Financial and Managerial Accounting Jan Williams 18e - Test Bank

Financial and Managerial Accounting Jan Williams 18e – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Financial and Managerial Accounting, 18e Williams

Chapter 5   The Accounting Cycle: Reporting Financial Results

 

1) A company’s annual report includes comparative statements for several years.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Preparing Financial Statements

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.

Bloom’s:  Remember

AACSB:  Communication

 

2) Accountants refer to the period of time from October 1 — December 31 as “busy season.”

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  Preparing Financial Statements

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.

Bloom’s:  Remember

AACSB:  Reflective Thinking

Accessibility:  Keyboard Navigation

 

3) The income statement, statement of retained earnings, and the balance can all be prepared directly from the Management’s Discussion and Analysis.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Preparing Financial Statements

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

4) Stockholders typically prepare the financial statements of publicly owned companies.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  Preparing Financial Statements

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

5) The balance sheet is prepared first because if it balances, all the accounting information is correct and can be used to prepare the other financial statements.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Preparing Financial Statements

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

6) Publicly owned companies must file their audited financial statements and detailed supporting schedules with the Financial Accounting Standards Board.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Preparing Financial Statements

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.

Bloom’s:  Understand

AACSB:  Reflective Thinking

Accessibility:  Keyboard Navigation

 

7) Dividends declared are an expense and reduce net income.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

8) The report form of the balance sheet lists liabilities and owners’ equity below assets.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Remember

AACSB:  Communication

Accessibility:  Keyboard Navigation

9) A current asset must be capable of being converted into cash within a relatively short period of time, usually less than five years.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

10) IFRS 1 requires that management and auditors should depart from compliance with GAAP if it is necessary to achieve a fair presentation when reporting financial results.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

11) The Financial Accounting Standards Board (FASB) maintains and periodically updates a well-defined list of disclosure items that companies must include in their annual reports.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Drafting the Notes that Accompany Financial Statements

Learning Objecti:  05-03 Explain the concept of adequate disclosure.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

12) Companies need not disclose information that may have a damaging effect on the business, such as product liability lawsuits.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Drafting the Notes that Accompany Financial Statements

Learning Objecti:  05-03 Explain the concept of adequate disclosure.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

13) Most disclosures appear within the body of the financial statements; however, a few disclosures may also appear in the notes that accompany the financial statements.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Drafting the Notes that Accompany Financial Statements

Learning Objecti:  05-03 Explain the concept of adequate disclosure.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

14) Real accounts can only be closed at the end of the year with a single compound entry.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

15) A revenue account is closed by debiting Income Summary and crediting Service Revenue.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

16) At year-end, all equity accounts must be closed.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

17) The income summary account appears on the statement of retained earnings.

 

Answer:  FALSE

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

18) The Dividends account is closed directly to retained earnings at year-end.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

19) After all the closing entries have been posted the Income Summary account will have a zero balance.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

20) Closing entries do not affect the cash account.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

21) The adjusted trial balance contains income statement accounts and balance sheet accounts, while the after-closing trial balance will only have balance sheet accounts.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  After-Closing Trial Balance

Learning Objecti:  05-05 Prepare an after-closing trial balance.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

22) The purpose of the after-closing trial balance is to give assurance that the accounts are in balance and ready for the new accounting period.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  After-Closing Trial Balance

Learning Objecti:  05-05 Prepare an after-closing trial balance.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

23) An after-closing trial balance consists only of asset, liability, and owners’ equity accounts.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  After-Closing Trial Balance

Learning Objecti:  05-05 Prepare an after-closing trial balance.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

24) Measures of profitability tell us how quickly current assets can be converted into profits.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

25) The current ratio is a measure of liquidity.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

26) The net income percentage can be measured by dividing net income by total assets.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

27) Working capital equals current assets divided by current liabilities.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

28) The current ratio equals current assets plus current liabilities.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

29) The return on equity ratio equals net income divided by common stock.

 

Answer:  FALSE

Difficulty: 1 Easy

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

30) Return on equity is a commonly used measure of a company’s profitability.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

31) The current ratio is a measure of short-term debt paying ability.

 

Answer:  TRUE

Difficulty: 2 Medium

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

32) Interim financial statements usually report on a period of time less than one year.

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Preparing Financial Statements Covering Different Periods of Time

Learning Objecti:  05-07 Explain how interim financial statements are prepared in a business that closes its accounts only at year-end.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

33) An annual report filed with the Securities and Exchange Commission must include a section called “Management Discussion and Analysis” (MD&A).

 

Answer:  TRUE

Difficulty: 1 Easy

Topic:  Preparing Financial Statements Covering Different Periods of Time

Learning Objecti:  05-07 Explain how interim financial statements are prepared in a business that closes its accounts only at year-end.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

34) An annual report:

1. A) Must be audited by the IRS.
2. B) Is delivered to stockholders and the public on the last day of the fiscal year.
3. C) Includes comparative financial statements for several years.
4. D) Must be filed with the SEC by all companies in the United States.

 

Answer:  C

Difficulty: 2 Medium

Topic:  Preparing Financial Statements

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.

Bloom’s:  Understand

AACSB:  Communication

Accessibility:  Keyboard Navigation

 

 

35) Which of the following financial statements is usually prepared first?

1. A) Income statement.
2. B) Statement of retained earnings.
3. C) Income tax return.
4. D) Balance sheet.

 

Answer:  A

Difficulty: 1 Easy

Topic:  Preparing Financial Statements

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.

Bloom’s:  Remember

AACSB:  Communication

Accessibility:  Keyboard Navigation

36) Publicly-owned companies are:

1. A) Managed and owned by the government.
2. B) Must be not-for-profit companies.
3. C) Usually listed on a stock exchange.
4. D) Not permitted to be owned by individuals.

 

Answer:  C

Difficulty: 1 Easy

Topic:  Preparing Financial Statements

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

37) The normal order in which the financial statements are prepared is:

1. A) Balance sheet, income statement, statement of retained earnings.
2. B) Income statement, statement of retained earnings, balance sheet.
3. C) Income tax return, income statement, balance sheet.
4. D) Income statement, annual report, balance sheet.

 

Answer:  B

Difficulty: 2 Medium

Topic:  Preparing Financial Statements

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.

Bloom’s:  Understand

AACSB:  Communication

Accessibility:  Keyboard Navigation

 

 

38) Publicly traded companies must file audited financial statements with the:

1. A) AICPA.
2. B) IRS.
3. C) SEC.
4. D) AAA.

 

Answer:  C

Difficulty: 1 Easy

Topic:  Preparing Financial Statements

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

39) Of the following, which is not an alternative title for the income statement?

1. A) Earnings statement.
2. B) Statement of Operations.
3. C) Profit and Loss Statement.
4. D) Statement of Financial Position.

 

Answer:  D

Difficulty: 1 Easy

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Remember

AACSB:  Communication

Accessibility:  Keyboard Navigation

 

40) The statement of retained earnings is based upon which of the following relationships?

1. A) Retained Earnings – Net Income – Dividends.
2. B) Retained Earnings – Net Income + Dividends.
3. C) Retained Earnings + Net Income + Dividends.
4. D) Retained Earnings + Net Income – Dividends.

 

Answer:  D

Difficulty: 1 Easy

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

41) Dividends declared:

1. A) Reduce retained earnings.
2. B) Increase retained earnings.
3. C) Reduce net income.
4. D) Increase net income.

 

Answer:  A

Difficulty: 1 Easy

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

42) The dividends account should be:

1. A) Closed to income summary.
2. B) Closed to retained earnings.
3. C) Closed only if there is a profit.
4. D) Not closed at all.

 

Answer:  B

Difficulty: 2 Medium

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

43) Retained Earnings at the end of a period:

1. A) Is equal to the balance in the Retained Earnings account in the adjusted trial balance at the end of a period.
2. B) Is determined in the Statement of Retained Earnings.
3. C) Is equal to Retained Earnings at the beginning of the period, minus net income (or plus net loss) for the period.
4. D) Appears in the Income Statement for the period.

 

Answer:  B

Difficulty: 2 Medium

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

44) A statement of retained earnings shows:

1. A) The changes in the Cash account occurring during the accounting period.
2. B) The revenue, expense, and dividends of the period.
3. C) The types of assets that have been purchased with the earnings retained during the accounting period.
4. D) The changes in the Retained Earnings account occurring during the accounting period.

 

Answer:  D

Difficulty: 2 Medium

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

45) Declaring a dividend will:

1. A) Increase net income.
2. B) Decrease net income.
3. C) Not change net income.
4. D) Increase the net worth of a company.

 

Answer:  C

Difficulty: 2 Medium

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

46) Dividends will have what effect upon retained earnings?

1. A) Increase.
2. B) Decrease.
3. C) No effect.
4. D) Depends upon if there is income or loss.

 

Answer:  B

Difficulty: 1 Easy

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

47) Net income from the Income Statement appears on:

1. A) The Balance Sheet.
2. B) The Statement of Retained Earnings.
3. C) Neither the Balance Sheet nor the Statement of Retained Earnings.
4. D) Both the Balance Sheet and the Statement of Retained Earnings.

 

Answer:  B

Difficulty: 2 Medium

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

48) All of the following statements are true regarding the Income Statement except?

1. A) The Income Statement may also be called the earnings statement.
2. B) The measurement of income is not absolutely accurate or precise due to assumptions and estimates.
3. C) The Income Statement only includes those events that have been evidenced by actual business transactions.
4. D) The net income (or net loss) generated on the Income Statement appears at the top of the company’s year-end balance sheet.

 

Answer:  D

Difficulty: 2 Medium

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

49) Assets are considered current assets if they are cash or will usually be converted into cash:

1. A) Within a month or less.
2. B) Within 3 months.
3. C) Within a year or less.
4. D) Within 6 months or less.

 

Answer:  C

Difficulty: 1 Easy

Topic:  The Income Statement

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

50) In the notes to financial statements, adequate disclosure would typically not include:

1. A) The accounting methods in use.
2. B) Lawsuits pending against the business.
3. C) Customers that account for 10 percent or more of the company’s revenues.
4. D) The optimism of the CFO regarding future profits.

 

Answer:  D

Difficulty: 2 Medium

Topic:  Drafting the Notes that Accompany Financial Statements

Learning Objecti:  05-03 Explain the concept of adequate disclosure.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

51) The adequacy of a company’s disclosure is based on:

1. A) Laws established by Congress.
2. B) IRS rules and FASB requirements.
3. C) A combination of official rules, tradition, and professional judgment.
4. D) The needs of stockholders and creditors.

 

Answer:  C

Difficulty: 2 Medium

Topic:  Drafting the Notes that Accompany Financial Statements

Learning Objecti:  05-03 Explain the concept of adequate disclosure.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

52) The concept of adequate disclosure:

1. A) Demands a “good faith effort” by management.
2. B) Grants users of the financial statements access to a company’s accounting records.
3. C) Does not apply to events occurring after the balance sheet date.
4. D) Specifies which accounting methods must be used in a company’s financial statements.

 

Answer:  A

Difficulty: 2 Medium

Topic:  Drafting the Notes that Accompany Financial Statements

Learning Objecti:  05-03 Explain the concept of adequate disclosure.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

53) The concept of adequate disclosure requires a company to inform financial statement users of each of the following, except:

1. A) The accounting methods in use.
2. B) The due dates of major liabilities.
3. C) Destruction of a large portion of the company’s inventory on January 20, three weeks after the balance sheet date, but prior to issuance of the financial statements.
4. D) Income projections for the next five years based upon anticipated market share of a new product; the new product was introduced a few days before the balance sheet date.

 

Answer:  D

Difficulty: 3 Hard

Topic:  Drafting the Notes that Accompany Financial Statements

Learning Objecti:  05-03 Explain the concept of adequate disclosure.

Bloom’s:  Apply

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

54) Closing entries would be prepared before:

1. A) The opening balance sheet is prepared.
2. B) The after-closing trial balance.
3. C) An adjusted trial balance.
4. D) Adjusting entries.

 

Answer:  B

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

55) The closing entry for an expense account would consist of a:

1. A) Debit to Income Summary and a credit to the expense account.
2. B) Debit to the expense account and a credit to Income Summary.
3. C) Credit to Retained Earnings and a debit to the expense account.
4. D) Credit to Revenue and a debit to the expense account.

 

Answer:  A

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

56) The Income Summary account has debits of $85,000 and credits of $75,000. The company had which of the following:

1. A) Net income of $10,000.
2. B) Net income of $160,000.
3. C) Net loss of $10,000.
4. D) Net loss of $160,000.

 

Answer:  C

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

57) During the closing process:

1. A) All income statement accounts are credited to income summary.
2. B) All income statement accounts are debited to income summary.
3. C) All revenue accounts are credited and expense accounts are debited.
4. D) All revenue accounts are debited and expense accounts are credited.

 

Answer:  D

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

58) A debit balance in the income summary account indicates:

1. A) An error was made.
2. B) A Net Profit.
3. C) A Net Loss.
4. D) The closing process is incomplete.

 

Answer:  C

Difficulty: 3 Hard

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

59) If Income Summary has a net credit balance, it signifies:

1. A) A net loss.
2. B) Net income.
3. C) A reduction of net worth.
4. D) Dividends have been declared.

 

Answer:  B

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

60) The balance in Income Summary:

1. A) Should equal retained earnings.
2. B) Will always be equal to the increase in retained earnings.
3. C) Will equal net income less dividends.
4. D) Will equal net income or net loss.

 

Answer:  D

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

61) After preparing the financial statements for the current year, the accountant for Exquisite Gems closed the Dividends account at year-end by debiting Income Summary and crediting the Dividends account. What is the effect of this entry on current-year net income and the balance in the Retained Earnings account at year-end?

1. A) Net income is overstated and the balance in the Retained Earnings account is correct.
2. B) Net income is correct and the balance in the Retained Earnings account is overstated.
3. C) Net income is understated and the balance in the Retained Earnings account is correct.
4. D) Net income is understated and the balance in the Retained Earnings account is overstated.

 

Answer:  C

Difficulty: 3 Hard

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

62) Income Summary appears on which financial statement:

1. A) Income statement.
2. B) Balance sheet.
3. C) Retained Earnings statement.
4. D) Income summary does not appear on any financial statement.

 

Answer:  D

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

63) The purpose of making closing entries is to:

1. A) Prepare revenue and expense accounts for the recording of the next period’s revenue and expenses.
2. B) Enable the accountant to transfer the balances from all permanent accounts to the Income Summary account.
3. C) Establish new balances in the balance sheet accounts.
4. D) Reduce the number of expense accounts.

 

Answer:  A

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

64) When closing the accounts at the end of the period, which of the following is closed directly into the Retained Earnings account?

1. A) Depreciation Expense.
2. B) Accumulated Depreciation.
3. C) Revenue and liability accounts.
4. D) The Income Summary account.

 

Answer:  D

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

65) Closing entries never involve posting a credit to the:

1. A) Income Summary account.
2. B) Accumulated Depreciation account.
3. C) Dividends account.
4. D) Depreciation Expense account.

 

Answer:  B

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

66) Which of the following account titles would not be debited in the process of preparing closing entries for Andrew’s Auto Shop?

1. A) Income Summary.
2. B) Fees Earned.
3. C) Dividends.
4. D) Retained Earnings.

 

Answer:  C

Difficulty: 3 Hard

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

67) If a business closes its accounts only at year-end:

1. A) Financial statements are prepared only at year-end.
2. B) Adjusting entries are made only at year-end.
3. C) Revenue and expense accounts reflect year-to-date amounts throughout the year.
4. D) Monthly and quarterly financial statements cannot be prepared.

 

Answer:  C

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

68) Closing entries should be made:

1. A) Every year.
2. B) Only when an entity goes out of business.
3. C) Only if there is a profit.
4. D) Only if there is a loss.

 

Answer:  A

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

69) Which of the following accounts should not be closed?

1. A) Expenses and revenues.
2. B) Dividends.
3. C) Income summary.
4. D) Accumulated depreciation.

 

Answer:  D

Difficulty: 1 Easy

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

70) Which of the following accounts will be closed to Income Summary?

1. A) Prepaid Expenses.
2. B) Unearned Revenue.
3. C) Dividends.
4. D) Depreciation Expense.

 

Answer:  D

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

71) If sales are $270,000, expenses are $220,000 and dividends are $30,000, Income Summary:

1. A) Will have a credit balance of $50,000.
2. B) Will have a debit balance of $50,000.
3. C) Will have a debit balance of $20,000.
4. D) Will have a credit balance of $20,000.

 

Answer:  A

Explanation:  $270,000 CR – $220,000 DR = $50,000 CR. Dividends are not closed to Income Summary.

Difficulty: 3 Hard

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

[The following information applies to the questions displayed below.]

 

Shown below is a trial balance for Novelty Toys, Inc., on December 31, after adjusting entries:

 

Novelty Toys, Inc.
Trial Balance
December 31
Cash	$	7,750
Accounts Receivable		6,375
Office Equipment		11,250
Accumulated Depreciation					$	3,000
Accounts Payable						3,875
Capital Stock						11,250
Retained Earnings						-0-
Dividends		3,750
Fees Earned						22,750
Salaries Expense		8,000
Advertising Expense		1,625
Depreciation Expense		2,125
	$	40,875			$	40,875
–

 

72) The entry to close the Fees Earned account will:

1. A) Produce a zero balance in that account when posted.
2. B) Include a debit to Income Summary.
3. C) Include a credit to Fees Earned.
4. D) Include a debit to Capital Stock.

 

Answer:  A

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

 

73) The entry to close Salaries Expense account will:

1. A) Transfer the total of Salaries Expense directly to Retained Earnings.
2. B) Include a debit to Income Summary.
3. C) Include a debit to Salaries Expense.
4. D) Include a credit to Capital Stock.

 

Answer:  B

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

74) Net income for the period equals:

375. A) $18,375.
376. B) $11,000.
377. C) $ 5,800.
378. D) $11,250.

 

Answer:  B

Explanation:  $22,750 – $8,000 – $1,625 –$2,125 = $11,000

Difficulty: 3 Hard

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

75) After closing the accounts, Retained Earnings at December 31 equals:

1. A) $11,000.
2. B) $7,250.
3. C) Zero.
4. D) $22,250.

 

Answer:  B

Explanation:  200 $0 + $11,000 – $3,750 = $7,250

Difficulty: 3 Hard

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

76) The total debits in the After-Closing Trial Balance will equal:

375. A) $25,375.
376. B) $29,125.
377. C) $40,875.
378. D) $18,125.

 

Answer:  A

Explanation:  $7,750 + $6,375 + $11,250 = $25,375

Difficulty: 3 Hard

Topic:  After-Closing Trial Balance

Learning Objecti:  05-05 Prepare an after-closing trial balance.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

77) Income Summary will have what balance before it is closed?

1. A) Zero.
2. B) $11,750.
3. C) $ 7,250.
4. D) $11,000.

 

Answer:  D

Explanation:  $22,750 – $8,000 – $1,625 – $2,125 = $11,000

Difficulty: 3 Hard

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

 

[The following information applies to the questions displayed below.]

 

Shown below is the adjusted Trial Balance for Simon Inc., on December 31, after the first year of operations, after adjusting entries:

 

Simon, Inc.
Adjusted Trial Balance
December 31
Cash	$	1,600
Accounts Receivable		4,000
Office Equipment		16,800
Accumulated Depreciation					$	1,600
Capital Stock						2,400
Retained Earnings						2,720
Dividends		960
Service Fees Earned						21,920
Wages Expense		3,200
Supplies Expense		1,120
Depreciation Expense		960
	$	28,640			$	28,640
–

 

78) The entry to close the Service Fees Earned account will:

1. A) Produce a zero balance in that account when posted.
2. B) Include a debit to Income Summary.
3. C) Include a credit to Service Fees Earned.
4. D) Include a debit to Capital Stock.

 

Answer:  A

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

 

79) The entry to close Depreciation Expense account will:

1. A) Transfer the balance of Depreciation Expense directly to Retained Earnings.
2. B) Include a debit to Income Summary.
3. C) Include a debit to Depreciation Expense.
4. D) Include a credit to Capital Stock.

 

Answer:  B

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

80) Net income for the period equals:

960. A) $20,960.
961. B) $16,640.
962. C) $21,920.
963. D) $23,360.

 

Answer:  B

Explanation:  $21,920 – $3,200 – $1,120 – $960 = $16,640

Difficulty: 3 Hard

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

81) After closing the accounts, Retained Earnings at December 31 equals:

1. A) Zero.
2. B) $18,400.
3. C) $19,360.
4. D) $16,640.

 

Answer:  B

Explanation:  $2,720 + $16,640 – $960 = $18,400

Difficulty: 3 Hard

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

 

82) The total debits in the After Closing-Trial Balance will equal:

360. A) $23,360.
361. B) $28,640.
362. C) $22,400.
363. D) $6,720.

 

Answer:  C

Explanation:  $1,600 + $4,000 + $16,800 = $22,400

Difficulty: 3 Hard

Topic:  After-Closing Trial Balance

Learning Objecti:  05-05 Prepare an after-closing trial balance.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

83) Income Summary will have what balance before it is closed?

1. A) $28,640
2. B) $15,600
3. C) $21,920
4. D) $16,640

 

Answer:  D

Explanation:  $21,920 – $3,200 – $1,120 – $960 = $16,640

Difficulty: 3 Hard

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

84) If sales are $540,000, expenses are $440,000 and dividends are $50,000, Income Summary:

1. A) Will have a credit balance of $50,000.
2. B) Will have a debit balance of $50,000.
3. C) Will have a debit balance of $100,000.
4. D) Will have a credit balance of $100,000.

 

Answer:  D

Explanation:  $540,000 CR – $440,000 DR = $100,000 CR

Difficulty: 3 Hard

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

[The following information applies to the questions displayed below.]

 

Shown below is a trial balance for Cornell Products, Inc., on December 31, after adjusting entries:

 

Cornell Products, Inc.
Trial Balance
December 31, 2018
Cash	$	15,500
Accounts Receivable		12,750
Office Equipment		22,500
Accumulated Depreciation					$	6,000
Accounts Payable						7,750
Capital Stock						22,500
Retained Earnings						-0-
Dividends		7,500
Service Fees Earned						45,500
Salaries Expense		16,000
Advertising Expense		3,250
Depreciation Expense		4,250
	$	81,750			$	81,750
–

 

85) Net income for the period equals:

600. A) $ 11,600.
601. B) $ 22,000.
602. C) $ 22,500.
603. D) $36,750.

 

Answer:  B

Explanation:  $45,500 – $16,000 – $3,250 – $4,250 = $22,000

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

 

86) After closing the accounts, Retained Earnings at December 31 equals:

1. A) Zero.
2. B) $14,500.
3. C) $22,000.
4. D) $22,500.

 

Answer:  B

Explanation:  $0 + $22,000 – $7,500 = $14,500

Difficulty: 3 Hard

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

87) The total debits in the After-Closing Trial Balance will equal:

500. A) $23,500.
501. B) $31,000.
502. C) $50,750.
503. D) $58,250.

 

Answer:  C

Explanation:  $15,500 + $12,750 + $22,500 = $50,750

Difficulty: 2 Medium

Topic:  After-Closing Trial Balance

Learning Objecti:  05-05 Prepare an after-closing trial balance.

Bloom’s:  Apply

AACSB:  Analytical Thinking

88) Which account will appear on an After-Closing Trial Balance?

1. A) Dividends
2. B) Prepaid Expenses
3. C) Retained Earnings, at the beginning of the period
4. D) Sales

 

Answer:  B

Difficulty: 2 Medium

Topic:  After-Closing Trial Balance

Learning Objecti:  05-05 Prepare an after-closing trial balance.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

89) Which account will not appear on an After-Closing Trial Balance?

1. A) Dividends
2. B) Prepaid Expenses
3. C) Unearned Revenue
4. D) Retained Earnings, at the end of the period

 

Answer:  A

Difficulty: 2 Medium

Topic:  After-Closing Trial Balance

Learning Objecti:  05-05 Prepare an after-closing trial balance.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

90) Which account appears on the After-Closing Trial Balance?

1. A) Service Revenue
2. B) Unearned Revenue
3. C) Dividends
4. D) Retained Earnings, Beginning of Year

 

Answer:  B

Difficulty: 2 Medium

Topic:  After-Closing Trial Balance

Learning Objecti:  05-05 Prepare an after-closing trial balance.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

91) Return on equity measures:

1. A) Solvency.
2. B) Profitability.
3. C) Leverage.
4. D) Both solvency and leverage.

 

Answer:  B

Difficulty: 2 Medium

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

92) Return on equity is calculated by:

1. A) Dividing net income by total revenue.
2. B) Dividing net income by average stockholders’ equity.
3. C) Dividing net income by working capital.
4. D) Dividing dividends by stockholders’ equity.

 

Answer:  B

Difficulty: 1 Easy

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

93) If current assets are $90,000 and current liabilities are $70,000, the current ratio will be:

1. A) 77%.
2. B) $20,000.
3. C) 1.3.
4. D) $160,000.

 

Answer:  C

Explanation:  $90,000 ÷ $70,000 = 1.3

Difficulty: 2 Medium

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Apply

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

94) If current assets are $110,000 and current liabilities are $50,000, working capital will be:

45. A) 45.5%.
46. B) 2:2.
47. C) $60,000.
48. D) $160,000.

 

Answer:  C

Explanation:  $110,000 – $50,000 = $60,000

Difficulty: 2 Medium

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Apply

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

95) The following information is available:

Sales	$	400,000
Net Income	$	20,000
Retained Earnings	$	40,000
Avg. Stockholders’ Equity	$	130,000
Dividends	$	6,000
–

 

What is the return on equity? (Round your answer to the nearest whole number.)

1. A) 5%.
2. B) 20%.
3. C) 25%.
4. D) 15%.

 

Answer:  D

Explanation:  $20,000 ÷ $130,000 = 15.38%. 15% is the nearest whole number choice.

Difficulty: 2 Medium

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Apply

AACSB:  Analytical Thinking

96) If current assets are $180,000 and current liabilities are $130,000, the current ratio will be:

1. A) 72%.
2. B) $50,000.
3. C) 1.4.
4. D) $310,000.

 

Answer:  C

Explanation:  $180,000 ÷ $130,000 = 1.4

Difficulty: 2 Medium

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Apply

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

97) If current assets are $180,000 and current liabilities are $130,000, working capital will be:

1. A) 72%.
2. B) $50,000.
3. C) 1.4.
4. D) $310,000.

 

Answer:  B

Explanation:  $180,000 – $130,000 = $50,000

Difficulty: 2 Medium

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Apply

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

98) The following information is available:

Sales	$	600,000
Net Income	$	30,000
Retained Earnings	$	60,000
Average Stockholders’ Equity	$	200,000
Dividends	$	10,000
–

 

What is the return on equity? (Round your answer to the nearest whole number.)

1. A) 5%
2. B) 15%
3. C) 20%
4. D) 25%

 

Answer:  B

Explanation:  $30,000 ÷ $200,000 = 15%

Difficulty: 2 Medium

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

99) The following information is available:

Sales	$	600,000
Net Income	$	30,000
Retained Earnings	$	60,000
Average Stockholders’ Equity	$	200,000
Dividends	$	10,000
–

What is the net income percentage? (Round your answer to the nearest whole number.)

1. A) 5%
2. B) 15%
3. C) 20%
4. D) 25%

 

Answer:  A

Explanation:  $30,000 ÷ $600,000 = 5%

Difficulty: 2 Medium

Topic:  A Last Look at Overnight: Was 2018 a Good Year?

Learning Objecti:  05-06 Use financial statement information to evaluate profitability and liquidity.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

100) Interim financial statements:

1. A) Cover a period less than one year.
2. B) Cover only periods of one quarter (of a year).
3. C) Cover periods greater than a year.
4. D) Cannot cover a period of one month or less.

 

Answer:  A

Difficulty: 1 Easy

Topic:  Preparing Financial Statements Covering Different Periods of Time

Learning Objecti:  05-07 Explain how interim financial statements are prepared in a business that closes its accounts only at year-end.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

101) Preparation of interim financial statements:

1. A) Makes the preparation of year-end financial statements unnecessary.
2. B) Requires the journalizing and posting of adjusting entries.
3. C) Requires the journalizing and posting of closing entries.
4. D) Is done monthly or quarterly or in-between the year-end financial statements.

 

Answer:  D

Difficulty: 2 Medium

Topic:  Preparing Financial Statements Covering Different Periods of Time

Learning Objecti:  05-07 Explain how interim financial statements are prepared in a business that closes its accounts only at year-end.

Bloom’s:  Understand

AACSB:  Analytical Thinking

 

102) If management desires monthly financial statements:

1. A) Journalizing and posting adjusting entries must be completed each month.
2. B) Journalizing and posting closing entries must be completed each month.
3. C) Monthly financial statements can be prepared from worksheets; adjustments and closing entries need not be entered in the accounting records.
4. D) Adjusting and closing entries must be entered in the accounting records before preparation of interim financial statements.

 

Answer:  C

Difficulty: 2 Medium

Topic:  Preparing Financial Statements Covering Different Periods of Time

Learning Objecti:  05-07 Explain how interim financial statements are prepared in a business that closes its accounts only at year-end.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

103) The section of the annual report titled “Management Discussion and Analysis” is:

1. A) Required by the SEC.
2. B) Not required, but it may be included by management.
3. C) Required by GAAP.
4. D) Reported to the SEC, but it is not included in the annual report.

 

Answer:  A

Difficulty: 2 Medium

Topic:  Preparing Financial Statements Covering Different Periods of Time

Learning Objecti:  05-07 Explain how interim financial statements are prepared in a business that closes its accounts only at year-end.

Bloom’s:  Remember

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

104) A worksheet consists of all of the following except:

1. A) A trial balance.
2. B) Adjusting entries.
3. C) An adjusted trial balance.
4. D) Transaction entries.

 

Answer:  D

Difficulty: 2 Medium

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

105) When a worksheet is prepared, which account would not be entered into the income statement columns?

1. A) Depreciation Expense
2. B) Unearned Revenue
3. C) Service Revenue
4. D) Insurance Expense

 

Answer:  B

Difficulty: 2 Medium

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

106) The worksheet:

1. A) Is one of the basic financial statements.
2. B) Is prepared throughout the year.
3. C) Is not a formal step in the accounting cycle.
4. D) Starts with the first column being the adjusted trial balance.

 

Answer:  C

Difficulty: 2 Medium

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

107) Which of the following amounts appears in both the Income Statement debit column and the Balance Sheet credit column of a worksheet?

1. A) Net income.
2. B) Net loss.
3. C) Dividends.
4. D) Retained earnings.

 

Answer:  A

Difficulty: 2 Medium

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

108) A worksheet should be viewed as:

1. A) A financial statement to be distributed to investors.
2. B) A financial statement to assist managers in making managerial decisions.
3. C) A tool to assist accountants in making end-of-period adjustments and in preparing financial statements.
4. D) A tool to assist auditors in determining that all transactions have been properly recorded throughout the period.

 

Answer:  C

Difficulty: 2 Medium

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

109) The amount of net income will appear on the debit side of the Income Statement columns in a worksheet if:

1. A) Revenue exceeds total expenses for the period.
2. B) The trial balance is out of balance.
3. C) Dividends are more than the income or loss for the period.
4. D) There is a net loss for the period.

 

Answer:  A

Difficulty: 2 Medium

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

110) Which of the following is true regarding a worksheet prepared at year-end?

1. A) The number of account titles applicable to the Adjusted Trial Balance columns is usually greater than the number of account titles applicable to the Trial Balance columns.
2. B) The worksheet can be issued instead of financial statements.
3. C) The worksheet eliminates the need to make adjusting and closing entries.
4. D) An equal number of account titles are applicable to the Income Statement columns and the Balance Sheet columns.

 

Answer:  A

Difficulty: 2 Medium

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

111) When a worksheet is used:

1. A) Adjusting entries are not prepared, since adjustments are shown on the worksheet.
2. B) Revenue and expense accounts do not have to be closed to the Income Summary account, because the income statement is prepared from the worksheet and net income is already computed.
3. C) Financial statements may be prepared before recording adjusting and closing entries in the accounting records.
4. D) The Income Statement column and Balance Sheet column of the worksheet eliminate the need to prepare formal financial statements for a business.

 

Answer:  C

Difficulty: 2 Medium

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Understand

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

112) Only two adjustments appear in the adjustments column of a worksheet for Wycliff Publications: one to record $800 depreciation of office equipment and the other to record the use of $560 of office supplies. If the Trial Balance column totals are $15,380, what are the totals of the Adjusted Trial Balance columns?

1. A) $16,740
2. B) $15,140
3. C) $16,180
4. D) $15,860

 

Answer:  C

Explanation:  $15,380 + $800 = $16,180. The decrease in office supplies cancels the increase in supplies expense.

Difficulty: 3 Hard

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Apply

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

113) The December 31, 2017 worksheet for Fran’s Fine Dining showed the following amounts related to the Supplies Expense account:

1. A) $870
2. B) $745
3. C) $0
4. D) $125

 

Answer:  C

Explanation:  The expense account would have been closed out for 2017; the beginning balance for 2018 would be $0.

Difficulty: 2 Medium

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

114) Only two adjustments appear in the adjustments column of a worksheet for Winona Mfg: one to record $8,000 depreciation of factory equipment, and the other to record the use of $1,500 of prepaid insurance. If the Trial Balance column totals are $145,380, what are the totals of the Adjusted Trial Balance columns?

1. A) $145,380
2. B) $153,380
3. C) $152,880
4. D) $154,880

 

Answer:  B

Explanation:  $145,380 + $8,000 = $153,380. The decrease in prepaid insurance cancels the increase in insurance expense.

Difficulty: 2 Medium

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Apply

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

115) The December 31, 2017 worksheet for Albertville Grill showed the following amounts related to the Depreciation Expense account:

1. A) $1,870
2. B) $1,745
3. C) $0
4. D) $1,125

 

Answer:  C

Explanation:  The expense account would have been closed out for 2017; the beginning balance for 2018 would be $0.

Difficulty: 2 Medium

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

Accessibility:  Keyboard Navigation

 

 

116) Accounting terminology

Listed below are eight technical accounting terms emphasized in this chapter:

 

Adequate disclosure	Worksheet
After-closing trial balance	Notes to financial statements
Closing entries	Interim financial statements
Income Summary	General ledger software

 

In the space provided for each statement, indicate the accounting term described.

________ a. The generally accepted accounting principle of providing with financial statements any information that users need to interpret those statements properly.

________ b. A trial balance prepared after all closing entries have been posted. This trial balance consists only of accounts for assets, liabilities, and owners’ equity.

________ c. Journal entries made at the end of the period for the purpose of closing temporary accounts (revenue, expense, and dividend accounts) and transferring balances to the Retained Earnings account.

________ d. Computer software used for recording transactions, maintaining journals and ledgers, and preparing financial statements. Also includes spreadsheet capabilities for showing the effects of proposed adjusting entries or transactions on the financial statements without actually recording these entries in the accounting records.

________ e. The summary account in the ledger to which revenue and expense accounts are closed at the end of the period. The balance (credit balance for a net income, debit balance for a net loss) is transferred to the Retained Earnings account.

________ f. Financial statements prepared for periods of less than one year (includes monthly and quarterly statements).

________ g. Supplemental disclosures that accompany financial statements. They provide users with various types of information considered necessary for the proper interpretation of the statements.

________ h. A multicolumn schedule showing the relationships among the current account balances (a trial balance), proposed or actual adjusting entries or transactions, and the financial statements that would result if these adjusting entries or transactions were recorded. Used both at the end of the accounting period as an aid to preparing financial statements and for planning purposes.

 

Answer:

(a) Adequate disclosure (b) After-closing trial balance (c) Closing entries (d) General ledger software (e) Income Summary (f) Interim financial statements (g) Notes to financial statements (h) Worksheet

Difficulty: 1 Easy

Topic:  Preparing Financial Statements; The Income Statement; Drafting the Notes That Accompany Financial Statements; Closing the Temporary Accounts; After-Closing Trial Balance; A Last Look at Overnight: Was 2018 a Good Year?; Preparing Financial Statements that Cover Different Periods of Time; Supplemental Topic: The Worksheet

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.; 05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.; 05-03 Explain the concept of adequate disclosure.; 05-04 Explain the purposes of closing entries; prepare these entries.; 05-05 Prepare an after-closing trial balance.; 05-06 Use financial statement information to evaluate profitability and liquidity.; 05-07 Explain how interim financial statements are prepared in a business that closes its accounts only at year-end.; 05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Remember

AACSB:  Analytical Thinking

 

 

117) Preparation of financial statements

Using the Adjusted Trial Balance shown below, prepare (a) an Income Statement and (b) a Statement of Retained Earnings for All Star Repairs.

 

All Star Repairs Adjusted Trial Balance July 31
	Debit	Credit
Cash	$20,200
Accounts receivable	70,600
Supplies	2,500
Shop equipment	26,600
Accumulated depreciation: shop equipment		$9,600
Accounts payable		18,000
Notes payable		3,700
Income taxes payable		26,700
Capital stock		22,200
Retained earnings		5,900
Dividends	16,700
Fees earned		127,400
Rent expense	9,000
Wages expense	35,600
Supplies expense	2,900
Utilities expense	2,100
Depreciation expense: shop equipment	600
Income taxes expense	26,700	_______
	$213,500	$213,500

 

a.			b.
All Star Repairs Income Statement For the Month Ended July 31			All Star Repairs Statement of Retained Earnings For the Month Ended July 31

 

 

Answer:

a	All Star Repairs Income Statement For the Month Ended July 31			b	All Star Repairs Statement of Retained Earnings For the Month Ended July 31
Fees Earned:			$127,400	Retained earnings, June 30		$5,900
Expenses:				Add: Net income for July		50,500
Rent		$9,000		Subtotal		56,400
Wages		35,600		Less: Dividends		16,700
Supplies		2,900		Retained earnings, July 31		$39,700
Utilities		2,100
Depreciation		600
Total Expenses			50,200
Income before taxes			$  77,200
Income taxes expense			26,700
Net income			$50,500

 

Difficulty: 3 Hard

Topic:  Preparing Financial Statements; The Income Statement

Learning Objecti:  05-01 Prepare an income statement, a statement of retained earnings, and a balance sheet.; 05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

118) Indicate which of the following accounts will be closed to Income Summary at year-end.

(a) Cash

(b) Office Supplies Expense

(c) Unexpired Insurance

(d) Unearned Revenue

(e) Dividends

(f) Depreciation Expense

(g) Income Taxes Payable

(h) Accumulated Depreciation

 

Answer:

(b) Office Supplies Expense and (f) Depreciation Expense are the only accounts shown that will be closed to Income Summary.

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Understand

AACSB:  Analytical Thinking

 

119) Given the following information for the Maple Tree Co. for the year ended December 31, 2018, prepare a Statement of Retained Earnings.

 

Answer:  The Statement of Retained Earnings is as follows:

 

Maple Tree Co. Statement of Retained Earnings For the Year Ended December 31, 2018
Retained Earnings January 1, 2018	$59,150
Plus: Net income for the year	22,620
Less: Dividends	–  4,550
Retained Earnings December 31, 2018	$77,220

 

Difficulty: 2 Medium

Topic:  Preparing Financial Statements

Learning Objecti:  05-02 Explain how the income statement and the statement of retained earnings relate to the balance sheet.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

 

120) Adequate disclosure

(a) Briefly explain what is meant by the principle of adequate disclosure.

(b) How does professional judgment enter into the application of the principle of adequate disclosure?

(c) List 5 types of information that a publicly held corporation generally would be required to provide according to the concept of adequate disclosure.

 

Answer:

(a) The principle of adequate disclosure means that financial statements should be accompanied by any information necessary for the statements to be interpreted properly. Most disclosures appear within several pages of notes (or footnotes) that accompany the financial statements.

(b) Drafting footnotes requires an in-depth understanding of the company and its operations. As there is no comprehensive list of information that must be disclosed and the content of the notes often is not drawn directly from the accounting records, the adequacy of disclosure is dependent upon the accountants’ professional judgment. This professional judgment is used in selecting those items for disclosure that an intelligent person would consider necessary to properly interpret the financial statements.

(c) A publicly held corporation is generally required to disclose the following types of information (students are required to list five):

Difficulty: 2 Medium

Topic:  Drafting the Notes That Accompany Financial Statements

Learning Objecti:  05-03 Explain the concept of adequate disclosure.

Bloom’s:  Understand

AACSB:  Communications

 

 

121) Closing entries

An Adjusted Trial Balance for Tiger, Inc., at December 31 appears below.

 

 

 

Prepare journal entries to close the accounts. Use four entries to: (1) close the revenue account, (2) close the expense accounts, (3) close the Income Summary account, and (4) close the Dividends account.

 

Date	GENERAL JOURNAL	Debit	Credit

 

 

Answer:

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

 

122) Adjustments and closing process—basic entries

Selected ledger accounts used by Goldstone Advertising, Inc., are listed along with identifying numbers. Following this list of account numbers and titles in a series of transactions, you are required to indicate the proper accounts to be debited and credited for each transaction.

 

 

 

		Account(s)	Account(s)
	Transactions	Debited	Credited
	Example: Paid rent on building for the current period.	53	1
a)	Received an advance payment from a client for services to be rendered over next six months.
b)	Paid salaries of employees.
c)	Bought a three-year insurance policy and paid in full.
d)	Performed services for a client; received part of fee in cash, remainder to be collected in 30 days.
e)	Purchased office equipment; paid in cash, balance payable in 60 days.
f)	Purchased a large quantity of office supplies on credit.
g)	Declared a dividend to be paid in 45 days.
h)	Made an adjusting entry for the portion of the insurance premium that had expired.
i)	Made an adjusting entry to record depreciation for the period.
j)	Made an adjusting entry for office supplies used during the period.
k)	Made an adjusting entry to recognize that a portion of the fee received in advance (transaction a) had now been earned.
l)	Paid the dividend declared in transaction g.
m)	Made an adjusting entry to accrue income taxes at the end of an unprofitable period.
n)	Closed the Income Summary account at the end of an unprofitable period.
o)	Closed the Dividends account at the end of the period.

 

 

Answer:

		Account(s)	Account(s)
	Transactions	Debited	Credited
	Example: Paid rent on building for the current period.	53	1
a)	Received an advance payment from a client for services to be rendered over next six months.	1	24
b)	Paid salaries of employees.	51	1
c)	Bought a three-year insurance policy and paid in full.	4	1
d)	Performed services for a client; received part of fee in cash, remainder to be collected in 30 days.	1,2	41
e)	Purchased office equipment; paid in cash, balance payable in 60 days.	5	1,22
f)	Purchased a large quantity of office supplies on credit.	3	22
g)	Declared a dividend to be paid in 45 days.	32	21
h)	Made an adjusting entry for the portion of the insurance premium that had expired.	54	4
i)	Made an adjusting entry to record depreciation for the period.	55	6
j)	Made an adjusting entry for office supplies used during the period.	52	3
k)	Made an adjusting entry to recognize that a portion of the fee received in advance (transaction a) had now been earned.	24	41
l)	Paid the dividend declared in transaction g.	21	1
m)	Made an adjusting entry to accrue income taxes at the end of an unprofitable period.	23	56
n)	Closed the Income Summary account at the end of an unprofitable period.	31	35
o)	Closed the Dividends account at the end of the period.	31	32

 

 

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

 

123) Adjustments and closing process-basic entries

Selected ledger accounts used by Speedy Truck Rentals, Inc., are listed along with identifying numbers. Following this list of account numbers and titles in a series of transactions, you are required to indicate the proper accounts to be debited and credited for each transaction.

 

 

Answer:

		Account(s)	Accounts(s)
	Transactions	Debited	Credited
	Example:  Paid rent on the building for the current period.	53	1
a)	Trucks are purchased by making a 30% cash down payment and financing the rest for 5 years.	5	1,22
b)	Fee is received in advance, for rental of truck for a future period.	1	25
c)	Purchased a large quantity of office supplies on credit.	3	21
d)	Bought a three-year insurance policy and paid in full.	4	1
e)	Declared a dividend to be paid in 60 days.	33	23
f)	Depreciation on trucks is recorded.	55	6
g)	Adjusting entry is made to record liability to Daily News for advertising done this period; payment is due next month.	51	21
h)	Adjusting entry is made to record truck rentals earned but not yet received or recorded.	2	41
i)	Some portion of the truck rentals previously received in advance has now been earned.	25	41
j)	Made an adjusting entry for office supplies used during this period.	52	3
k)	Made an adjusting entry for the portion of the insurance premium that had expired.	54	4
l)	Made an adjusting entry to accrue income taxes expense at the end of a profitable period.	56	24
m)	Closed the revenue account at the end of the period.	41	35
n)	Closed the Income Summary account at the end of a profitable period.	35	32
o)	Closed the Dividends account at the end of the period.	32	33

 

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

 

124) The accounts and their amounts for Belgrave Co. at December 31 are listed below. Prepare closing entries and an After-Closing Trial Balance.

 

Cash	$5,300
Accounts Receivable	5,850
Supplies	360
Prepaid Insurance	700
Machinery	2,600
Accumulated Depr. Mach.		1,650
Salary Payable		400
Capital Stock		5,200
Retained Earnings		1,940
Dividends	500
Revenue		13,250
Insurance Expense	120
Salary Expense	6,210
Miscellaneous Expense	340
Depreciation Expense	460	_____
Totals	$22,440	$22,440

 

 

Answer:

Closing entries:
Revenue	13,250
Income Summary		13,250
To close the revenue account.
Income Summary	7,130
Insurance Expense		120
Salary Expense		6,210
Miscellaneous Expense		340
Depreciation Expense		460
To close the expense accounts.
Income Summary	6,120
Retained Earnings		6,120
To close the income summary account.
Retained Earnings	500
Dividends		500
To close the dividends account.

 

After-Closing Trial Balance

 

Belgrave Co. After Closing Trial Balance December 31
Cash	$5,300
Accounts Receivable	5,850
Supplies	360
Prepaid Insurance	700
Machinery	2,600
Accumulated Depr. Mach		$1,650
Salary Payable		400
Capital Stock		5,200
Retained Earnings	______	7,560
Total	$14,810	$14,810

 

Difficulty: 2 Medium

Topic:  Closing the Temporary Accounts; After-Closing Trial Balance

Learning Objecti:  05-04 Explain the purposes of closing entries; prepare these entries.; 05-05 Prepare an after-closing trial balance.

Bloom’s:  Apply

AACSB:  Analytical Thinking

 

125) Inserting missing data into a worksheet

Certain data are given on the worksheet below, and certain missing data are indicated by the blank lines. Sufficient information is included to fill in the missing data. Each account has a debit or credit balance characteristically normal for that kind of account. Note that the dollar amounts have been reduced to figures of not more than three digits to simplify the arithmetic.

Insert the figures necessary to complete the worksheet in the blanks indicated by an underline. The lines cover both debit and credit columns; be sure to insert the missing figures in the correct column of the blank line.

 

 

 

Answer:

Difficulty: 3 Hard

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Analyze

AACSB:  Analytical Thinking

 

 

126) Completion of worksheet–missing data

Certain data are given on the worksheet below, and certain missing data are indicated by the blank boxes. Sufficient information is included to fill in the missing data. Each account has a debit or credit balance characteristically normal for that kind of account. Note that the dollar amounts have been reduced to figures of not more than three digits to simplify the arithmetic.

Insert the figures necessary to complete the worksheet in the blanks indicated by an underline. The boxes cover both debit and credit columns; be sure to insert the missing figures in the correct column of the box.

 

 

 

Answer:

Difficulty: 3 Hard

Topic:  Supplemental Topic: The Worksheet

Learning Objecti:  05-08 Prepare a worksheet and explain its uses.

Bloom’s:  Analyze

AACSB:  Analytical Thinking