Ch 4 Closing Entries and Income Summary in Accounting

1. 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. 2. Each of the following accounts is closed to Income Summary except a. Expenses. b. Owner’s Drawings. c. Revenues. d. All of these are closed to Income Summary. 3. Closing entries are made a. in order to terminate the business as an operating entity. b. so that all assets, liabilities, and owner’s capital accounts will have zero balances when the next accounting period starts. c. in order to transfer net income (or loss) and owner’s drawings to the owner’s capital account. d. so that financial statements can be prepared. 4. Closing entries are a. an optional step in the accounting cycle. b. posted to the ledger accounts from the worksheet. c. made to close permanent or real accounts. d. journalized in the general journal. 5. 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. 6. 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 owner’s capital account. b. debit to the owner’s drawings account. c. credit to the owner’s capital account. d. credit to the owner’s drawings account. 7. Which of the following is a true statement about closing the books of a proprietorship? 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 owner’s drawings account are closed to the Income Summary account. 8. In preparing closing entries a. each revenue account will be credited. b. each expense account will be credited. c. the owner’s capital account will be debited if there is net income for the period. d. the owner’s drawings account will be debited. 9. An error has occurred in the closing entry process if a. revenue and expense accounts have zero balances. b. the owner’s capital account is credited for the amount of net income. c. the owner’s drawings account is closed to the owner’s capital account. d. the balance sheet accounts have zero balances. 10. The Income Summary account is an important account that is used a. during interim periods. b. in preparing adjusting entries. c. annually in preparing closing entries. d. annually in preparing correcting entries. 11. 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 owner’s capital account. c. the ending balance in the owner’s capital account. d. zero. 12. The income statement for the month of June, 2016 of Snap Shot, Inc. contains the following information: Revenues Expenses: Salaries and Wages Expense Rent Expense Advertising Expense Supplies Expense Insurance Expense Total expenses Net income The entry to close the revenue account includes a a. debit to Income Summary for $2,000. b. credit to Income Summary for $2,000. c. debit to Income Summary for $7,300. d. credit to Income Summary for $7,300. $7,300 $3,000 1,300 700 200 100 5,300 $2,000 13. The income statement for the month of June, 2016 of Snap Shot, Inc. contains the following information: Revenues Expenses: Salries and Wages Expense Rent Expense Advertising Expense Supplies Expense Insurance Expense Total expenses Net income $7,300 $3,000 1,300 700 200 100 5,300 $2,000 At June 1, 2016, Snap Shot reported owner’s equity of $36,000. The company had no owner drawings during June. At June 30, 2016, the company will report owner’s equity of a. $30,700. b. $36,000. c. $38,000. d. $43,300. 14. The income statement for the year 2016 of Bugati Co. contains the following information: Revenues Expenses: Salaries and Wages Expense Rent Expense Advertising Expense Supplies Expense Utilities Expense Insurance Expense Total expenses Net income (loss) $73,000 $43,000 12,000 11,000 6,000 3,500 4,000 79,500 $ (6,500) The entry to close the expense accounts includes a a. debit to Income Summary for $6,500. b. credit to Income Summary for $6,500. c. debit to Income Summary for $79,500. d. debit to Utilities Expense for $3,500. 15.The income statement for the year 2016 of Bugati Co. contains the following information: Revenues Expenses: Salaries and Wages Expense Rent Expense Advertising Expense Supplies Expense Utilities Expense Insurance Expense Total expenses Net income (loss) $73,000 $43,000 12,000 11,000 6,000 3,500 4,000 79,500 $ (6,500) After all closing entries have been posted, the Income Summary account will have a balance of a. $0. b. $6,500 debit. c. $6,500 credit. d. $79,500 credit. 16. A post-closing trial balance is prepared a. after closing entries have been journalized and posted. b. before closing entries have been journalized and posted. c. after closing entries have been journalized but before the entries are posted. d. before closing entries have been journalized but after the entries are posted. 17. 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. 18. 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. 19. 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 20. 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 21. 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 22. 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. 23. 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. 24. Eastwood Post Pavillion received a $650 check from a customer for the balance due. The transaction was erroneously recorded as a debit to Cash $560 and a credit to Service Revenue $560. The correcting entry is a. debit Cash, $650; credit Accounts Receivable, $650. b. debit Cash, $90 and Accounts Receivable, $560; credit Service Revenue, $650. c. debit Cash, $90 and Service Revenue, $560; credit Accounts Receivable, $650. d. debit Accounts Receivable, $650; credit Cash, $90 and Service Revenue, $560. 25. 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. 26. Bonita Arcade paid the weekly payroll on January 2 by debiting Salaries and Wages Expense for $45,000. The accountant preparing the payroll entry overlooked the fact that Salaries and Wages Expense of $23,000 had been accrued at year end on December 31. The correcting entry is a. Salaries and Wages Payable............................................... 23,000 Cash......................................................................... 23,000 b. Cash.................................................................................... 22,000 Salaries and Wages Expense.................................. 22,000 c. Salaries and Wages Payable............................................. 23,000 Salaries and Wages Expense................................ 23,000 d. Cash.................................................................................... 23,000 Salaries and Wages Expense.................................. 23,000 27. Truffles Company paid $860 on account to a creditor. The transaction was erroneously recorded as a debit to Cash of $680 and a credit to Accounts Receivable, $680. The correcting entry is a. Accounts Payable................................................................ 860 Cash......................................................................... 860 b. Accounts Receivable........................................................... 680 Cash......................................................................... 680 c. Accounts Receivable........................................................... 680 Accounts Payable.................................................... 680 d. Accounts Receivable......................................................... 680 Accounts Payable.............................................................. 860 Cash........................................................................ 1,540 28. A lawyer collected $520 of legal fees in advance. He erroneously debited Cash for $250 and credited Accounts Receivable for $250. The correcting entry is a. Cash.................................................................................... 250 Accounts Receivable........................................................... 270 Unearned Service Revenue..................................... b. Cash.................................................................................... Service Revenue...................................................... c. Cash.................................................................................... Accounts Receivable......................................................... Unearned Service Revenue................................... d. Cash.................................................................................... Accounts Receivable................................................ 29. 520 520 520 270 250 520 270 270 On May 25, Mt. Hood Company received a $370 check from Douglas Fir for services to be performed in the future. The bookkeeper for Mt. Wood Company incorrectly debited Cash for $370 and credited Accounts Receivable for $370. The amounts have been posted to the ledger. To correct this entry, the bookkeeper should: a. debit Cash $370 and credit Unearned Service Revenue $370. b. debit Accounts Receivable $370 and credit Service Revenue $370. c. debit Accounts Receivable $370 and credit Cash $370. d. debit Accounts Receivable $370 and credit Unearned Service Revenue $370. 30. On March 8, Saltwater Taffy Company bought supplies on account from the Sweet Honey Company for $440. Saltwater Taffy Company incorrectly debited Equipment for $400 and credited Accounts Payable for $400. The entries have been posted to the ledger. The correcting entry should be: a. Supplies............................................................................... 440 Accounts Payable.......................................................... 440 b. Supplies............................................................................... 440 Accounts Payable.......................................................... 400 Equipment...................................................................... 40 c. Supplies............................................................................... 440 Equipment...................................................................... 440 d. Supplies.............................................................................. 440 Equipment.................................................................... 400 Accounts Payable........................................................ 40 31. The following information is for Central Avenue Real Estate: Central Avenue Real Estate Balance Sheet December 31, 2016 Cash Prepaid Insurance Accounts Receivable Inventory Land Held for Investment Land $ 25,000 40,000 50,000 80,000 75,000 120,000 Accounts Payable Salaries and Wages Payable Mortgage Payable Total Liabilities $ 60,000 25,000 85,000 170,000 Building Less Accumulated Depreciation Trademark Total Assets $110,000 (20,000) Owner’s Capital 90,000 70,000 $550,000 Total Liabilities and Owner’s Equity 380,000 $550,000 The total dollar amount of assets to be classified as property, plant, and equipment is a. $210,000. b. $230,000. c. $285,000. d. $315,000. 32. The following information is for Central Avenue Real Estate: Central Avenue Real Estate Balance Sheet December 31, 2016 Cash $ 25,000 Prepaid Insurance 40,000 Accounts Receivable 50,000 Inventory 80,000 Land Held for Investment 75,000 Land 120,000 Building $110,000 Less Accumulated Depreciation (20,000) 90,000 Trademark 70,000 Total Assets $550,000 Accounts Payable Salaries and Wages Payable Mortgage Payable Total Liabilities Owner’s Capital Total Liabilities and Owner’s Equity $ 60,000 25,000 85,000 170,000 380,000 $550,000 The total dollar amount of liabilities to be classified as current liabilities is a. $25,000. b. $60,000. c. $85,000. d. $170,000. 33. The following information is for Qwik Auto Supplies: Qwik Auto Supplies Balance Sheet December 31, 2016 Cash $ 45,000 Prepaid Insurance 80,000 Accounts Receivable 110,000 Inventory 140,000 Land Held for Investment 185,000 Land 250,000 Building $200,000 Less Accumulated Accounts Payable Salaries and Wages Payable Mortgage Payable Total Liabilities Owner’s Capital $ 140,000 60,000 150,000 350,000 750,000 Depreciation Trademark Total Assets (50,000) 150,000 140,000 $1,100,000 Total Liabilities and Owner’s Equity $1,100,000 The total dollar amount of assets to be classified as current assets is a. $125,000. b. $235,000. c. $375,000. d. $560,000. 34. The following information is for Qwik Auto Supplies: Qwik Auto Supplies Balance Sheet December 31, 2016 Cash $ 45,000 Prepaid Insurance 80,000 Accounts Receivable 110,000 Inventory 140,000 Land Held for Investment 185,000 Land 250,000 Building $200,000 Less Accumulated Depreciation (50,000) 150,000 Trademark 140,000 Total Assets $1,100,000 Accounts Payable Salaries and Wages Payable Mortgage Payable Total Liabilities Owner’s Capital Total Liabilities and Owner’s Equity The total dollar amount of liabilities to be classified as current liabilities is a. $60,000. b. $140,000. c. $200,000. d. $350,000. $ 140,000 60,000 150,000 350,000 750,000 $1,100,000