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Exam 4: Completing the Accounting Cycle

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Question 71

True/False

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Adjustments must be entered in the journal and posted to the ledger after the work sheet is prepared.

A) True
B) False

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Question 72

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Closing entries are required:

A) If the temporary accounts are to reflect correct amounts for each accounting period.
B) Only if the company adheres to the accrual method of accounting.
C) If a company's bookkeeper does not choose to prepare reversing entries.
D) If management has decided to cease operating the business.
E) In order to satisfy the Internal Revenue Service guidelines.

F) C) and D)
G) D) and E)

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Question 73

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Use the information in the adjusted trial balance presented below to calculate current assets for Taron Company: $\begin{array} { | l | r | r | } \hline \text { Account Title } & { \text { Dr. } } & \text { Cr. } \\\hline \text { Cash } & \$ 23,000 & \\\hline \text { Accounts receivable } & 16,000 & \\\hline \text { Prepaid insurance } & 6,600 & \\\hline \text { Equipm ent } & 100,000 & \\\hline \text { Accumulated Depreciation -Equipment } & & \$ 50,000 \\\hline \text { Land } & 95,000 & \\\hline \text { Accounts payable } & & 17,000 \\\hline \text { Interest payable } & & 2,400 \\\hline \text { Unearned revenue } & & 5,000 \\\hline \text { Long-term notes payable } & & 30,000 \\\hline \text { Z. Taron, Capital } & & 136,200 \\\hline \text { Totals } &\$ 240,600 & \$ 240,600\\ \hline\end{array}$

Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and withdrawals accounts for the upcoming period and to update the owner's capital account for the events of the period just finished are referred to as:

Describe a work sheet and explain why it is useful.

Kline Company accrued wages of $7,350 that were earned by employees unpaid at the year-end. Assuming Kline uses reversing entries, which of the following entries correctly reverses the accrued wages at the beginning of the following year?

Balance sheet accounts are called__________ accounts because they carry their balances to the next accounting period, and are not closed as long as the company continues to own the asset, owe the liability and have equity.

The current ratio is used to help assess a company's ability to pay its debts in the near future.

How is the current ratio calculated? How is it used to evaluate a company?

Jen Rogers withdrew a total of $35,000 from her business during the current year. The entry needed to close the withdrawals account is:

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 Wilson Peters, Capital in the process of closing the Income Summary account? (Assume all accounts have normal balances.) $\begin{array}{lr}\text { Wilson Peters, Capital } & \$ 7,000 \\\text { Wilson Peters, Withdrawals } & 9,600\end{array}$ $\begin{array} { l r } \text { Revenue } & 29,000 \\\text { Rent expense } & 3,600 \\\text { Salaries expense } &7,200\\\text { Insurance expense } & 920 \\\text { Depr.Expense-equipment } &500 \\\text { Accum depr.-equipment } & 1,500\end{array}$

A ________ is an optional working paper that helps in preparing financial statements, is useful in preparing interim statements, and is helpful in showing the effects of proposed transactions.

A benefit of using a work sheet is that it aids in the preparation of the financial statements.

How is a classified balance sheet different from an unclassified balance sheet? List the usual order of the categories on a classified balance sheet.

Calculate the current ratio for each of the following companies and identify the company with the strongest liquidity position. $\begin{array} { | l | l | l | } \hline & \text { Current Astets } & \text { Current Liabilities } \\\hline \text { Company A } & \$ 1,752,000 & \$ 1,267,000 \\\hline \text { Company I } & \$ 863,500 & \$ 481,000 \\\hline \text { Company T } & \$ 366,800 & \$ 419,000 \\\hline\end{array}$

The adjusted trial balance of the Waterstone Company follows: $\begin{array}{c} \text { Waterstone Company}\\ \text { Adjusted Trial Balance}\\ \text { December 31}\\ \begin{array}{r|r|c|l} & \text { Debit } & \text { Credit } \\\hline \text { Cash } & 8,000 & \\\hline \text { Erepaid insurance } & 2,400 & \\\hline \text { Equipment } & 18,000 &\end{array}\end{array}$ $\begin{array}{r|c|c}\hline \text { Accumulated depreciation-Equipment } & & 3,600 \\\hline \text { Salaries payable } & & 2,000 \\\hline \text { Unearned repar fees } & & 1,200 \\\hline \text { T. Waterstone, Capital } & & 11,400\\\hline \text { T. Waterstone, Withdrawals } & 4,000 & \\\hline \text { Repair fees earned } & & 27,500 \\\hline \text { Salaries expense } & 10,000 & \\\hline \text { Depreciation expense } & 1,800 & \\\hline \text { Insurance expense } & 1,500 & \\\hline \text { Totals } & 45,700 & 45,700\\\hline \end{array}$ Prepare the closing entries for Waterstone Company.

The F. Mercury, Capital account has a credit balance of $37,000 before closing entries are made. Total revenues for the period are $55,200, total expenses are $39,800, and withdrawals are $9,000. -What is the correct closing entry for the revenue accounts?

The F. Mercury, Capital account has a credit balance of $37,000 before closing entries are made. Total revenues for the period are $55,200, total expenses are $39,800, and withdrawals are $9,000. -What is the correct closing entry for the expense accounts?

The steps in the closing process are (1) close credit balances in revenue accounts to Income Summary; (2) close debit balances in expense accounts to Income Summary; (3) close Income Summary to Owner's Capital; (4) close Withdrawals to Owner's Capital.

The ________ account is a temporary account used only in the closing process.