Practice Brief Exercises 4-33
the correct reversing entry was made on January 1, the entry on Janu-
ary 8 will result in a credit to Cash $3,800 and the following debit(s):
a. Salaries and Wages Payable $1,800 and Salaries and Wages
Expense $2,000.
Solutions
1. b. The worksheet is a working tool of the accountant; it is not
distributed to management and other interested parties. The other
choices are all true statements.
2. c. Net income is entered in the Dr column of the income state-
ment and the Cr column of the balance sheet. The other choices are
incorrect because net income is entered in the (a) Cr (not Dr) column
of the balance sheet, (b) Dr (not Cr) column of the income statement
and in the Cr (not Dr) column of the balance sheet, and (d) Dr (not
Cr) column of the income statement.
3. c. A debit of $120,000 for Equipment would appear in the
balance sheet column. The other choices are incorrect because
(a) Equipment, less accumulated depreciation of $15,000, would total
$105,000 under assets on the balance sheet, not on the worksheet;
(b) a debit, not credit, for Depreciation Expense would appear in the
income statement column; and (d) a credit, not debit, of $15,000 for
Accumulated Depreciation—Equipment would appear in the balance
sheet column.
4. a. The Service Revenue account will have a zero balance after
closing entries have been journalized and posted because it is a tem-
porary account. The other choices are incorrect because (b) Supplies,
(c) Prepaid Insurance, and (d) Accumulated Depreciation—Equip-
ment are all permanent accounts and therefore not closed in the clos-
ing process.
5. b. The effect of a net loss is a credit to Income Summary and
a debit to Owner’s Capital. The other choices are incorrect because
(a) Income Summary is credited, not debited, and Owner’s Capital is
debited, not credited; (c) Income Summary is credited, not debited,
and Owner’s Drawings is not affected; and (d) Owner’s Capital, not
Owner’s Drawings, is debited.
6. c. The correct order is (3) revenues, (1) expenses, (4) income
summary, and (2) drawings. Therefore, choices (a), (b), and (d) are
incorrect.
*16. c. The use of reversing entries simplifies the recording of the
7. a. Permanent accounts appear in the post-closing trial balance.
The other choices are incorrect because (b) temporary accounts and
(c) income statement accounts are closed to a zero balance and are
therefore not included in the post-closing trial balance. Choice (d) is
wrong as there is only one correct answer for this question.
8. d. Preparing a worksheet is not a required step in the accounting
cycle. The other choices are all required steps in the accounting cycle.
Practice Brief Exercises
1. (LO 2) The ledger of Quintana Company contains the following balances: Owner’s Capital
$40,000, Owner’s Drawings $3,000, Service Revenue $65,000, Salaries and Wages Expense $39,000,
and Maintenance and Repairs Expense $9,000. Prepare the closing entries at December 31.
b. Salaries and Wages Payable $2,000 and Salaries and Wages
Expense $1,800.
c. Salaries and Wages Expense $3,800.
d. Salaries and Wages Payable $3,800.
9. c. The proper order of the steps in the accounting cycle is
(1) journalize transactions, (2) post to ledger accounts, (3) prepare
unadjusted trial balance, and (4) journalize and post adjusting entries.
Therefore, choices (a), (b), and (d) are incorrect.
10. d. This entry causes Cash to be overstated and Supplies to be
understated. Supplies should have been debited (increasing supplies)
and Cash should have been credited (decreasing cash). The other
choices are incorrect because (a) Supplies is understated, not over-
stated; (b) Cash is overstated, not understated; and (c) Cash is over-
stated, not understated, and Supplies is understated, not overstated.
11. b. The correcting entry is to debit Accounts Receivable $100
and credit Service Revenue $100. The other choices are incorrect
because (a) Service Revenue should be credited, not debited, and
Accounts Receivable should be debited, not credited; (c) Service
Revenue should be credited for $100, and Cash should not be in-
cluded in the correcting entry as it was recorded properly; and (d)
Accounts Receivable should be debited for $100 and Cash should not
be included in the correcting entry as it was recorded properly.
12. c. Companies list current assets on balance sheet in the order
of liquidity: cash, accounts receivable, inventory, and prepaid insur-
ance. Therefore, choices (a), (b), and (d) are incorrect.
13. c. Long-term investments include long-term assets such as land
that a company is not currently using in its operating activities. The
other choices are incorrect because (a) land would be reported as
property, plant, and equipment only if it is being currently used in
the business; (b) land is an asset, not an expense; and (d) land has
physical substance and thus is a tangible property.
14. d. These are the categories usually used in a classified balance
sheet. The other choices are incorrect because the categories (a) “long-
term assets” and (b) and (c) “tangible assets” are generally not used.
15. a. Current assets are listed in order of their liquidity, not (b) by
importance, (c) by longevity, or (d) alphabetically.
first payroll following the end of the year by eliminating the need
to make an entry to the Salaries and Wages Payable account. The
other choices are incorrect because (a) Salaries and Wages Payable
is not part of the payroll entry on January 8, and the debit to Salaries
and Wages Expense should be for $3,800, not $2,000; and (b) and
(d) the Salaries and Wages Expense account, not the Salaries and
Wages Payable account, should be debited.
Prepare closing entries from ledger
balances.