Question 1

Which of the following statements is true?

Accepted Answer

Every entry (not only closing entries)must include at least one debit to an account and at least one credit to an account.This system is called double-entry accounting.Adjusting entries are recorded before (rather than after)the closing entries are recorded.If the debit total does not equal the credit total on the trial balance,the accountant knows to search for an error.Even if the totals are equal,however,there may be errors in the accounting records.Prior to posting closing entries,the balance in the retained earnings account will be the balance at the beginning of the accounting period.Only after closing entries are posted will the trial balance reflect the same retained earnings account balance as the balance sheet.

Question 2

During a company's first year of operations,the asset account,Office Supplies,was debited for $2,300 for the purchases of supplies.At year-end,a physical count of the supplies on hand revealed that $825 of unused supplies were available for future use.How will the related adjusting entry affect the company's financial statements?

Accepted Answer

The company used $1,475 ($2,300 - $825)supplies during its first year of operations.The adjusting entry debiting supplies expense and crediting supplies will increase expenses and decrease assets by $1,475.

Question 3

Which of the following statement is true regarding the trial balance?

Accepted Answer

Even if the debit and credit totals on the trial balance are equal,there may be errors in the accounting records.For example,equal trial balance totals would not disclose errors like the following: failure to record transactions;misclassifications (such as debiting the wrong account);or incorrectly recording the amount of a transaction.The income statement is prepared using the adjusted trial balance.

Question 4

The following account balances were taken from the adjusted trial balance of Kendall Company:

What is the Retained Earnings account balance that will be included on the post-closing trial balance?

Accepted Answer

Ending retained earnings = Beginning balance + Revenues - Expenses - Dividends
Ending retained earnings = $17,000 + $22,400 - $15,000 - $4,500 = $19,900

Question 5

During Year 5,Magellan Corporation earned net income of $32,000 and paid cash dividends of $8,500 to its stockholders.Which of the following choices reflects the effect of closing entries on the company's financial statements?

Accepted Answer

Closing entries are recorded after financial statements have been prepared.Therefore,they do not have any effect on the financial statements.The balance sheet will report retained earnings of $23,500 after the closing entries have been posted to the ledger accounts only if this is the company's first year of operations.

Question 6

Which one of the following would not be included in a closing entry?

Accepted Answer

Closing entries move all current year data from the temporary accounts (revenues,expenses,and dividends)into the retained earnings account.The Unearned Revenue account is a liability account;it is not closed.

Question 7

What effect will the following closing entry have on the retained earnings account?

Accepted Answer

A credit to retained earnings of $2,550 (to close the service revenue,interest expense,and operating expenses accounts)will increase retained earnings by $2,550.

Question 8

Which of the following statement year,Valley Packaging Company's adjusted trial balance showed a zero balance in retained earnings.Which of the following is the most likely explanation for this?

Accepted Answer

The retained earnings balance in an adjusted trial balance will be its beginning balance because temporary accounts have not yet been closed.A beginning balance in retained earnings of zero is most likely due to the current year being the company's first year in business.

Question 9

The closing entry for the Dividends account would involve which of the following?

Accepted Answer

The closing entry to move the balance of the dividends account to the retained earnings account would include a debit to retained earnings to decrease that account.The credit to the dividends account leaves a zero balance in that account.

Question 10

The Wagner Company acquired $500,000 cash from the issue of common stock.How would this transaction be recorded in the company's T-accounts?

Accepted Answer

The event increases cash,an asset account,and common stock,a stockholders' equity account.It is recorded as a debit in the Cash T-account and a credit to the Common Stock account.

Question 11

The employees of Able Company have worked the last two weeks of Year 1,but the employees' salaries have not been paid or recorded as of December 31,Year 1.The adjusting entry that Able should make to accrue these unpaid salaries on December 31,Year 1 is:

Accepted Answer

Accruing salary expenses will increase Salaries Expense and increase Salaries Payable,a liability.The journal entry would be a debit to Salaries Expense and a credit to Salaries Payable.

Question 12

On November 1,Year 1,Shumate Company paid $1,200 in advance for an insurance policy that covered the company for six months.Which of the following will be included in the adjustment required on December 31,Year 1?

Accepted Answer

The monthly insurance cost is $200 ($1,200 ÷ 6 months).By December 31,Year 1 the company had used the insurance coverage for two months.The Insurance Expense account must be increased with a debit for $400 ($200 × 2)and the Prepaid Insurance account must be decreased with a credit for the same amount.

Question 13

The trial balance of Barger Company at the end of the accounting period,immediately prior to recording closing entries,showed the following:

What will the balance of the retained earnings account be after the closing entries are recorded?

Accepted Answer

Closing entries move all current year data from the temporary accounts (revenues,expenses,and dividends)into the retained earnings account.
Ending retained earnings = Beginning retained earnings + Revenues- Expenses - Dividends.
Ending retained earnings = $14,000 + $43,000 - $38,400 - $1,000 = $17,600.

Question 14

On August 1,Year 1,Benjamin and Associates collected $18,000 in advance for legal services to be rendered for one year.Which of the following entries reflect the end-of-the-year adjustment to reflect revenue earned?

Accepted Answer

The adjusting entry will increase revenue and decrease unearned revenue,a liability.The journal entry would be a debit to unearned revenue and a credit to revenue.$18,000 ÷ 12 months = $1,500 per month.August through December is five months.$1,500 × 5 = $7,500.

Question 15

On October 1,Year 1,Senegal Company paid $1,200 in advance for rent of office space for one year and recorded a journal entry debiting Prepaid Rent and crediting Cash for $1,200.On December 31,Year 1,the required adjusting entry was recorded.What are the adjusted account balances at December 31,Year 1?

Accepted Answer

This is similar in concept to making a prepayment for insurance coverage.The monthly rent is $100 ($1,200 ÷ 12 months).By December 31,the company had rented (used)the office space for three months.The Prepaid Rent account has an adjusted balance of $900 ($1,200 - $300).The Rent Expense account will reflect the rent for those three months of $300 ($100 × 3).

Question 16

Fitzpatrick Company had $500 of accrued salary expenses that will be paid during the following accounting period.How would the related adjusting entry be recorded in the company's T-accounts?

Accepted Answer

The required adjusting entry increases liabilities by crediting salaries payable and increases expenses by debiting salaries expense.

Question 17

Why are adjusting entries recorded at the end of the accounting period?

Accepted Answer

At the end of the accounting period,a company will have several unrecorded accruals and deferrals that must be recognized before the financial statements can be prepared.As a result,adjusting entries always involve (1)an asset or liability account and (2)a revenue or expense account.

Question 18

A transaction has been recorded in the T-accounts of Simpson Company as follows:

Which of the following could be an explanation for this transaction?

Accepted Answer

The debit to Cash and credit to Notes Payable indicates that cash,an asset account,increased and notes payable,a liability account,increased.This would be caused by acquiring cash by issuing a note.

Question 19

Bijan Corporation earned $4,000 of revenue that had been deferred.How would the related adjusting entry be recorded in the company's T-accounts?

Accepted Answer

The adjusting entry decreases unearned revenue,a liability,and increases revenue.It is recorded as a debit to unearned revenue and a credit to the revenue account.

Question 20

A transaction has been recorded in the T-accounts of Hough Company as follows:

Which of the following reflects how this event affects the company's financial statements?

Accepted Answer

The debit to Cash and credit to Notes Payable indicates that cash,an asset,and notes payable,a liability,both increased.There is no effect on the income statement,and the event is reported as a cash inflow from financing activities.

Quiz 3: The Double-Entry Accounting System