intmod4

MODULE 4ADJUSTING AND CLOSING ENTRIES - ACCRUALS

Demonstration Problem 1Anderson Architects

The transactions for the year 2000 for Anderson Architects have already been recorded. This problem shows how to prepare adjusting entries for December 2000.

Dec. 31 A note payable of $6,000 has been outstanding since September 1, 2000. Under the terms of the note, the note plus interest (12%) is to be paid on March 1, 2001. No interest has been recorded on the note.

Dec. 31 Wages of $650 for December will be paid in January.

Dec. 31 Services were performed for a client for $800. The client has not been billed yet.

Dec. 31 Advertising costs of $105 for December will be paid in January.

DATE ACCOUNT DEBIT CREDIT2000

Dec. 31 Interest Expense Interest Payable

240240

Dec. 31 Wages Expense Wages Payable

650650

Dec. 31 Accounts Receivable Service Revenue

800800

Dec. 31 Advertising Expense Accounts Payable

105105

98

Practice Problem 1Comfort Furniture Company

The transactions for the year 2000 for Comfort Furniture Co. have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for Comfort Furniture Co. for December 2000.

Dec. 31 Wages owed but unpaid at the end of December were $5,000.

Dec. 31 The company signed a 12%, six-month note for $6,000 on November 1, 2000. No interest has been recorded for November and December.

Dec. 31 Service provided to a customer for $350 has not been recorded.

Dec. 31 Advertising cost of $90 for December has not been recorded.



5,0005,000


120120


350350


9090

99

Practice Assignment 2Conway Floor Covering Incorporated

The transactions for Conway Floor Covering Inc. for the year 2000 have been recorded in the accounting system. This assignment requires you to record the adjusting entries for December 2000.

Dec. 31 Performed services for a client for $850. The customer will be billed in January.

Dec. 31 $15,000 was borrowed by signing a 10%, 2 year note on September 1, 2000. Record the interest on the note.

Dec. 31 Employee wages of $950 for December will be paid in January.




850850


500500


950950


9595

100

Homework Problem 1Gym on Wheels

Gym on Wheels provides gymnastics lessons at various daycare centers. The transactions for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000.

Dec. 31 The note payable of $8,000 has been outstanding since July 1, 2000. Under the terms of the note, the note plus interest (12%) is to be paid on July 1, 2001. No interest has been recorded on the note.

Dec. 31 Instructors’ salaries of $2,000 for December will be paid in January.

Dec. 31 December fees of $160 will be collected in January.

Dec. 31 $85 will be paid in January for advertising in December.



480480

Dec. 31 Salaries Expense Salaries Payable

2,0002,000


160160


8585

101

Homework Problem 2Borden Realty

The transactions for Borden Realty for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000.

Dec. 31 Services provided to customers for $2,600 were unrecorded at the end of December.

Dec. 31 $115 will be paid in January for advertising in December.

Dec. 31 $1,080 of salaries earned by employees during December will be paid in January.

Dec. 31 The note payable of $12,000 has been outstanding since September 1, 2000. Under the terms of the note, the note plus interest (10%) is to be paid on September 1, 2001. No interest has been recorded on the note.



2,6002,600


115115


1,0801,080


400400

102

Homework Problem 3Party Town Incorporated

The transactions for Party Town Inc. for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000.

Dec. 31 A birthday party was arranged in December. The customer will pay $200 in January.

Dec. 31 Party Town Inc. borrowed $20,000 by signing a 12%, 2 year note on July 1, 2000. Record the interest on the note.

Dec. 31 Employee wages of $750 for December will be paid in January.




200200


1,2001,200


750750


135135

103

Homework Problem 4Star Interior Designs

The transactions for Star Interior Designs for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000.

Dec. 31 Performed services for a client for $1,250. The customer will be billed in January.

Dec. 31 $10,000 was borrowed by signing a 12%, two year note on October 1, 2000. Record the interest on the note.

Dec. 31 Employee wages of $1,150 for December will be paid in January.




1,2501,250


300300


1,1501,150


115115

104

Homework QuizAccruals

1. An expense has not been paid and has not yet been recognized in the accounts by a routine entry. To properly adhere to the Matching Principle, which of the following is required:

a. Capital Stock entry b. Deferral entry c. Accrual entry d. Inventory entry

2. Warren, Inc. has wages that have been earned but not paid at the end of the accounting period. The entry to properly accrue Wages Expense includes:

a. Wages Payable, debit; Wages Income, credit b. Wages Income, debit; Wages Payable, credit c. Wages Payable, debit; Wages Expense, credit d. Wages Expense, debit; Wages Payable, credit

3. Warren, Inc. neglects to make the required adjusting entry for wages at the end of the accounting period. Which of the following statements reflect the impact of this oversight?

a. Salary Expense for the year is overstated. b. Liabilities at the end of the year are understated. c. Assets at the end of the year are understated. d. Owner's equity at the end of the year is understated.

4. Accrued Expenses usually appear on the Balance Sheet as: a. Cash

b. Liabilitiesc. Assets d. Capital Stock

5. Accrued Revenue is recorded when: a. Services have already been earned and recorded.

b. Services have already been paid for in cash and are expected to be earned in the upcoming accounting period.

c. Services have already been paid for in cash. d. Services have been earned but have not yet been recorded.

6. Accrued Revenue usually appears on the Balance Sheet as: a. Cash

b. Liabilities c. Assets d. Capital Stock

7. At December 31, 2002, interest expense of $960 is owed on a two-year bank note that will not be paid until July 2003, what is the appropriate accrual at the end of 2002?

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a. Interest Expense .................. 960Cash ..........................…….. 960

b. Interest Payable .................. 960Interest Expense ................. 960

c. Cash .............................. …. 960Interest Expense ..............… 960

d. Interest Expense .................. 960Interest Payable ..............… 960

8. Scott's Lawn Service borrowed $10,000 from 3rd National Bank on November 1, 2001. The loan is for a term of three years and carries a 10% rate of interest. Interest is due at the maturity of the loan. The entry to properly accrue 2001 Interest Expense should include:

a. A debit to Interest Expense and a credit to Interest Payable.b. A debit to Interest Expense and a credit to Cash.c. A debit to Interest Expense and a credit to Accounts Receivable.d. A debit to Interest Expense and a credit to Loan Receivable.

9. Scott's Lawn Service borrowed $10,000 from 3rd National Bank on November 1, 2001. The loan is for a term of three years and carries a 10% rate of interest. Interest is due at the maturity of the loan. To properly accrue interest expense in 2001, Scott should:

a. Do nothing as the loan is not due until November 2004.b. Recognize Interest Expense for 2 of the loan's 36-month term.c. Recognize Interest Expense for 12 of the loan's 36-month term.d. Recognize Interest Expense for 10 of the loan's 36-month term.

10. Scott's Lawn Service borrowed $10,000 from 3rd National Bank on November 1, 2001. The loan is for a term of three years and carries a 15% rate of interest. Interest is due at the maturity of the loan. To properly accrue interest expense in 2001, Scott should debit Interest Expense and credit Interest Payable for:

a. $1,500b. $1,000c. $ 500 d. $ 250

11. Scott's Lawn Service borrowed $10,000 from 3rd National Bank on November 1, 2001. The loan is for a term of three years and carries a 15% rate of interest. Interest is due at the maturity of the loan. To properly accrue interest expense in 2002, Scott should debit Interest Expense and credit Interest Payable for:

a. $1,500 b. $1,000 c. $ 500 d. $ 250

12. Sandra's Styling Salon, a Sole Proprietorship, pays weekly salaries of $5,000 each Friday for a five-day week ending on that day. The accrual required for a fiscal period ending on Thursday is:

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a. Debit Salaries Payable, $4,000; credit Cash, $4,000 b. Debit Salary Expense, $4,000; credit Drawing, $4,000 c. Debit Salary Expense, $4,000; credit Salaries Payable, $4,000 d. Debit Drawing, $4,000; credit Cash, $4,000

13. Sandra's Styling Salon, a Sole Proprietorship, pays weekly salaries of $8,000 each Friday for a five-day week ending on that day. The accrual required for a fiscal period ending on a Tuesday includes a debit to Salaries Expense and a credit to Salaries Payable for:

a. $1,600 b. $2,000 c. $3,000 d. $3,200

14. Sandra's Styling Salon, a Sole Proprietorship, pays weekly salaries of $5,000 each Friday for a five-day week ending on that day. If $4,000 is accrued as Salaries Payable in the current fiscal period, the payment of salaries on the first Friday of the next fiscal period will include a:

a. Debit to Salaries Expense for $4,000. b. Debit to Salaries Expense for $5,000. c. Debit to Salaries Payable for $5,000. d. Debit to Salaries Payable for $4,000.

15. Pace's Hardware, a Corporation, pays its employees each Friday for a five-day total workweek. The payroll is $12,000 per week. If the end of the accounting period occurs on a Wednesday, the adjusting entry to record Salaries Payable would include a:

a. Debit to Salary Expense of $4,800. b. Debit to Salary Expense of $6,000. c. Credit to Salaries Payable of $2,400. d. Credit to Salaries Payable of $7,200.

16. Rental Services, Inc. earned $2,000 of Rental Revenue in December 2001, but does not expect payment until January 2002. What is the appropriate accrual entry at December 31, 2001?

a. Debit Rent Receivable; credit Cash. b. Debit Rent Receivable; credit Rent Revenue. c. Debit Rent Revenue; credit Rent Receivable d. Debit Cash; credit Rent Revenue

17. Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of its calendar year. This process reveals that: 2,000 of Accounts Receivable outstanding at the beginning of December has been collected

and recorded. The December utility bill has not yet been paid. A phone call to the provider reveals that the

invoice will total $1,200 and will be mailed on January 4, 2002. Billing of $25,000 has been issued for the month. Services of $5,000 to Construction Experts were completed on December 30, 2001, but

billing will not be rendered until January 3, 2002.If Rental Services takes no action on any of the above items:a. Expenses for 2001 will be overstated by $1,200. b. Expenses for 2001 will be understated by $5,000. c. Expenses for 2002 will be overstated by $1,200.

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d. Expenses for 2002 will be understated by $5,000.

18. Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of its calendar year. This process reveals that: $2,000 of Accounts Receivable outstanding at the beginning of December has been collected



billing will not be rendered until January 3, 2002. If Rental Services takes no action on any of the above items:a. Revenues for 2001 will be overstated by $1,200. b. Revenues for 2001 will be understated by $5,000. c. Revenues for 2002 will be overstated by $1,200. d. Revenues for 2002 will be understated by $5,000.




billing will not be rendered until January 3, 2002.

If Rental Services takes no action on any of the above items:a. Assets for 2001 will be overstated by $1,200. b. Assets for 2001 will be understated by $5,000. c. Liabilities for 2001 will be overstated by $1,200. d. Liabilities for 2001 will be understated by $5,000.




billing will not be rendered until January 3, 2002.

Rental Services makes all appropriate accrual entries resulting from the above information. Revenues and expenses for the month of December, 2001 total:a. Revenues: $25,000; Expenses: $ -0- b. Revenues: $30,000; Expenses: $ 1,200c. Revenues: $25,000; Expenses: $ 1,200d. Revenues: $30,000; Expenses: $ -0-

108

21. Tony's Landscaping Service borrowed $5,000 from a bank by signing a 12%, one-year note on October 1, 2000. What is the amount of interest expense recognized on December 31, 2000?a. $600b. $150c. $200d. $0

22. Tony's Landscaping Service borrowed $5,000 from a bank by signing a 12%, one-year note on October 1, 2000. Interest is accrued on December 31, 2000, by:a. Crediting Interest Expense; debiting Cashb. Debiting Interest Expense; crediting Interest Payablec. Debiting Interest Expense; crediting Notes Payabled. Debiting Interest Expense; crediting Cash

23. Tony's Landscaping Service borrowed $5,000 from a bank by signing a 12%, one-year note on October 1, 2000. The total amount (including interest) of cash paid on October 1, 2001, to the bank is:a. $5,600b. $5,000c. $6,200d. $5,450

24. Tony's Landscaping Service borrowed $5,000 from a bank by signing a 12%, one-year note on October 1, 2000. The note and the interest are paid on October 1, 2001. However, interest for 2000 was accrued on December 31, 2000. When the note is repaid on October 1, 2001, Interest Expense is debited by:a. $0b. $600c. $450d. $150

25. A company pays its employees every Friday. The amount paid every week is $120 per day. September 30, 2000, is a Tuesday. The amount of salary accrued on September 30, 2000, is:a. $0b. $240c. $360d. $600

26. A company pays its employees every Friday. The amount paid every week is $600. September 30, 2000, is a Tuesday. The amount of salary paid on October 3, 2000 is:a. $0b. $240c. $360d. $600

109

27. A company pays its employees every Friday. The amount paid every week is $600. September 30, 2000, is a Tuesday. Assume that salaries for September were accrued on September 30. The amount of salaries expense recognized on October 3, 2000 is:a. $0b. $240c. $360d. $600

28. A company pays its employees every Friday. The amount paid every week is $600. September 30, 2000, is a Tuesday. Which of the following statements is true about the entry prepared on September 30, 2000?a. Salaries payable must be debited by $240b. Salaries Payable must be credited by $240c. Salaries Payable must be debited by $360d. Salaries Payable must be credited by $360

29. A company pays its employees every Friday. The amount paid every week is $600. September 30, 2000, is a Tuesday. Assume that salaries for September were accrued on September 30. Which of the following statements is true about the entry prepared on October 3, 2000?a. Salaries payable must be debited by $240b. Salaries Payable must be credited by $240c. Salaries Payable must be debited by $360d. Salaries Payable must be credited by $360

30. Accrued expenses occur when:a. Cash is paid before an expense is recognizedb. Cash is paid after an expense is recognizedc. An expense is recognized at the same time as the cash paymentd. A liability is decreased when the expense is recognized

110

MODULE 4ADJUSTING AND CLOSING ENTRIES - DEFERRALS

Demonstration Problem 1Anderson Architects

The transactions for the year 2000 for Anderson Architects have already been recorded. This problem shows how to prepare adjusting entries for Anderson Architects for December 2000.

Dec. 31 A computer was purchased on January 1, 1998 for $1,600. The useful life of the computer is 4 years.

Dec. 31 On October 1, 2000, Anderson Architects had paid $4,800 as rent for a six month period. This had been recorded as prepaid rent.

Dec. 31 The amount of supplies available at the end of December was $200. The amount of supplies at the beginning of the period was $450. $250 of supplies were purchased during the year.

Dec. 31 Furniture costing $3,000 was purchased on Jan 1, 1997. The useful life of the furniture is estimated to be 5 years.

Dec. 31 Services were provided to a customer for $450. The cash was collected in advance on November 28, 2000.


Dec. 31 Depreciation Expense Accumulated Depreciation

400400

Dec. 31 Rent Expense Prepaid Rent

2,4002,400

Dec. 31 Supplies Expense Supplies

500500


600600

Dec. 31 Unearned Revenue Service Revenue

450450

111

Practice Problem 1Comfort Furniture Company

The transactions for the year 2000 for Comfort Furniture Co. have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for Comfort Furniture for December 2000.

Dec. 31 The amount of supplies available at the end of December was $500. The amount of supplies at the beginning of the period was $1,100.

Dec. 31 On January 1, 1998, Comfort Furniture purchased a computer for $2,400. The estimated useful life of the computer is 4 years. Record the depreciation for the year 2000.

Dec. 31 On November 1, 2000, Comfort Furniture paid $2,400 as rent for a three month period. This had been recorded as prepaid rent.



600600


600600


1,6001,600

112

Practice Assignment 2Conway Floor Covering Incorporated

The transactions for Conway Floor Covering Inc. for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000.

Dec. 31 Services were provided to a customer for $550. The cash was collected in advance on December 10, 2000.

Dec. 31 On September 1, 2000, Conway Floor Covering Inc. had paid $5,400 as rent for a six month period. This had been recorded as prepaid rent.


Dec. 31 A computer was purchased on January 1, 1998, for $2,400. The useful life of the computer is 4 years.



550550


3,6003,600


210210


600600

113

Homework Problem 1Gym on Wheels

Gym on Wheels provides gymnastics lessons at various daycare centers. The transactions for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000.

Dec. 31 A number of children registered on December 1 and paid the month's fees in advance. These fees totaled $500 and unearned revenue was credited when the fees were paid.

Dec. 31 The amount of supplies available at the end of December was $500. The amount of supplies at the beginning of the period was $1,500.

Dec. 31 On January 1, 1998, Gym on Wheels had purchased a computer for $2,000. The estimated useful life of the computer is 4 years. Record the depreciation for 2000.

Dec. 31 On December 1, 2000, Gym on Wheels had paid $2,400 as rent for a three month period. This had been recorded as prepaid rent.



500500


1,0001,000


500500


800800

114

Homework Problem 2Borden Realty

The transactions for Borden Realty for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000.

Dec. 31 A computer was purchased for $1,600 on January 1, 1998. The useful life of the computer is 4 years.

Dec. 31 Furniture costing $4,800 was purchased on January 1, 2000. The useful life of the furniture is estimated to be 10 years and the salvage value is $800.

Dec. 31 The amount of supplies available at the end of December was $850. The amount of supplies at the beginning of the period was $1,000. $1,850 of supplies were purchased during 2000.

Dec. 31 On September 1, 2000, Borden Realty had paid $6,600 as rent for a six month period. This had been recorded as prepaid rent.



400400


400400


2,0002,000


4,4004,400

115

Homework Problem 3Party Town Incorporated

The transactions for Party Town Inc. for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000.

Dec. 31 Depreciation on the building owned by Party Town Inc. is estimated to be $12,500 for the period.

Dec. 31 Party Town Inc. purchased furniture for $4,200 on January 1, 1997. The estimated useful life of the furniture is seven years. Record the depreciation for 2000.

Dec. 31 Excess space in the building was rented to another business on October 1, 2000, and six months' rent of $7,200 was collected in advance.

Dec. 31 The amount of party supplies available at the end of December was $150. The amount of supplies at the beginning of the period was $200. $550 of supplies were purchased during 2000.



12,50012,500


600600

Dec. 31 Unearned Rent Revenue Rent Revenue

3,6003,600


600600

116

Homework Problem 4Star Interior Designs

The transactions for Star Interior Designs for the year 2000 have been recorded in the accounting system. This assignment requires you to record the adjusting entries for December 2000.

Dec. 31 Depreciation on a truck owned by Star Interior Designs is estimated to be $1,250 for the period.

Dec. 31 Furniture costing $3,600 was purchased on January 1, 1997. The estimated useful life of the furniture is six years. Record the depreciation for 2000.

Dec. 31 Six months' rent of $7,200 was paid in advance on October 1, 2000.




1,2501,250


600600


3,6003,600


500500

117

Homework QuizDeferrals

1. Rental Services, Inc. (RSI) records all advance rental receipts in the liability account, Unearned Rent. What entry does RSI make to record the receipt of these advance receipts?

a. Debit: Unearned Rent; Credit: Rent Revenueb. Debit: Cash; Credit: Unearned Rent c. Debit: Unearned Rent; Credit: Rent Expense d. Debit: Rent Expense; Credit: Cash

2. Advance payments for services are called: a. Unrecorded Revenues

b. Unrecorded Expenses c. Prepaid Expenses d. Unearned Revenues

3. The adjusting entry required to record depreciation on a building for the fiscal period consists of: a. Debit: Depreciation Expense; Credit: Building

b. Debit: Depreciation Expense; Credit: Accumulated Depreciation c. Debit: Accumulated Depreciation; Credit: Depreciation Expense d. Debit: Building; Credit: Depreciation

4. Depreciation Expense and Accumulated Depreciation are classified, respectively, as: a. Depreciation Expense: Expense; Accumulated Depreciation: Contra Asset

b. Depreciation Expense: Asset Deferral; Accumulated Depreciation: Contra Asset c. Depreciation Expense: Expense; Accumulated Depreciation: Asset d. Depreciation Expense: Contra Asset; Accumulated Depreciation: Expense

5. Caldwell Rentals receives rent for January 2002 from a tenant in December 2001. This payment will be:

a. A 2001 Revenue b. A 2002 Expense c. A 2001 Expense d. A 2001 Liability

6. Rental Services, Inc. (RSI) pays $5,700 for three years' rent on its Office Building on August 1, 2001. The entry to record this transaction involves which of the following account titles and classifications?

a. Debit: Prepaid Rent, Asset; Credit: Cash, Asset b. Debit: Cash, Asset; Credit: Unearned Rent, Asset c. Debit: Rent Expense, Expense; Credit: Cash, Asset d. Debit: Unearned Rent, Asset; Credit: Cash, Asset

7. Rental Services, Inc. (RSI) pays $7,500 for four years' rent on its Office Building on August 1, 2001. The adjusting entry required at December 31, 2001 is:

118

a. Debit: Prepaid Rent; Credit: Cash b. Debit: Rent Expense; Credit: Unearned Rent c. Debit: Rent Expense; Credit: Prepaid Rent d. Debit: Unearned Rent; Credit: Cash 

8. Rental Services, Inc. (RSI) pays $10,800 for three years' rent on its Office Building on August 1, 2001. The dollar amount of the adjusting entry required at December 31, 2001 and 2002 is:

a. December 21, 2001: $1,500; December 31, 2002: $3,600 b. December 21, 2001: $1,800; December 31, 2002: $1,800 c. December 21, 2001: $1,800; December 31, 2002: $3,600 d. December 21, 2001: $3,600; December 31, 2002: $3,600

9. Karl Company, a Sole Proprietorship, signed a two-year rental agreement on October 1, 2001, for $9,600. The agreement covers its building for the next two years. Karl debited Prepaid Rent to record the payment. The December 31, 2001 adjusting entry includes a credit to:

a. Rent Expense of $1,200 b. Rent Expense of $8,400 c. Prepaid Rent of $1,200 d. Prepaid Rent of $8,400

10. At the beginning of the year, the Unearned Rent account has a balance of $30,000. The Unearned Rent account balance at the end of the year is $6,000. Given this information, Rent Revenue for the current year must be:

a. $30,000 b. $24,000 c. $12,000 d. $ 6,000

11. The asset account, Supplies, has a balance of $1,950 at the beginning of the year and was debited during the year for $5,600, representing the total of supplies purchased during the year. If $1,500 of supplies is on hand at the end of the year, Supplies Expense reported on the income statement for the year is:

a. $1,500 b. $1,900 c. $5,600 d. $6,050

12. At the beginning of the period, Stenger, Inc. had $3,600 in the asset account, Supplies. During the period, it purchased $1,400 of additional items, debiting the Supplies asset account. At the end of the period, Stenger determined that only $1,200 of supplies were still on hand. What adjusting entry should Stenger, Inc. make at the end of the period?

a. Debit: Supplies .......................... 1,200 Credit: Supplies Expense ................ 1,200

b. Debit: Supplies .......................... 3,400 Credit: Supplies Expense ................ 3,400

c. Debit: Supplies Expense .................. 3,800 Credit: Supplies ........................ 3,800

d. Debit: Supplies Expense .................. 1,200 Credit: Supplies ........................ 1,200

119

13. The Unearned Revenue account before adjustment at the end of the month has a credit balance of $2,400, representing an advance payment received on the first day of the month. If $1,600 of Revenue is earned during the month, the balance in the Unearned Revenue at the end of the month, after adjustments, is:

a. $ 800 credit b. $1,600 credit c. $2,400 credit d. $4,000 credit

14. The Unearned Rent account has a beginning credit balance of $15,000. After adjusting entries at the end of the accounting period, $5,000 of the $15,000 is unearned. The adjusting entry required at the end of the period is:

a. Debit: Unearned Rent; Credit: Rent Revenue b. Debit: Cash; Credit: Unearned Rent c. Debit: Unearned Rent; Credit: Rent Expense d. Debit: Rent Expense; Credit: Cash

15. The Unearned Rent account has a beginning credit balance of $15,000. After adjusting entries at the end of the accounting period, $5,000 of the $15,000 is unearned. The amount of the adjusting entry required at the end of the period is:

a. $15,000 b. $10,000 c. $ 5,000 d. $ -0-

16. Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of its calendar year. This process reveals that: 2,000 of Accounts Receivable outstanding at the beginning of December has been collected

and recorded. The December bills have all been paid. Expenses total $15,500. Billing for December services amounted to $25,000. The adjusted balance in the Unearned Revenue account at the end of the month should be a

$10,000 credit. Its balance prior to adjustments was $18,000. Rental Services, Inc.'s Revenues for December, 2001 are: a. $25,000 b. $33,000 c. $35,000 d. $43,000

17. Failing to adjust an Unearned Revenue that has been partially earned and was originally recorded as a credit to Unearned Revenue will usually result in an:

a. Overstatement of Revenues and an overstatement of Liabilities b. Overstatement of Revenues and an understatement of Liabilities

120

c. Understatement of Revenues and an understatement of Liabilities d. Understatement of Revenues and an overstatement of Liabilities 

18. Copko Computer Services, a Sole Proprietorship, purchased new Computer Equipment for $52,000 on January 1, 2001. Copko assigned it a four-year life and a $6,000 salvage value. Depreciation Expense for 2001 amounts to:

a. $11,500 b. $13,000 c. $14,500 d. $15,000

19. Copko Computer Services, a Sole Proprietorship, purchased new Computer Equipment for $52,000 on January 1, 2001. Copko assigned it a four-year life and a $6,000 salvage value. Book Value at the end of 2001 is:

a. $46,500 b. $40,500 c. $34,500 d. $34,000

20. Copko Computer Services, a Sole Proprietorship, purchased new Computer Equipment for $52,000 on January 1, 2001. Copko assigned it a four-year life and a $6,000 salvage value. Depreciation Expense for 2003 and Accumulated Depreciation at the end of 2003 are:

a. Depreciation Expense: $11,500; Accumulated Depreciation: $11,500 b. Depreciation Expense: $23,000; Accumulated Depreciation: $23,000 c. Depreciation Expense: $11,500; Accumulated Depreciation: $34,500 d. Depreciation Expense: $23,000; Accumulated Depreciation: $34,500

21. A company purchased furniture for $2,800 on January 1, 1998. The useful life of the furniture is estimated to be seven years. The depreciation expense for 2000 is:a. $400b. $1,200c. $800d. $1,600

22. A company purchased furniture for $2,800 on January 1, 1998. The useful life of the furniture is estimated to be seven years. The balance in accumulated depreciation after posting the adjustments for 2000 is:a. $400b. $1,200c. $800d. $1,600

23. A company purchased furniture for $2,800 on January 1, 1998. The useful life of the furniture is estimated to be seven years. The book value of the furniture after posting the adjustments for 2000 is:a. $400b. $1,200

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c. $800d. $1,600

24. A company pays rent of $1,800 for three months in advance on November 1, 2000. Which of the following statements is true for the journal entry prepared on November 1?a. Rent Expense is debitedb. Prepaid Rent is debitedc. Prepaid Rent is creditedd. Cash is debited

25. A company pays rent of $1,800 for three months in advance on November 1, 2000. Which of the following statements is true for the journal entry prepared on December 31?a. Rent Expense is debitedb. Prepaid Rent is debitedc. Rent Expense is creditedd. Cash is credited

26. The balance in the Supplies account of a company on January 1, 2000 was $250. Supplies were purchased for $650 in 2000. The balance in the Supplies account on December 31, 2000, was $350. The Supplies Expense for 2000 was:a. $750b. $550c. $350d. $650

27. The balance in the Supplies account of a company on January 1, 2000 was $250. Supplies were purchased for $650 in 2000. The balance in the Supplies account on December 31, 2000, was $350. The Supplies Expense is recorded by:a. Debiting Supplies Expense; crediting Cashb. Debiting Supplies; crediting Cashc. Debiting Supplies Expense; crediting Suppliesd. Debiting Supplies; crediting Supplies Expense

28. A company sold subscriptions for six months on October 1, 2000. $600 was collected in advance from customers. Which of the following statements is true about the entry prepared on October 1?a. Revenue is creditedb. Cash is creditedc. Unearned Revenue is creditedd. Unearned Revenue is debited

29. A company collected $600 on October 1, 2000, from customers for magazine subscriptions for six months from that date. An adjusting entry is prepared on December 31, 2000, by:a. Debiting Unearned Revenue; crediting Cashb. Debiting Unearned Revenue; crediting Revenuec. Debiting Revenue; crediting Unearned Revenued. Debiting Accounts Receivable; crediting Revenue

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30. Which of the following statements is true about deferred revenues?a. A liability is increased when cash is collected in advanceb. A liability is decreased when cash is collected in advancec. A liability is increased when revenue is recognizedd. Revenue is recognized when cash is collected

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MODULE 4CLOSING ENTRIES

Demonstration Problem 1Clean-Rite Service

The transactions for Clean-Rite Service for March 2000 have been recorded in the accounting system. Clean-Rite Service is organized as a sole-proprietorship. This problem illustrates the preparation of closing entries for March 2000. The trial balance for March 31, 2000, is given below:

Clean-Rite ServiceTrial BalanceMarch 31, 2000

Account name Debit CreditCash $1,085Supplies 35Equipment 400Truck 1,000Notes Payable $1,750Lisa, Capital 500Lisa, Drawings 100Service Revenue 450Supplies Expense 80

$2,700 $2,700

Mar. 31 Close the revenue accounts.Mar. 31 Close the expense accounts.Mar. 31 Close the Income Summary account.Mar. 31 Close the Drawings account.

DATE ACCOUNT DEBIT CREDITMar. 31 Service Revenue

Income Summary450

450Mar. 31 Income Summary

Supplies Expense80

80Mar. 31 Income Summary

Lisa, Capital370

370Mar. 31 Lisa, Capital

Lisa, Drawings100

100

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Demonstration Problem 2

The transactions for Music Stop for April 2000 have been recorded in the accounting system. Music Stop is organized as a corporation. This problem illustrates the preparation of closing entries. The trial balance for April 30, 2000, is given below:

Music StopTrial BalanceApril 30, 2000

Account name Debit CreditCash $36,400Inventory 17,000Equipment 12,000Accounts Payable $15,000Note Payable 40,000Capital Stock 10,000Retained Earnings 0Sales Revenue 4,500Cost of Goods Sold 3,000Salaries Expense 1,000Utilities Expense 100

$69,500 $69,500

Apr. 30 Close the revenue accounts.Apr. 30 Close the expense accounts.Apr. 30 Close the Income Summary account.


Apr. 30 Sales Revenue Income Summary

4,5004,500

Apr. 30 Income Summary Cost of Goods Sold Salaries Expense Utilities Expense

4,1003,0001,000

100Apr. 30 Income Summary

Retained Earnings400

400

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Practice Problem 1Glenwood Nursery

The transactions for Music Stop for April 2000 have been recorded in the accounting system. Glenwood Nursery is organized as a sole-proprietorship. This problem requires you to prepare closing entries for Glenwood Nursery. The trial balance for April 30, 2000, is given below:

Glenwood NurseryTrial BalanceApril 30, 2000

Account name Debit CreditCash $27,050Inventory 6,600Supplies 250Notes Payable $8,000John, Capital 25,000John, Drawings 1,000Sales Revenue 4,700Cost of Goods Sold 2,450Supplies Expense 350 _______

$37,700 $37,700

Apr. 30 Close the revenue accounts.Apr. 30 Close the expense accounts.Apr. 30 Close the income summary accounts.Apr. 30 Close the drawings accounts.


Apr. 30 Sales Revenue Income Summary

4,7004,700

Apr. 30 Income Summary Cost of Goods Sold Supplies Expense

2,8002,450

350Apr. 30 Income Summary

John, Capital1,900

1,900Apr. 30 John, Capital

John, Drawings1,000

1,000

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Practice Problem 2Country Fresh Farms Incorporated

June 30, 2000

The transactions for June 2000 for Country Fresh Farms Inc. have been recorded in the accounting system. This problem requires you to prepare closing entries for Country Fresh Farms Inc. The trial balance for June 30, 2000, is given below:

Country Fresh Farms IncorporatedTrial BalanceJune 30, 2000

Account name Debit CreditCash $23,070Inventory 3,850Supplies 180Accounts Payable $1,400Capital Stock 20,000Retained Earnings 2,100Dividends 1,000Sales Revenue 15,000Cost of Goods Sold 6,400Salaries Expense 4,000 ______

$38,500 $38,500

Jun. 30 Close the revenue accounts.Jun. 30 Close the expense accounts.Jun. 30 Close the Income Summary account.Jun. 30 Close the Dividends account.


Jun. 30 Sales Revenue Income Summary

15,00015,000

Jun. 30 Income Summary Cost of Goods Sold Salaries Expense

10,4006,4004,000

Jun. 30 Income Summary Retained Earnings

4,6004,600

Jun. 30 Retained Earnings Dividends

1,0001,000

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Homework Problem 1Cookies and More

Cookies and More sells cookies and baked products in a mall. Cookies and More is organized as a sole-proprietorship. The transactions for December 2000 for Cookies and More have been recorded in the accounting system. This assignment requires you to close the accounts for this period. The trial balance for December 31, 2000, is given below:

Cookies and MoreTrial Balance

December 31, 2000

Account name Debit CreditCash $16,230Inventory 4,750Supplies 270Accounts Payable $1,650Note Payable 12,000Kelly, Capital 5,000Kelly, Drawings 2,000Sales Revenue 10,000Cost of Goods Sold 3,400Supplies Expense 2,000

_______ _______ $28,650 $28,650

Dec. 31 Close the revenue accounts.Dec. 31 Close the expense accounts.Dec. 31 Close the Income Summary account.Dec. 31 Close the Drawings account.


Dec. 31 Sales Revenue Income Summary

10,00010,000

Dec. 31 Income Summary Cost of Goods Sold Supplies Expense

5,4003,4002,000

Dec. 31 Income Summary Kelly, Capital

4,6004,600

Dec. 31 Kelly, Capital Kelly, Drawings

2,0002,000

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Homework Problem 2Sullivan Sporting Goods

The transactions for June 2000 for Sullivan Sporting Goods have been recorded in the accounting system. Sullivan Sporting Goods is organized as a sole-proprietorship. This assignment requires you to prepare closing entries for June 2000. The trial balance for June 30, 2000, is given below:

Sullivan Sporting GoodsTrial BalanceJune 30, 2000

Account name Debit CreditCash $17,680 Inventory 12,150Supplies 320Accounts Payable $1,400James, Capital 25,000James, Drawings 800 Sales Revenue 15,000Cost of Goods Sold 8,000Utilities Expense 85Salaries Expense 2,365 _______

$41,400 $41,400

Jun. 30 Close the revenue accounts.Jun. 30 Close the expense accounts.Jun. 30 Close the Income Summary account.Jun. 30 Close the Drawings account.


Jun. 30 Sales Revenue Income Summary

15,00015,000

Jun. 30 Income Summary Cost of Goods Sold Utilities Expense Salaries Expense

10,4508,000

852,365

Jun. 30 Income Summary James, Capital

4,5504,550

Jun. 30 James, Capital James, Drawings

800800

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Homework Problem 3Comfort Furniture

The transactions for August 2000 for Comfort Furniture have been recorded in the accounting system. Comfort Furniture is organized as a corporation. This assignment requires you to prepare closing entries for August 2000. The trial balance for August 2000 is given below:

Comfort FurnitureTrial BalanceAugust 31, 2000

Account name Debit CreditCash $30,815Accounts Receivable 15,000Inventory 32,000Supplies 560Accounts Payable $10,600Capital Stock 60,000Retained Earnings 3,000Dividends 1,025Sales Revenue 25,000Cost of Goods Sold 16,000Salaries Expense 2,800Supplies Expense 400

$98,600 $98,600

Dec.31 Close the revenue accounts.Dec.31 Close the expense accounts.Dec.31 Close the income summary account.Dec.31 Close the dividends account.


Aug. 31 Sales Revenue Income Summary

25,00025,000

Aug. 31 Income Summary Cost of Goods Sold Supplies Expense Salaries Expense

19,20016,000

4002,800

Aug. 31 Income Summary Retained Earnings

5,8005,800

Aug. 31 Retained Earnings Dividends

1,0251,025

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Homework Problem 4APlus Hardware

The transactions for December 2000 for Aplus Hardware have been recorded in the accounting system. Aplus Hardware is organized as a corporation. This assignment requires you to prepare closing entries for December 2000. The trial balance for December 2000 is given below:

APlus HardwareTrial Balance

December 31, 2000

Account name Debit CreditCash $35,800Inventory 14,100Supplies $ 200Accounts Payable $ 2,800Capital Stock 45,000Retained Earnings 0Dividends 1,025Sales Revenue 12,500Cost of Goods Sold 7,000Salaries Expense 1,150Supplies Expense 225Rent Expense 800 _______

$60,300 $60,300

Dec. 31 Close the revenue accounts.Dec. 31 Close the expense accounts.Dec. 31 Close the income summary account.Dec. 31 Close the dividends account.

DATE ACCOUNT DEBIT CREDIT

Dec. 31 Sales Revenue Income Summary

12,50012,500

Dec. 31 Income Summary Cost of Goods Sold Supplies Expense Salaries Expense Rent Expense

9,1757,000

2251,150

800Dec. 31 Income Summary

Retained Earnings3,325

3,325Dec. 31 Retained Earnings

Dividends1,025

1,025

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Homework QuizClosing Entries

1. Which of the following statements about Closing Entries is true? a. Closing entries need not be journalized since company management knows they have

been taken into consideration. b. Closing entries need not be posted to the ledger accounts if the financial statements have

already been prepared. c. Closing entries are not required if adjusting entries have been prepared. d. Closing entries must be journalized and posted. 

2. In a Sole Proprietorship, which of the following accounts is closed to Income Summary at the end of the fiscal year?

a. Drawing b. Accumulated Depreciation c. Prepaid Expenses d. Supplies Expense

3 In a Sole Proprietorship, which of the following accounts will NOT be closed to Income Summary at the end of the fiscal year?

a. Salaries Expense b. Fees Earned c. Drawing d. Depreciation Expense

4. In a Corporation, which of the following accounts is closed at year-end? a. Capital Stock

b. Prepaid Rent c. Dividends d. Accounts Payable

5. In a Sole Proprietorship, which of the following accounts will be closed to Owner's Capital at the end of the fiscal year?

a. Salaries Expense b. Fees Earned c. Drawing d. Depreciation Expense

6. In a Sole Proprietorship, which of the following accounts will NOT be included in Closing Entries at the end of the fiscal year?

a. Drawing b. Accumulated Depreciation c. Fees Earned d. Supplies Expense

7. Which of the following correctly depicts a Closing Entry?

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a. Debit: Income Summary; Credit: Prepaid Insurance b. Debit: Prepaid Insurance; Credit: Income Summary c. Debit: Insurance Expense; Credit: Income Summary d. Debit: Income Summary; Credit: Insurance Expense

8. Which of the following correctly depicts a Closing Entry? a. Debit: Income Summary; Credit: Unearned Revenue 

b. Debit: Unearned Revenue; Credit: Income Summary c. Debit: Fees Earned; Credit: Income Summary d. Debit: Income Summary; Credit: Fees Earned 

9. The Dividends account is: a. Closed to Owner's Capital by being credited.

b. Closed to Retained Earnings by being credited. c. Closed to Owner's Capital by being debited. d. Closed to Retained Earnings by being debited.

10. A summary of selected 2001 calendar year end ledger accounts for Fritz's Auto Services, a Sole Proprietorship, appears below:

Fritz, Capital 12/31 4,000| 1/1 6,000

| 12/31 14,000

Fritz, Drawing 6/30 2,000| 12/31 4,00011/30 2,000|

Income Summary 12/31 10,000| 12/31 24,00012/31 14,000|

Net income for the year ended December 31, 2001 is:a. $ 4,000 b. $ 6,000 c. $10,000 d. $14,000

11. A summary of selected 2001 calendar year end ledger accounts for Fritz's Auto Services, a Sole Proprietorship, appears below:

Fritz, Capital 12/31 4,000| 1/1 6,000

| 12/31 14,000

Fritz, Drawing

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6/30 2,000| 12/31 4,00011/30 2,000|

Income Summary 12/31 10,000| 12/31 24,00012/31 14,000|

The 12/31 credit entry of $4,000 to Fritz, Drawing represents:a. Part of the entry required to close the Drawing account to Owner's Capital. b. Part of the entry required to close the Drawing account to Income Summary. c. Part of the entry required to close the Drawing account to Expenses. d. A correction of the 6/30 entry in the Drawing account.

12. A summary of selected 2001 calendar year end ledger accounts for Schneider Car Care, a Sole Proprietorship, appears below: Schneider, Capital 12/31 4,000| 1/1 6,000

| 12/31 26,000

Schneider, Drawing 6/30 2,000| 12/31 4,00011/30 2,000|

Income Summary 12/31 10,000| 12/31 36,00012/31 26,000|

Revenue for the year ended December 31, 2001 is:a. $10,000 b. $26,000 c. $36,000 d. $46,000

13. A summary of selected 2001 calendar year end ledger accounts for Schneider Car Care, a Sole Proprietorship, appears below:

Schneider, Capital 12/31 4,000| 1/1 6,000

| 12/31 26,000


Income Summary

134

12/31 10,000| 12/31 36,00012/31 26,000|

Expense for the year ended December 31, 2001 is:a. $10,000 b. $26,000 c. $36,000 d. $46,000

14. A summary of selected 2001 calendar year end ledger accounts for Schneider Car Care, a Sole Proprietorship, appears below:

Schneider, Capital 12/31 4,000| 1/1 6,000

| 12/31 26,000


Income Summary 12/31 10,000| 12/31 36,00012/31 26,000|

The ending balance in the Schneider, Capital account is:a. $28,000 credit b. $26,000 credit c. $22,000 credit d. $16,000 credit

15. Aaron's, Inc. shows the following income statement for the year ended December 31, 2001:

Revenues:Sales Revenue $400,000Rent Revenue 20,000 $420,000

Expenses:Interest Expense $ 10,000Rent Expense 10,000Utilities Expense 30,000Salaries Expense 260,000 310,000

Net Income $110,000

Based on this information, the entry to close Revenues and Expenses will include a:a. Credit to Retained Earnings for $110,000b. Debit to Retained Earnings for $110,000

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c. Credit to Retained Earnings for $420,000 d. Credit to Retained Earnings for $400,000

16. Aaron's, Inc. shows the following income statement for the year ended December 31, 2001:

Revenues:Sales Revenue $400,000Rent Revenue 20,000 $420,000

Expenses:Interest Expense $ 10,000Rent Expense 10,000Utilities Expense 30,000Salaries Expense 260,000 310,000

Net Income $110,000

Based on this information, the entry to close Revenues will include a:a. Credit to Sales Revenue for $310,000b. Debit to Rent Revenue for $400,000c. Credit to Sales Revenue for $420,000d. Debit to Sales Revenue for $400,000

17. The December 31, 2001, account balances prior to the preparation of Closing Entries for Jolly Rancher Corporation follow:

Debit Credit

Cash $200Store supplies 600Service fees revenue $1,000Retained earnings 100Accounts payable 140Dividends 400Unearned service fees revenue 360Wage Expense 300Store supplies expense 100

Based upon this information, after all closing entries have been made, the balance in Jolly Rancher's Retained Earnings account will be:a. $700 credit b. $500 credit c. $300 credit d. $100 credit

18. The December 31, 2001, account balances prior to the preparation of Closing Entries for Jolly Rancher Corporation follow:

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Debit CreditCash $200Store supplies 600Service fees revenue $1,000Retained earnings 100Accounts payable 140Dividends 400Unearned service fees revenue 360Wage Expense 300Store supplies expense 100

Based upon this information, after all closing entries have been made, the balance in Jolly Rancher's Dividends account will be:a. $700 debit b. $600 debit c. $400 debit d. $-0-

19. The balance in the Retained Earnings account is $37,000 on December 31, 2000. On December 31, 2001, the balance of Retained Earnings is $34,200. During 2001, dividends of $8,400 were declared and paid. Based on this information, net income for 2001 is:

a. $ 5,600b. $14,000 c. $ 4,200d. $ 8,400

20. On December 31, 2000, the balance in Pacman Inc.'s Retained Earnings account is $43,000. On December 31, 2001, the balance is $44,000. During 2001, dividends of $10,400 were declared and paid. Based on this information, Net Income for 2001 is:

a. $ 3,400b. $13,800c. $ 7,000d. $11,400

21. For a corporation, which of the following accounts are affected by the closing process?a. Capital Stockb. Cashc. Revenued. Accounts Payable

22. Which of the following types of accounts is not affected by the closing process?a. Revenueb. Expensec. Drawingsd. Cash

23. For sole-proprietorships, the balance in the Drawings account is transferred to:a. Capitalb. Retained Earningsc. Capital Stock

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d. Drawings

24. For corporations, the balance in the Dividends account is transferred to:a. Capitalb. Retained Earningsc. Capital Stockd. Drawings

25. After closing the revenue and expense accounts, the balance in the Income Summary account equals:a. Zerob. Net Incomec. Revenuesd. Expenses

26. At the end of the closing process, the balance in the Income Summary account equals:a. Zerob. Net Incomec. Revenuesd. Expenses

27. A business has earned revenues of $3,500 during a period. To close the revenue account we must:a. debit Revenue; credit Income Summaryb. debit Income Summary; credit Revenuec. debit Capital ; credit Revenued. debit Revenue; credit Capital

28. A Corporation has earned revenues of $3,500. Expenses for the month equal $1,800. The beginning balance in Capital Stock was $10,000 and in Retained Earnings was $1,000. No dividends were paid. After closing the balances in the Capital Stock and Retained Earnings accounts are:a. $11,700; $1,000b. $10,000; $2,700c. $11,700; $2,700d. $12,700; $0

29. A sole-proprietorship has earned revenues of $4,500. Expenses for the month equal $2,000. The owner withdrew $500 for personal expenses. The beginning balance in the Capital account was $10,000. After closing the balances in the Capital and Drawings accounts are:a. $12,000; $0b. $12,500; $500c. $10,000; $3,000d. $13,000; $0

30. A Corporation earned a net income of $2,000. Assume that the revenue and expense accounts have been closed to Income Summary. To close the Income Summary account:a. Capital account is creditedb. Retained Earnings is creditedc. Capital Stock is debited

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d. Income Summary is credited

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