Question 1

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 projected financial statements that show the effects of proposed transactions as if they had already occurred. These statements are typically used to evaluate the financial impact of a potential merger, acquisition, or other major business transaction.

Question 2

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 balances of these accounts are transferred to the Income Summary account, which is then used to determine the net income or loss for the period. This net income or loss is then transferred to the Retained Earnings account.

Question 3

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 appear on the post-closing trial balance because it is a temporary account and is closed at the end of the accounting period. The other accounts listed are all permanent accounts and should have balances on the post-closing trial balance.

Question 4

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) $$\begin{array} { | c | r | r | } 
\hline \text { Income Summary } & 13,000 & \
\hline \text { Retained earnings } & & 13,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | c | c | } 
\hline \text { Income Summary } & 75,000 & \
\hline \text { Revenues } & & 75,000 \
\hline
\end{array}$$
C) $\begin{array}{|l|r|r|}
\hline \text { Revenues } & 75,000 & \
\hline \text { Income Summary } & & 75,000 \
\hline
\end{array}$
D) $$\begin{array} { | c | r | r | } 
\hline \text { Income Summary } & 62,000 & \
\hline \text { Expenses } & & 62,000 \
\hline
\end{array}$$
E) $$\begin{array} { | c | r | r | } 
\hline \text { Retained Earnings } & 1,000 & \
\hline \text { Dividends } & & 1,000 \
\hline
\end{array}$$

Accepted Answer

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

Question 5

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 only include permanent accounts because temporary accounts are closed at the end of the accounting period by the closing entries process. Retained earnings are one of the permanent accounts and do not need to be closed each accounting period. Information on the work sheet is used to prepare financial statements, but it cannot replace preparing the actual financial statements. Adjusting entries made on a work sheet must be posted to the ledger accounts. Closing entries are necessary at the end of each accounting period, regardless of errors being made or not, to transfer the balances of temporary accounts to Retained Earnings.

Question 6

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?
$$\begin{array} { | l | r | } 
\hline \text { Total revenues } & \$ 125,000 \
\hline \text { Total expenses } & 60,000 \
\hline \text { Retained earnirgs } & 8 0 , 0 0 0 \
\hline \text { Dividends } & 15,000 \
\hline
\end{array}$$
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: Initial Retained Earnings ($80,000) + Net Income (Revenues $125,000 - Expenses $60,000 = $65,000) - Dividends ($15,000) = $130,000.

Question 7

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 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

$750 - $425 = $325 remaining balance

Question 9

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 used to summarize the revenues and expenses for the period and determine the net profit or loss, which is then transferred to the retained earnings account.

Question 10

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) $$\begin{array} { | l | r | r | } 
\hline \text { Dividends } & 8,700 & \
\hline \text { Retained earnings } & & 8,700 \
\hline
\end{array}$$
D) $$\begin{array} { | c | c | c | } 
\hline \text { Common Stock } & 8,700 & \
\hline \text { Dividends } & & 8,700 \
\hline
\end{array}$$
E) $$\begin{array} { | c | c | c | } 
\hline \text { Income Summuary } & 8,700 & \
\hline \text { Retained earnings } & & 8,700 \
\hline
\end{array}$$

Accepted Answer

The entry to close the dividend account at the end of the year is to debit the Retained Earnings and credit the Dividends account for the same amount. Therefore, the journal entry to close the dividend account for Awn Services would be:

Retained Earnings       $8,700
    Dividends                      $8,700

Option B is the only option that correctly shows the debit and credit accounts for the entry.

Question 11

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

A worksheet is a tool used in the accounting process to draft a company's unadjusted trial balance, adjusting entries, adjusted trial balance, and financial statements. It is optional and consists of 10 columns. The other options listed are specific financial statements or trial balances that are generated using the information gathered in the worksheet.

Question 12

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

A post-closing trial balance is prepared after the closing entries have been made to verify that all temporary accounts have been closed and that the total debits equal the total credits in the permanent accounts. The other options (unadjusted trial balance, general ledger, adjusted trial balance, and work sheet) are prepared at different points during the accounting cycle and do not reflect the results of the closing process.

Question 13

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 14

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

$17,000 + $55,200 - $39,800 - $9,000 = $23,400

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

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.)
$\begin{array}{|l|r|}
\hline \text { Retained earnings } & \$ 7,000 \
\hline \text { Dividends } & 9,600 \
\hline \text { Service Revenue } & 29,000 \
\hline \text { Rent expense } & 3,600 \
\hline \text { Salaries expense } & 7,200 \
\hline \text { Insurance expense } & 920 \
\hline \text { Depr. Expense - equipment } & 500 \
\hline \text { Accum depr. - equipment } & 1,500\
\hline 
\end{array}$
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 has a debit balance of $16,780 ($29,000 - $3,600 - $7,200 - $920 - $500). This debit balance will be closed to Retained Earnings, increasing Retained Earnings by $16,780.

Question 17

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 18

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

$5,850 + 375 + $300 = $6,525 revenues
$1,200 + $2,400 + $315 +$345 + $150 + $70 + $190 = $4,670 expenses
$6,525 - $4,670 = $1,855 net income

Question 19

Financial statements are typically prepared in the following order:
A) Balance sheet, statement of retained earnings, income statement.
B) Statement of retained earnings, balance sheet, income statement.
C) Income statement, balance sheet, statement of retained earnings.
D) Income statement, statement of retained earnings, balance sheet.
E) Balance sheet, income statement, statement of retained earnings.

Accepted Answer

The income statement calculates net income for a given period, followed by the statement of retained earnings, which shows changes in retained earnings during that period. Finally, the balance sheet presents a snapshot of a company's financial position on a specific date, which includes its assets, liabilities, and equity. The order of financial statements reflects the logical flow of information in terms of calculating and presenting financial performance and position.

Question 20

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 adjustment for expired insurance reduces the balance of prepaid insurance by $200, resulting in a lower asset balance on the balance sheet and a lower net income on the income statement. Therefore, the correct choice is A, $200 less in net income.

Quiz 3: Adjusting Accounts and Preparing Financial Statements

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

The Income Summary account is used:

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

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?

Which of the following statements is true?

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

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:

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:

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

The alternative method of accounting for prepayments

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 post-closing trial balance includes:

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

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?

Financial statements are typically prepared in the following order:

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: