Closing Entries in the Accounting Cycle T of F (Answer Key)

Answers to Multiple Choice Questions Item Ans. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. d c b a c c d b d c c a b c c a c Item Ans. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. b b b c d d c b c c c d b d d b d Item 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. Ans. Item c a b d b c d c c c b c b a a a d Ans. 89. 90. 91. 92. 93. 94. 95. 96. 97. 98. 99. 100. 101. 102. 103. 104. 105. Item a b c b b c a a c b b c c d c c c Ans. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. Item Ans. Item Ans. d c b c b c d c a b b d a d a d c 123. 124. 125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. d b c c b c b b c c c a c d c d d 140. 141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151. 152. 153. 154. d d d b a b d b d b c b c a d TRUE-FALSE STATEMENTS 8. Closing entries are not needed if the business plans to continue operating in the future and issue financial statements each year. 9. The dividends account is closed to the Income Summary account in order to properly determine net income (or loss) for the period. 10. After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances. 11. Closing revenue and expense accounts to the Income Summary account is an optional bookkeeping procedure. 12. Closing the dividends account to Retained Earnings is not necessary if net income is greater than dividends during the period. 13. The dividends account is a permanent account whose balance is carried forward to the next accounting period. 14. Closing entries are journalized after adjusting entries have been journalized. 15. The amounts appearing on an income statement should agree with the amounts appearing on the post-closing trial balance. 17. A business entity has only one accounting cycle over its economic existence. 18. The accounting cycle begins at the start of a new accounting period. 19. Both correcting entries and adjusting entries always affect at least one balance sheet account and one income statement account. 20. Correcting entries are made any time an error is discovered even though it may not be at the end of an accounting period. 21. An incorrect debit to Accounts Receivable instead of the correct account Notes Receivable does not require a correcting entry because total assets will not be misstated. 22. In a corporation, Retained Earnings is a part of owners' equity. 23. A company's operating cycle and fiscal year are usually the same length of time. 24. Cash and office supplies are both classified as current assets. 25. Long-term investments would appear in the property, plant, and equipment section of the balance sheet. 26. A liability is classified as a current liability if the company is to pay it within the forthcoming year. 27. A company's liquidity is concerned with the relationship between long-term investments and long-term debt. 28. Current assets are customarily the first items listed on a classified balance sheet. 29. The operating cycle of a company is determined by the number of years the company has been operating. 30. Adjusting entries are an optional bookkeeping procedure. Additional True-False Questions 32. To close net income to Retained Earnings, Income Summary is debited and Retained Earnings is credited. 33. In one closing entry, Dividends is credited and Income Summary is debited. 34. The post-closing trial balance will contain only stockholders’ equity statement accounts and balance sheet accounts. 35. The operating cycle of a company is the average time required to collect the receivables resulting from producing revenues. 36. Current assets are listed in the order of liquidity. 37. Current liabilities are obligations that the company is to pay within the coming year. Answers to True-False Statements Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item 1. F 7. T 13. F 19. F 25. F 31. T 2. T 8. F 14. T 20. T 26. T 32. T 3. T 9. F 15. F 21. F 27. F 33. F 4. F 10. T 16. F 22. T 28. T 34. F 5. F 11. F 17. F 23. F 29. F 35. F 6. F 12. F 18. T 24. T 30. F 36. T Ans. 37. MULTIPLE CHOICE QUESTIONS 41. After the adjusting entries are journalized and posted to the accounts in the general ledger, the balance of each account should agree with the balance shown on the a. adjusted trial balance. b. post-closing trial balance. c. the general journal. d. adjustments columns of the worksheet. 56. Closing entries are necessary for a. permanent accounts only. b. temporary accounts only. c. both permanent and temporary accounts. d. permanent or real accounts only. 57. Each of the following accounts is closed to Income Summary except a. Expenses. b. Dividends. c. Revenues. d. All of these are closed to Income Summary. 58. Closing entries are made a. in order to terminate the business as an operating entity. T b. so that all assets, liabilities, and Stockholders' equity accounts will have zero balances when the next accounting period starts. c. in order to transfer net income (or loss) and dividends to the retained earnings account. d. so that financial statements can be prepared. 60. The income summary account a. is a permanent account. b. appears on the balance sheet. c. appears on the income statement. d. is a temporary account. 61. If Income Summary has a credit balance after revenues and expenses have been closed into it, the closing entry for Income Summary will include a a. debit to the retained earnings account. b. debit to the owner’s dividends account. c. credit to the retained earnings account. d. credit to the owner’s dividends account. 62. Closing entries are journalized and posted a. before the financial statements are prepared. b. after the financial statements are prepared. c. at management's discretion. d. at the end of each interim accounting period. 63. Closing entries a. are prepared before the financial statements. b. reduce the number of permanent accounts. c. cause the revenue and expense accounts to have zero balances. d. summarize the activity in every account. 64. Which of the following is a true statement about closing the books of a corporation? a. Expenses are closed to the Expense Summary account. b. Only revenues are closed to the Income Summary account. c. Revenues and expenses are closed to the Income Summary account. d. Revenues, expenses, and the dividends account are closed to the Income Summary account. 66. In order to close the dividends account, the a. income summary account should be debited. b. income summary account should be credited. c. retained earnings account should be credited. d. retained earnings account should be debited. 67. In preparing closing entries a. each revenue account will be credited. b. each expense account will be credited. c. the retained earnings account will be debited if there is net income for the period. d. the dividends account will be debited. 69. The closing entry process consists of closing a. all asset and liability accounts. b. out the retained earnings account. c. all permanent accounts. d. all temporary accounts. 70. The final closing entry to be journalized is typically the entry that closes the a. revenue accounts. b. dividends account. c. retained earnings account. d. expense accounts. 73. The balance in the income summary account before it is closed will be equal to a. the net income or loss on the income statement. b. the beginning balance in the retained earnings account. c. the ending balance in the retained earnings account. d. zero. 74. After closing entries are posted, the balance in the retained earnings account in the ledger will be equal to a. the beginning retained earnings reported on the retained earnings statement. b. the amount of retained earnings reported on the balance sheet. c. zero. d. the net income for the period. 88. All of the following statements about the post-closing trial balance are correct except it a. shows that the accounting equation is in balance. b. provides evidence that the journalizing and posting of closing entries have been properly completed. c. contains only permanent accounts. d. proves that all transactions have been recorded. 89. A post-closing trial balance will show a. only permanent account balances. b. only temporary account balances. c. zero balances for all accounts. d. the amount of net income (or loss) for the period. 90. A post-closing trial balance should be prepared a. before closing entries are posted to the ledger accounts. b. after closing entries are posted to the ledger accounts. c. before adjusting entries are posted to the ledger accounts. d. only if an error in the accounts is detected. 91. A post-closing trial balance will show a. zero balances for all accounts. b. zero balances for balance sheet accounts. c. only balance sheet accounts. d. only income statement accounts. 92. The purpose of the post-closing trial balance is to a. prove that no mistakes were made. b. prove the equality of the balance sheet account balances that are carried forward into the next accounting period. c. prove the equality of the income statement account balances that are carried forward into the next accounting period. d. list all the balance sheet accounts in alphabetical order for easy reference. 93. The balances that appear on the post-closing trial balance will match the a. income statement account balances after adjustments. b. balance sheet account balances after closing entries. c. income statement account balances after closing entries. d. balance sheet account balances after adjustments. 94. Which account listed below would be double ruled in the ledger as part of the closing process? a. Cash b. Retained Earnings c. Dividends d. Accumulated Depreciation 95. A double rule applied to accounts in the ledger during the closing process implies that a. the account is an income statement account. b. the account is a balance sheet account. c. the account balance is not zero. d. a mistake has been made, since double ruling is prescribed. 96. The heading for a post-closing trial balance has a date line that is similar to the one found on a. a balance sheet. b. an income statement. c. an stockholders' equity statement. d. the worksheet. 97. Which one of the following is usually prepared only at the end of a company's annual accounting period? a. Preparing financial statements b. Journalizing and posting adjusting entries c. Journalizing and posting closing entries d. Preparing an adjusted trial balance 98. The step in the accounting cycle that is performed on a periodic basis (i.e., monthly, quarterly) is a. analyzing transactions. b. journalizing and posting adjusting entries. c. preparing a post-closing trial balance. d. posting to ledger accounts. 99. Which one of the following is an optional step in the accounting cycle of a business enterprise? a. Analyze business transactions b. Prepare a worksheet c. Prepare a trial balance d. Post to the ledger accounts 100. The final step in the accounting cycle is to prepare a. closing entries. b. financial statements. c. a post-closing trial balance. d. adjusting entries. 101. Which of the following steps in the accounting cycle would not generally be performed daily? a. Journalize transactions b. Post to ledger accounts c. Prepare adjusting entries d. Analyze business transactions 102. Which of the following steps in the accounting cycle may be performed more frequently than annually? a. Prepare a post-closing trial balance b. Journalize closing entries c. Post closing entries d. Prepare a trial balance 103. Which of the following depicts the proper sequence of steps in the accounting cycle? a. Journalize the transactions, analyze business transactions, prepare a trial balance b. Prepare a trial balance, prepare financial statements, prepare adjusting entries c. Prepare a trial balance, prepare adjusting entries, prepare financial statements d. Prepare a trial balance, post to ledger accounts, post adjusting entries 104. The two optional steps in the accounting cycle are preparing a. a post-closing trial balance and reversing entries. b. a worksheet and post-closing trial balances. c. reversing entries and a worksheet. d. an adjusted trial balance and a post-closing trial balance. 105. The first required step in the accounting cycle is a. reversing entries. b. journalizing transactions in the book of original entry. c. analyzing transactions. d. posting transactions. 106. Correcting entries a. always affect at least one balance sheet account and one income statement account. b. affect income statement accounts only. c. affect balance sheet accounts only. d. may involve any combination of accounts in need of correction. 107. Speedy Bike Company received a $940 check from a customer for the balance due. The transaction was erroneously recorded as a debit to Cash $490 and a credit to Service Revenue $490. The correcting entry is a. debit Cash, $940; credit Accounts Receivable, $940. b. debit Cash, $450 and Accounts Receivable, $490; credit Service Revenue, $940. c. debit Cash, $450 and Service Revenue, $490; credit Accounts Receivable, $940. d. debit Accounts Receivable, $940; credit Cash, $450 and Service Revenue, $490. 108. If errors occur in the recording process, they a. should be corrected as adjustments at the end of the period. b. should be corrected as soon as they are discovered. c. should be corrected when preparing closing entries. d. cannot be corrected until the next accounting period. 109. A correcting entry a. must involve one balance sheet account and one income statement account. b. is another name for a closing entry. c. may involve any combination of accounts. d. is a required step in the accounting cycle. 110. An unacceptable way to make a correcting entry is to a. reverse the incorrect entry. b. erase the incorrect entry. c. compare the incorrect entry with the correct entry and make a correcting entry to correct the accounts. d. correct it immediately upon discovery. 111. Cole Company paid the weekly payroll on January 2 by debiting Wages Expense for $45,000. The accountant preparing the payroll entry overlooked the fact that Wages Expense of $27,000 had been accrued at year end on December 31. The correcting entry is a. Wages Payable.................................................................... 27,000 Cash......................................................................... b. Cash.................................................................................... 27,000 18,000 Wages Expense....................................................... c. Wages Payable.................................................................... 18,000 27,000 Wages Expense....................................................... d. Cash.................................................................................... 27,000 27,000 Wages Expense....................................................... 112. 27,000 Tyler Company paid $530 on account to a creditor. The transaction was erroneously recorded as a debit to Cash of $350 and a credit to Accounts Receivable, $350. The correcting entry is a. Accounts Payable................................................................ 530 Cash......................................................................... b. Accounts Receivable........................................................... 530 350 Cash......................................................................... c. Accounts Receivable........................................................... 350 350 Accounts Payable.................................................... 350 d. Accounts Receivable........................................................... 350 Accounts Payable................................................................ 530 Cash......................................................................... 113. 880 Elko Inc. collected $830 of fees in advance. The Company erroneously debited Cash for $380 and credited Accounts Receivable for $380. The correcting entry is a. Cash.................................................................................... Accounts Receivable........................................................... 380 450 Unearned Revenue.................................................. b. Cash.................................................................................... 830 830 Service Revenue...................................................... 830 c. Cash.................................................................................... 450 Accounts Receivable........................................................... 380 Unearned Revenue.................................................. d. Cash.................................................................................... Accounts Receivable................................................ 114. All of the following are property, plant, and equipment except a. supplies. b. machinery. c. land. 830 450 450 d. buildings. 115. The first item listed under current liabilities is usually a. accounts payable. b. notes payable. c. salaries payable. d. taxes payable. 116. Office Equipment is classified in the balance sheet as a. a current asset. b. property, plant, and equipment. c. an intangible asset. d. a long-term investment. 117. A current asset is a. the last asset purchased by a business. b. an asset which is currently being used to produce a product or service. c. usually found as a separate classification in the income statement. d. an asset that a company expects to convert to cash or use up within one year. 118. An intangible asset a. does not have physical substance, yet often is very valuable. b. is worthless because it has no physical substance. c. is converted into a tangible asset during the operating cycle. d. cannot be classified on the balance sheet because it lacks physical substance. 119. Liabilities are generally classified on a balance sheet as a. small liabilities and large liabilities. b. present liabilities and future liabilities. c. tangible liabilities and intangible liabilities. d. current liabilities and long-term liabilities. 120. Which of the following would not be classified a long-term liability? a. Current maturities of long-term debt b. Bonds payable c. Mortgage payable d. Lease liabilities 121. Which of the following liabilities are not related to the operating cycle? a. Wages payable b. Accounts payable c. Utilities payable d. Bonds payable 122. Intangible assets include each of the following except a. copyrights. b. goodwill. c. land improvements. d. patents. 123. It is not true that current assets are assets that a company expects to a. realize in cash within one year. b. sell within one year. c. use up within one year. d. acquire within one year. 124. The operating cycle of a company is the average time that is required to go from cash to a. sales in producing revenues. b. cash in producing revenues. c. inventory in producing revenues. d. accounts receivable in producing revenues. 125. On a classified balance sheet, current assets are customarily listed a. in alphabetical order. b. with the largest dollar amounts first. c. in the order of liquidity. d. in the order of acquisition. 126. Intangible assets are a. listed under current assets on the balance sheet. b. not listed on the balance sheet because they do not have physical substance. c. noncurrent resources. d. listed as a long-term investment on the balance sheet. 127. The relationship between current assets and current liabilities is important in evaluating a company's a. profitability. b. liquidity. c. market value. d. accounting cycle. 128. The most important information needed to determine if companies can pay their current obligations is the a. net income for this year. b. projected net income for next year. c. relationship between current assets and current liabilities. d. relationship between short-term and long-term liabilities. Use the following information for questions 129–137. The following items are taken from the financial statements of Cerner Company for the year ending December 31, 2008: Accounts payable $ 18,000 Accounts receivable Accumulated depreciation – equipment Advertising expense 11,000 28,000 21,000 Cash Retained Earnings (1/1/08) 15,000 80,000 Common Stock 22,000 Dividends Depreciation expense 14,000 12,000 Insurance expense Note payable, due 6/30/09 Prepaid insurance (12-month policy) 3,000 70,000 6,000 Rent expense 17,000 Salaries expense 32,000 Service revenue 133,000 Supplies 4,000 Supplies expense Equipment 6,000 210,000 129. What is the company’s net income for the year ending December 31, 2008? a. $133,000 b. $42,000 c. $28,000 d. $12,000 130. What is the total that would be reported for stockholders' equity at December 31, 2008? a. $102,000 b. $130,000 c. $144,000 d. $158,000 131. What are total current assets at December 31, 2008? a. $26,000 b. $32,000 c. $36,000 d. $218,000 132. What is the book value of the equipment at December 31, 2008? a. $238,000 b. $210,000 c. $182,000 d. $170,000 133. What are total current liabililites at December 31, 2008? a. $18,000 b. $70,000 c. $88,000 d. $0 134. What are total long-term liabilities at December 31, 2008? a. $0 b. $70,000 c. $88,000 d. $90,000 135. What is total liabilities and stockholders' equity at December 31, 2008? a. $176,000 b. $190,000 c. $218,000 d. $232,000 136. The sub-classifications on the company’s classified balance sheet would include all of the following except: a. Current Assets. b. Property, Plant, and Equipment. c. Current liabilities. d. Long-term Assets. 137. The current assets should be listed on Cerner’s balance sheet in the following order: a. cash, accounts receivable, prepaid insurance, equipment. b. cash, prepaid insurance, supplies, accounts receivable. c. cash, accounts receivable, prepaid insurance, supplies. d. equipment, supplies, prepaid insurance, accounts receivable, cash. 138. Which statement about long-term investments is not true? a. They will be held for more than one year. b. They are not currently used in the operation of the business. c. They include investments in stock of other companies and land held for future use. d. They can never include cash accounts. 139. What is the order in which assets are generally listed on a classified balance sheet? a. Current and long-term b. Current; property, plant, and equipment; long-term investments; intangible assets c. Current; property, plant, and equipment; intangible assets; long-term investments d. Current; long-term investments; property, plant, and equipment; intangible assets 140. These are selected account balances on December 31, 2008. Land (location of the corporation’s office building) $100,000 Land (held for future use) 150,000 Corporate Office Building 600,000 Inventory 200,000 Equipment 450,000 Office Furniture Accumulated Depreciation 100,000 300,000 What is the net amount of property, plant, and equipment that will appear on the balance sheet? a. $1,300,000 b. $1,100,000 c. $1,600,000 d. $950,000 141. The following selected account balances appear on the December 31, 2008 balance sheet of Ming Co. Land (location of the corporation’s office building) $150,000 Land (held for future use) 225,000 Corporate Office Building 900,000 Inventory 300,000 Equipment 675,000 Office Furniture Accumulated Depreciation 150,000 450,000 What is the net amount of property, plant, and equipment that will be reported on the balance sheet? a. $1,950,000 b. $1,650,000 c. $2,400,000 d. $1,425,000 142. At the beginning of April, Logan Enterprises had a $400 balance in the Supplies account. During the month, Logan purhchased additional supplies for $500. At April 30, the company had $350 of supplies on hand. The balance in the supplies expense account that will be closed to Income Summary is a. $350. b. $400. c. .$500. d. $550. 143. Land held for future use will be reported in the ____________ section of a classified balance sheet. a. Long-term assets. b. Longt-term investments. c. Property, Plant and Equipment. d. Current assets.. Additional Multiple Choice Questions 144. The steps in the preparation of a worksheet do not include a. analyzing documentary evidence. b. preparing a trial balance on the worksheet. c. entering the adjustments in the adjustment columns. d. entering adjusted balances in the adjusted trial balance columns. 145. Balance sheet accounts are considered to be a. temporary stockholders’ accounts. b. permanent accounts. c. capital accounts. d. nominal accounts. 146. Income Summary has a credit balance of $12,000 in J. Sawyer Co. after closing revenues and expenses. The entry to close Income Summary is a. credit Income Summary $12,000, debit Retained Earnings $12,000. b. credit Income Summary $12,000, debit Dividends $12,000. c. debit Income Summary $12,000, credit Dividends $12,000. d. debit Income Summary $12,000, credit Retained Earnings $12,000. 147. The post-closing trial balance contains only a. income statement accounts. b. balance sheet accounts. c. balance sheet and income statement accounts. d. income statement, balance sheet, and retained earnings statement accounts. 148. Which of the following is an optional step in the accounting cycle? a. Adjusting entries b. Closing entries c. Correcting entries d. Reversing entries 149. Which one of the following statements concerning the accounting cycle is incorrect? a. The accounting cycle includes journalizing transactions and posting to ledger accounts. b. The accounting cycle includes only one optional step. c. The steps in the accounting cycle are performed in sequence. d. The steps in the accounting cycle are repeated in each accounting period. 150. Correcting entries are made a. at the beginning of an accounting period. b. at the end of an accounting period. c. whenever an error is discovered. d. after closing entries. 151. On September 23, Pitts Company received a $350 check from Mike Moluf for services to be performed in the future. The bookkeeper for Pitts Company incorrectly debited Cash for $350 and credited Accounts Receivable for $350. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should a. debit Cash $350 and credit Unearned Service Revenue $350. b. debit Accounts Receivable $350 and credit Unearned Service Revenue $350. c. debit Accounts Receivable $350 and credit Cash $350. d. debit Accounts Receivable $350 and credit Service Revenue $350. 152. All of the following are stockholders’ equity accounts except a. Common Stock. b. Capital Stock. c. Investment in Stock. d. Retained Earnings. 153. Current liabilities a. are obligations that the company is to pay within the forthcoming year. b. are listed in the balance sheet in order of their expected maturity. c. are listed in the balance sheet, starting with accounts payable. d. should not include long-term debt that is expected to be paid within the next year. 154. Goodwill would be reported in the ______________ section of a classified balance sheet. a. Current assets. b. Long-term liabilities. c. Long-term investments. d. Intangible assets.