ch04-test-bank-for-financial-accounting-ifrs-edition-3echapter-4completing-the.pdf

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Ch04 - Test Bank for Financial Accounting: IFRS Edition,
3eCHAPTER 4
COMPLETING THE
Financial Accounting (Abu Dhabi University)
StuDocu is not sponsored or endorsed by any college or university
Ch04 - Test Bank for Financial Accounting: IFRS Edition,
3eCHAPTER 4
COMPLETING THE
Financial Accounting (Abu Dhabi University)
Downloaded by H?i Linh (tranhaidieulinh27@gmail.com)
lOMoARcPSD|12417417

CHAPTER 4
COMPLETING THE ACCOUNTING CYCLE
CHAPTER LEARNING OBJECTIVES
1. Prepare a worksheet. The steps in preparing a worksheet are as follows: (a) Prepare a trial
balance on the worksheet. (b) Enter the adjustments in the adjustments columns. (c) Enter
adjusted balances in the adjusted trial balance columns. (d) Extend adjusted trial balance
amounts to appropriate financial statement columns. (e) Total the statement columns,
compute net income (or net loss), and complete the worksheet.
2. Explain the process of closing the books. Closing the books occurs at the end of an
accounting period. The process is to journalize and post closing entries and then underline
and balance all accounts. In closing the books, companies make separate entries to close
revenues and expenses to Income Summary, Income Summary to Retained Earnings, and
Dividends to Retained Earnings. Only temporary accounts are closed.
3. Describe the content and purpose of a post-closing trial balance. A post-closing trial
balance contains the balances in permanent accounts that are carried forward to the next
accounting period. The purpose of this trial balance is to prove the equality of these
balances.
4. State the required steps in the accounting cycle. The required steps in the accounting
cycle are (1) analyze business transactions, (2) journalize the transactions, (3) post to
ledger accounts, (4) prepare a trial balance, (5) journalize and post adjusting entries, (6)
prepare an adjusted trial balance, (7) prepare financial statements, (8) journalize and post
closing entries, and (9) prepare a post-closing trial balance.
5. Explain the approaches to preparing correcting entries. One way to determine the
correcting entry is to compare the incorrect entry with the correct entry. After comparison,
the company makes a correcting entry to correct the accounts. An alternative to a correcting
entry is to reverse the incorrect entry and then prepare the correct entry.
6. Identify the sections of a classified statement of financial position. A classified
statement of financial position categorizes assets as intangibles; property, plant, and
equipment; long-term investments; and current assets. Liabilities are classified as either
non-current or current. There is also an equity section, which varies with the form of
business organization.
a
7. Prepare reversing entries. Reversing entries are the opposite of the adjusting entries
made in the preceding period. Some companies choose to make reversing entries at the
beginning of a new accounting period to simplify the recording of later transactions related to
the adjusting entries. In most cases, only accrued adjusting entries are reversed.
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Test Bank for Financial Accounting: IFRS Edition, 3e
TRUE-FALSE STATEMENTS
1. A worksheet is a mandatory form that must be prepared along with an income statement
and statement of financial position.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
2. If a worksheet is used, financial statements can be prepared before adjusting entries are
journalized.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
3. If total credits in the income statement columns of a worksheet exceed total debits, the
enterprise has net income.
Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem
Solving, IMA: Reporting
4. It is not necessary to prepare formal financial statements if a worksheet has been
prepared because financial position and net income are shown on the worksheet.
Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting
5. The adjustments on a worksheet can be posted directly to the accounts in the ledger from
the worksheet.
Solving, IMA: FSA
6. The adjusted trial balance columns of a worksheet are obtained by subtracting the
adjustment columns from the trial balance columns.
Solving, IMA: FSA
7. The balance of the depreciation expense account will appear in the income statement
debit column of a worksheet.
Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
8. The procedures used to prepare the worksheet are the same under both IFRS and GAAP.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA
9. The last 2 columns on a worksheet prepared under IFRS contains data for the Retained
Earnings Statements.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA
10. The format of the data in the Statement of Financial Position columns of the worksheet is
the same as the format of the Statement of Financial Position.
FSA
11. No permanent account balances are changed in the closing process.
FSA
12. Closing entries are unnecessary if the business plans to continue operating in the future
and issue financial statements each year.
FSA
For Instructor Use Only
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Completing the Accounting Cycle
13. The Dividends account is closed to the Income Summary account in order to properly
determine net income (or loss) for the period.
FSA
14. After closing entries have been journalized and posted, all temporary accounts in the
ledger should have zero balances.
FSA
15. Closing revenue and expense accounts to the Income Summary account is an optional
bookkeeping procedure.
FSA
16. Closing the Dividends account to Retained Earnings is not necessary if net income is
greater than dividends paid during the period.
Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
17. The Dividends account is a permanent account whose balance is carried forward to the
next accounting period.
Reporting
18. Closing entries are journalized after adjusting entries have been journalized.
FSA
19. The amounts appearing on an income statement should agree with the amounts
appearing on the post-closing trial balance.
Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
20. The post-closing trial balance is entered in the first two columns of a worksheet.
Reporting
21. The post-closing trial balance only contains Statement of Financial Position account
balances.
Ans: T, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
22. The purpose of the post-closing trial balances is to prove the equality of the Statement of
Financial Position.
Reporting
23. The order of the accounts in the post-closing trial balance is the same order as the
accounts appearing in the Statement of Financial Position.
Reporting
24. The preparation of a Statement of Financial Position is a required step in the accounting
cycle.
Reporting
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25. Step number 6 in the accounting cycle includes preparation of the Statement of Financial
Position.
Reporting
26. A business entity has only one accounting cycle over its economic existence.
Reporting
27. Both correcting entries and adjusting entries always affect at least one statement of
financial position account and one income statement account.
Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
28. Correcting entries are made any time an error is discovered even though it may not be at
the end of an accounting period.
Solving, IMA: FSA
29. An incorrect debit to Accounts Receivable instead of the correct account Notes
Receivable does not require a correcting entry because total assets will not be misstated.
Reporting
30. Correcting entries will never affect statement of financial position accounts.
Reporting
31. Current assets are the first category of assets reported on the Statement of Financial
Position.
Reporting
32. IFRS permits the noncurrent classifications to be reported before the current
classifications on the statement of financial position
Ans: T, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
33. IFRS requires that current assets be reported on the statement of financial position in the
order of their liquidity.
Reporting
34. A company's operating cycle and fiscal year are usually the same length of time.
Solving, IMA: FSA
35. Cash and office supplies are both classified as current assets.
Ans: T, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
36. Long-term investments would appear in the property, plant, and equipment section of the
statement of financial position.
Reporting
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37. A liability is classified as a current liability if the company is to pay it within the forthcoming
year.
Reporting
38. A company's liquidity is concerned with the relationship between long-term investments
and long-term debt.
Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA:
Business Economics
39. Intangible assets are customarily the first items listed on a classified statement of financial
position.
Reporting
40. The operating cycle of a company is determined by the number of years the company has
been operating.
Reporting
a
41. Reversing entries are an optional bookkeeping procedure.
Solving, IMA: FSA
a
42. Reversing entries will always affect statement of financial position accounts.
Solving, IMA: FSA
a
43. The use of reversing entries will change the amounts reported in the statement of financial
position.
Solving, IMA: FSA
44. After a worksheet has been completed, the statement columns contain all data that are
required for the preparation of financial statements.
Reporting
45. To close net income to Retained Earnings Income Summary is debited and Retained
Earnings is credited.
FSA
46. In one closing entry, the Dividends account is credited and Income Summary is debited.
FSA
47. The post-closing trial balance will contain only statement of equity accounts and statement
of financial position accounts.
FSA
48. The operating cycle of a company is the average time required to collect the receivables
resulting from producing revenues.
Solving, IMA: Business Economics
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49. Current assets are listed in the reverse order of liquidity.
Reporting
50. Current liabilities are obligations that the company is to pay within the coming year.
Reporting
Answers to True-False Statements
Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
1. F 9. F 17. F 25. F 33. F a
41. T 49. T
2. T 10. F 18. T 26. F 34. F 42. T 50. T
3. T 11. F 19. F 27. F 35. T 43. F
4. F 12. F 20. F 28. T 36. F 44. T
5. F 13. F 21. T 29. F 37. T 45. T
6. F 14. T 22. F 30. F 38. F 46. F
7. T 15. F 23. F 31. F 39. T 47. F
8. T 16. F 24. T 32. T 40. F 48. F
MULTIPLE CHOICE QUESTIONS
51. Preparing a worksheet involves
a. two steps.
b. three steps.
c. four steps.
d. five steps.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
52. The adjustments entered in the adjustments columns of a worksheet are
a. not journalized.
b. posted to the ledger but not journalized.
c. not journalized until after the financial statements are prepared.
d. journalized before the worksheet is completed.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
53. The information for preparing a trial balance on a worksheet is obtained from
a. financial statements.
b. general ledger accounts.
c. general journal entries.
d. business documents.
Ans: B, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
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54. After the adjusting entries are journalized and posted to the accounts in the general
ledger, the balance of each account should agree with the balance shown on the
a. adjusted trial balance.
b. post-closing trial balance.
c. the general journal.
d. adjustments columns of the worksheet.
Ans: A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
55. If the total debit column exceeds the total credit column of the income statement columns
on a worksheet, then the company has
a. earned net income for the period.
b. an error because debits do not equal credits.
c. suffered a net loss for the period.
d. to make an adjusting entry.
Ans: C, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
56. A worksheet is a multiple column form that facilitates the
a. identification of events.
b. measurement process.
c. preparation of financial statements.
d. analysis process.
Solving, IMA: FSA
57. Computing net income on the worksheet occurs in step
a. two.
b. three.
c. four.
d. five.
Ans: D, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
58. A worksheet can be thought of as a(n)
a. permanent accounting record.
b. optional device used by accountants.
c. part of the general ledger.
d. part of the journal.
Solving, IMA: FSA
59. The Supplies account appears in which of the following debit columns of the worksheet?
a. Trial balance
b. Adjusted trial balance
c. Statement of financial position
d. All of these answer choices are correct.
Ans: D, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
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60. When constructing a worksheet, accounts are often needed that are not listed in the trial
balance already entered on the worksheet from the ledger. Where should these additional
accounts be shown on the worksheet?
a. They should be inserted in alphabetical order into the trial balance accounts already
given.
b. They should be inserted in chart of account order into the trial balance already given.
c. They should be inserted on the lines immediately below the trial balance totals.
d. They should not be inserted on the trial balance until the next accounting period.
Solving, IMA: FSA
61. When using a worksheet, adjusting entries are journalized
a. after the worksheet is completed and before financial statements are prepared.
b. before the adjustments are entered on to the worksheet.
c. after the worksheet is completed and after financial statements are prepared.
d. before the adjusted trial balance is extended to the proper financial statement
columns.
Solving, IMA: FSA
62. Assuming that there is a net loss for the period, debits equal credits in all but which
section of the worksheet?
a. Income statement columns
b. Adjustments columns
c. Trial balance columns
d. Adjusted trial balance columns
Ans: A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
63. Adjusting entries are prepared from
a. source documents.
b. the adjustments columns of the worksheet.
c. the general ledger.
d. last year's worksheet.
Solving, IMA: FSA
64. The net income (or loss) for the period
a. is found by computing the difference between the income statement credit column and
the statement of financial position credit column on the worksheet.
b. cannot be found on the worksheet.
c. is found by computing the difference between the income statement columns of the
worksheet.
d. is found by computing the difference between the trial balance totals and the adjusted
trial balance totals.
Reporting
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65. The worksheet does not show
a. net income or loss for the period.
b. revenue and expense account balances.
c. the ending balance in Retained Earnings .
d. the trial balance before adjustments.
Ans: C, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
66. If the total debits exceed total credits in the statement of financial position columns of the
worksheet, equity
a. will increase because net income has occurred.
b. will decrease because a net loss has occurred.
c. is in error because a mistake has occurred.
d. will not be affected.
Ans: A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
67. The income statement and statement of financial position columns of Reed Company's
worksheet reflect the following totals:
Income Statement Statement of Financial Position
Dr. Cr. Dr. Cr.
Totals $58,000 $45,000 $34,000 $47,000
The net income (or loss) for the period is
a. $45,000 income.
b. $13,000 income.
c. $13,000 loss.
d. not determinable.
Ans: C, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
68. The income statement and statement of financial position columns of Reed Company's
worksheet reflect the following totals:
Income Statement Statement of Financial Position
Dr. Cr. Dr. Cr.
Totals $58,000 $45,000 $34,000 $47,000
To enter the net income (or loss) for the period into the above worksheet requires an entry
to the
a. income statement debit column and the statement of financial position credit column.
b. income statement credit column and the statement of financial position debit column.
c. income statement debit column and the income statement credit column.
d. statement of financial position debit column and the statement of financial position
credit column.
Ans: B, LO: 1, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
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69. The Statement of Financial Position columns of the worksheet contain data for what
financial statement?
a. Income Statement.
b. Retained Earnings Statement.
c. Statement of Cash Flows.
d. None of these answer choices are correct.
IMA: Reporting
Use the following data, taken from the adjusted trial balance, for 70 and 71.
Debit Credit
Cash € 5,712
Accounts Receivable 3,904
Supplies 480
Accounts Payable € 2,792
Unearned Service Revenue 160
Share Capital-Ordinary 5,000
Retained Earnings 1,760
Dividends 300
Service Revenue 4,064
Salaries and Wages Expense 1,344
Miscellaneous Expense 256
Supplies Expense 2,228
Salaries and Wages Payable 448
Total €14,224 €14,224
70. What amount will be reflected for Retained Earnings in the Statement of Financial Position
columns of the worksheet?
a. €1,996
b. €1,760
c. €1,696
d. €2,060
IMA: Reporting
71. What will be the total of the Statement of Financial Position credit column?
a. €14,224
b. €10,160
c. €13,988
d. €10,396
Ans: D, LO: 1, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
72. Which of the following accounts is least likely to have its balance change on the
worksheet?
a. Salaries and Wages Payable.
b. Supplies.
c. Accumulated Depreciation.
d. Share Capital-Ordinary.
IMA: Reporting
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73. Which of the following permanent account is changed during the closing process?
a. Share Capital-Ordinary.
b. Retained Earnings.
c. Unearned Service Revenue.
d. None of these answer choices are correct.
Ans: B, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA
74. The temporary account balances ultimately wind up in what account?
a. Income Summary.
b. Retained Earnings.
c. Share Capital-Ordinary.
d. Comprehensive Income.
FSA
75. The permanent accounts appear on which financial statement?
a. Statement of Financial Position.
b. Income Statement.
c. Retained Earnings Statement.
d. Statement of Cash Flows.
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA:
FSA
76. Closing entries are necessary for
a. permanent accounts only.
b. temporary accounts only.
c. both permanent and temporary accounts.
d. permanent or real accounts only.
FSA
77. Each of the following accounts is closed to Income Summary except
a. Expenses.
b. Dividends.
c. Revenues.
d. All of these answer choices are correct.
FSA
78. Closing entries are made
a. in order to terminate the business as an operating entity.
b. so that all assets, liabilities, and equity accounts will have zero balances when the
next accounting period starts.
c. in order to transfer net income (or loss) and dividends to Retained Earnings.
d. so that financial statements can be prepared.
Ans: C, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving,
IMA: FSA
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79. Closing entries are
a. an optional step in the accounting cycle.
b. posted to the ledger accounts from the worksheet.
c. made to close permanent or real accounts.
d. journalized in the general journal.
Ans: D, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving,
IMA: FSA
80. The Income Summary account
a. is a permanent account.
b. appears on the statement of financial position.
c. appears on the income statement.
d. is a temporary account.
IMA: FSA
81. If Income Summary has a credit balance after revenues and expenses have been closed
into it, the closing entry for Income Summary will include a
a. debit to Retained Earnings.
b. debit to Dividends.
c. credit to Retained Earnings.
d. credit to Dividends.
Reporting
82. Closing entries are journalized and posted
a. before the financial statements are prepared.
b. after the financial statements are prepared.
c. at management's discretion.
d. at the end of each interim accounting period.
Solving, IMA: FSA
83. Closing entries
a. are prepared before the financial statements.
b. reduce the number of permanent accounts.
c. cause the revenue and expense accounts to have zero balances.
d. summarize the activity in every account.
Solving, IMA: FSA
84. Which of the following is a true statement about closing the books of a corporation?
a. Expenses are closed to the Expense Summary account.
b. Only revenues are closed to the Income Summary account.
c. Revenues and expenses are closed to the Income Summary account.
d. Revenues, expenses, and the Dividends account are closed to the Income Summary
account.
Solving, IMA: FSA
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85. Closing entries may be prepared from all but which one of the following sources?
a. Adjusted balances in the ledger
b. Income statement and statement of financial position columns of the worksheet
c. Statement of financial position
d. Income and retained earnings statements
Solving, IMA: FSA
86. In order to close the Dividends account, the
a. income summary account should be debited.
b. income summary account should be credited.
c. retained earnings account should be credited.
d. retained earnings account should be debited.
Solving, IMA: FSA
87. In preparing closing entries
a. each revenue account will be credited.
b. each expense account will be credited.
c. the retained earnings account will be debited if there is net income for the period.
d. the dividends account will be debited.
Solving, IMA: FSA
88. The most efficient way to accomplish closing entries is to
a. credit the income summary account for each revenue account balance.
b. debit the income summary account for each expense account balance.
c. credit the dividends account balance directly to the income summary account.
d. credit the income summary account for total revenues and debit the income summary
account for total expenses.
Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
89. The closing entry process consists of closing
a. all asset and liability accounts.
b. out the retained earnings account.
c. all permanent accounts.
d. all temporary accounts.
Solving, IMA: FSA
90. The final closing entry to be journalized is typically the entry that closes the
a. revenue accounts.
b. dividends account.
c. retained earnings account.
d. expense accounts.
Solving, IMA: FSA
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91. An error has occurred in the closing entry process if
a. revenue and expense accounts have zero balances.
b. the retained earnings account is credited for the amount of net income.
c. the dividends account is closed to the retained earnings account.
d. the statement of financial position accounts have zero balances.
Ans: D, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving,
IMA: FSA
92. The Income Summary account is an important account that is used
a. during interim periods.
b. in preparing adjusting entries.
c. annually in preparing closing entries.
d. annually in preparing correcting entries.
Solving, IMA: FSA
93. The balance in the income summary account before it is closed will be equal to
a. the net income or loss on the income statement.
b. the beginning balance in the retained earnings account.
c. the ending balance in the retained earnings account.
d. zero.
Ans: A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
94. After closing entries are posted, the balance in the retained earnings account in the ledger
will be equal to
a. the beginning retained earnings reported on the retained earnings statement.
b. the amount of the retained earnings reported on the statement of financial position.
c. zero.
d. the net income for the period.
Ans: B, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
95. The income statement for the month of June, 2017 of Taylor Enterprises contains the
following information:
Revenues ₤16,000
Expenses:
Salaries and Wages Expense ₤4,000
Rent Expense 3,000
Supplies Expense 600
Advertising Expense 400
Insurance Expense 200
Total expenses 8,200
Net income ₤7,800
The entry to close the revenue account includes a
a. debit to Income Summary for ₤7,800.
b. credit to Income Summary for ₤7,800.
c. debit to Income Summary for ₤16,000.
d. credit to Income Summary for ₤16,000.
IMA: Reporting
4 - 14
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Revenues ₤16,000
Expenses:
Rent Expense 3,000
Net income ₤7,800
The entry to close the expense accounts includes a
a. debit to Income Summary for ₤7,800.
b. credit to Rent Expense for ₤3,000.
c. credit to Income Summary for ₤8,200.
d. debit to Salaries and Wages Expense for ₤2,000.
IMA: Reporting
Revenues ₤16,000
Expenses:
Rent Expense 3,000
Net income ₤7,800
After the revenue and expense accounts have been closed, the balance in Income
Summary will be
a. ₤0.
b. a debit balance of ₤7,800.
c. a credit balance of ₤7,800.
d. a credit balance of ₤16,000.
Ans: C, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
4 - 15
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Revenues ₤16,000
Expenses:
Rent Expense 3,000
Net income ₤7,800
The entry to close Income Summary to Retained Earnings includes
a. a debit to Revenue for ₤16,000.
b. credits to Expenses totalling ₤8,200.
c. a credit to Income Summary for ₤7,800
d. a credit to Retained Earnings for ₤7,800.
IMA: Reporting
Revenues ₤16,000
Expenses:
Rent Expense 3,000
Net income ₤7,800
At June 1, 2017, Taylor reported Retained Earnings of ₤70,000. The company paid no
dividends during June. At June 30, 2017, the company will report Retained Earnings of
a. ₤70,000.
b. ₤86,000.
c. ₤77,800.
d. ₤62,200.
Ans: C, LO: 2, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
4 - 16
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100. The income statement for the year 2017 of Poole Co. contains the following information:
Revenues $150,000
Expenses:
Salaries and Wages Expense $90,000
Rent Expense 32,000
Advertising Expense 12,000
Utilities Expense 5,000
Insurance Expense 4,000
Net income (loss) $ (5,000)
The entry to close the revenue account includes a
a. debit to Income Summary for $5,000.
b. credit to Income Summary for $5,000.
c. debit to Revenues for $150,000.
d. credit to Revenues for $150,000.
IMA: Reporting
Revenues $150,000
Expenses:
Rent Expense 32,000
The entry to close the expense accounts includes a
a. debit to Income Summary for $5,000.
b. credit to Income Summary for $5,000.
c. debit to Income Summary for $155,000.
d. debit to Salaries and Wages Expense for $90,000.
IMA: Reporting
4 - 17
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Revenues $150,000
Expenses:
Rent Expense 32,000
After the revenue and expense accounts have been closed, the balance in Income
Summary will be
a. $0.
b. a debit balance of $5,000.
c. a credit balance of $5,000.
d. a credit balance of $150,000.
IMA: Reporting
Revenues $150,000
Expenses:
Rent Expense 32,000
The entry to close Income Summary to Retained Earnings includes
a. a debit to Revenue for $150,000.
b. credits to Expenses totalling $155,000.
c. a credit to Income Summary for $5,000.
d. a credit to Retained Earnings for $5,000.
IMA: Reporting
4 - 18
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Revenues $150,000
Expenses:
Rent Expense 32,000
At January 1, 2017, Poole reported Retained Earnings of $100,000. Dividends for the
year totalled $20,000. At December 31, 2017, the company will report Retained Earnings
of
a. $35,000.
b. $75,000.
c. $80,000.
d. $85,000.
Ans: B, LO: 2, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Revenues $150,000
Expenses:
Rent Expense 32,000
After all closing entries have been posted, the Income Summary account will have a
balance of
a. $0.
b. $5,000 debit.
c. $5,000 credit.
d. $75,000 credit.
Ans: A, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
4 - 19
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Revenues $150,000
Expenses:
Rent Expense 32,000
After all closing entries have been posted, the revenue account will have a balance of
a. $0.
b. $150,000 credit.
c. $150,000 debit.
d. $5,000 credit.
Ans: A, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
107. A post-closing trial balance is prepared
a. after closing entries have been journalized and posted.
b. before closing entries have been journalized and posted.
c. after closing entries have been journalized but before the entries are posted.
d. before closing entries have been journalized but after the entries are posted.
Reporting
108. All of the following statements about the post-closing trial balance are correct except it
a. shows that the accounting equation is in balance.
b. provides evidence that the journalizing and posting of closing entries have been
properly completed.
c. contains only permanent accounts.
d. proves that all transactions have been recorded.
Ans: D, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
109. A post-closing trial balance will show
a. only permanent account balances.
b. only temporary account balances.
c. zero balances for all accounts.
d. the amount of net income (or loss) for the period.
Reporting
110. A post-closing trial balance should be prepared
a. before closing entries are posted to the ledger accounts.
b. after closing entries are posted to the ledger accounts.
c. before adjusting entries are posted to the ledger accounts.
d. only if an error in the accounts is detected.
Ans: B, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
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111. A post-closing trial balance will show
a. zero balances for all accounts.
b. zero balances for statement of financial position accounts.
c. only statement of financial position accounts.
d. only income statement accounts.
Reporting
112. The purpose of the post-closing trial balance is to
a. prove that no mistakes were made.
b. prove the equality of the statement of financial position account balances that are
carried forward into the next accounting period.
c. prove the equality of the income statement account balances that are carried forward
into the next accounting period.
d. list all the statement of financial position accounts in alphabetical order for easy
reference.
Reporting
113. The balances that appear on the post-closing trial balance will match the
a. income statement account balances after adjustments.
b. statement of financial position account balances after closing entries.
c. income statement account balances after closing entries.
d. statement of financial position account balances after adjustments.
Reporting
114. Which account listed below would be double ruled in the ledger as part of the closing
process?
a. Cash
b. Retained Earnings
c. Dividends
d. Accumulated Depreciation
Reporting
115. A double rule applied to accounts in the ledger during the closing process implies that
a. the account is an income statement account.
b. the account is a statement of financial position account.
c. the account balance is not zero.
d. a mistake has been made, since double ruling is prescribed.
Reporting
116. The heading for a post-closing trial balance has a date line that is similar to the one found on
a. a statement of financial position.
b. an income statement.
c. a retained earnings statement.
d. a worksheet.
Reporting
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117. Which account balance will change between the adjusted trial balance and the post-
closing trial balance?
a. Retained Earnings
b. Share Capital-Ordinary
c. Interest Payable
d. Accumulated Depreciation
Reporting
118. Which one of the following is usually prepared only at the end of a company's annual
accounting period?
a. Preparing financial statements
b. Journalizing and posting adjusting entries
c. Journalizing and posting closing entries
d. Preparing an adjusted trial balance
Reporting
119. The step in the accounting cycle that is performed on a periodic basis (i.e., monthly,
quarterly) is
a. analyzing transactions.
b. journalizing and posting adjusting entries.
c. preparing a post-closing trial balance.
d. posting to ledger accounts.
Solving, IMA: FSA
120. Which one of the following is an optional step in the accounting cycle of a business
enterprise?
a. Analyze business transactions
b. Prepare a worksheet
c. Prepare a trial balance
d. Post to the ledger accounts
Solving, IMA: FSA
121. The final step in the accounting cycle is to prepare
a. closing entries.
b. financial statements.
c. a post-closing trial balance.
d. adjusting entries.
Solving, IMA: FSA
122. Which of the following steps in the accounting cycle would not generally be performed
daily?
a. Journalize transactions
b. Post to ledger accounts
c. Prepare adjusting entries
d. Analyze business transactions
Solving, IMA: FSA
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123. Which of the following steps in the accounting cycle may be performed most frequently?
a. Prepare a post-closing trial balance
b. Journalize closing entries
c. Post closing entries
d. Prepare a trial balance
Solving, IMA: FSA
124. Which of the following depicts the proper sequence of steps in the accounting cycle?
a. Journalize the transactions, analyze business transactions, prepare a trial balance
b. Prepare a trial balance, prepare financial statements, prepare adjusting entries
c. Prepare a trial balance, prepare adjusting entries, prepare financial statements
d. Prepare a trial balance, post to ledger accounts, post adjusting entries
Solving, IMA: FSA
125. The two optional steps in the accounting cycle are preparing
a. a post-closing trial balance and reversing entries.
b. a worksheet and post-closing trial balances.
c. reversing entries and a worksheet.
d. an adjusted trial balance and a post-closing trial balance.
Solving, IMA: FSA
126. The first required step in the accounting cycle is
a. reversing entries.
b. journalizing transactions in the book of original entry.
c. analyzing transactions.
d. posting transactions.
Solving, IMA: FSA
127. Correcting entries
a. always affect at least one balance sheet account and one income statement account.
b. affect income statement accounts only.
c. affect statement of financial position accounts only.
d. may involve any combination of accounts in need of correction.
Reporting
128. Topeka Bike Company received a $920 check from a customer for the balance due. The
transaction was erroneously recorded as a debit to Cash $290 and a credit to Service
Revenue $290. The correcting entry is
a. debit Cash, $920; credit Accounts Receivable, $920.
b. debit Cash, $630 and Accounts Receivable, $290; credit Service Revenue, $920.
c. debit Cash, $630 and Service Revenue, $290; credit Accounts Receivable, $920.
d. debit Accounts Receivable, $920; credit Cash, $630 and Service Revenue, $290.
IMA: Reporting
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129. If errors occur in the recording process, they
a. should be corrected as adjustments at the end of the period.
b. should be corrected as soon as they are discovered.
c. should be corrected when preparing closing entries.
d. cannot be corrected until the next accounting period.
Reporting
130. A correcting entry
a. must involve one statement of financial position account and one income statement
account.
b. is another name for a closing entry.
c. may involve any combination of accounts.
d. is a required step in the accounting cycle.
Reporting
131. An unacceptable way to make a correcting entry is to
a. reverse the incorrect entry.
b. erase the incorrect entry.
c. compare the incorrect entry with the correct entry and make a correcting entry to
correct the accounts.
d. correct it immediately upon discovery.
Reporting
132. Farr Company paid the weekly payroll on January 2 by debiting Salaries and Wages
Expense for $75,000. The accountant preparing the payroll entry overlooked the fact that
Salaries and Wages Expense of $45,000 had been accrued at year end on December 31.
The correcting entry is
a. Salaries and Wages Payable............................................... 45,000
Cash......................................................................... 45,000
b. Cash.................................................................................... 30,000
Salaries and Wages Expense.................................. 30,000
c. Salaries and Wages Payable............................................... 45,000
d. Cash.................................................................................... 45,000
Ans: C, LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
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133. Stine Company paid €850 on account to a creditor. The transaction was erroneously
recorded as a debit to Cash of €580 and a credit to Accounts Receivable, €580. The
correcting entry is
a. Accounts Payable................................................................ 850
Cash......................................................................... 850
b. Accounts Receivable........................................................... 580
Cash......................................................................... 580
c. Accounts Receivable........................................................... 580
Accounts Payable.................................................... 580
d. Accounts Receivable........................................................... 580
Accounts Payable................................................................ 850
Cash......................................................................... 1,430
Ans: D, LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
134. A lawyer collected $620 of legal fees in advance. He erroneously debited Cash for $260
and credited Accounts Receivable for $260. The correcting entry is
a. Cash.................................................................................... 260
Accounts Receivable........................................................... 360
Unearned Service Revenue..................................... 620
b. Cash.................................................................................... 620
Service Revenue...................................................... 620
c. Cash.................................................................................... 360
Accounts Receivable........................................................... 260
Unearned Service Revenue..................................... 620
d. Cash.................................................................................... 360
Accounts Receivable................................................ 360
Ans: C, LO: 5, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
135. On May 25, Carlin Company received a $550 check from Andy Jeter for services to be
performed in the future. The bookkeeper for Carlin Company incorrectly debited Cash for
$550 and credited Accounts Receivable for $550. The amounts have been posted to the
ledger. To correct this entry, the bookkeeper should:
a. debit Cash $550 and credit Unearned Service Revenue $550.
b. debit Accounts Receivable $550 and credit Service Revenue $550.
c. debit Accounts Receivable $550 and credit Cash $550.
d. debit Accounts Receivable $550 and credit Unearned Service Revenue $550.
Solving, IMA: FSA
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136. On March 8, Fernetti Company bought office supplies on account from the Flint Company for
$550. Fernetti Company incorrectly debited Equipment for $500 and credited Accounts
Payable for $500. The entries have been posted to the ledger. the correcting entry should be:
a. Supplies............................................................................... 550
Accounts Payable.......................................................... 550
b. Supplies............................................................................... 550
Equipment...................................................................... 50
c. Supplies............................................................................... 550
Equipment...................................................................... 550
d. Supplies............................................................................... 550
Equipment...................................................................... 500
Solving, IMA: FSA
137. The following information (in thousands) is for Zháng Office Supplies:
Zháng Office Supplies
Statement of Financial Position
December 31, 2017
Trademark ¥280,000 Share Capital ¥480,000
Land ¥360,000 Retained
Earnings 1,000,000
Buildings ¥400,000 ¥1,480,000
Less:Accum.
Depreciation 80,000 320,000 680,000
Land Held for
Investment 300,000
Accounts
Payable 240,000
Prepaid
Insurance 120,000
Salaries
Wages
Payable 40,000
Inventory 280,000
Mortgage
Payable 360,000 640,000
Accounts
Receivable 200,000
Cash 260,000
Total Assets ¥2,120,000
Total Equity
and Liabilities ¥ 2,120,000
The total amount of assets to be classified as current assets is
a. ¥1,160,000.
b. ¥860,000.
c. ¥720,000.
d. ¥580,000.
IMA: Reporting
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December 31, 2017
Earnings 1,000,000
Buildings ¥400,000 ¥1,480,000
Less:Accum.
Depreciation 80,000 320,000 680,000
Land Held for
Investment 300,000
Accounts
Payable 240,000
Prepaid
Insurance
120,000
Salaries
Wages
Payable 40,000
Inventory
280,000
Mortgage
Payable 360,000 640,000
Accounts
Receivable 200,000
Cash 260,000
Total Assets ¥2,120,000
Total Equity
and Liabilities ¥ 2,120,000
The total amount of assets to be classified as property, plant, and equipment is
a. ¥1,280,000.
b. ¥680,000.
c. ¥980,000.
d. ¥760,000.
IMA: Reporting
4 - 27
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December 31, 2017
Earnings 1,000,000
Buildings ¥400,000 ¥1,480,000
Less:Accum.
Depreciation 80,000 320,000 680,000
Land Held for
Investment
300,000 Accounts
Payable 240,000
Prepaid
Insurance
120,000 Salaries
Wages
Payable 40,000
Inventory 280,000 Mortgage
Payable 360,000 640,000
Accounts
Receivable
200,000
Cash 260,000
Total Assets ¥2,120,000 Total Equity
and Liabilities
¥ 2,120,000
The total amount of assets to be classified as investments is
a. ¥0.
b. ¥600,000.
c. ¥300,000.
d. ¥720,000.
IMA: Reporting
4 - 28
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December 31, 2017
Earnings 1,000,000
Buildings ¥400,000 ¥1,480,000
Less:Accum.
Depreciation 80,000 320,000 680,000
Land Held for
Investment
300,000 Accounts
Payable 240,000
Prepaid
Insurance
120,000 Salaries
Wages
Payable 40,000
Inventory 280,000 Mortgage
Payable 360,000 640,000
Accounts
Receivable
200,000
Cash 260,000
Total Assets ¥2,120,000 Total Equity
and Liabilities
¥ 2,120,000
The total amount of liabilities to be classified as current liabilities is
a. ¥280,000.
b. ¥240,000.
c. ¥600,000.
d. ¥640,000.
Ans: A, LO: 6, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
4 - 29
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141. The following information is for Acme Auto Supplies:
Acme Auto Supplies
December 31, 2017
Trademark $ 420,000 Share Capital $720,000
Land $570,000
Retained
Earnings 1,500,000
Buildings $600,000
Less:Accum.
Depreciation 180,000 420,000 990,000
Land Held for
Investment 480,000
Prepaid Insurance
240,000
Accounts
Payable
390,000
Inventory
420,000
Salaries/Wages
Payable
60,000
Accounts
Receivable 300,000
Mortgage
Payable 540,000 990,000
Cash 360,000 $ 2,220,000
Total Assets
$ 3,210,000
Total Equity
and Liabilities
$ 3,210,000
The total dollar amount of assets to be classified as current assets is
a. $1,320,000.
b. $900,000.
c. $1,800,000.
d. $1,080,000.
IMA: Reporting
4 - 30
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Acme Auto Supplies
December 31, 2017
Land $570,000 Retained
Earnings 1,500,000
Buildings $600,000
Less:Accum.
Depreciation 180,000 420,000 990,000
Land Held for
Investment
480,000
Prepaid Insurance 240,000 Accounts
Payable
390,000
Inventory 420,000 Salaries/Wages
Payable
60,000
Accounts
Receivable
300,000 Mortgage
Payable 540,000 990,000
Cash 360,000 $ 2,220,000
Total Assets $ 3,210,000 Total Equity
and Liabilities
$ 3,210,000
The total dollar amount of assets to be classified as property, plant, and equipment is
a. $1,890,000.
b. $1,470,000.
c. $990,000.
d. $1,170,000.
IMA: Reporting
4 - 31
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Acme Auto Supplies
December 31, 2017
Earnings 1,500,000
Buildings $600,000
Less:Accum.
Depreciation 180,000 420,000 990,000
Land Held for
Investment
480,000
Payable
390,000
Payable
60,000
Accounts
Receivable
300,000 Mortgage
Payable 540,000 990,000
Cash 360,000 $ 2,220,000
and Liabilities
$ 3,210,000
The total dollar amount of assets to be classified as investments is
a. $0.
b. $900,000.
c. $480,000.
d. $1,080,000.
IMA: Reporting
4 - 32
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Acme Auto Supplies
December 31, 2017
Earnings 1,500,000
Buildings $600,000
Less:Accum.
Depreciation 180,000 420,000 990,000
Land Held for
Investment
480,000
Payable
390,000
Payable
60,000
Accounts
Receivable
300,000 Mortgage
Payable 540,000 990,000
Cash 360,000 $ 2,220,000
and Liabilities
$ 3,210,000
The total dollar amount of liabilities to be classified as current liabilities is
a. $390,000.
b. $450,000.
c. $930,000.
d. $990,000.
IMA: Reporting
145. All of the following are property, plant, and equipment except
a. supplies.
b. machinery.
c. land.
d. buildings.
Reporting
146. The first item listed under current liabilities is usually
a. accounts payable.
b. notes payable.
c. salaries and wages payable.
d. taxes payable.
Reporting
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147. Equipment is classified in the statement of financial position as
a. a current asset.
b. property, plant, and equipment.
c. an intangible asset.
d. a long-term investment.
Ans: B, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
148. A current asset is
a. the last asset purchased by a business.
b. an asset which is currently being used to produce a product or service.
c. usually found as a separate classification in the income statement.
d. an asset that a company expects to convert to cash or use up within one year.
Reporting
149. An intangible asset
a. does not have physical substance, yet often is very valuable.
b. is worthless because it has no physical substance.
c. is converted into a tangible asset during the operating cycle.
d. cannot be classified on the statement of financial position because it lacks physical
substance.
Reporting
150. Liabilities are generally classified on a statement of financial position as
a. small liabilities and large liabilities.
b. present liabilities and future liabilities.
c. tangible liabilities and intangible liabilities.
d. current liabilities and non-current liabilities.
Ans: D, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
151. Which of the following would not be classified as a non-current liability?
a. Current maturities of long-term debt
b. Bonds payable
c. Mortgage payable
d. Lease liabilities
Reporting
152. Which of the following liabilities are not related to the operating cycle?
a. Salaries and wages payable
b. Accounts payable
c. Utilities payable
d. Bonds payable
Reporting
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153. Intangible assets include each of the following except
a. copyrights.
b. goodwill.
c. land improvements.
d. patents.
Reporting
154. It is not true that current assets are assets that a company expects to
a. realize in cash within one year.
b. sell within one year.
c. use up within one year.
d. acquire within one year.
Reporting
155. The operating cycle of a company is the average time that is required to go from cash to
a. sales in producing revenues.
b. cash in producing revenues.
c. inventory in producing revenues.
d. accounts receivable in producing revenues.
Reporting
156. On a classified statement of financial position, current assets are customarily listed
a. in alphabetical order.
b. with the largest dollar amounts first.
c. in the reverse order of liquidity.
d. in the order of acquisition.
Reporting
157. Intangible assets are
a. listed under current assets on the statement of financial position.
b. not listed on the statement of financial position because they do not have physical
substance.
c. non-current resources.
d. listed as a long-term investment on the statement of financial position.
Reporting
158. The relationship between current assets and current liabilities is important in evaluating a
company's
a. profitability.
b. liquidity.
c. market value.
d. accounting cycle.
Ans: B, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem
4 - 35
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159. The most important information needed to determine if companies can pay their current
obligations is the
a. net income for this year.
b. projected net income for next year.
c. relationship between current assets and current liabilities.
d. relationship between short-term and non-current liabilities.
Ans: C, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Problem
160. The following items (in thousands) are taken from the financial statements of Huang
Company for the year ending December 31, 2017:
Accounts payable ¥ 72,000
Accounts receivable 44,000
Accumulated depreciation–equipment 112,000
Advertising expense 84,000
Cash 60,000
Share capital-ordinary 168,000
Dividends 56,000
Depreciation expense 48,000
Equipment 840,000
Insurance expense 12,000
Note payable, due 6/30/18 280,000
Prepaid insurance (12-month policy) 24,000
Rent expense 68,000
Retained earnings (1/1/17) 240,000
Salaries and wages expense 128,000
Service revenue 532,000
Supplies 16,000
Supplies expense 24,000
What is the company’s net income for the year ending December 31, 2017?
a. ¥532,000
b. ¥168,000
c. ¥112,000
d. ¥48,000
IMA: Reporting
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Accumulated depreciation – equipment 112,000
Cash 60,000
Dividends 56,000
Equipment 840,000
Rent expense 68,000
Supplies 16,000
What is the balance that would be reported for equity at December 31, 2017?
a. ¥408,000
b. ¥520,000
c. ¥576,000
d. ¥632,000
IMA: Reporting
Accumulated depreciation – equipment 112,000
Cash 60,000
Dividends 56,000
Equipment 840,000
Rent expense 68,000
Supplies 16,000
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Multiple Choice 162. (Cont.)
What are total current assets at December 31, 2017?
a. ¥104,000
b. ¥128,000
c. ¥144,000
d. ¥872,000
IMA: Reporting
Cash 60,000
Dividends 56,000
Equipment 840,000
Rent expense 68,000
Supplies 16,000
What is the book value of the equipment at December 31, 2017?
a. ¥952,000
b. ¥840,000
c. ¥728,000
d. ¥680,000
IMA: Reporting
Cash 60,000
Dividends 56,000
Equipment 840,000
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Rent expense 68,000
Supplies 16,000
What are total current liabilities at December 31, 2017?
a. ¥72,000
b. ¥280,000
c. ¥352,000
d. ¥0
IMA: Reporting
Cash 60,000
Dividends 56,000
Equipment 840,000
Rent expense 68,000
Supplies 16,000
What are total non-current liabilities at December 31, 2017?
a. ¥0
b. ¥280,000
c. ¥352,000
d. ¥360,000
IMA: Reporting
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Cash 60,000
Dividends 56,000
Equipment 840,000
Rent expense 68,000
Supplies 16,000
What is total equity and liabilities at December 31, 2017?
a. ¥704,000
b. ¥760,000
c. ¥872,000
d. ¥928,000
IMA: Reporting
Cash 60,000
Dividends 56,000
Equipment 840,000
Rent expense 68,000
Supplies 16,000
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The sub-classifications for assets on the company’s classified statement of financial
position would include all of the following except
a. Current Assets.
b. Property, Plant, and Equipment.
c. Intangible Assets.
d. Long-term Assets.
Ans: D, LO: 6, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Cash 60,000
Dividends 56,000
Equipment 840,000
Rent expense 68,000
Supplies 16,000
The current assets should be listed on Huang’s statement of financial position in the
following order
a. accounts receivable, prepaid insurance, equipment, cash.
b. accounts receivable, prepaid insurance, supplies, cash.
c. prepaid insurance, supplies, accounts, receivable, cash.
d. equipment, supplies, prepaid insurance, accounts receivable, cash.
Ans: C, LO: 6, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
169. Which statement about long-term investments is not true?
a. They will be held for more than one year.
b. They are not currently used in the operation of the business.
c. They include investments in shares of other companies and land held for future use.
d. They can never include cash accounts.
IMA: FSA
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170. What is the order in which assets are generally listed on a classified statement of financial
position?
a. Current and long-term.
b. Intangible assets; long-term investments; property, plant, and equipment; current.
c. Long-term investments; property, plant, and equipment; intangible assets; current
d. Intangible assets; property, plant, and equipment; long-term investments; current.
Reporting
171. These are selected account balances on December 31, 2017.
Land (location of the corporation’s office building) $400,000
Land (held for future use) 600,000
Office Building 2,900,000
Inventory 800,000
Equipment 1,800,000
Office Furniture 400,000
Accumulated Depreciation 1,200,000
What is the total amount of property, plant, and equipment that will appear on the
statement of financial position?
a. $5,700,000
b. $4,900,000
c. $6,900,000
d. $4,300,000
Ans: D, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
172. The following selected account balances appear on the December 31, 2017 statement of
financial position of Chen Co.
Land (location of the corporation’s office building) $300,000
Land (held for future use) 450,000
Office Building 2,400,000
Inventory 600,000
Equipment 1,350,000
Office Furniture 300,000
Accumulated Depreciation 900,000
What is the total amount of property, plant, and equipment that will be reported on the
statement of financial position?
a. $4,500,000
b. $3,900,000
c. $5,400,000
d. $3,450,000
IMA: Reporting
173. Which classification of assets will appear first in the Statement of Financial Position?
a. Current Assets.
b. Long-term investments.
c. Property,Plant and Equipment.
d. Intangible Assets.
Reporting
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174. Which classification of assets will appear last in the Statement of Financial Position?
a. Intangible Assets.
b. Current Assets.
c. Long-term investments.
d. Property,Plant and Equipment.
Reporting
175. Which account will appear last under the current assets classification on the Statement of
Financial Position?
a. Accounts Receivable.
b. Prepaid Expenses.
c. Short-term investments.
d. Cash.
Reporting
176. Which of the following classification appears last in the Statement of Financial Position?
a. Non-current Liabilities.
b. Equity.
c. Current Liabilities.
d. Reserves.
Reporting
177. Which of the following is in the proper position?
a. Equity;Current Liabilities;Non-current Liabilities.
b. Equity;Non-current Liabilities;Current Liabilities.
c. Current Liabilities;Non-current Liabilities;Equity.
d. Non-Current Liabilities; Current Liabilities;Equity.
Reporting
178. The following data (in thousands) is available for Chang Company.
Debit Credit
Mortgage payable ¥ 2,829
Prepaid expenses ¥ 2,640
Equipment 34,500
Patents 792
Short-term investments 11,070
Notes payable in 2018 1,443
Cash 8,004
Accumulated depreciation 16,965
Accounts payable 4,332
Notes payable after 2018 1,104
Retained earnings 9,189
Inventories 3,768
Total ¥ 65,862 ¥ 65,862
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Total assets on the Statement of Financial Position for 2017 are:
a. ¥65,862.
b. ¥48,897.
c. ¥82,827.
d. ¥46,257.
Ans: B, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Debit Credit
Equipment 34,500
Patents 792
Cash 8,004
Inventories 3,768
Total ¥ 65,862 ¥ 65,862
The subtotal of the last asset classification on the 2014 Statement of Financial Position is:
a. ¥17,535.
b. ¥27,930.
c. ¥34,500.
d. ¥30,570.
IMA: Reporting
Debit Credit
Equipment 34,500
Patents 792
Cash 8,004
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Inventories 3,768
Total ¥ 65,862 ¥ 65,862
The subtotal of the first asset classification on the 2017 Statement of Financial Position is:
a. ¥30,570
b. ¥27,930
c. ¥792
d. ¥11,070
Ans: C, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
Debit Credit
Equipment 34,500
Patents 792
Cash 8,004
Inventories 3,768
Total ¥ 65,862 ¥ 65,862
The subtotal of the last equity and liabilities classification on the 2017 Statement of
Financial Position is:
a. ¥5,775.
b. ¥3,933.
c. ¥39,189.
d. ¥4,332.
Ans: A, LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
182. Which of the following is in the proper order?
a. Cash; Short-term Investments; Accounts Receivable; Inventories; Supplies.
b. Cash; Short-term Investments; Inventories; Accounts Receivable; Supplies.
c. Supplies; Inventories; Accounts Receivables; Short-term Investments; Cash.
d. Supplies; Accounts Receivables; Inventories; Short-term Investments; Cash.
Reporting
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183. Which of the following accounts does not appear in the Statement of Financial Position?
a. Retained Earnings
b. Unearned Revenues
c. Dividends
d. Share Capital-Ordinary
Ans: c, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
a
184. A reversing entry
a. reverses entries that were made in error.
b. is the exact opposite of an adjusting entry made in a previous period.
c. is made when a business disposes of an asset it previously purchased.
d. is made when a company sustains a loss in one period and reverses the effect with a
profit in the next period.
Solving, IMA: FSA
a
185. If a company utilizes reversing entries, they will
a. be made at the beginning of the next accounting period.
b. not actually be posted to the general ledger accounts.
c. be made before the post-closing trial balance.
d. be part of the adjusting entry process.
Ans: A, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
186. The steps in the preparation of a worksheet do not include
a. analyzing documentary evidence.
b. preparing a trial balance on the worksheet.
c. entering the adjustments in the adjustment columns.
d. entering adjusted balances in the adjusted trial balance columns.
Ans: A, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem
Solving, IMA: FSA
187. Statement of financial position accounts are considered to be
a. temporary owner's equity accounts.
b. permanent accounts.
c. capital accounts.
d. nominal accounts.
Reporting
188. Income Summary has a credit balance of $12,000 in J. Wenger Co. after closing revenues
and expenses. The entry to close Income Summary is
a. credit Income Summary $12,000, debit Retained Earnings $12,000.
b. credit Income Summary $12,000, debit Dividends $12,000.
c. debit Income Summary $12,000, credit Dividends $12,000.
d. debit Income Summary $12,000, credit Retained Earnings $12,000.
Ans: D, LO: 2, Bloom: K, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving,
IMA: Reporting
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189. The post-closing trial balance contains only
a. income statement accounts.
b. statement of financial position accounts.
c. statement of financial position and income statement accounts.
d. income statement, statement of financial position, and equity statement accounts.
Reporting
190. Which of the following is an optional step in the accounting cycle?
a. Adjusting entries
b. Closing entries
c. Correcting entries
d. Reversing entries
Solving, IMA: FSA
191. Which one of the following statements concerning the accounting cycle is incorrect?
a. The accounting cycle includes journalizing transactions and posting to ledger
accounts.
b. The accounting cycle includes only one optional step.
c. The steps in the accounting cycle are performed in sequence.
d. The steps in the accounting cycle are repeated in each accounting period.
Solving, IMA: FSA
192. Correcting entries are made
a. at the beginning of an accounting period.
b. at the end of an accounting period.
c. whenever an error is discovered.
d. after closing entries.
Reporting
193. On September 23, Riley Company received a $350 check from Jack Colaw for services to
be performed in the future. The bookkeeper for Riley Company incorrectly debited Cash
for $350 and credited Accounts Receivable for $350. The amounts have been posted to
the ledger. To correct this entry, the bookkeeper should
a. debit Cash $350 and credit Unearned Service Revenue $350.
b. debit Accounts Receivable $350 and credit Unearned Service Revenue $350.
c. debit Accounts Receivable $350 and credit Cash $350.
d. debit Accounts Receivable $350 and credit Service Revenue $350.
IMA: Reporting
194. All of the following are equity accounts except
a. Retained Earnings.
b. Share Capital.
c. Investment in Share.
d. Dividends.
Ans: C, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA:
Reporting
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