Question 1

Which of the following statements is true?
A) Retained earnings must be closed each accounting period.
B) A post-closing trial balance should include only permanent accounts.
C) Information on the work sheet can be used in place of preparing financial statements.
D) By using a work sheet to prepare adjusting entries, you need not post these entries to the ledger accounts
E) Closing entries are only necessary if errors have been made.

Accepted Answer

A post-closing trial balance should include only permanent accounts because temporary accounts are closed at the end of the accounting period. Retained earnings are a permanent account and are not closed each period. Information on the work sheet is used to prepare financial statements, but it is not a substitute for the actual financial statements. Adjusting entries prepared on a work sheet must still be posted to ledger accounts. Closing entries are necessary to transfer the balances of temporary accounts to the retained earnings or owner's equity account, regardless of whether errors have been made.

Question 2

The Retained Earnings account has a credit balance of $17,000 before closing entries are made. If total revenues for the period are $55,200, total expenses are $39,800 and dividends are $9,000, what is the ending balance in the Retained Earnings account after all closing entries are made?
A) $8,000
B) $15,400
C) $23,400
D) $17,000
E) $32,400

Accepted Answer

The formula for calculating the ending balance in the Retained Earnings account is: Beginning Retained Earnings + Net Income (or - Net Loss) - Dividends. 
In this case, beginning balance is $17,000, net income is $15,400 ($55,200 - $39,800), and dividends are $9,000. 
So, ending balance in the Retained Earnings account would be: $17,000 + $15,400 - $9,000 = $23,400. Therefore, the correct answer is choice C.

Question 3

The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the:
A) Income Summary account
B) Closing account
C) Balance column account
D) Contra account
E) Nominal account

Accepted Answer

The account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the Income Summary account. This account is a nominal account that is closed at the end of each accounting period to transfer the net income or loss to the retained earnings account.

Question 4

The Income Summary account is used:
A) To adjust and update asset and liability accounts.
B) To close the revenue and expense accounts.
C) To determine the appropriate dividend amount.
D) In some situations to replace the income statement.
E) To replace the retained earnings account in some businesses.

Accepted Answer

The Income Summary account is used to close the revenue and expense accounts at the end of an accounting period. The net income or loss is then transferred to the retained earnings account.

Question 5

An error is indicated if the following account has a balance appearing on the post-closing trial balance:
A) Office Equipment
B) Accumulated Depreciation-Office Equipment
C) Depreciation Expense-Office Equipment
D) Common Stock
E) Salaries Payable

Accepted Answer

Depreciation Expense-Office Equipment should not have a balance on the post-closing trial balance as it is a temporary account that gets closed out to Accumulated Depreciation-Office Equipment during the closing process. The other accounts listed are either permanent accounts (Office Equipment, Accumulated Depreciation-Office Equipment, Common Stock) or a liability (Salaries Payable), which should have a balance on the post-closing trial balance.

Question 6

Awn Services paid a dividend of $8,700 during the current year. The entry to close the dividend account at the end of the year is:
A) $$\begin{array} { | c | r | r | } 
\hline \text { Dividends } & 8,700 & \
\hline \text { Cash } & & 8,700 \
\hline
\end{array}$$
B) $$\begin{array} { | c | c | c | } 
\hline \text { Retained earnings } & \mathbf { 8 } , 700 & \
\hline \text { Dividends } & & \mathbf { 8 , 7 0 0 } \
\hline
\end{array}$$
C) $$\begin{array} { | c | r | r | } 
\hline \text { Dividends } & 8,700 & \
\hline \text { Retained earnings } & & 8,700 \
\hline
\end{array}$$
D) $$\begin{array} { | c | c | c | } 
\hline \text { Common Stock } & 8,700 & \
\hline \text { Dividends } & & 8,700 \
\hline
\end{array}$$
E) $$\begin{array} { | c | c | c | } 
\hline \text { Income Sumnuary } & 8,700 & \
\hline \text { Retained earnings } & & 8,700 \
\hline
\end{array}$$

Accepted Answer

The dividend account is closed to retained earnings at the end of the year.

Question 7

Accumulated depreciation, accounts receivable, and service fees earned would be sorted to which respective columns in completing a work sheet?
A) Balance Sheet-Credit; Balance Sheet Debit; and Income Statement-Credit.
B) Balance Sheet-Debit; Balance Sheet; and Income Statement-Credit.
C) Income Statement-Debit; Balance Sheet-Debit; and Income Statement-Credit.
D) Income Statement-Debit; Income Statement-Debit; and Balance Sheet-Credit.
E) Balance Sheet-Credit; Income Statement-Debit; and Income Statement-Credit.

Accepted Answer

- Accumulated depreciation is a contra asset account and would be sorted to the Balance Sheet-Credit column.
- Accounts receivable is an asset account and would be sorted to the Balance Sheet-Debit column.
- Service fees earned is a revenue account and would be sorted to the Income Statement-Credit column.

Question 8

The Unadjusted Trial Balance columns of a company's work sheet show the balance in the Office Supplies account as $750. The Adjustments columns show that $425 of these supplies were used during the period. The amount shown as Office Supplies in the Balance Sheet columns of the work sheet is:
A) $325 debit
B) $325 credit
C) $425 debit
D) $750 debit
E) $750 credit

Accepted Answer

The amount shown as Office Supplies in the Balance Sheet columns would be $325 debit, calculated as the original balance of $750 minus the $425 of supplies used during the period. This reflects the remaining value of office supplies.

Question 9

A company's ledger accounts and their end-of-period balances before closing entries are posted are shown below. What amount will be posted to Retained Earnings in the process of closing the Income Summary account? (Assume all accounts have normal balances.) $$\begin{array} { | l | r | } 
\hline \text { Retained earnings } & \$ 7,000 \
\hline \text { Dividends } & 9,600 \
\hline \text { Service Reverne } & 29,000 \
\hline \text { Rent expense } & 3,600 \
\hline \text { Salaries expense } & 7,200 \
\hline \text { Insurance expense } & 920 \
\hline \text { Depr Expense - equipment } & 500 \
\hline \text { Accum depr - equipment } & 1,500 \
\hline
\end{array}$$
A) $16,780 debit
B) $7,180 credit
C) $16,780 credit
D) $18,280 credit
E) $23,780 credit

Accepted Answer

The Income Summary account is closed to Retained Earnings. The balance of the Income Summary account is $16,780 (Service Revenue $29,000 - Dividends $9,600 - Rent Expense $3,600 - Salaries Expense $7,200 - Insurance Expense $920 - Depreciation Expense - Equipment $500). Therefore, $16,780 will be posted to Retained Earnings as a credit.

Question 10

A company shows a $600 balance in prepaid insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results in:
A) $200 less in net income.
B) $200 more in net income.
C) $200 difference between the debit and credit columns of the unadjusted trial balance.
D) $200 of prepaid insurance.
E) An error in the financial statements.

Accepted Answer

The adjusting entry for expired insurance reduces the prepaid insurance balance by $200, which increases the insurance expense and reduces net income by $200.

Question 11

Which of the following errors would cause the Balance Sheet columns of a work sheet to be out of balance?
A) Entering an asset amount in the Income Statement Debit column.
B) Entering a liability amount in the Income Statement Credit column.
C) Entering an expense amount in the Balance Sheet Debit column.
D) Entering a revenue amount in the Balance Sheet Debit column.
E) Entering a liability amount in the Balance Sheet Credit column.

Accepted Answer

The answer of Which of the following errors would cause...

Question 12

A 10-column spreadsheet used to draft a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements and which is an optional tool in the accounting process is a(n):
A) Adjusted trial balance
B) Work sheet
C) Post-closing trial balance
D) Unadjusted trial balance
E) General ledger

Accepted Answer

The worksheet is a 10-column spreadsheet used to draft a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements. It is an optional tool in the accounting process that can help ensure accurate financial statements. The other options listed are specific financial statements or trial balances and not the tool used to prepare them.

Question 13

Which of the following statements regarding financial statement preparation is false?
A) Financial statements can be prepared from information in the adjusted trial balance.
B) The Sarbanes-Oxley Act requires that financial statements filed with the Securities and Exchange Commission include declarations by the CEO and CFO of the company.
C) It makes sense to prepare the balance sheet first because it contains information needed on the income statement.
D) When preparing financial statements an adjusted trial balance is easier to work with than the entire ledger.
E) The income statement is prepared first.

Accepted Answer

It does not make sense to prepare the balance sheet first because it is based on information from both the income statement and statement of cash flows. Therefore, it is more efficient to prepare the income statement and statement of cash flows first before creating the balance sheet.

Question 14

A trial balance prepared after the closing entries have been journalized and posted is the:
A) Unadjusted trial balance
B) Post-closing trial balance
C) General ledger
D) Adjusted trial balance
E) Work sheet

Accepted Answer

The post-closing trial balance is prepared after the closing entries have been journalized and posted. It shows the balances of all accounts after the closing entries have been made and all temporary accounts have been closed. This trial balance is used to verify that the total debits equal the total credits and that all accounts are properly balanced.

Question 15

A post-closing trial balance includes:
A) All ledger accounts with balances, none of which can be temporary accounts.
B) All ledger accounts with balances, none of which can be permanent accounts.
C) All ledger accounts with balances, which include some temporary and some permanent accounts.
D) Only revenue and expense accounts.
E) Only asset accounts.

Accepted Answer

The answer of A post-closing trial balance includes:
A) All ledger...

Question 16

The alternative method of accounting for prepayments
A) Initially records all prepaid expenses with debits to expense accounts.
B) Initially records all prepaid expenses with credits to expense accounts.
C) Requires an adjusting entry because expenses are understated.
D) Requires an adjusting entry if the prepaid is consumed during the period.
E) Requires an adjusting entry because net income is understated.

Accepted Answer

The answer of The alternative method of accounting for prepayments
A)...

Question 17

A company had revenues of $75,000 and expenses of $62,000 and paid $1,000 dividends during the accounting period. Which of the following entries could not be a closing entry for this company?
A) $$\begin{array} { | c | r | r | } 
\hline \text { Income Surmurnary } & 13,000 & \
\hline \text { Retained earnings } & & 13,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | c | c | } 
\hline \text { Income Surnurnary } & 75,000 & \
\hline \text { Revenues } & & 75,000 \
\hline
\end{array}$$
C) $\begin{array}{|c|r|r|}
\hline \text { Revenues } & 75,000 & \
\hline \text { Income Summary } & & 75,000 \
\hline
\end{array}$
D) $$\begin{array} { | c | r | r | } 
\hline \text { Income Surminary } & 62,000 & \
\hline \text { Expenses } & & 62,000 \
\hline
\end{array}$$
E) $$\begin{array} { | c | r | r | } 
\hline \text { Retained Earrings } & 1,000 & \
\hline \text { Dividends } & & 1,000 \
\hline
\end{array}$$

Accepted Answer

The answer of A company had revenues of $75,000 and...

Question 18

Statements that show the effects of proposed transactions as if the transactions had already occurred are called:
A) Pro forma statements
B) Professional statements
C) Simplified statements
D) Temporary statements
E) Interim statements

Accepted Answer

Pro forma statements are used to show the financial effects of potential or planned transactions as if they had already occurred. They are designed to help investors and analysts understand how a proposed transaction might impact a company's financial statements.

Question 19

The following items appeared on a company's December 31 work sheet for the current period. Based on the following information, what is net income for the current period? 
A) $1,400
B) $1,855
C) $1,905
D) $2,060
E) $4,670

Accepted Answer

The answer of The following items appeared on a company's...

Question 20

The following information is available for the Travis Travel Agency. After the closing entries have been journalized and posted, what will be the balance in the Retained Earnings account? $$\begin{array} { | l | r | } 
\hline \text { Total reverues } & \$ 125,000 \
\hline \text { Total expenses } & 60,000 \
\hline \text { Retairied earnirgs } & \mathbf { 8 0 , 0 0 0 } \
\hline \text { Dividends } & 15,000 \
\hline
\end{array}$$
A) $65,000
B) $80,000
C) $130,000
D) $145,000
E) $280,000

Accepted Answer

The balance in the Retained Earnings account after closing entries is calculated as: Beginning Retained Earnings ($80,000) + Net Income ($125,000 - $60,000 = $65,000) - Dividends ($15,000) = $130,000.

Quiz 3: Preparing Financial Statements

Which of the following statements is true?

The Retained Earnings account has a credit balance of $17,000 before closing entries are made. If total revenues for the period are $55,200, total expenses are $39,800 and dividends are $9,000, what is the ending balance in the Retained Earnings account after all closing entries are made?

The special account used only in the closing process to temporarily hold the amounts of revenues and expenses before the net difference is added to (or subtracted from) the retained earnings account is the:

The Income Summary account is used:

An error is indicated if the following account has a balance appearing on the post-closing trial balance:

Awn Services paid a dividend of $8,700 during the current year. The entry to close the dividend account at the end of the year is:

Accumulated depreciation, accounts receivable, and service fees earned would be sorted to which respective columns in completing a work sheet?

The Unadjusted Trial Balance columns of a company's work sheet show the balance in the Office Supplies account as $750. The Adjustments columns show that $425 of these supplies were used during the period. The amount shown as Office Supplies in the Balance Sheet columns of the work sheet is:

A company shows a $600 balance in prepaid insurance in the Unadjusted Trial Balance columns of the work sheet. The Adjustments columns show expired insurance of $200. This adjusting entry results in:

Which of the following errors would cause the Balance Sheet columns of a work sheet to be out of balance?

A 10-column spreadsheet used to draft a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements and which is an optional tool in the accounting process is a(n) :

Which of the following statements regarding financial statement preparation is false?

A trial balance prepared after the closing entries have been journalized and posted is the:

A post-closing trial balance includes:

The alternative method of accounting for prepayments

A company had revenues of $75,000 and expenses of $62,000 and paid $1,000 dividends during the accounting period. Which of the following entries could not be a closing entry for this company?

Statements that show the effects of proposed transactions as if the transactions had already occurred are called:

The following items appeared on a company's December 31 work sheet for the current period. Based on the following information, what is net income for the current period?