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CHAPTER 4

COMPLETING THE ACCOUNTING CYCLE

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Chapter 4—Completing the Acconting C!cle

TRUE/FALSE

1. After analyzing transactions, the next step would be to post the transactions in the ledger.

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%. &he 'ost i'portant output of the accounting cycle is the financial state'ents.

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(. &he wor) sheet is not considered a part of the for'al accounting records.

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*. &he wor) sheet is a wor)ing paper that accountants can use to su''arize ad+usting entries

and the account balances for the financial state'ents.

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. n a co'puterized accounting syste', a wor) sheet 'ay not be necessary because thesoftware progra' auto'atically posts entries to the accounts and prepares financialstate'ents.

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-. &he trial balance 'ay be listed on the wor) sheet instead of being prepared separately.

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. &he totals of the Ad+usted &rial "alance colu'ns on a wor) sheet will always be the su' ofthe &rial "alance colu'n totals and the Ad+ust'ents colu'n totals.

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/. A wor) sheet heading is dated for a period of ti'e.

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0. !n the wor) sheet, the capital and drawing account balances are extended to the "alanceSheet colu'ns.

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1$.After the account balances hae been extended fro' the Ad+usted &rial "alance colu'ns on thewor) sheet, the difference between the initial totals of the "alance Sheet debit and creditcolu'ns is Net nco'e or Net 2oss.

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11. After Net nco'e or 2oss is entered on the wor) sheet, the debit colu'n total 'ust e3ual the

credit colu'n total for the "alance Sheet pair of colu'ns.

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1%. A net loss is shown on the wor) sheet in the credit colu'ns of both the nco'e State'entcolu'ns and the "alance Sheet colu'ns.

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1(. Net inco'e is shown on the wor) sheet in the nco'e State'ent debit colu'n and the"alance Sheet credit colu'n.

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1*. f the totals of the nco'e State'ent debit and credit colu'ns of a wor) sheet are 4%%,$and 4%,$$$, respectiely, after all account balances hae been extended, the a'ount of thenet loss is 4%,%$.

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1. &he wor)sheet and the financial state'ents both re3uire dollar signs.

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1-. 5ound tripping is a fraudulent sche'e where business A artificially inflates reenue bylending 'oney to custo'er " who uses that 'oney to buy products fro' A.

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1. &here is really no benefit in preparing financial state'ents in any particular order.

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1/. !n the inco'e state'ent, 'iscellaneous expenses are usually presented as the last ite'without regard to the dollar a'ount.

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6hapter *76o'pleting the Accounting 6ycle

10. &he usual presentation of the state'ent of owner8s e3uity is 91 "eginning capital, 9% Netinco'e or loss, 9( Drawing, 9* !wner8s contributions, 9 ;nding capital.

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%$. &he difference between a classified balance sheet and one that is not classified is that theclassified one has subheadings.

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%1. 6ash and other assets that 'ay reasonably be expected to be realized in cash, sold, orconsu'ed through the nor'al operations of a business, usually longer than one year, arecalled current assets.

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%%. <repaid nsurance is an exa'ple of a current asset.

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%(. 2and is an exa'ple of a plant asset.

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%*. 2iabilities that will be due within one year or less and that are to be paid out of currentassets are called current liabilities.

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%. &he a'ount of the net inco'e for a period appears on both the inco'e state'ent and the

balance sheet for that period.

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%-. Accrued taxes payable are generally reported on the balance sheet as a current liability.

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%. At the end of the fiscal period, prepaid expenses are reported on the nco'e State'ent asexpenses.

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%/. !ffice ;3uip'ent is an exa'ple of a current asset account.

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/0

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%0. 6apital and Drawing are reported in the owner8s e3uity section of the balance sheet.

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($. Deferred expenses that benefit a relatiely short period of ti'e are listed on the balancesheet as current assets.

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(1. =nearned reenues that will be earned in a relatiely short period of ti'e are listed on the balance sheet as current assets.

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(%. Accrued expenses are ordinarily listed on the balance sheet as current assets.

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((. Accrued reenues are ordinarily listed on the balance sheet as current liabilities.

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(*. &he balance in the capital account on the wor)sheet will e3ual the a'ount presented in the balance sheet.

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(. ;xa'ples of te'porary accounts are supplies and prepaid expenses which are in the ledgerfor +ust a short ti'e before they expire.

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(-. Accu'ulated Depreciation is a per'anent account.

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(. &he drawing account is a te'porary account.

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(/. &he balance sheet accounts are referred to as real or per'anent accounts.

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0$

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(0. Since the ad+ust'ents are entered on the wor) sheet, it is not necessary to record the' in the +ournal or post the' to the ledger.

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*$. #ournalizing and posting the ad+ust'ents and closing entries updates the ledger for the newaccounting period.

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*1. &he inco'e su''ary account is closed to the owner8s capital account.

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*%. &he accu'ulated depreciation account is closed to the inco'e su''ary account.

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*(. &he drawing account is closed to the inco'e su''ary account.

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**. &he trial balance prepared after all the closing entries hae been posted is called a pre>closing trial balance.

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*. ;ntries re3uired to close the balances of the te'porary accounts at the end of the period arecalled final entries.

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*-. n a sole proprietorship, a closing entry for the drawing account 'ay not be necessary.

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*. #ournalizing and posting closing entries 'ust be co'pleted before financial state'ents can be prepared.

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*/. During the closing process, so'e balance sheet accounts are closed to zero.

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*0. 6losing entries are entered directly on to the wor) sheet.

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01

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$. &he post>closing trial balance will generally hae fewer accounts than the trial balance.

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1. A post>closing trial balance contains only asset and liability accounts.

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%. A post>closing trial balance should be prepared before the financial state'ents are prepared.

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(. Any twele>'onth accounting period adopted by a co'pany is )nown as its fiscal year.

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*. A fiscal year that ends when business actiities hae reached their lowest point is called thenatural business year.

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. Solency is essentially the ability of an organization to pay its bills.

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-. ?or)ing capital is current assets plus current liabilities.

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. 6urrent ratio is current assets diided by current liabilities.

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/. 5eersing entries are re3uired of all ad+usting entries.

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0. ''ediately after the reersing entry for accrued salary has been posted, the salary expenseaccount will hae a credit balance.

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-$. &he use of reersing entries is optional.

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0%

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-1. ?hen reersing entries are 'ade, all accrual ad+ust'ents will be reersed.

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MULTIPLE CHOICE

1. n the accounting cycle, the last step isa. preparing the financial state'ents b. +ournalizing and posting the ad+usting entriesc. preparing a post>closing trial balanced. +ournalizing and posting the closing entries

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%. &he wor)sheeta. is an integral part of the accounting cycle b. eli'inates the need to rewrite the financial state'entsc. is a wor)ing paper that is re3uiredd. is used to su''arize account balances and ad+ust'ents for the financial state'ents

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(. ?hich one of the steps below is not aided by the preparation of the wor) sheet@a. preparing the ad+usted trial balance b. posting to the general ledger c. preparing the financial state'entsd. preparing the closing entries

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*. A wor) sheet includes colu'ns for a. ad+usting entries b. closing entriesc. reersing entriesd. both a and b

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. ?hen a wor) sheet is co'plete, the ad+ust'ent colu'ns should haea. total credits greater than total debits if a net inco'e was earned

b. total debits grater than total credits if a net loss was incurredc. total debits greater than total credits if a net inco'e was earnedd. total debits e3ual total credits

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0(

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-. &he difference between the totals of the debit and credit colu'ns of the Ad+usted &rial"alance colu'ns on a wor) sheeta. is the a'ount of net inco'e or loss b. indicates there is an error on the wor) sheetc. is not unusual when preparing the wor) sheetd. is the net difference between reenue, expenses, and drawing

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. Net inco'e appears on the wor) sheet in thea. debit colu'n of the "alance Sheet colu'ns b. debit colu'n of the Ad+ust'ents colu'nsc. debit colu'n of the nco'e State'ent colu'nsd. credit colu'n of the nco'e State'ent colu'ns

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/. A net loss appears on the wor) sheet in thea. debit colu'n of the "alance Sheet colu'ns

b. credit colu'n of the "alance Sheet colu'nsc. debit colu'n of the nco'e State'ent colu'nsd. credit colu'n of the Ad+ust'ents colu'ns

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0. After net inco'e is entered on the wor) sheet, the "alance Sheet debit and credit colu'ns'usta. be the sa'e a'ount as the total a'ount of the nco'e State'ent debit and credit

colu'ns b. e3ual each other c. be the sa'e a'ount as the total a'ount in the Ad+usted &rial "alance debit and

credit colu'nsd. not be e3ual to each other and need not be the sa'e total a'ounts as any other pair

of colu'ns on the wor) sheet

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1$. ?hich of the state'ents below indicates that a co'pany earned a net inco'e for the period@a. &he su' of the debits exceeds the su' of the credits in the "alance Sheet colu'ns

on the wor) sheet. b. &he su' of the credits exceeds the su' of the debits in the nco'e State'ent

colu'ns on the wor) sheet.

c. &he su' of the debits exceeds the su' of the credits in the nco'e State'entcolu'ns on the wor) sheet.d. 6ash inflows exceeded cash outflows.

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0*

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11. ?hich of the ite's below would appear in the nco'e State'ent colu'ns of the wor)sheet@a. ;3uip'ent b. =nearned Feesc. <repaid ;xpensed. Net 2oss

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1%. ?hich of the accounts below would appear in the balance sheet colu'ns of the wor)sheet@a. 5ent ;arned b. "ill #ones, Drawingc. =nearned 5eenued. "oth b and c

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1(. ?hich of the accounts below would appear in the "alance Sheet colu'ns of the wor) sheet@a. Serice 5eenue b. <repaid 5entc. Supplies ;xpensed. None of the Aboe

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1*. &he wor) sheet at the end of Septe'ber has 4*,$$$ in the "alance Sheet credit colu'n forAccu'ulated Depreciation. &he wor) sheet at the end of !ctober has 4*,$ in the "alanceSheet credit colu'n for Accu'ulated Depreciation. ?hat was the a'ount of the

depreciation expense ad+ust'ent for the 'onth of !ctober@a. a'ount can not be deter'ined b. 4*,$c. 4*,$$$d. 4$

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1. ?hich of the ite's below does not appear on the wor) sheet@a. ad+usting entries b. the unad+usted trial balance

c. closing entriesd. the drawing account

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0

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1-. An indication that the wor) sheet colu'ns are in balance and the wor) sheet is co'pleted isa. the word &otal is written at the botto' of each pair of colu'ns b. each pair of colu'ns is double underlinedc. each pair of colu'ns has the totals circledd. the final figures are written in in)

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1. After all of the account balances hae been extended to the "alance Sheet colu'ns of thewor) sheet, the totals of the debit and credit colu'ns are 4%,%$ and 4%1,/%, respectiely.?hat is the a'ount of net inco'e or net loss for the period@a. 4(,*% net inco'e b. 4%,%$ net lossc. 4(,*% net lossd. 4%1,/% net inco'e

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1/. After all of the account balances hae been extended to the nco'e State'ent colu'ns of

the wor) sheet, the totals of the debit and credit colu'ns are 4/,$$ and 40/,($$,respectiely. ?hat is the a'ount of the net inco'e or net loss for the period@a. 41$,/$$ net inco'e b. 41$,/$$ net lossc. 40/,($$ net inco'ed. 4/,$$ net loss

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10. !n !ctober 1, the co'pany pays rent for twele 'onths in adance and debits an assetaccount. At year end, the ad+usting entry on the wor) sheet woulda. increase an expense account

b. decrease a liability accountc. increase an asset accountd. decrease an expense account

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%$. !n August 1, a co'pany collects reenue in adance for the next twele 'onths and creditsa liability account. &he ad+usting entry at year end on the wor) sheet woulda. increase a liability account b. decrease an asset accountc. decrease a reenue account

d. decrease a liability accountANS: D DF: ( !"#: $%

0-

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%1. ?hen preparing the state'ent of owner8s e3uity, the beginning capital balance can always be founda. in the nco'e State'ent colu'ns of the wor) sheet b. in the state'ent of cash flowsc. in the general ledger d. in the "alance Sheet colu'ns of the wor) sheet

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%%. Accu'ulated Depreciation appears on thea. balance sheet in the current assets section b. balance sheet in the fixed assets sectionc. balance sheet in the long>ter' liabilities sectiond. inco'e state'ent as an operating expense

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%(. Notes 5eceiable due in (* days appear on thea. balance sheet in the current assets section

b. balance sheet in the fixed assets sectionc. balance sheet in the current liabilities sectiond. inco'e state'ent as an expense

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%*. =nearned Fees appear on thea. balance sheet in the current assets section b. balance sheet as a current liabilityc. balance sheet in the owner8s e3uity sectiond. inco'e state'ent as reenue

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%. ?hich one of the fixed asset accounts listed below will not hae a related contra assetaccount@a. !ffice ;3uip'ent b. 2andc. Deliery ;3uip'entd. "uilding

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%-. "alance sheet accounts

a. represent a'ounts accu'ulated during a specific period of ti'e b. are called real accountsc. hae zero balances after the closing entries hae been postedd. are e3ual to assets and liabilities

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0

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%. <repaid insurance is reported on the balance sheet as aa. current asset b. fixed assetc. current liabilityd. long>ter' liability

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%/. !n which financial state'ent will nco'e Su''ary be shown@a. State'ent of !wner8s ;3uity b. "alance Sheetc. nco'e State'entd. No financial state'ent

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%0. Ad+usting entries are dated in the +ournal as of a. the date they are actually +ournalized b. the last day of the accounting period

c. the first day of the accounting periodd. the 'iddle of the accounting period

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($. Ad+usting entriesa. need not be +ournalized since they appear on the wor) sheet b. need not be posted if the financial state'ents are prepared fro' the wor) sheetc. are not needed if reersing entries are preparedd. 'ust be +ournalized and posted

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(1. 6losing entriesa. need not be +ournalized if reersing entries are prepared b. need not be posted if the financial state'ents are prepared fro' the wor) sheetc. are not needed if ad+usting entries are preparedd. 'ust be +ournalized and posted

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(%. 6losing entries are dated in the +ournal as of a. the date they are actually +ournalized, although they are generally prepared after

the end of the accounting period b. the last day of the accounting period, although they are actually +ournalized after

the end of the accounting periodc. the first day of the accounting period, although they are actually +ournalized after

the end of the accounting periodd. the first day of the subse3uent accounting period

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0/

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((. ?hich of the accounts below would be closed by 'a)ing a debit to the account@a. =nearned 5eenue b. Fees ;arnedc. #eff 5itter, Drawingd. 5ent ;xpense

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(*. ?hich of the following accounts should be closed to nco'e Su''ary at the end of thefiscal year@a. Supplies ;xpense b. Accu'ulated Depreciationc. <repaid nsuranced. =nearned 5ent

ANS: A DF: % !"#: $*

(. ?hich of the following accounts will not be closed to nco'e Su''ary at the end of thefiscal year@

a. Salaries ;xpense b. Fees ;arnedc. =nearned 5entd. Depreciation ;xpense

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(-. ?hich of the following accounts will be closed to the 6apital account at the end of the fiscalyear@a. 5ent ;xpense b. Fees ;arnedc. nco'e Su''ary

d. Depreciation ;xpense

ANS: 6 DF: % !"#: $*

(. &he entry to close the appropriate insurance account at the end of the accounting period isa. debit nco'e Su''aryB credit <repaid nsurance b. debit <repaid nsuranceB credit nco'e Su''aryc. debit nsurance ;xpenseB credit nco'e Su''aryd. debit nco'e Su''aryB credit nsurance ;xpense

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(/. ?hich of the following accounts ordinarily appears in the post>closing trial balance@a. "ill S'ith, Drawing b. Supplies ;xpensec. Fees ;arnedd. =nearned 5ent

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00

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(0. &he post>closing trial balance differs fro' the ad+usted trial balance in that ita. does not ta)e into account closing entries b. does not ta)e into account ad+usting entriesc. does not include balance sheet accountsd. does not include inco'e state'ent accounts

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*$. &he following accounts were ta)en fro' the Ad+usted &rial "alance colu'ns of the wor)sheet:Accu'ulated Depreciation 4 %,$$$Fees ;arned 1,$$$Depreciation ;xpense 1,$$$nsurance ;xpense $$<repaid nsurance *,$$Supplies 1,%$$Supplies ;xpenses (,$$

Net inco'e for the period is

a. 4%,($$ b. 41$,$$$c. 4*,($$d. 4,$$$

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*1. A su''ary of selected ledger accounts appear below for &ed8s Auto Serices for the %$$calendar year end.

&ed, 6apital

1%C(1 ,$$$ 1C1 ,$$$1%C(1 1,$$$

&ed, Drawing

-C($ %,$$$ 1%C(1 ,$$$11C($ ,$$$

nco'e Su''ary

1%C(1 1,$$$ 1%C(1 (%,$$$1%C(1 1,$$$

Net inco'e for the period isa. 41,$$$ b. 4%%,$$$c. 4,$$$d. 41,$$$

ANS: A DF: ( !"#: $*

1$$

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*%. A fiscal year a. ordinarily begins on the first day of a 'onth and ends on the last day of the

following twelfth 'onth b. for a business is deter'ined by the federal goern'entc. always begins on #anuary 1 and ends on Dece'ber (1 of the sa'e year d. should end at the height of the business8s annual operating cycle

ANS: A DF: ( !"#: $

*(. &he ability of a co'pany to pay its debts is calleda. wor)ing capital b. current ratioc. return on inest'entd. solency

ANS: D DF: 1 !"#: $-

**. A current ratio of *.( 'eans thata. there are 4*.($ in current assets aailable to pay each dollar of current liabilities

b. the co'pany cannot pay its debts as they co'e duec. there are 4*.($ in current assets for eery 4*.($ in current liabilitiesd. there are 4* in current assets for eery 4( in current liabilities

ANS: A DF: * !"#: $-

*. 5eersing entries area. re3uired by generally accepted accounting principles b. 'ade for all deferred ad+usting entriesc. 'ade at the end of the accounting period prior to the closing entriesd. 'ade at the beginning of the accounting period

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*-. A reersing entry reerses a9na. closing entry b. transaction entryc. ad+usting entryd. correcting entry

ANS: 6 DF: % !"#: App

*. f reersing entries are used, which of the ad+usting entries below should be reersed@

a. nsurance ;xpense, debit: <repaid nsurance, credit b. =nearned 5eenue, debitB Fees ;arned, creditc. !ffice Supplies ;xpense, debitB !ffice Supplies, creditd. Accounts 5eceiable, debitB Fees ;arned, credit

ANS: D DF: ( !"#: App

1$1

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*/. 5eersing entries should be 'ade for a. ad+usting entries recording depreciation b. ad+usting entries for all deferralsc. ad+usting entries recording salariesd. all of the aboe

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PROBLEM

1. &he balances for the accounts listed below appeared in the Ad+usted &rial "alance colu'nsof the wor) sheet. ndicate whether each balance should be extended to 9a the nco'eState'ent colu'ns or 9b the "alance Sheet colu'ns.91 Salaries <ayable 9 Ei' 2ee, Drawing 9% Fees ;arned 9/ ;3uip'ent 9( Accounts <ayable 90 Accounts 5eceiable 9* Ei' 2ee, 6apital 91$ Accu'ulated Depreciation

9 Supplies ;xpense 911 Salary ;xpense 9- =nearned 5ent 91% Depreciation ;xpense

ANS:

9a nco'e state'ent: %, , 11, 1%9b "alance sheet: 1, (, *, -, , /, 0, 1$

DF: 1 !"#: $%

%. ndicate whether each of the following would be reported in the financial state'ents as a9n

9a current asset, 9b current liability, 9c reenue, or 9d expense:91 Supplies 9 Supplies ;xpense 9% =nearned Fees 9- <repaid nsurance 9( <repaid Adertising 9 Accounts <ayable 9* Adertising ;xpense 9/ Fees ;arned

ANS:

91 current asset9% current liability9( current asset

9* expense9 expense9- current asset9 current liability9/ reenue

DF: % !"#: $(

1$%

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(. &he following accounts were ta)en fro' the Ad+usted &rial "alance colu'ns of the wor)sheet for #une ($, %$$ for "rodie 6o.:

Accu'ulated Depreciation 4 %,$$$Fees ;arned /,$$$Depreciation ;xpense 0,$$5ent ;xpense **,$$$<repaid nsurance ,$$$Supplies $$Supplies ;xpense %,$$

<repare an inco'e state'ent.

ANS:

"rodie 6o.nco'e State'ent

For the ear ;nded #une ($, %$$

Fees earned 4/,$$$;xpenses: 5ent expense 4**,$$$ Depreciation expense 0,$$ Supplies expense %,$$ &otal expenses -,$$$ Net inco'e 4%0,$$$

GGGGGGG

DF: % !"#: $(

*. &he following reenue and expense account balances were ta)en fro' the nco'e State'entcolu'ns of the wor) sheet for Harion Serices 6o. for Dece'ber (1, %$$:

Depreciation ;xpense 4 ,0$nsurance ;xpense (,0$$Hiscellaneous ;xpense %,%$$5ent ;xpense (*,$$$Serice 5eenue 1$%,$$Supplies ;xpense *,1$=tilities ;xpense -,$$$?ages ;xpense (,$

<repare an inco'e state'ent.

1$(

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ANS:

Harion Serices 6o.nco'e State'ent

For the ear ;nded Dece'ber (1, %$$

Serice reenue 4 1$%,$$

!perating expenses: ?ages expense 4(,$ 5ent expense (*,$$$ =tilities expense -,$$$ Depreciation expense ,0$ nsurance expense (,0$$ Supplies expense *,1$ Hiscellaneous expense %,%$$ &otal operating expenses 1$0,0$ Net loss 49,*$

GGGGGGGG

DF: % !"#: $(

. Selected ledger accounts appear below for 6onstruction Serices for %$$.Flynn, 6apital Flynn, Drawing

1%C(1 1,$$$ 1C1 %$,$$$ (C(1 1%,$$$ 1%C(1 1,$$$1%C(1 *,$$$ 1%C%% (,$$$

nco'e Su''ary

1%C(1 10,$$$ 1%C(1 -*,$$$

1%C(1 *,$$$

<repare a state'ent of owner8s e3uity.

ANS:

6onstruction SericesState'ent of !wner8s ;3uity


Flynn, capital, 1C1C%$$ 4%$,$$$

Net inco'e 4 *,$$$2ess withdrawals 1,$$$ncrease in ownerIs e3uity ($,$$$Flynn, capital, 1%C(1C%$$ 4$,$$$

GGGGGGG

DF: ( !"#: $(

1$*

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-. &he following data were ta)en fro' the "alance Sheet colu'ns of the wor) sheet forSepte'ber ($, %$$ for 6layton 6o'pany:

Accu'ulated Depreciation>&ruc)s 4%,$$$<repaid 5ent *,$$$Supplies $$=nearned Fees *,($$&ruc)s %0,$$$6ash %,$$$6layton, 6apital @

<repare a classified balance sheet.

ANS:

6layton 6o'pany"alance Sheet

Septe'ber ($, %$$

Assets 2iabilities6urrent assets: 6ash 4 %,$$$ 6urrent liabilities: Supplies $$ =nearned fees 4 *,($$ <repaid rent *,$$$ &otal current assets 4 -,$$ !wner8s ;3uity<roperty, plant, ande3uip'ent:

6layton, capital -,%$$

&ruc)s 4%0,$$$ &otal liabilities andowner8s e3uity 41$,$$

2ess accu'. GGGGGGG depreciation %,$$$ &otal prop> erty, plant and e3uip'ent&otal assets *,$$$

41$,$$GGGGGGG

DF: ( !"#: $(

1$

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. ndicate whether each of the following would be reported in the section of financialstate'ents identified as 9a current asset, 9b property, plant, and e3uip'ent, 9c currentliability, 9d reenue, or 9e expense:

91 Auto'obile 9% Accu'ulated depreciation 9( 5ent expense

9* Fees earned 9 Salaries payable 9- <repaid rent 9 Store supplies 9/ Adertising expense 90 =nearned rent

ANS:

91 property, plant, and e3uip'ent9% property, plant, and e3uip'ent

9( expense9* reenue9 current liability9- current asset9 current asset9/ expense90 current liability

DF: % !"#: $(

/. &he balances in the ledger of 2andscape Serices as of Dece'ber (1, %$$ before

ad+ust'ents, are as follows:6ash 4 *,$$ &i' ?elch, 6apital 4((,$$Supplies *,1$ &i' ?elch, Drawing %,0$$<repaid nsurance /,$$ Serice 5eenue %,$$;3uip'ent *%,$$$ Salary ;xpense %-,-$$Accu'ulated 5ent ;xpense ,$$$ Depreciation 1$,%$$ Hiscellaneous ;xpense 1,0$$

Ad+ust'ent data are as follows: supplies on hand, Dece'ber (1, 41,$$$B insurance expiredfor Dece'ber, 40$$B depreciation on e3uip'ent for Dece'ber, 41,$$B salaries accrued,Dece'ber (1, 41,$$$.

9a <repare a ten>colu'n wor) sheet for 2andscape Serices for Dece'ber,%$$.9b !n the basis of the wor) sheet in 9a, present the following in good order:

91 inco'e state'ent, 9% state'ent of owner8s e3uity 9no additionalinest'ents were 'ade during the 'onth, and 9( balance sheet.

9c !n the basis of the wor) sheet in 9a, +ournalize the closing entries as ofDece'ber (1, %$$.

1$-

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ANS:9a

2andscape Serices?or) Sheet

For the Honth ;nded Dece'ber (1, %$$

&rial "alance Ad+ust'ents Account &itle Dr. 6r. Dr. 6r.

6ash *,$$ ..... ..... ..... Supplies *,1$ ..... ..... 9a (,1$ <repaid nsurance /,$$ ..... ..... 9b 0$$ ;3uip'ent *%,$$$ ..... ..... ..... Accu'ulated Depreciation ..... 1$,%$$ ..... 9c 1,$$ &i' ?elch, 6apital ..... ((,$$ ..... ..... &i' ?elch, Drawing %,0$$ ..... ..... ..... Serice 5eenue ..... %,$$ ..... ..... Salary ;xpense %-,-$$ ..... 9d 1,$$$ ..... 5ent ;xpense ,$$$ ..... ..... ..... Hiscellaneous ;xpense 1,0$$ ..... ..... .....

0,$ 0,$

Supplies ;xpense ..... ..... 9a (,1$ ..... nsurance ;xpense ..... ..... 9b 0$$ ..... Depreciation ;xpense ..... ..... 9c 1,$$ ..... Salaries <ayable ..... ..... ..... d 1,$$$ Net nco'e -,$ -,$ 9 Ad+usted9&rial "alance nco'e State'ent "alance Sheet9 Dr. 6r. Dr. 6r. Dr. 6r.99 *,$$ ..... ..... ..... *,$$ .....9 1,$$$ ..... ..... ..... 1,$$$ .....9 ,/$$ ..... ..... ..... ,/$$ .....9*%,$$$ ..... ..... ..... *%,$$$ .....9 ..... 11,$$ ..... ..... ..... 11,$$9 ..... ((,$$ ..... ..... ..... ((,$$9 %,0$$ ..... ..... ..... %,0$$ .....9 ..... %,$$ ..... %,$$ ..... .....9%,-$$ ..... %,-$$ ..... ..... .....9 ,$$$ ..... ,$$$ ..... ..... .....9 1,0$$ ..... 1,0$$ ..... ..... .....9 (,1$ ..... (,1$ ..... ..... .....9 0$$ ..... 0$$ ..... ..... .....9 1,$$ ..... 1,$$ ..... ..... .....9 ..... 1,$$$ ..... ..... ..... 1,$$$90/,%$ 0/,%$ *$,$$ %,$$ /,%$$ *,$9GGGGGG GGGGGG 1%,*$ ...... ...... 1%,*$9 %,$$ %,$$ /,%$$ /,%$$9 GGGGGG GGGGGG GGGGGG GGGGGG

1$

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9b 91

2andscape Sericesnco'e State'ent


Serice reenue 4%,$$

!perating expenses: Salary expense 4%,-$$ 5ent expense ,$$$ Supplies expense (,1$ Depreciation expense 1,$$ nsurance expense 0$$ Hiscellaneous expense 1,0$$ &otal operating expenses *$,$$ Net inco'e 41%,*$

GGGGGGG

9%

2andscape SericesState'ent of !wner8s ;3uity


&i' ?elch, capital, Dece'ber 1, %$$ 4((,$$ Net inco'e for the 'onth 41%,*$2ess withdrawals %,0$$ncrease in owner8s e3uity 0,$&i' ?elch, capital, Dece'ber (1, %$$ 4*%,-$$

GGGGGGG

1$/

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9(

2andscape Serices"alance Sheet

Dece'ber (1, %$$

Assets 2iabilities6urrent assets: 6ash 4 *,$$ 6urrent liabilities: Supplies 1,$$$ Salaries payable 4 1,$$$ <repaid insurance ,/$$ &otal current assets 41(,($$ !wner8s ;3uity

&i' ?elch, capital *%,-$$<roperty, plant, and e3uip'ent:

&otal liabilitiesand owner8s e3uity 4*(,-$$

;3uip'ent... 4*%,$$$ GGGGGGG

2ess accu'ulated depreciation 11,$$ &otal property, plant, and e3uip'ent ($,($$&otal assets 4*(,-$$

GGGGGGG

9c

6losing ;ntries#an. (1 Serice 5eenue %,$$ nco'e Su''ary %,$$

(1 nco'e Su''ary *$,$$ Salary ;xpense %,-$$ 5ent ;xpense ,$$$ Hiscellaneous ;xpense 1,0$$ Supplies ;xpense (,1$ nsurance ;xpense 0$$ Depreciation ;xpense 1,$$

(1 nco'e Su''ary 1%,*$

&i' ?elch, 6apital 1%,*$

(1 &i' ?elch, 6apital %,0$$ &i' ?elch, Drawing %,0$$

DF: !"#: $(, $*

1$0

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0. !n the basis of the following data ta)en fro' the Ad+usted &rial "alance colu'ns of thewor) sheet for the year ended !ctober (1 for Shore 6o., +ournalize the four closing entries.

6ash 4 %1,$$Accounts 5eceiable *,%$$Supplies ,$$$;3uip'ent 1-0,0$$

Accu'ulated Depreciation 4 -0,$$$Accounts <ayable *%,$$Stan Shore, 6apital 1%,-$$Stan Shore, Drawing ($,$$$Fees ;arned *$*,$$Salary ;xpense ($$,$$5ent ;xpense -$,$$$Depreciation ;xpense %,$$$Supplies ;xpense 0,$$Hiscellaneous ;xpense %,$$$

4--/,-$$ 4--/,-$$GGGGGGGG GGGGGGGG

ANS:

!ct. (1 Fees ;arned *$*,$$ nco'e Su''ary *$*,$$

(1 nco'e Su''ary (0,$$$ Salary ;xpense ($$,$$ 5ent ;xpense -$,$$$ Depreciation ;xpense %,$$$

Supplies ;xpense 0,$$ Hiscellaneous ;xpense %,$$$

(1 nco'e Su''ary ,$$ Stan Shore, 6apital ,$$

(1 Stan Shore, 6apital ($,$$$ Stan Shore, Drawing ($,$$$

DF: ( !"#: $*

11$

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1$. After all ad+ust'ents hae been 'ade, but before the accounts hae been closed, thefollowing balances were ta)en fro' the ledger:

Accounts <ayable 4 *$,$$$ 5ent ;xpense 4 %1,*$$Accounts 5eceiable *,$$ Salary ;xpense --,$$$Accu'ulated Depreciation /(,(% Salaries <ayable 1$6ash ,1$ Serice 5eenue 11,$$$Depreciation ;xpense %(,$$ Supplies %,$$;3uip'ent 1,$$$ Supplies ;xpense (,$$nsurance ;xpense /,-$$ 5ay Felon, 6apital 1$$,0$<repaid nsurance ,% 5ay Felon, Drawing %/,$$$

#ournalize the entries to close the appropriate accounts.

ANS:

Serice 5eenue 11,$$$ nco'e Su''ary 11,$$$

nco'e Su''ary 1%(,$$$ Depreciation ;xpense %(,$$ nsurance ;xpense /,-$$ 5ent ;xpense %1,*$$ Salary ;xpense --,$$$ Supplies ;xpense (,$$

nco'e Su''ary %/,$$$ 5ay Felon, 6apital %/,$$$

5ay Felon, 6apital %/,$$$

5ay Felon, Drawing %/,$$$

DF: ( !"#: $*

111

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11. &he following balance sheet contains errors.

"illy "rown Serices 6o."alance Sheet


Assets 2iabilities6urrent assets: 6urrent liabilities: 6ash 4 -,1$ Accounts receiable 4 0,$$$ Accounts payable /,$$ Accu'. depr>building 1(,% Supplies 1,0$ Accu'. depr>e3uip'ent -,(*$ <repaid insurance (* Net inco'e 1%,$$ 2and %,$$$ &otal current assets 4*1,-$ &otal liabilities 4 *1,(-

!wner8s ;3uity<roperty, plant, and

e3uip'ent:

?ages payable 4 $$

"uilding 4*,$$ "illy "rown, capital *,*0$ ;3uip'ent %/,%$ &otal owner8s e3uity 4 *,00$ &otal property,

plant,and e3uip'ent

(,$

&otal liabilities and&otal assets 411-,( owner8s e3uity 411-,(

GGGGGGGG

GGGGGGGG

9a 2ist the errors in the balance sheet aboe and 9b prepare a corrected balancesheet.

ANS:

9a 91 Date of state'ent should be Dece'ber (1, %$$ and not For the ear;nded Dece'ber (1, %$$.9% Accounts payable should be a current liability.9( 2and should be a fixed asset.9* Accu'ulated depreciation should be deducted fro' the related fixedasset.9 An adding error was 'ade in deter'ining the a'ount of total assets.9- Accounts receiable should be a current asset.9 Net inco'e would be reported on the inco'e state'ent.9/ ?ages payable should be a current liability.

11%

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A corrected balance sheet would be as follows:

"illy "rown Serices 6o."alance Sheet

Dece'ber 1(, %$$

Assets 6urrent assets: 6ash 4 -,1$ Accounts receiable 0,$$$ Supplies 1,0$ <repaid insurance (* &otal current assets 41,1$ <roperty, plant, and e3uip'ent: 2and 4%,$$$ "uilding 4*,$$ 2ess accu'. depreciation 1(,% (1,0 ;3uip'ent %/,%$ 2ess accu'. depreciation -,(*$ %1,01$ &otal property, plant, and e3uip'ent /,// &otal assets 40,00$

GGGGGGG

9 2iabilities96urrent liabilities:9 Accounts payable 4 /,$$9 ?ages payable $$9&otal liabilities 4 0,$$$99 !wner8s ;3uity9"illy "rown, capital /-,00$99&otal liabilities and9 owner8s e3uity 40,00$

GGGGGGG

DF: * !"#: $(

11(

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1%. <rior to ad+ust'ent at #uly (1, %$$, Salary ;xpense has a debit balance of 4($$,$$.Salaries owed but not paid as of the sa'e date total 41,$$.

9a <resent the entries to record the following:

91 Accrued salaries as of #uly (1.

9% 6losing of Salary ;xpense as of #uly (1.9( 5eersal of ad+usting entry as of August 1.9* <ay'ent of wee)ly salaries of 40,0$$ on August (.

9b Answer the following 3uestions:

91 s the balance in Salary ;xpense, after posting the entry of August 1, anasset, a liability, a reenue, or an expense@

9% ?hat is the a'ount of the balance in Salary ;xpense after posting the entryof August (@

9( f there had been no reersing entry as of August 1, what would the debitshae been when the wee)ly salary was paid on August (@

ANS:9a

91 Salary ;xpense 1,$$ Salaries <ayable 1,$$

9% nco'e Su''ary ($%,$$$ Salary ;xpense ($%,$$$

9( Salaries <ayable 1,$$ Salary ;xpense 1,$$

9* Salary ;xpense 0,0$$ 6ash 0,0$$

9b

91 A liability9% 4/,*$$ 940,0$$ > 41,$$9( Salaries <ayable, 41,$$ Salary ;xpense, 4/,*$$

DF: % !"#: $*, App

11*

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1(. 2ist in order the seen steps of the accounting cycle in a 'anual accounting syste'.

ANS:

91 &ransactions are analyzed and recorded in the +ournal.9% &ransactions are posted to the ledger.9( A trial balance is prepared, ad+ust'ent data are asse'bled, and the wor)

sheet is co'pleted.9* Financial state'ents are prepared.9 Ad+usting entries are +ournalized and posted to the ledger.9- 6losing entries are +ournalized and posted to the ledger.9 A post>closing trial balance is prepared.

DF: % !"#: $1

1*. 6o'pute wor)ing capital and the current ratio fro' the following infor'ation.

5oy 5eed, 6onsultant"alance Sheet

Dece'ber (1, %$$

6ash 4$Accounts receiable /<repaid insurance 1%2and %"uilding 1%;3uip'ent 1*&otal assets 41%1

GGG

Accounts payable 4 0?ages payable Hortgage payable 9long ter' $5oy 5eed, capital &otal liabilities and owner8s e3uity 41%1

GGG

ANS:?or)ing 6apital: 4$ > 41* G 4-6urrent 5atio: 4$ J 41* G

DF: ( !"#: $-

11

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92eft blan) intentionally

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