Copyright © 2007 Prentice-Hall. All rights reserved 1 Completing the Accounting Cycle Chapter 4
Copyright © 2007 Prentice-Hall. All rights reserved 2 The worksheet helps accountants with all of the following except: 1.Post to the accounts 2.Prepare financial statements 3.Close the accounts 4.Make adjusting entries
Copyright © 2007 Prentice-Hall. All rights reserved 3 Answer: 1 The worksheet is a tool that helps accountants organize the end-of-year activities – preparing adjusting and closing entries and the financial statements.
Copyright © 2007 Prentice-Hall. All rights reserved 4 On the work sheet, in the balance sheet columns, if the total credits are $600 and total debits are $200, then 1.An error has been made 2.Net loss is $400 3.Total assets are $400 4.Net income is $400
Copyright © 2007 Prentice-Hall. All rights reserved 5 Answer: 2 The difference between the debit and credit columns is the amount of net income or loss, which is used to balance the columns. In this case, $400 is needed in the debit column to balance them. A debit indicates that capital is decreasing.
Copyright © 2007 Prentice-Hall. All rights reserved 6 Granite Company had revenues of $600 and expenses of $200 during the year. The owner’s beginning capital balance was $1,000, and the owner made no additional investments during the year. What is the balance in the capital account on Granite Company’s worksheet?
Copyright © 2007 Prentice-Hall. All rights reserved 7 Answer: $1,000 The capital balance on the worksheet is the amount in the account before closing entries. If the beginning balance was $1,000 and there were no additional investments, $1,000 would appear in the worksheet.
Copyright © 2007 Prentice-Hall. All rights reserved 8 The purpose of closing entries is to 1.Get the accounts ready for the next period 2.Verify that the balances in the accounts are correct 3.Ensure that debits equal credits 4.Bring the accounts up to date so that financial statements can be prepared
Copyright © 2007 Prentice-Hall. All rights reserved 9 Answer: 1 Closing entries zero out the temporary accounts and transfers their balances to the owner’s capital account. The temporary accounts are now ready to begin measuring activity for the next accounting period.
Copyright © 2007 Prentice-Hall. All rights reserved 10 Which of the following accounts would not be closed? 1.Utilities Expense 2.Accumulated Depreciation 3.Service Revenue 4.Withdrawals
Copyright © 2007 Prentice-Hall. All rights reserved 11 Answer: 2 Accumulated depreciation is a permanent account and is reported on the balance sheet. Permanent account balances carry forward into the next period.
Copyright © 2007 Prentice-Hall. All rights reserved 12 Which of the following is a permanent account? 1.Fees earned 2.Unearned revenue 3.Depreciation expense 4.Income summary
Copyright © 2007 Prentice-Hall. All rights reserved 13 Answer: 2 Unearned revenue is a liability. It’s balance carries forward into the next accounting period.
Copyright © 2007 Prentice-Hall. All rights reserved 14 Revenues for an accounting period are $900 and expenses are $500. The balance in the income summary account before closing it to capital would be 1.$500 debit 2.$900 credit 3.$400 credit 4.$400 debit
Copyright © 2007 Prentice-Hall. All rights reserved 15 Answer: 3 Revenues are closed by debiting revenues and crediting income summary. Expenses are closed by debiting income summary and crediting expenses. Income Summary Bal
Copyright © 2007 Prentice-Hall. All rights reserved 16 Which account would not appear in the postclosing trial balance? 1.Cash 2.Prepaid Insurance 3.Fees earned 4.E. Morgan, Capital
Copyright © 2007 Prentice-Hall. All rights reserved 17 Answer: 3 Fees earned is a temporary account and would have been closed before the postclosing trial balance was prepared.
Copyright © 2007 Prentice-Hall. All rights reserved 18 In what order are assets listed on a classified balance sheet? 1.In the order of their liquidity 2.Alphabetically 3.In ascending dollar amounts 4.In descending dollars amounts
Copyright © 2007 Prentice-Hall. All rights reserved 19 Answer: 1
Copyright © 2007 Prentice-Hall. All rights reserved 20 Mica Company has the following assets: Land$600 Building800 Inventory300 Accumulated depreciation, Building200 Prepaid rent400 Cash100 How much are total current assets?
Copyright © 2007 Prentice-Hall. All rights reserved 21 Answer: $800 Current assets: Cash$100 Prepaid rent400 Inventory300 $800
Copyright © 2007 Prentice-Hall. All rights reserved 22 Mica Company has the following assets: Land…………………………….$600 Building…………………………800 Inventory………………………..300 Accumulated depreciation, building………………………….200 Prepaid rent…………………….400 Cash…………………………….100 How much are total plant assets?
Copyright © 2007 Prentice-Hall. All rights reserved 23 Answer: $1,200 Current assets: Land$600 Building800 Less Accumulated depreciation(200)600 $1,200
Copyright © 2007 Prentice-Hall. All rights reserved 24 At the end of the accounting period, Quartz Company has a note payable of $82,000. Quartz Company pays $1,000 per month on the principal amount of the note. The company also has $3,000 in accounts payable. How much are total current liabilities?
Copyright © 2007 Prentice-Hall. All rights reserved 25 Answer: $15,000 Current liabilities: Accounts payable$3,000 Currently maturing portion of long-term note12,000 $15,000
Copyright © 2007 Prentice-Hall. All rights reserved 26 A 2:1 current ratio indicates that 1.Current assets are two times greater than current liabilities 2.Total assets are two times greater than total liabilities 3.Current liabilities are two times greater than current assets 4.Total liabilities are two times greater than total assets
Copyright © 2007 Prentice-Hall. All rights reserved 27 Answer: 1 The current ratio is current assets ÷ current liabilities.
Copyright © 2007 Prentice-Hall. All rights reserved 28 A high debt ratio is 1.Safer than a low debt ratio 2.Riskier than a low debt ratio 3.Indicates high profitability 4.Indicates that total assets are considerably higher than total liabilities
Copyright © 2007 Prentice-Hall. All rights reserved 29 Answer: 2 1.The debt ratio is computed by dividing total liabilities by total assets. The debt ratio indicates the proportion of a company’s assets that are financed with debt. A low debt ratio is safer than a high debt ratio.
Copyright © 2007 Prentice-Hall. All rights reserved 30