,000, credit Dividends $4,000
c. debit Dividends $1,000; credit Retained Earnings $1,000
d. debit Dividends $4,000; credit Retained Earnings $4,000
54. Based on the preceding trial balance, the ending balance in Retained Earnings is:
a. $0
b. $25,000
c. $4,000
d. $1,000
55. The proper sequence for the steps in the accounting cycle is a follows
a. analyze and record transactions, post transaction to the ledger, prepare a trial balance,
prepare financial statements, journalize closing entries, analyze adjustment data and
prepare adjusting entries
b. prepare a trial balance, analyze adjustment data, prepare adjusting entries, prepare
financial statements, journalize closing entries and post to the ledger, analyze and record
transactions, post transactions to the ledger
c. analyze and record transactions, post transactions to the ledger, prepare a trial balance,
analyze adjustment data, prepare adjusting entries, prepare financial statements,
journalize closing entries and post to the ledger
d. prepare financial statements, journalize closing entries and post to the ledger, analyze and
record transactions, post transactions to the ledger, prepare a trial balance, analyze
adjustment data, prepare adjusting entries
56. The following are steps to the accounting cycle. Of the following, which step should be done
first.
a. Closing entries are journalized and posted to the ledger.
b. Transactions are posted to the ledger.
c. Adjusting entries are journalized and posted to the ledger.
d. Financial statements are prepared.
57. The following are steps in the accounting cycle. Of the following, which would be prepared
last?
a. An adjusted trial balance is prepared.
b. Transactions are posted to the ledger.
c. An unadjusted trial balance is prepared.
d. Adjusting entries are journalized and posted to the ledger.
58. The accounting cycle requires three trial balances be done. In what order should they be
prepared?
a. Post-closing, unadjusted, adjusted
b. Unadjusted, post-closing, adjusted
c. Unadjusted, adjusted, post-closing
d. Post-closing, adjusted, unadjusted
ANS: C DIF: Easy OBJ: 04-04
59. The fiscal year selected by companies

a. is the same as the calendar year
b. begins with the first day of the month and ends on the last day of the twelfth month
c. must always begin on January 1.
d. will change each year
60. 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
61. The natural business year

a. is a fiscal year that ends when business activities are at its lowest point.
b. is a calendar year that ends when business activities are at its lowest point.
c. is a fiscal year that ends when business activities are at its highest point.
d. is a calendar year that ends when business activities are at its highest point.
62. The worksheet

a. is an integral part of the accounting cycle
b. eliminates the need to rewrite the financial statements
c. is a working paper that is required
d. is used to summarize account balances and adjustments for the financial statements
ANS: D DIF: Easy OBJ: 04-App
63. Which one of the steps below is not aided by the preparation of the work sheet?
a. preparing the adjusted trial balance
b. posting to the general ledger
c. preparing the financial statements
d. preparing the closing entries
ANS: B DIF: Moderate OBJ: 04-App
64. A work sheet includes columns for

a. adjusting entries
b. closing entries
c. reversing entries
d. adjusting and closing entries
ANS: A DIF: Easy OBJ: 04-App
65. When a work sheet is complete, the adjustment columns should have
a. total credits greater than total debits if a net income was earned
b. total debits grater than total credits if a net loss was incurred
c. total debits greater than total credits if a net income was earned
d. total debits equal total credits
66. The difference between the totals of the debit and credit columns of the Adjusted Trial
Balance columns on a work sheet
a. is the amount of net income or loss
b. indicates there is an error on the work sheet
c. is not unusual when preparing the work sheet
d. is the net difference between revenue, expenses, and dividends
67. Net income appears on the work sheet in the

a. debit column of the Balance Sheet columns
b. debit column of the Adjustments columns
c. debit column of the Income Statement columns
d. credit column of the Income Statement columns
ANS: C DIF: Moderate OBJ: 04-App
68. A net loss appears on the work sheet in the

a. debit column of the Balance Sheet columns
b. credit column of the Balance Sheet columns
c. debit column of the Income Statement columns
d. credit column of the Adjustments columns
ANS: A DIF: Moderate OBJ: 04-App
69. After net income is entered on the work sheet, the Balance Sheet debit and credit columns
must
a. be the same amount as the total amount of the Income Statement debit and credit columns
b. equal each other
c. be the same amount as the total amount in the Adjusted Trial Balance debit and credit
columns
d. not be equal to each other and need not be the same total amounts as any other pair of
columns on the work sheet
70. Which of the statements below indicates that a company earned a net income for the period?
a. The sum of the debits exceeds the sum of the credits in the Balance Sheet columns on the
work sheet.
b. The sum of the credits exceeds the sum of the debits in the Income Statement columns on
the work sheet.
c. The sum of the debits exceeds the sum of the credits in the Income Statement columns on
the work sheet.
d. Cash inflows exceeded cash outflows.
71. Which of the items below would appear in the Income Statement columns of the work
sheet?
a. Equipment
b. Unearned Fees
c. Prepaid Expense
d. Net Loss
ANS: D DIF: Moderate OBJ: 04-App
72. Which of the accounts below would appear in the balance sheet columns of the worksheet?
a. Rent Earned
b. Dividends
c. Unearned Revenue
d. Dividends and Unearned Revenue
73. Which of the accounts below would appear in the Balance Sheet columns of the work sheet?
a. Service Revenue
b. Prepaid Rent
c. Supplies Expense
d. None are correct
74. The work sheet at the end of September has $4,000 in the Balance Sheet credit column for
Accumulated Depreciation. The work sheet at the end of October has $4,750 in the Balance
Sheet credit column for Accumulated Depreciation. What was the amount of the
depreciation expense adjustment for the month of October?
a. amount can not be determined
b. $4,750
c. $4,000
d. $750
75. Which of the items below does not appear on the work sheet?
a. adjusting entries
b. the unadjusted trial balance
c. closing entries
d. dividends
ANS: C DIF: Moderate OBJ: 04-App
76. An indication that the work sheet columns are in balance and the work sheet is completed is
a. the word "Total" is written at the bottom of each pair of columns
b. each pair of columns is double underlined
c. each pair of columns has the totals circled
d. the final figures are written in ink
77. After all of the account balances have been extended to the Balance Sheet columns of the
work sheet, the totals of the debit and credit columns are $25,250 and $21,825, respectively.
What is the amount of net income or net loss for the period?
a. $3,425 net income
b. $25,250 net loss
c. $3,425 net loss
d. $21,825 net income
78. After all of the account balances have been extended to the Income Statement columns of
the work sheet, the totals of the debit and credit columns are $87,500 and $98,300,
respectively. What is the amount of the net income or net loss for the period?
a. $10,800 net income
b. $10,800 net loss
c. $98,300 net income
d. $87,500 net loss
79. On October 1, the company pays rent for twelve months in advance and debits an asset
account. At year end, the adjusting entry on the work sheet would
a. increase an expense account
b. decrease a liability account
c. increase an asset account
d. decrease an expense account
80. On August 1, a company collects revenue in advance for the next twelve months and credits
a liability account. The adjusting entry at year end on the work sheet would
a. increase a liability account
b. decrease an asset account
c. decrease a revenue account
d. decrease a liability account
81. Which of the following is not an essential part of the accounting records?
a. The journal
b. The ledger
c. The chart of accounts
d. The work sheet
82. After totaling all of the columns in the work sheet, the Balance Sheet show debits of
$35,678 and the credits of $39,901. This indicates that
a. neither net income or loss can be calculated because that is found on the income
statement
b. the company recorded a net loss of $4,223
c. the company recorded a net income of $4,223
d. The amounts are out of balance and need to be corrected
ANS: A DIF: Difficult OBJ: 04-App
83. The column of the income statement show the debits are equal to $56,899 and credits are
$60,333. What do this information mean to the accountant?
a. Net income of $3,434
b. Net loss of $3,434
c. the accounts are out of balance
d. None are correct.
ANS: A DIF: Difficult OBJ: 04-App
EXERCISE/OTHER
1. The balances for the accounts listed below appear in the Adjusted Trial balance columns of
the end-of-period spreadsheet (work sheet). Indicate whether each balance should be
extended to (a) an Income Statement column or (b) a Balance Sheet column.
(1) Retained Earnings

(2) Dividends
(3) Depreciation Expense
(4) Accumulated Depreciation
(5) Fees earned
(6) Unearned Fees
(7) Supplies
(8) Supplies Expense
ANS:
(1) Balance sheet column
(3) Income statement column
DIF: Easy OBJ: 04-01
NAT: AACSB Analytic | AICPA FN-Measurement TOP: Example Exercise 4-1
2. In the Balance Sheet columns of the end-of-period spreadsheet (work sheet) for Sugar
Company. for the current year, the Debit column total is $563,430, and the Credit column
total is $544,210 before the amount for net income or net loss has been included. In
preparing the income statement from the end-of-period spreadsheet (work sheet), what is the
amount of net income or net loss?
ANS:
A net income of $19,220
3. Aaron Daniel owns and operates Reach It Baseball Batting Cages Company. On January 1,
2008, Aaron Daniel, the balance in capital stock was $100,000 and retained earnings had a
balance of $212,000 During the year Aaron invested an additional $20,000 and the
company paid cash dividends of $35,000. For the year ended December 31, 2008, Reach It
Baseball Batting Cages reported a net income of $56,780. Prepare a statement of retained
earnings for the year ended December 31, 2008.
ANS:
Reach It Baseball Batting Cages Company

Statement of Retained Earnings
Retained earnings January 1, 2008 $212,000

Net Income $56,780
Less Dividends 35,000
Increase in retained earnings 21,780
Retained earnings, December 31, 2008 $233,780
DIF: Moderate OBJ: 04-02

4. The following accounts appear in an adjusted trial balance of Reach It Batting Cages
Company. Indicate whether each account would be reported in the (a) current asset, (b)
property, plant, and equipment, (c) current liabilities, (d) long-term liability, or (e)
stockholders’ equity section of the December 31, 2008, balance sheet of Reach It Batting
Cages Company.
(1) Capital Stock

(2) Accumulated Depreciation
(3) Unearned Revenues
(4) Mortgage Payable
(5) Equipment
(6) Notes Payable (due in 2010)
(7) Cash
(8) Accounts Receivable
ANS:
(1) Stockholders’ equity
(2) Property, plant and equipment
(3) Current liabilities
(4) Long-term liabilities
(5) Property, plant and equipment
(6) Long-term liabilities
(7) Current assets
(8) Current assets

5. Compare the differences between a balance sheet and a classified balance sheet.
ANS:
A classified balance sheet subsections assets as current assets and property, plant, and
equipment. It also subsections liabilities as current liabilities and long-term liabilities, and
stockholders’ equity.
6. List and describe the purpose of the four closing entries.

ANS:
(1) Close revenues to income summary.
(2) Close expenses to income summary.
(3) Close income summary to retained earnings.
(4) Close dividend account to retained earnings.
7. After the accounts have been adjusted at January 31, 2008, the end of the fiscal year, the
following balances are taken from the ledger of Reach It Batting Cages Company
Capital Stock $356,000

Dividends 12,000
Fees Earned 123,400
Wages Expense 36,000
Rent Expense 50,000
Supplies Expense 14,300
Miscellaneous Expense 1,050
Journalize the four entries required to close the accounts

ANS:
Jan 31 Fees Earned 123,400

Income Summary 123.400
31 Income Summary 101,350

Rent Expense 50,000

31 Retained Earnings 12,000

Dividends 12,000

8. Prior to adjustment at July 31, 2007, Salary Expense has a debit balance of $300,500.
Salaries owed but not paid as of the same date total $1,500.
Present the entries to record the following:

(1) Accrued salaries as of July 31.
(2) Closing of Salary Expense as of July 31.
ANS:
(1) Salary Expense 1,500
Salaries Payable 1,500
(2) Income Summary 302,000

Salary Expense 302,000

9. The following are all the steps in the accounting cycle. List them in the order in which they
should be done.
- Closing entries are journalized and posted to the ledger.

- An unadjusted trial balance is prepared.
- An optional end-of-period spreadsheet (work sheet) is prepared.
- A post-closing trial balance is prepared.
- Adjusting entries are journalized and posted to the ledger.
- Transactions are analyzed and recorded in the journal.
- Adjustment data are assembled and analyzed.
- Financial statements are prepared.
- An adjusted trial balance is prepared.
- Transactions are posted to the ledger.
ANS:
1. Transactions are analyzed and recorded in the journal.
2. Transactions are posted to the ledger.
3. An unadjusted trial balance is prepared.
4. Adjustment data are assembled and analyzed.
5. An optional end-of-period spreadsheet (work sheet) is prepared.
6. Adjusting entries are journalized and posted to the ledger.
7. An adjusted trial balance is prepared.
8. Financial statements are prepared.
9. Closing entries are journalized and posted to the ledger.
10. A post-closing trial balance is prepared.
DIF: Difficult OBJ: 04-04

10. If work papers are not considered a part of the formal accounting records, then why are they
used?
ANS:
Work papers are tools used by accounts to collect and summarize date for various analysis and
reports.
DIF: Moderate OBJ: 04-App
11. Explain how net income or loss is determined by using the work sheet.
ANS:
The difference between the debits and credits from the Income Statement columns are compared
to the debits and credits from the Balance Sheet columns. They should be the same amounts but
opposite from each other. If the debits are more than the credits on the income statement
columns, signifying a net loss, then the credits should be higher than the debits on the balance
sheet columns by the same amount. If the credits are more than the debits on the income
statement columns, signifying a net income, then the debits should be higher than the credits on
the balance sheet columns by the same amount.
DIF: Difficult OBJ: 04-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) Dividends

(2) Fees Earned (8) Equipment
(3) Accounts Payable (9) Accounts Receivable
(4) Capital Stock (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

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
(8) revenue

3. The following accounts were taken from the Adjusted Trial Balance columns of the work
sheet for June 30, 2007 for Brodie Co.:

Fees Earned 85,000
Rent Expense 44,000
Prepaid Insurance 7,000
Supplies 500
Prepare an income statement.

ANS:
Brodie Co.
Income Statement
For the Year Ended June 30, 2007
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

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, 2007:
Depreciation Expense $ 5,950

Insurance Expense 3,900
Rent Expense 34,000
Service Revenue 102,500
Utilities Expense 6,000
Prepare an income statement.

ANS:
Marion Services Co.

Income Statement
Service revenue $ 102,500
Operating expenses:
Wages expense $53,750
Rent expense 34,000
Utilities expense 6,000
Insurance expense 3,900
Miscellaneous expense 2,200
Total operating expenses 109,950
Net loss $ (7,450)

5. The following data were taken from the Balance Sheet columns of the work sheet for
September 30, 2007 for Clayton Company:
Accumulated Depreciation-Trucks $25,000

Prepaid Rent 4,000
Supplies 500
Unearned Fees 4,300
Trucks 29,000
Cash 2,000
Capital Stock 1,000
Retained Earnings ?
Prepare a classified balance sheet.

ANS:
Clayton Company
Balance Sheet
September 30, 2007
Assets Liabilities
Current assets:
Cash $ 2,000 Current liabilities:
Supplies 500 Unearned fees $ 4,300
Prepaid rent 4,000
Total current assets $ 6,500 Stockholders’ Equity
Property, plant, and Capital Stock
equipment: 1,000
Trucks $29,000 Retained Earnings
5,200
Total Stockholders’ Equity 6,200
Less accum. Total liabilities and owner's $10,500
equity
depreciation 25,000
Total property, plant
and equipment 4,000
Total assets $10,500

6. Indicate whether each of the following would be reported in the section of financial
statements identified as (a) current asset, (b) property, plant, and equipment, (c) current
liability, (d) revenue, or (e) expense:
(1) Automobile
(2) Accumulated depreciation
(3) Rent expense
(4) Fees earned
(5) Salaries payable
(6) Prepaid rent
(7) Store supplies
(8) Advertising expense
(9) Unearned rent
ANS:
(1) property, plant, and equipment
(2) property, plant, and equipment
(3) expense
(4) revenue
(6) current asset
(7) current asset
(8) expense

7. The following balance sheet contains errors.
Billy Brown Services Co.

Balance Sheet
Assets Liabilities
Current assets: Current liabilities:
Cash $ 6,170 Accounts receivable $ 9,000
Accounts payable 8,500 Accum. depr-building 13,525
Supplies 1,590 Accum. depr-equipment 6,340
Prepaid insurance 345 Net income 12,500
Land 25,000
Total current assets $ 41,605 Total liabilities $ 41,365
Stockholders’ Equity
Property, plant, and Wages payable $ 500
equipment:
Building $45,500 Capital stock 40,000
Equipment 28,250 Retained earnings $ 34,490
Total property, plant, Total Stockholders’Equity $74,990
and equipment 73,750
Total liabilities and
Total assets $116,355 stockholders’ equity $116,355
(a) List the errors in the balance sheet above and (b) prepare a corrected balance sheet.
ANS:
(a)
(1) Date of statement should be "December 31, 2007" and not "For the Year
Ended December 31, 2007."
(2) Accounts payable should be a current liability.
(3) Land should be a fixed asset and listed as Property, Plant and Equipment.
(4) Accumulated depreciation should be deducted from the related fixed asset in
the Property Plant, and Equipment section.
(5) An adding error was made in determining the amount of total assets.
(6) Accounts receivable should be a current asset.
(7) Net income would be reported on the income statement.
(8) Wages payable should be a current liability.
A corrected balance sheet would be as follows:
Billy Brown Services Co.

Balance Sheet
December 13, 2007
Assets
Current assets:
Cash $ 6,170
Accounts receivable 9,000
Supplies 1,590
Prepaid insurance 345
Total current assets $17,105
Property, plant, and equipment:
Land $25,000
Building $45,500
Less accum. depreciation 13,525 31,975
Equipment 28,250
Less accum. depreciation 6,340 21,910
Total property, plant, and equipment 78,885
Liabilities
Current liabilities:
Accounts payable $8,500
Wages payable 500
Total liabilities $ 9,000
Stockholders’ Equity
Capital stock $40,000
Retained earnings 46,990
Total Stockholders’ equity 86,990
Total liabilities and stockholders’ equity $95,990

8. The following is the adjusted trial balance for Steely Company.
Steely Company
Cash 6,130
Equipment 13,400
Notes Payable - Due on June 30, 2009 5,000
Capital Stock 6,000
Dividends 870
Fees Earned 6,600
Wages Expense 1,450
Rent Expense 900
Totals 26,500 26,500
Prepare an Income Statement, Balance Sheet, and Statement of Stockholders’ Equity.

ANS:
Steely Company
Income Statement
For Year Ended December 31, 2008
Fees Earned $6,600

Expenses:
Rent Expense 900
Total Expenses 3,050
Net Income $3,550
Steely Company
For Year Ended December 31, 2008
Retained earnings, January 1, 2008 $6,000

Net Income 3,550
Sub-Total $9,550
Less Dividends 870
Steely Company
Balance Sheet
December 31, 2008
Assets Liabilities
Current Assets Current Liabilities
Cash $6,130 Accounts Payable $1,700
Accounts Receivable 2,300 Notes Payable 5,000
Prepaid Expenses 750 Total Liabilities $6,700
Total Current Assets $9,180
Property, Plant, & Stockholders’ Equity

Equip.:
Equipment $13,400 Capital Stock
$6,000
Less: Accum Depre. 1,200 Retained Earnings
8,680
Total Stockholders’
Equity 14,680
Total Prop., Plant, & $12,200 Total Liabilities and
Equip
Total Assets $21,380 Stockholders’ Equity $21,380

9. Prepare an income statement and a statement of retained earnings for MN Company, for the
month ended October 31, 2008, from the following T-Accounts.
Prepaid Accounts Unearned Capital Stock

Insurance Receivable. Revenues
1200 6000 1350 7000
100 500 350
Retained Dividends Income Fees Earned

Earnings Summary
4515 3500 8850 8000
3500 3500 4535 500
4515 350
8850
Wages Rent Insurance Utilities

Expense Expense Expense Expense
2600 1280 100 80
475 1280 100 80
3075
ANS:
MN Company
Income Statement
For the Month Ended October 31, 2008
Fees Earned $8,850

Expenses:
Wages Expense $3075
Rent Expense 1,280
Total Expenses $4,535
Net Income $4,515
MN Company
Statement of Stockholders’ Equity
For the Month Ended October 31, 2008
Beginning balance $0
Add: Net Income Month Ended October 31, 2008 $4,515
Less: Dividends 3,500
Increase in Retained Earnings 1,015
Ending Balance Retained Earnings, October 31, 2008 $1,015

10. Prepare an income statement and a statement of retained earnings for the month ended
November 30, 2008 from the T-accounts below.

1200 2000 1350 4000
100 500 350 3000

Earnings Summary
3000 2600 5850 5000
185 2600 6035 500
2600 185 350
5850

3600 1780 100 80
475 1780 100 80
4075
ANS:
MN Company
Income Statement
For the Month Ended November 30, 2008
Fees Earned $5,850

Expenses:
Rent Expense 1,780
Total Expenses $6,035
Net Loss ($185)
MN Company
For the Month Ended November 30, 2008
Beginning balance $3,000

Less: Net Loss Month Ended October 31, 2008 ($185)
Dividends 2,600
Decrease in Retained Earnings 2,785
Ending Balance Retained Earnings, October 31, 2008 $ 215

11. Selected ledger accounts appear below for Construction Services for 2007.
Capital Stock Dividends

1/1 20,000 3/31 12,000 12/31 15,000
12/22 3,000
Retained Earnings
12/31 15,000 12/31 45,000
Income Summary
12/31 19,000 12/31 64,000
12/31 45,000
Prepare a statement of retained earnings.

ANS:
Construction Services
Retained Earnings, 1/1/2007 $0
Net income $ 45,000
Less dividends 15,000
Retained Earnings, 12/31/2007 $30,000
DIF: Difficult OBJ: 04-02 | 04-03

12. On the basis of the following data taken from the Adjusted Trial Balance columns of the
work sheet for the year ended October 31 for Shore Co., journalize the four closing entries.
Cash $ 21,500
Supplies 5,000
Equipment 169,900
Dividends 30,000
Fees Earned 404,500
Rent Expense 60,000
$668,600 $668,600
ANS:
Oct. 31 Fees Earned 404,500

Rent Expense 60,000


Dividends 30,000

13. After all adjustments have been made, but before the accounts have been closed, the
following balances were taken from the ledger:
Accounts Payable $ 40,000 Rent Expense $ 21,400

Accounts Receivable 54,500 Salary Expense 66,000
Accumulated Depreciation 83,325 Salaries Payable 150
Cash 7,150 Service Revenue 151,000
Depreciation Expense 23,500 Supplies 2,500
Equipment 155,000 Supplies Expense 3,500
Insurance Expense 8,600 Capital Stock 100,950
Prepaid Insurance 5,275 Dividends 28,000
Journalize the entries to close the appropriate accounts.

ANS:
Service Revenue 151,000

Insurance Expense 8,600
Rent Expense 21,400


Dividends 28,000

14. On the basis of the following information taken from the Adjusted Trial Balance columns of
the work sheet for the month ended November 30th, journalize the closing entries.
Cash $12,500.00
Accounts Receivable 4,575.00
Office Supplies 1,850.00
Repair Parts 4,785.00
Machinery 14,750.00
Accumulated Depreciation 2,950.00
Accounts Payable 1,750.00
Notes Payable 7,500.00
Capital Stock 2,750.00
Dividends 2,500.00
Service Revenue 32,500.00
Wages Expense 3,840.00
Office Supplies Expense 275.00
Repair Parts Expense 1,925.00
Depreciation Expense 450.00
$47,450.00 $47,450.00
ANS:
Nov 30 Service Revenue 32,500.00
Income Summary 32,500.00
Closing Entry - Service Revenue
Nov 30 Income Summary 6,490.00

Repair Parts Expense 1,925.00
Closing Entry - Expenses
Nov 30 Income Summary 26,010.00

Retained Earnings 26,010.00
Closing Entry - Income Summary
Nov 30 Retained Earnings 2,500.00

Dividends 2,500.00
Closing Entry - Dividends

15. The following adjusted trial balance is the result of the adjustments made at the end of the
month of May for Jenni Linn Company. Utilize these adjusted values to perform the closing
entries for Jenni Linn Company.
Cash $14,750.00
Store Supplies 4,785.00
Machinery 19,750.00
Dividends 3,250.00
Store Supplies Expense 3,150.00
Depreciation Expense 575.00 ________
$56,425.00 $56,425.00
ANS:
May 31 Service Revenue 16,500.00
May 31 Income Summary 8,615.00


May 31 Retained Earnings 3,250.00

Dividends 3,250.00

16. The following adjusted trial balance is the result of the adjustments made at the end of the
month of March for Jenni Linn Company. Utilize these adjusted values to perform the
closing entries for Jenni Linn Company.
Cash $14,750.00
Store Supplies 4,785.00
Machinery 19,750.00
Dividends 3,250.00
Rent Expense 2,000.00
Advertising Expense 1,750.00
$60,175.00 $60,175.00
ANS:
May 31 Service Revenue 11,500.00

Rent Expense 2,000.00
Advertising Expense 1,750.00
May 31 Retained Earnings 865.00

Income Summary 865.00
May 31 Retained Earnings 3,250.00

Dividends 3,250.00
17. Based on the following worksheet, prepare and income statement, statement of retained
earnings, and balance sheet for Mantle Enterprises.
Mantle Enterprises
Worksheet
Cash 16,000 16,000
Equipment 19,000 19,000
Equip
Retained Earnings 4,000 4,000
Totals 76,000 76,000 32,000 47,000 44,000 29,000
47,000 47,000 44,000 44,000
ANS:
Mantle Enterprises
Income Statement
Revenues Earned $ 47,000
Expenses:
Wages Expense $ 21,000
Rent Expense 6,000
Net Income $ 15,000
Mantle Enterprises
Retained Earnings, January 1, 2008 $ 4,000
Net income for the Year Ended December 31, 2008 $ 15,000
Retained Earnings, December 31, 2008 $ 18,000
Mantle Enterprises
Balance Sheet
December 31, 2008
Assets Liabilities
Current Assets: Current liabilities
Cash $16,000 Accounts Payable $
10,000
Accounts Receivable 6,000 Wages Payable 2,000
Supplies 2,000 Total Liabilities $12,000
Total current assets $
24,000
Property, plant and
equipment
Equipment $19,000
Less accum depr 6,000 Stockholders’
Equity
Total property, plant Capital Stock $7,000
and 13,000
equipment
Retained Earning 18,000
Total Stockholders
Equity 25,000
Total assets $37,000 Total liabilities $37,000
and
Stockholders’
equity

18. Prepare closing entries from the following work sheet.

Mantle Enterprises
Worksheet
Adjusted Trial Income Statement Balance Sheet
Balance
Cash 16,000 16,000
Equipment 19,000 19,000
Equip
Retained Earnings 4,000 4,000
Totals 76,000 76,000 32,000 47,000 44,000 29,000
47,000 47,000 44,000 44,000
ANS:
Journal
Post
Date Description Ref Debit Credit
Dec 31 Fees Earned 47,000
Dec 31 Income Summary 32,000

Rent Expense 6,000
Dec 31 Income Summary 15,000

Dec 31 Retained Earnings 1,000

Dividends 1,000
19. The following is the adjusted trial balance for Steely Company.
Steely Company
Cash 6,130
Equipment 13,400
Notes Payable - Due on June 30, 2009 5,000
Dividends 870
Fees Earned 6,600
Wages Expense 1,450
Rent Expense 900
Totals 26,500 26,500
Prepare closing entries and the post closing trial balance.

ANS:
Fees Earned 6,600

Wages Expense 1450
Rent Expense 900

Retained Earnings 870

Dividends 870
Steely Company
Post Closing Trial Balance
Cash 6,130
Equipment 13,400
Notes Payable 5,000
Total $22,580 $22,580

20. Reconstruct the adjusting and closing entries from the following T-Accounts.

1200 6000 1350 7000
100 500 350

Earnings Summary
4515 3500 8850 8000
3500 3500 4535 500
4515 350
8850

3075 1280 100 80
3075 1280 100 80
ANS:
Adjusting Entries:
1) Insurance Expense 100

Prepaid Insurance 100
2) Accounts Receivable 500
Fees Earned 500
3) Unearned Revenue 350
Fees Earned 350
Closing Entries:
1) Fees Earned 8850

Income Summary 8850
2) Income Summary 4535
Wages Expense 3075
Rent Expense 1280
4) Retained Earnings 3500
Dividends 3500

21. Reconstruct adjusting and closing entries for the month ended November 30, 2008 from the T-
accounts below.

1200 2000 1350 7000
100 500 350
Retained MN, Drawing Income Fees Earned

Earnings Summary
3000 2600 5850 5000
185 2600 6035 500
2600 185 350
5850
Wages Rent Expense Insurance Utilities

Expense Expense Expense
4075 1780 100 80
4075 1780 100 80
ANS:
Adjusting Entries:
1) Insurance Expense 100

2) Accounts Receivable 500
Fees Earned 500
3) Unearned Revenue 350
Fees Earned 350
Closing Entries:
1) Fees Earned 5850
Income Summary 5850
Wages Expense 4075
Rent Expense 1780
Income Summary 185
Dividends 2600

22.
(1) Reconstruct the entries for the month ended February 28, 2008 from the T-accounts
below. Record them as follows:
A - L Journal Entries
M- R Adjusting Journal Entries
(2) Balance and prepare the Income Statement, Statement of Retained Earnings, and the
Balance Sheet from the T-Accounts.
(3) Prepare the four closing entries (S - V).
(4) Prepare the Post-Closing Trial Balance.
Cash Accounts Supplies Prepaid

Receivable Insurance
7000 1000 670 2400
700 585 360 200
600
350
2400
2500
50
400
930
Equipment Accumulated Accounts Wages

Depreciation Payable Payable
3000 30 670 125
Unearned Capital Stock Retained Dividends

Revenues Earnings
930 7000 400
450 3000
Fees Earned Wages Rent Expense Supplies

Expense Expense
700 360 600 350
1000 125
2500
585
450
Insurance Depreciation Miscellaneous

Expense Expense Expense

200 30 50
ANS:
(1)
Journal Entries:
a) Cash 7000
Capital Stock 7000
b) Equipment 3000
Capital Stock 3000
c) Rent Expense 600
Cash 600
d) Cash 700
Fees Earned 700
e) Accounts Receivable 1000
Fees Earned 1000
f) Supplies 670
Accounts Payable 670
g) Wages Expense 350
Cash 350
h) Prepaid Insurance 2400
Cash 2400
i) Cash 2500
Fees Earned 2500
j) Miscellaneous Expense 50
Cash 50
k) Dividends 400
Cash 400
l) Cash 930
Unearned Revenue 930
Adjusting Entries:
m) Supplies Expense 350

Supplies 350
n) Accounts Receivable 585
Fees Earned 585
o) Insurance Expense 200
p) Depreciation Expense 30
Accumulated Depreciation 30
q) Wages Expense 125
Wages Payable 125
r) Unearned Revenues 450
Fees Earned 450
(2)
DL Company
Income Statement
For the Month Ended February 28, 2008
Fees Earned $5,235

Expenses:
Wages Expense $485
Rent Expense 600
Net Income $3,520
DL Company
Beginning Balance $0
Net Income for the Period $3,520
Less: Dividends 400
Retained Earnings $3,120
DL Company
Balance Sheet
February 28, 2008
Assets: Liabilities:
Cash $7,330 Accounts Payable $670
Accounts Receivable 1,585 Wages Payable 125
Supplies 310 Unearned Revenues 480
Prepaid Insurance 2,200 Total Liabilities 1,275
Equipment $3,000 Stockholders’ Equity
Less: Accum Depre 30 2,970 Capital Stock 10,000
Total Assets $14,395 Retained Earnings 3,120
Total Stockholders’
Equity 13,120
Total Liabilities and $14,395
Owner’s Equity
(3)
Closing Entries:
s) Fees earned 5235

Income Summary 5235

t) Income Summary 1715
Wages Expense 485
Rent Expense 600
u) Income Summary 3520
v) Retained Earnings 400
Dividends 400
(4)
DL Company
Post-Closing Trial Balance
Cash 7330
Accounts Receivable 1585
Supplies 310
Equipment 3000
Accumulated Depreciation 30
Accounts Payable 670
Wages Payable 125
Unearned Revenues 480
Total $14,425 $14,425

23. The balances in the ledger of Landscape Services as of December 31, 2007 before adjustments, are
as follows:
Cash $ 4,500 Capital Stock $33,050

Supplies 4,150 Dividends 2,900
Prepaid Insurance 8,700 Service Revenue 52,500
Equipment 42,000 Salary Expense 26,600
Accumulated Rent Expense 5,000
Depreciation 10,200 Miscellaneous Expense 1,900
Adjustment data are as follows: supplies on hand, December 31, $1,000; insurance expired for December,
$900; depreciation on equipment for December, $1,500; salaries accrued, December 31, $1,000.
(a) Prepare a ten-column work sheet for Landscape Services for December, 2007.
(b) On the basis of the work sheet in (a), present the following in good order: (1) income
statement, (2) statement of retained earnings, and (3) balance sheet.

(c) On the basis of the work sheet in (a), journalize the closing entries as of December 31,
2007.
ANS:
(a)
Landscape Services )
Work Sheet )
For the Month Ended December 31, 2007 )
)
)
Trial Balance Adjustments
Account Title Dr. Cr. Dr. Cr.)
Cash 4,500 ..... ..... .....)

Supplies 4,150 ..... ..... (a) 3,150)
Prepaid Insurance 8,700 ..... ..... (b) 900)
Equipment 42,000 ..... ..... .....)
Accumulated Depreciation ..... 10,200 ..... (c) 1,500)
Capital Stock ..... 33,050 ..... .....)
Dividends 2,900 ..... ..... .....)
Service Revenue ..... 52,500 ..... .....)
Salary Expense 26,600 ..... (d) 1,000 .....)
Rent Expense 5,000 ..... ..... .....)
Miscellaneous Expense 1,900 ..... ..... .....)
95,750 95,750 )
)
Supplies Expense ..... ..... (a) 3,150 .....)
Insurance Expense ..... ..... (b) 900 .....)
Depreciation Expense ..... ..... (c) 1,500 .....)
Salaries Payable ..... ..... ..... d) 1,000)
Net Income 6,550 6,550)
( Adjusted
( Trial Balance Income Statement Balance Sheet
( Dr. Cr. Dr. Cr. Dr. Cr.
(
( 4,500 ..... ..... ..... 4,500 .....
( 1,000 ..... ..... ..... 1,000 .....
( 7,800 ..... ..... ..... 7,800 .....
( 42,000 ..... ..... ..... 42,000 .....
( ..... 11,700 ..... ..... ..... 11,700
( ..... 33,050 ..... ..... ..... 33,050
( 2,900 ..... ..... ..... 2,900 .....
( ..... 52,500 ..... 52,500 ..... .....
( 27,600 ..... 27,600 ..... ..... .....
( 5,000 ..... 5,000 ..... ..... .....
( 1,900 ..... 1,900 ..... ..... .....
( 3,150 ..... 3,150 ..... ..... .....
( 900 ..... 900 ..... ..... .....
( 1,500 ..... 1,500 ..... ..... .....
( ........... 1,000 ........... ........... ........... 1,000
( 98,250 98,250 40,050 52,500 58,200 45,750
( 12,450 ........... ........... 12,450
( 52,500 52,500 58,200 58,200
(b) (1)
Landscape Services
Income Statement
For the Month Ended December 31, 2007
Service revenue $52,500

Operating expenses:
Salary expense $27,600
Rent expense 5,000
Insurance expense 900
Miscellaneous expense 1,900
Total operating expenses 40,050
Net income $12,450
(b) (2)
Landscape Services
For the Month Ended December 31, 2007
Retained Earnings,December 1, 2007 $0

Net income for the month $12,450
(b) (3)
Landscape Services
Balance Sheet
December 31, 2007
Assets Liabilities
Current assets:
Cash $ 4,500 Current liabilities:
Supplies 1,000 Salaries payable $ 1,000
Prepaid insurance 7,800
Total current assets $13,300 Stockholders’ Equity
Property, plant, and Retained Earnings 9,550
equipment:
Equipment $42,000 Total liabilities and $43,600
stockholders’ equity
Less accumulated
depreciation 11,700
Total property, plant,
and equipment 30,300
(c)
Closing Entries
Jan. 31 Service Revenue 52,500

Rent Expense 5,000


Dividends 2,900

24. Complete the following worksheet for Mantle Enterprises.
Mantle Enterprises
Worksheet
Cash 16,000
Supplies 2,000
Equipment 19,000
Accumulated Depr- 6,000
Equip
Wages Payable 2,000
Mantle, Capital 7,000
Capital Stock 4,000
Dividends 1,000
Fees Earned 47,000
Rent Expense 6,000
Totals 76,000 76,000
Net Income (Loss)
ANS:
Mantle Enterprises
Worksheet
Cash 16,000 16,000
Equipment 19,000 19,000
Accumulated Depr-Equip 6,000 6,000
Mantle, Drawing 1,000 1,000
Totals 76,000 76,000 32,000 47,000 44,000 29,000
47,000 47,000 44,000 44,000


CH 04

Uploaded by

CH 04

Uploaded by

Chapter 4

Completing the Accounting Cycle

No. Objective Difficulty No. Objective Difficulty No. Objective Difficulty

Chapter 4—Completing the Accounting Cycle

7. There is really no benefit in preparing financial statements in any particular order.

8. Round tripping is a fraudulent scheme where business A artificially inflates revenue by

13. Prepaid Insurance is an example of a current asset.

14. Land is an example of a plant asset.

19. Office Equipment is an example of a current asset account.

27. Accumulated Depreciation is a permanent account.

28. The dividend account is a temporary account.

33. The dividends account is closed to the income summary account.

39. Closing entries are entered directly on to the work sheet.

46. Balance Sheet are not considered real accounts.

62. A work sheet heading is dated for a period of time.

Identify the following transactions as either:

1. ANS: A DIF: Moderate OBJ: 04-05

1. In the accounting cycle, the last step is

6. Accumulated Depreciation appears on the

7. Notes Receivable due in 345 days appear on the

8. Unearned Fees appear on the

10. Prepaid insurance is reported on the balance sheet as a

11. The income statement is prepared from the

12. Round-tripping is when

13. The Statement of Retained Earnings should be prepared

14. The income statement should be prepared

The following is the adjusted trial balance for Steely Company.

16. Determine the net income (loss) for the period.

18. Determine total assets.

19. Determine the current assets.

20. Determine the total liabilities for the period.

21. The Balance Sheet should be prepared

23. The Income Statement will include the following accounts

26. Long-term liabilities are those liabilities that

27. The stockholders’ equity is

28. Balance sheet accounts

29. On which financial statement will Income Summary be shown?

31. The income summary account is also called

37. Closing entries

38. Closing entries are dated in the journal as of

Accumulated Depreciation $ 2,000

Net income for the period is

Net income for the period is

Adjusted Trial Balance Income Statement Balance Sheet

Account Title Debit Credit Debit Credit Debit Credit

50. The journal entry to close revenues would be:

59. The fiscal year selected by companies

60. A fiscal year

61. The natural business year

62. The worksheet

64. A work sheet includes columns for

67. Net income appears on the work sheet in the

68. A net loss appears on the work sheet in the

(1) Retained Earnings

Reach It Baseball Batting Cages Company

Retained earnings January 1, 2008 $212,000

DIF: Moderate OBJ: 04-02

(1) Capital Stock

DIF: Easy OBJ: 04-02

6. List and describe the purpose of the four closing entries.

Capital Stock $356,000

Journalize the four entries required to close the accounts

Jan 31 Fees Earned 123,400

31 Income Summary 101,350

31 Income Summary 22,050

31 Retained Earnings 12,000

DIF: Moderate OBJ: 04-03

Present the entries to record the following:

(2) Income Summary 302,000

DIF: Moderate OBJ: 04-03

- Closing entries are journalized and posted to the ledger.

DIF: Difficult OBJ: 04-04

(1) Salaries Payable (7) Dividends

DIF: Easy OBJ: 04-02

(1) Supplies (5) Supplies Expense

DIF: Easy OBJ: 04-02