Fundamental Accounting Principles Canadian Vol 1 Canadian 14th Edition Larson Test Bank 1

Solution Manual for Fundamental Accounting Principles Canadian
Vol 1 Canadian 14th Edition by Larson and Jensen ISBN

0071051503 9780071051507
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04
Student: ___________________________________________________________________________
1. A work sheet is a tool of the accountant for bringing together information needed in preparing the
statements, adjusting the accounts, and preparing closing entries.
True False
2. Financial statements prepared from a work sheet offer more information than if it is not used and statements
are just prepared from an adjusted trial balance.
True False
3. A work sheet is prepared before entering the adjustments in the accounts.

True False
4. The work sheet is used to record transactions as they occur.

True False
5. A work sheet can be prepared manually or with a computer spreadsheet program.

True False
6. A work sheet is a substitute for the financial statements.
True False
7. To prepare the income statement all necessary numbers can be found in the income statement columns of the
work sheet, including the net income or net loss.
True False
8. On the work sheet, a loss is indicated if the total of the Income Statement Debit column exceeds the total of
the Income Statement Credit column.
True False
9. If all columns balance upon completion of a work sheet, you can be sure that no errors were made in
preparing the work sheet.
True False
10. Closing entries are normally entered in the General Journal and then recorded on the work sheet.
True False
11. Adjusting entries are normally entered in the General Journal before they are recorded on the work sheet.
True False
12. On a work sheet, adjusted balances of revenues and expenses are sorted to the Income Statement columns.
True False
13. On the work sheet, a net income is entered in the Income Statement Credit column and in the Statement of
Changes in Equity or Balance Sheet Debit column.
True False
14. If interim financial statements are required, adjusting entries must be journalized and posted to obtain the
adjusted data needed for their preparation.
True False
15. To prepare the balance sheet, all necessary numbers can be found in the balance sheet columns of the work
sheet, including ending capital.
True False
16. Revenue accounts should begin each accounting period with zero balances.
True False
17. Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and
expense accounts ready for use in the next period.
True False
18. Accounts that appear in the balance sheet are often called permanent or nominal accounts.
True False
19. Revenue and expense accounts are permanent accounts and should not be closed at the end of the fiscal
period.
True False
20. The closing process is a step in the accounting cycle that prepares accounts for the next accounting period.
True False
21. Asset, liability and revenue accounts are not closed as long as a company continues in business.
True False
22. Closing entries are needed at the end of the fiscal period to close all ledger accounts.
True False
23. Closing entries accomplish the goal of reflecting revenues and expenses in the owner's capital account.
True False
24. Income Summary is a temporary account.
True False
25. The closing process is a two-step process. First revenue, expense, and withdrawals are set to zero balance.
Second, the process summarizes a period's assets and expenses.
True False
26. An expense account is normally closed by debiting Income Summary and crediting the expense account.
True False
27. The withdrawals account is normally closed by debiting it.

True False
28. After posting the entries to close all revenue accounts and all expense accounts, the Income Summary
account of Waif Services has a $4,000 debit balance. This shows that Waif Services earned a net income of
$4,000.
True False
29. After posting the entries to close all revenue and expense accounts, Hatfield Company's Income Summary
account has a credit balance of $6,000, and the Hatfield, Withdrawals account has a debit balance of $2,500.
These balances indicate that net income for the accounting period amounted to $3,500.
True False
30. Closing entries are designed to transfer the end-of-period balances in the revenue accounts, the expense
accounts, and the withdrawals account to a balance sheet equity account.
True False
31. In a sole proprietorship, the Income Summary account is closed to the capital account
True False
32. When expenses exceed revenues, there is a loss and the Income Summary account has a credit balance.
True False
33. The Income Summary account is used to close all other temporary accounts at the end of an accounting
period.
True False
34. The Income Summary account is a permanent account that will be carried forward year after year.
True False
35. The steps in the closing process are (1) close credit balances in revenue accounts to Income Summary; (2)
close credit balances in expense accounts to Income Summary; (3) close Income Summary to Owner's Capital;
(4) close Withdrawals to Owner's Capital.
True False
36. The third closing entry is to close Withdrawals to Income Summary.

True False
37. A post-closing trial balance is a list of permanent accounts and their balances from the ledger after all
closing entries are journalized and posted.
True False
38. The aim of a post-closing trial balance is to verify that (1) total debits equal total credits for temporary
accounts and (2) all temporary accounts have zero balances.
True False
39. Sharp's post-closing trial balance has debit totals of $40,350 and credit totals of $40,650. The next step is to
review for errors in the closing process.
True False
40. The first step in the accounting cycle is to analyze and record transactions during the accounting period.
True False
41. The accounting cycle refers to the steps in preparing the work sheet for users.
True False
42. The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing
an unadjusted trial balance, and recording adjusting entries.
True False
43. In order, the last four steps in the accounting cycle include preparing the adjusted trial balance, preparing
financial statements, preparing adjusting entries and preparing closing entries.
True False
44. A classified balance sheet organizes assets and liabilities into important subgroups.
True False
45. An unclassified balance sheet provides more information to users than a classified balance sheet.
True False
46. Current assets and current liabilities are expected to be used up or come due within one year or the
company's operating cycle.
True False
47. Assets are classified into current assets, investments, property, plant and equipment, and intangible assets.
True False
48. Current liabilities are cash and other resources that are expected to be sold, collected, or used within the
longer of one year or the company's operating cycle.
True False
49. Long-term investments can include land not currently being used in operations.
True False
50. Property, plant and equipment and intangible assets are long-term assets used to produce or sell products
and services.
True False
51. Current liabilities include accounts receivable, unearned revenues, and taxes owed.
True False
52. For a partnership, the equity section is called Shareholders Equity.

True False
53. Reversing entries are optional.

True False
54. Reversing entries are prepared to adjust accrued assets and liabilities that were created by adjusting entries
at the end of the previous reporting period.
True False
55. The current ratio is used to evaluate the ability of a business to meet its short-term obligations.
True False
56. The current ratio is calculated by dividing current liabilities by current assets.
True False
57. Harley Ravidson's current assets are $400 million and its current liabilities are $250 million. Its current ratio
is .63 to 1.
True False
58. Sharp has current assets of $15,000 and current liabilities of $9,500. Its current ratio is 1.6 to 1.
True False
59. Harley Ravidson's current ratio is .9 to 1. The industry average current ratio is 1.2. Harley Davidson does
not have a problem in covering its current liabilities because of its strong sales and position in its industry.
True False
60. The information on a work sheet can be used to prepare:
A. Year end financial statements.
B. Adjusting entries.
C. Closing entries.
D. Interim financial statements.
E. All of these answers are correct.
61. A 10-column spreadsheet used to draft a company's unadjusted trial balance, adjusting entries, adjusted trial
balance, and financial statements, and which is an optional step in the accounting process, is a(n):
A. Adjusted trial balance.
B. Work sheet.
C. Post-closing trial balance.
D. Unadjusted trial balance.
E. Book of final entry.
62. Internal documents prepared by accountants when organizing the information presented in formal reports to
internal and external decision makers are called:
A. Adjusting papers.
B. Statement papers.
C. Working papers.
D. Closing papers.
E. Business papers.
63. Accumulated Depreciation, Equipment, Accounts Receivable, and Service Fees Earned would be sorted to
which respective columns in completing a work sheet?
A. Statement of changes in equity or Balance Sheet—Credit; Statement of changes in equity or Balance Sheet—
Debit; and Income Statement—Credit.
B. Statement of changes in equity or Balance Sheet—Debit; Statement of changes in equity or Balance Sheet—
Credit; and Income Statement—Credit.
C. Income Statement—Debit; Statement of changes in equity or Balance Sheet—Debit; and Income
Statement—Credit.
D. Income Statement—Debit; Income Statement—Debit; and Statement of changes in equity or Balance
Sheet—Credit.
E. Statement of changes in equity or Balance Sheet—Credit; Income Statement—Debit; and Income
Statement—Credit.
64. The Unadjusted Trial Balance columns of the work sheet show the balance in the Office Supplies account at
$750. The Adjustments columns show that $425 of these supplies were used during the period. The amount
shown as Office Supplies in the Balance Sheet columns is:
A. $325 debit.
B. $325 credit.
C. $425 debit.
D. $750 debit.
E. $750 credit.
65. Which of the following statements is incorrect?

A. Working papers are invaluable tools of the accountant.
B. The work sheet shows the effects of adjustments on the account balances.
C. After the work sheet is completed, the work sheet information is used to prepare the financial statements.
D. On the work sheet, the accountant sorts the adjusted amounts into columns according to whether the
accounts are used in preparing the unadjusted trial balance or the adjusted trial balance.
E. The work sheet is an optional step in the accounting cycle.
66. A company shows an $800 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the
work sheet. The Adjustments columns show expired insurance of $600. This adjusting entry results in:
A. $600 less net income.
B. $600 more net income.
C. $200 difference between the debit and credit columns of the unadjusted trial balance.
D. $400 in the Income Statement Debit column on the work sheet.
E. $400 in the Balance Sheet Credit column on the work sheet.
67. If, in preparing a work sheet, an adjusted trial balance amount is sorted to the wrong work sheet column, the
Balance Sheet columns will balance on completing the work sheet, but with the wrong net income, if the
amount sorted in error is:
A. An expense amount entered in the Balance Sheet Credit column.
B. A revenue amount entered in the Balance Sheet Debit column.
C. A liability amount entered in the Income Statement Credit column.
D. An asset amount entered in the Balance Sheet Credit column.
E. A liability amount entered in the Balance Sheet Debit column.
68. If the Balance Sheet columns of a work sheet fail to balance when the amount of the net income is added to
the Balance Sheet Credit column, the cause could be:
A. An expense amount entered in the Balance Sheet Debit column.
B. A revenue amount entered in the Balance Sheet Credit column.
C. An asset amount entered in the Income Statement Debit column.
D. A liability amount entered in the Balance Sheet Debit column.
E. A liability amount entered in the Income Statement Credit column.
69. The following items appeared on a December 31 Excel work sheet. Based on the following information,
what is net income for the year?
A. $1,725.
B. $1,855.
C. $2,060.
D. $4,125
E. $4,670.
70. Which of the following errors would cause the balance sheet columns of a work sheet to be out of balance?
A. Entering an asset amount in the Income Statement Debit column.
B. Entering a liability amount in the Income Statement Credit column.
C. Entering an expense amount in the Balance Sheet Debit column.
D. Entering a revenue amount in the Balance Sheet Debit column.
E. Entering a liability amount in the Balance Sheet Credit column.
71. The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments columns contain
entries for the following:
(1) Office supplies used during the period, $1,200.

(2) Expiration of prepaid rent, $700.
(3) Accrued salaries expense, $500.
(4) Depreciation expense, $800.
(5) Accrued repair service fees receivable, $400.
The Adjusted Trial Balance columns total:

A. $80,400.
B. $84,000.
C. $85,700.
D. $85,900.
E. $87,600.
72. Another name for temporary accounts is:

A. Real accounts.
B. Contra accounts.
C. Accrued accounts.
D. Balance column accounts.
E. Nominal accounts.
73. When closing entries are made:
A. All ledger accounts are closed to start the new fiscal period.
B. All temporary accounts are closed but not the permanent accounts.
C. All real accounts are closed but not the temporary accounts.
D. All permanent accounts are closed but not the temporary accounts.
E. All balance sheet accounts are closed.
74. Accounts that are used to describe revenues, expenses, and owner's withdrawals, and are closed at the end of
the reporting period, are:
A. Real accounts.
B. Temporary accounts.
C. Closing accounts.
D. Permanent accounts.
E. Ledger accounts.

A. Permanent accounts are another name for nominal accounts.
B. Temporary accounts carry a zero balance at the beginning of each accounting period.
C. The Income Summary account is a temporary account.
D. Real accounts remain open as long as the asset, liability, or equity items recorded in the accounts continue in
existence.
E. Permanent accounts are another name for real accounts.
76. Closing the temporary accounts at the end of each accounting period:
A. Serves to transfer the effects of these accounts to the proper equity account on the balance sheet.
B. Prepares the withdrawals account for use in the next period.
C. Gives the revenue and expense accounts zero balances.
D. Gives the withdrawals account a zero balance.
77. Accounts that are used to describe assets, liabilities, and equity, that are not closed as long as the company
continues to own the assets, owe the liabilities, or have equity, and whose balances appear on the balance sheet
are called:
A. Nominal accounts.
C. Permanent accounts.
D. Contra accounts.
E. Accrued accounts.
78. Real accounts are:
A. Another name for temporary accounts.
B. Another name for permanent accounts.
C. Closed at the end of the accounting period.
D. Income statement accounts.
E. Not shown on the balance sheet.
79. Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and
withdrawals accounts for the upcoming year and to update the owner's capital account for the events of the year
just finished are:
A. Adjusting entries.
B. Closing entries.
C. Final entries.
D. Work sheet entries.
E. None of these answers is correct.
80. The Income Summary account is:

A. The account from which the amount of the net income or loss is transferred to the owners' capital accounts in
a partnership.
B. A temporary account.
C. Used in the closing process to summarize the amounts of revenues and expenses.
D. Not a permanent account.
81. The special account used only in the closing process to temporarily hold the amounts of revenues and
expenses before the net difference is added to (or subtracted from) the owner's capital account is the:
A. Income Summary account.
B. Closing account.
C. Balance column account.
D. Contra account.
E. Nominal account.
82. J. Flow, the proprietor of Flow Services, withdrew $8,700 from his business during 2015. These
withdrawals will result in which of the following closing entries at the end of 2015?
A.
B.
C.
D.
E.
83. Given the following accounts and their adjusted balances before closing entries are posted, what amount
will be posted to Bessie Cool, Capital in the process of closing the Income Summary account? Assume all
accounts have normal balances.
A. $7,180 credit.
B. $16,780 debit.
C. $16,780 credit.
D. $18,280 credit.
E. $23,780 credit.
84. A company had revenues of $75,000, withdrawals of $10,000 and expenses of $62,000 during an
accounting period. Which of the following entries should not be journalized in the closing process?
A.
B.
C.
D.
E. All of these should be journalized in the closing process.
85. After all appropriate closing entries to the following accounts have been made, what will be the balance in
the Jeff Corvette, Capital account?
A. $65,000.
B. $80,000.
C. $130,000.
D. $145,000.
E. $280,000.
86. The J. Dawson, Capital account has a credit balance of $1,200 before closing entries are made. If total
revenues for the year are $65,200, total expenses $49,800, and withdrawals are $2,400, what is the ending
balance in the J. Dawson, Capital account after all closing entries have been made?
A. $5,200.
B. $7,600.
C. $14,200.
D. $16,600.
E. $23,200.
87. The Income Summary account is used:
A. To adjust and update asset accounts.
B. To close the revenue and expense accounts.
C. To determine the appropriate withdrawal amount.
D. To replace the income statement under certain circumstances.
E. To replace the capital account in some businesses.
88. Emilia Feridy, the proprietor of EF Services, withdrew a total of $50 for to pay for her daughter's swimming
lessons. What is the entry needed to record this transaction?
A. Debit Emilia Feridy, Capital and credit Cash for $50.
B. Debit Emilia Feridy, Withdrawals and credit Cash for $50.
C. Debit Emilia Feridy, Withdrawals and credit Emilia Feridy, Capital for $50.
D. Debit Emilia Feridy, Capital and credit Emilia Feridy, Withdrawals for $50.
E. Debit Cash and credit Emilia Feridy, Withdrawals for $50.
89. Which statement is incorrect?

A. Revenue accounts are closed to Income Summary.
B. Expense accounts are closed to Income Summary.
C. Income Summary is closed to Capital.
D. Withdrawals are closed to Income Summary.
E. Withdrawals are closed to Capital.
90. A trial balance prepared after the adjusting and closing entries have been posted, and which is the final step
in the accounting cycle, is a(n):
A. Unadjusted trial balance.
B. Post-closing trial balance.
C. Book of final entry.
D. Adjusted trial balance.
E. Work sheet.
91. An error is indicated if the following account has a balance appearing on the post-closing trial balance:
A. Office Equipment.
B. Accumulated Depreciation, Office Equipment.
C. Depreciation expense, Office Equipment.
D. Ted Nash, Capital.
E. Salaries Payable.
92. A post-closing trial balance shows:
A. All ledger accounts with a balance, none of which can be temporary accounts.
B. All ledger accounts with a balance, none of which can be real accounts.
C. All ledger accounts with a balance, which include some temporary and some real accounts.
D. Only revenue and expense accounts.
E. Only asset accounts.
93. Which of the following statements is true?

A. Journalizing consists of analyzing and recording transactions in T-accounts.
B. Preparing a post-closing trial balance helps to prove the accuracy of the adjusting and closing procedures.
C. The information on the work sheet can be used in place of preparing financial statements.
D. By using a work sheet to prepare adjusting entries you need not post these entries to the ledger accounts.
E. All of these statements are true.
94. The eight recurring steps performed each accounting period, starting with recording transactions in the
journal and continuing through the post-closing trial balance, is called the:
A. Accounting period.
B. Operating cycle.
C. Accounting cycle.
D. Closing cycle.
E. Natural business year.
95. Which of the following is the final step in the accounting cycle?
A. Journalizing.
B. Preparing an adjusted trial balance.
C. Preparing a post-closing trial balance.
D. Preparing the statements.
E. Preparing a work sheet.
96. A classified balance sheet:

A. Measures a company's ability to pay its bills on time.
B. Organizes assets and liabilities into important subgroups.
C. Presents revenues, expenses and net income.
D. Shows operating, investing, and financing activities.
E. Shows the effect of net income and withdrawals on owner's capital.
97. The asset section of a classified balance sheet includes:
A. Current assets, long-term investments, property, plant and equipment, and intangible assets.
B. Current assets, long-term assets, equity, and intangible assets.
C. Current assets, long-term investments, property, plant and equipment, and withdrawals.
D. Current liabilities, long-term investments, property, plant and equipment, and intangible assets.
E. Current assets, liabilities, property, plant and equipment, and intangible assets.
98. Current liabilities become due:

A. Within one year.
B. Within the operating cycle of a business.
C. When bills have to be paid.
D. A or B, whichever is longer.
99. The normal order for the asset section of a classified balance sheet is:
A. Current assets, prepaid expenses, long-term investments, intangible assets.
B. Long-term investments, current assets, property, plant and equipment, intangible assets.
C. Current assets, long-term investments, property, plant and equipment, intangible assets.
D. Intangible assets, current assets, long-term investments, property, plant and equipment.
E. Property, plant and equipment, intangible assets, long-term investments, current assets.
100. The ending balance of owner's capital is calculated as:

A. Owner's capital account balance plus net income minus the withdrawals account balance.
B. Owner's capital account balance minus net loss plus the withdrawals account balance.
C. Net income minus the withdrawals account balance.
D. Assets plus liabilities.
101. Reversing entries:

A. Are optional.
B. Are mandatory.
C. Fix errors in journal entries.
D. Are required by CRA.
E. Are not posted to the ledger.
102. Reversing entries are:
A. Optional.
B. Linked to accrued assets and liabilities that were created by adjusting entries at the end of the previous
accounting period.
C. Used to simplify a company's record keeping.
D. Dated the first day of the next accounting period.
103. The current ratio:

A. Is used to measure a company's profitability.
B. Is used to measure the relationship between assets and long-term debt.
C. Measures the effect of operating income on profit.
D. Is used to evaluate a company's ability to pay its short-term obligations.
E. Only relates to long term liabilities.

A. Is current assets divided by current liabilities.
B. Helps to assess a company's ability to pay its debts in the near future.
C. Suggests there may be problems in a business if it is less than 1.
D. Is a measure of a company's liquidity.
105. (A) In a sole proprietorship, Income Summary is closed to what account? (B) In following the steps of the
accounting cycle, what two steps must be done before preparation of an unadjusted trial balance?
106. The following are the steps in the accounting cycle. List them in the order in which they are completed:
Completing the work sheet

Posting
Preparing an unadjusted trial balance
Journalizing
Preparing the statements
Closing the temporary accounts
Adjusting the ledger accounts
Preparing a post-closing trial balance
107. The alphabetized adjusted trial balance for SimCo Electrical Outfitters at August 31, 2015, is shown
below. Identify how each account balance would be classified on a balance sheet given the following
classification symbols:
108. In the blank space beside each numbered item, enter the letter of its balance sheet classification. If the item
should not appear on the balance sheet, enter "z" in the blank.
109. Calculate the current ratio in each of the following cases.
110. Describe a work sheet and explain why it is useful.
111. Using the following partial Excel work sheet for Cozy Motel, prepare the Income Statement, the Statement
of Changes in Equity, and an unclassified Balance Sheet for the company. Assume the owner did not make any
investments in the business during the year.
112. The unadjusted trial balance of Edward Pace, CGA is entered on the work sheet below. Complete the work
sheet using the following information:
(a) Salaries earned by employees but unpaid and unrecorded, $500.

(b) An inventory of supplies showed $800 of unused supplies on hand.
(c) Estimated depreciation on equipment, $1,300.
113. Using the following partial Excel work sheet for Gold Forest Service Co., prepare the Income Statement,
the Statement of Changes in Equity, and an unclassified Balance Sheet. Assume the owner did not make any
114. Shown below are data taken from the unadjusted and adjusted trial balances for Wallaby Company at
December 31, 2015:
The differences between the unadjusted and adjusted trial balances can be explained by adjusting entries that
were made for an unrecorded sale, depreciation, expired insurance, office supplies expense, and accrued salaries
expense. Determine the amounts that should appear in the trial balance blanks labelled A through H and write
your answers below. (Show credit amounts in parentheses.)
A. ____________ B. ___________ C. ____________ D. ____________

E. ____________ F. ___________ G. ____________ H. ____________
115. Below is an alphabetical listing of General Ledger accounts with identifying numbers for Scott's
Suntanning Parlour. Indicate the accounts debited and credited in each of the following transactions by placing
the proper account identifying number(s) in the columns to the right of each transaction.
116. Explain why closing entries are a necessary step in the accounting cycle.
117. Indicate beside each of the following accounts whether the account is a temporary or permanent account.
(a) Cash
(b) Prepaid insurance
(c) Unearned fees
(d) Accounts receivable
(e) Insurance expense
(f) Smith, capital
(g) Smith, withdrawals
(h) Rent expense
(i) Fees earned
(j) Supplies
(k) Supplies expense
(l) Depreciation expense, building
(m) Accumulated depreciation, building
118. Explain the purpose of closing entries and describe the closing process.
119. Explain why temporary accounts are closed each period.

120. Presented below are the year-end balances at October 31 of Max Missle Paintball Co. All accounts have
normal balances.
Prepare the necessary closing entries at October 31.
121. Shown below is Bill Brady Law's adjusted trial balance at the end of its annual accounting period.
Prepare the necessary closing entries.
122. The adjusted trial balance of Sara's Photography follows:
1. Prepare the necessary closing entries at December 31.

2. What is the balance of Sara's capital account after the bookkeeper posts the closing entries?
123. The following are selected accounts and their balances after adjustments at May 31, 2015, the end of
Mark's Furniture Refinishing's fiscal year.

2. What is the balance of Mark's capital account after the bookkeeper posts the closing entries?
124. The adjusted trial balance of Richardson Electric at May 31, 2015 is as follows:
Prepare the necessary closing entries at May 31.
125. The items that follow appeared in the Income Statement columns of the work sheet prepared for a sole
proprietorship at year-end, December 31, 2015. Also, the owner's withdrawals account was debited for $12,000
during the year. Prepare the necessary closing entries at December 31.
126. The amounts below appeared in the Income Statement and Balance Sheet columns of a company's
December 31 work sheet. In the space provided record the closing entries on December 31 (no explanations are
necessary).
127. Discuss the purpose of a post-closing trial balance.
128. Identify the steps in the accounting cycle.
129. Describe a classified balance sheet.

130. Classified balance sheets commonly include the following categories.
(a) Current assets

(b) Investments
(c) Property, plant and equipment
(d) Intangible assets
(e) Current liabilities
(f) Long-term liabilities
(g) Equity
Indicate the typical classification of each item listed below by placing the letter of the correct balance sheet
category in the blank space next to the item.
(1) ______ Margarita Acosta, capital

(2) ______ Cash
(3) ______ Office supplies
(4) ______ Accounts receivable
(5) ______ Prepaid expenses
(6) ______ Merchandise inventory
(7) ______ Buildings used in business operations
(8) ______ Wages payable
(9) ______ Long-term note payable
(10) ______ Accounts payable
(11) ______ Patents
(12) ______ Land held for future plant expansion
Below is the year-end adjusted trial balance for Lucie Accounting.
131. Using Ref 4-1 prepare an income statement, statement of changes in equity and a classified balance sheet.
This is Lucie's first year of operations.
132. Using the information from Lucie Accounting (Ref 4-1), calculate the current ratio.
133. Explain the purpose of reversing entries.
134. Explain the current ratio. Describe how it is used to evaluate a company.
135. Listed below are a number of accounts for Melcier Industries. Use the schedule shown below to classify
each account, and indicate if it is included in the closing process and, if so, how it is closed.
136. Work sheet preparation is a(n) ____________ step in the accounting cycle.
________________________________________
137. The closing process resets ________, __________, and ________ account balances to zero at the end of
every accounting period.
________________________________________
138. ___________________ is an account used only in the closing process.
________________________________________
139. FastForward's post-closing trial balance has a debit total of $475,000 and a credit total of $457,000. This
indicates that __________________________.
________________________________________
140. The ______________ refers to the steps in preparing financial statements for users.
________________________________________
141. Intangible assets are long-term resources that are used to produce or sell products and services, that lack
______________, and whose benefits are ____________.
________________________________________
142. Reversing entries are linked to ____________________ and _____________ that were created by
adjusting entries at the end of a reporting period.
________________________________________
143. A current ratio of 1.1 suggests that a company has ____________ current assets to cover current
liabilities.
________________________________________
144. Match the following terms with the appropriate definition.
1. A temporary account used only in the closing process

to where the balances of revenue and expense accounts Post-closing
are transferred. trial balance ____
2. A 10-column spreadsheet used to draft a company's
unadjusted trial balance, adjusting entries, adjusted trial Temporary
balance, and financial statements. accounts ____
3. Journal entries recorded at the end of each accounting
period that transfer the end-of-period balances in
revenue, expense, and withdrawals accounts to the
permanent owner's capital account in order to prepare for
the upcoming period and update the owner's capital Accounting
account for the events of the period just finished. cycle ____
4. The average time between paying cash for employee
salaries or merchandise and receiving cash from
customers. Work sheet ____
5. Recurring steps performed each accounting period,
starting with recording transactions in the journal and Working
continuing through the post-closing trial balance. papers ____
6. Analyses and other informal reports prepared by
accountants when organizing the useful information
presented in formal reports to internal and external Income
decision makers. summary ____
7. Accounts that are used to describe revenues, expenses, Permanent
and owner's withdrawals for one accounting period. accounts ____
Operating
8. Accounts that are used to report on activities related to cycle of a
one or more future accounting periods. business ____
9. A list of permanent accounts and their balances from
the ledger after all closing entries are journalized and Closing
posted. entries ____
1. Obligations that are due to be paid within the longer of Closing

one year or the operating cycle of a business. entries ____
2. A balance sheet that broadly groups the assets,
liabilities, and equity. Current assets ____
3. Cash or other assets that are expected to be sold,
collected, or used within the longer of one year or the Income
company's operating cycle. summary ____
Unclassified
4. The owner's claim on the assets of a company. balance sheet ____
Property, plant
5. A temporary account used only in the closing process. and equipment ____
6. Tangible long-lived assets used to produce or sell
products and services. Equity ____
period that transfer the end-of-period balances in
revenue, expense, and withdrawals accounts to the
permanent owner's capital account in order to prepare for
the upcoming period and update the owner's capital Current
account for the events of the period just finished. liabilities ____
8. Long-term assets used to produce or sell products or
services; these assets lack physical form and their Long-term
benefits are uncertain. investments ____
9. Assets such as notes receivable or investments in
stocks which are held for more than one year or the Intangible
operating cycle of the company. assets ____
10. A balance sheet that presents the assets and liabilities Classified
in relevant subgroups. balance sheet ____
04 Key
1. A work sheet is a tool of the accountant for bringing together information needed in preparing the
statements, adjusting the accounts, and preparing closing entries.
TRUE
Difficulty: Easy
Larson - Chapter 04 #1
Learning Objective: 04-01 Describe and prepare a work sheet and explain its usefulness.
Type: Knowledge
2. Financial statements prepared from a work sheet offer more information than if it is not used and statements
are just prepared from an adjusted trial balance.
FALSE
Difficulty: Easy
Type: Knowledge
3. A work sheet is prepared before entering the adjustments in the accounts.

TRUE
Difficulty: Easy
Type: Knowledge
4. The work sheet is used to record transactions as they occur.

FALSE
Difficulty: Easy
Type: Knowledge
5. A work sheet can be prepared manually or with a computer spreadsheet program.
TRUE
Difficulty: Easy
Type: Knowledge
6. A work sheet is a substitute for the financial statements.

FALSE
Difficulty: Easy
Type: Knowledge
7. To prepare the income statement all necessary numbers can be found in the income statement columns of the
work sheet, including the net income or net loss.
TRUE
Difficulty: Moderate
Type: Knowledge
8. On the work sheet, a loss is indicated if the total of the Income Statement Debit column exceeds the total of
the Income Statement Credit column.
TRUE
Type: Knowledge
9. If all columns balance upon completion of a work sheet, you can be sure that no errors were made in
preparing the work sheet.
FALSE
Type: Knowledge
10. Closing entries are normally entered in the General Journal and then recorded on the work sheet.
FALSE
Learning Objective: 04-03 Prepare closing entries.
Type: Knowledge
11. Adjusting entries are normally entered in the General Journal before they are recorded on the work sheet.
FALSE
Type: Knowledge
12. On a work sheet, adjusted balances of revenues and expenses are sorted to the Income Statement columns.
TRUE
Type: Knowledge
13. On the work sheet, a net income is entered in the Income Statement Credit column and in the Statement of
Changes in Equity or Balance Sheet Debit column.
FALSE
Type: Knowledge
14. If interim financial statements are required, adjusting entries must be journalized and posted to obtain the
adjusted data needed for their preparation.
FALSE
Type: Knowledge
15. To prepare the balance sheet, all necessary numbers can be found in the balance sheet columns of the work
sheet, including ending capital.
FALSE
Type: Knowledge
16. Revenue accounts should begin each accounting period with zero balances.
TRUE
Difficulty: Easy
Learning Objective: 04-02 Describe the closing process and explain why temporary accounts are closed each period.
Type: Knowledge
17. Closing revenue and expense accounts at the end of the accounting period serves to make the revenue and
expense accounts ready for use in the next period.
TRUE
Difficulty: Easy
Type: Knowledge
18. Accounts that appear in the balance sheet are often called permanent or nominal accounts.
FALSE
Difficulty: Easy
Type: Knowledge
19. Revenue and expense accounts are permanent accounts and should not be closed at the end of the fiscal
period.
FALSE
Type: Knowledge
20. The closing process is a step in the accounting cycle that prepares accounts for the next accounting period.
TRUE
Type: Knowledge
21. Asset, liability and revenue accounts are not closed as long as a company continues in business.
FALSE
Type: Knowledge
22. Closing entries are needed at the end of the fiscal period to close all ledger accounts.
FALSE
Type: Knowledge
23. Closing entries accomplish the goal of reflecting revenues and expenses in the owner's capital account.
TRUE
Difficulty: Easy
Type: Knowledge
24. Income Summary is a temporary account.

TRUE
Difficulty: Easy
Type: Knowledge
25. The closing process is a two-step process. First revenue, expense, and withdrawals are set to zero balance.
Second, the process summarizes a period's assets and expenses.
FALSE
Type: Knowledge
26. An expense account is normally closed by debiting Income Summary and crediting the expense account.
TRUE
Difficulty: Easy
Type: Knowledge
27. The withdrawals account is normally closed by debiting it.

FALSE
Difficulty: Easy
Type: Knowledge
28. After posting the entries to close all revenue accounts and all expense accounts, the Income Summary
account of Waif Services has a $4,000 debit balance. This shows that Waif Services earned a net income of
$4,000.
FALSE
Type: Knowledge
29. After posting the entries to close all revenue and expense accounts, Hatfield Company's Income Summary
account has a credit balance of $6,000, and the Hatfield, Withdrawals account has a debit balance of $2,500.
These balances indicate that net income for the accounting period amounted to $3,500.
FALSE
Type: Knowledge
30. Closing entries are designed to transfer the end-of-period balances in the revenue accounts, the expense
accounts, and the withdrawals account to a balance sheet equity account.
TRUE
Type: Knowledge
31. In a sole proprietorship, the Income Summary account is closed to the capital account
TRUE
Type: Knowledge
32. When expenses exceed revenues, there is a loss and the Income Summary account has a credit balance.
FALSE
Type: Knowledge
33. The Income Summary account is used to close all other temporary accounts at the end of an accounting
period.
FALSE
Type: Knowledge
34. The Income Summary account is a permanent account that will be carried forward year after year.
FALSE
Type: Knowledge
35. The steps in the closing process are (1) close credit balances in revenue accounts to Income Summary; (2)
close credit balances in expense accounts to Income Summary; (3) close Income Summary to Owner's Capital;
(4) close Withdrawals to Owner's Capital.
FALSE
Difficulty: Hard
Type: Knowledge
36. The third closing entry is to close Withdrawals to Income Summary.

FALSE
Difficulty: Easy
Type: Knowledge
37. A post-closing trial balance is a list of permanent accounts and their balances from the ledger after all
closing entries are journalized and posted.
TRUE
Difficulty: Easy
Learning Objective: 04-04 Explain and prepare a postclosing trial balance.
Type: Knowledge
38. The aim of a post-closing trial balance is to verify that (1) total debits equal total credits for temporary
accounts and (2) all temporary accounts have zero balances.
FALSE
Difficulty: Easy
Type: Knowledge
39. Sharp's post-closing trial balance has debit totals of $40,350 and credit totals of $40,650. The next step is to
review for errors in the closing process.
TRUE
Type: Knowledge
40. The first step in the accounting cycle is to analyze and record transactions during the accounting period.
TRUE
Difficulty: Easy
Learning Objective: 04-05 Complete the steps in the accounting cycle.
Type: Knowledge
41. The accounting cycle refers to the steps in preparing the work sheet for users.
FALSE
Difficulty: Easy
Type: Knowledge
42. The first five steps in the accounting cycle include analyzing transactions, journalizing, posting, preparing
an unadjusted trial balance, and recording adjusting entries.
TRUE
Type: Knowledge
43. In order, the last four steps in the accounting cycle include preparing the adjusted trial balance, preparing
financial statements, preparing adjusting entries and preparing closing entries.
FALSE
Difficulty: Hard
Type: Knowledge
44. A classified balance sheet organizes assets and liabilities into important subgroups.
TRUE
Difficulty: Easy
Learning Objective: 04-06 Explain and prepare a classified balance sheet.
Type: Knowledge
45. An unclassified balance sheet provides more information to users than a classified balance sheet.
FALSE
Difficulty: Easy
Type: Knowledge
46. Current assets and current liabilities are expected to be used up or come due within one year or the
company's operating cycle.
TRUE
Difficulty: Easy
Type: Knowledge
47. Assets are classified into current assets, investments, property, plant and equipment, and intangible assets.
TRUE
Type: Knowledge
48. Current liabilities are cash and other resources that are expected to be sold, collected, or used within the
longer of one year or the company's operating cycle.
FALSE
Type: Knowledge
49. Long-term investments can include land not currently being used in operations.
TRUE
Type: Knowledge
50. Property, plant and equipment and intangible assets are long-term assets used to produce or sell products
and services.
TRUE
Type: Knowledge
51. Current liabilities include accounts receivable, unearned revenues, and taxes owed.
FALSE
Type: Knowledge
52. For a partnership, the equity section is called Shareholders Equity.

FALSE
Difficulty: Easy
Type: Knowledge
53. Reversing entries are optional.

TRUE
Difficulty: Easy
Learning Objective: 04-07 Prepare reversing entries and explain their purpose.
Type: Knowledge
54. Reversing entries are prepared to adjust accrued assets and liabilities that were created by adjusting entries
at the end of the previous reporting period.
TRUE
Type: Knowledge
55. The current ratio is used to evaluate the ability of a business to meet its short-term obligations.
TRUE
Difficulty: Easy
Learning Objective: 04-08 Calculate the current ratio and describe what it reveals about a companys financial condition.
Type: Knowledge
56. The current ratio is calculated by dividing current liabilities by current assets.
FALSE
Difficulty: Easy
Type: Knowledge
57. Harley Ravidson's current assets are $400 million and its current liabilities are $250 million. Its current ratio
is .63 to 1.
FALSE
Type: Application
58. Sharp has current assets of $15,000 and current liabilities of $9,500. Its current ratio is 1.6 to 1.
TRUE
Type: Application
59. Harley Ravidson's current ratio is .9 to 1. The industry average current ratio is 1.2. Harley Davidson does
not have a problem in covering its current liabilities because of its strong sales and position in its industry.
FALSE
Difficulty: Hard
Type: Application
60. The information on a work sheet can be used to prepare:
A. Year end financial statements.
B. Adjusting entries.
C. Closing entries.
D. Interim financial statements.
Difficulty: Easy
Type: Knowledge
61. A 10-column spreadsheet used to draft a company's unadjusted trial balance, adjusting entries, adjusted trial
balance, and financial statements, and which is an optional step in the accounting process, is a(n):
A. Adjusted trial balance.
B. Work sheet.
C. Post-closing trial balance.
D. Unadjusted trial balance.
E. Book of final entry.
Type: Knowledge
62. Internal documents prepared by accountants when organizing the information presented in formal reports to
internal and external decision makers are called:
A. Adjusting papers.
B. Statement papers.
C. Working papers.
D. Closing papers.
E. Business papers.
Type: Knowledge
63. Accumulated Depreciation, Equipment, Accounts Receivable, and Service Fees Earned would be sorted to
which respective columns in completing a work sheet?
A. Statement of changes in equity or Balance Sheet—Credit; Statement of changes in equity or Balance Sheet—
Debit; and Income Statement—Credit.
B. Statement of changes in equity or Balance Sheet—Debit; Statement of changes in equity or Balance Sheet—
Credit; and Income Statement—Credit.
C. Income Statement—Debit; Statement of changes in equity or Balance Sheet—Debit; and Income
Statement—Credit.
D. Income Statement—Debit; Income Statement—Debit; and Statement of changes in equity or Balance
Sheet—Credit.
E. Statement of changes in equity or Balance Sheet—Credit; Income Statement—Debit; and Income
Statement—Credit.
Type: Knowledge
64. The Unadjusted Trial Balance columns of the work sheet show the balance in the Office Supplies account at
$750. The Adjustments columns show that $425 of these supplies were used during the period. The amount
shown as Office Supplies in the Balance Sheet columns is:
A. $325 debit.
B. $325 credit.
C. $425 debit.
D. $750 debit.
E. $750 credit.
Type: Application

A. Working papers are invaluable tools of the accountant.
B. The work sheet shows the effects of adjustments on the account balances.
C. After the work sheet is completed, the work sheet information is used to prepare the financial statements.
D. On the work sheet, the accountant sorts the adjusted amounts into columns according to whether the
accounts are used in preparing the unadjusted trial balance or the adjusted trial balance.
E. The work sheet is an optional step in the accounting cycle.
Type: Knowledge
66. A company shows an $800 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the
work sheet. The Adjustments columns show expired insurance of $600. This adjusting entry results in:
A. $600 less net income.
B. $600 more net income.
C. $200 difference between the debit and credit columns of the unadjusted trial balance.
D. $400 in the Income Statement Debit column on the work sheet.
E. $400 in the Balance Sheet Credit column on the work sheet.
Type: Application
67. If, in preparing a work sheet, an adjusted trial balance amount is sorted to the wrong work sheet column, the
Balance Sheet columns will balance on completing the work sheet, but with the wrong net income, if the
amount sorted in error is:
A. An expense amount entered in the Balance Sheet Credit column.
B. A revenue amount entered in the Balance Sheet Debit column.
C. A liability amount entered in the Income Statement Credit column.
D. An asset amount entered in the Balance Sheet Credit column.
E. A liability amount entered in the Balance Sheet Debit column.
Difficulty: Hard
Type: Knowledge
68. If the Balance Sheet columns of a work sheet fail to balance when the amount of the net income is added to
the Balance Sheet Credit column, the cause could be:
A. An expense amount entered in the Balance Sheet Debit column.
B. A revenue amount entered in the Balance Sheet Credit column.
C. An asset amount entered in the Income Statement Debit column.
D. A liability amount entered in the Balance Sheet Debit column.
E. A liability amount entered in the Income Statement Credit column.
Difficulty: Hard
Type: Knowledge
69. The following items appeared on a December 31 Excel work sheet. Based on the following information,
what is net income for the year?
A. $1,725.
B. $1,855.
C. $2,060.
D. $4,125
E. $4,670.
Difficulty: Hard
Type: Application
70. Which of the following errors would cause the balance sheet columns of a work sheet to be out of balance?
A. Entering an asset amount in the Income Statement Debit column.
B. Entering a liability amount in the Income Statement Credit column.
C. Entering an expense amount in the Balance Sheet Debit column.
D. Entering a revenue amount in the Balance Sheet Debit column.
E. Entering a liability amount in the Balance Sheet Credit column.
Difficulty: Hard
Type: Knowledge
71. The Unadjusted Trial Balance columns of a work sheet total $84,000. The Adjustments columns contain
entries for the following:
(1) Office supplies used during the period, $1,200.

(2) Expiration of prepaid rent, $700.
(3) Accrued salaries expense, $500.
(4) Depreciation expense, $800.
(5) Accrued repair service fees receivable, $400.
The Adjusted Trial Balance columns total:

A. $80,400.
B. $84,000.
C. $85,700.
D. $85,900.
E. $87,600.
Difficulty: Hard
Type: Application
72. Another name for temporary accounts is:
A. Real accounts.
B. Contra accounts.
C. Accrued accounts.
D. Balance column accounts.
E. Nominal accounts.
Difficulty: Easy
Type: Knowledge
73. When closing entries are made:

A. All ledger accounts are closed to start the new fiscal period.
B. All temporary accounts are closed but not the permanent accounts.
C. All real accounts are closed but not the temporary accounts.
D. All permanent accounts are closed but not the temporary accounts.
E. All balance sheet accounts are closed.
Difficulty: Easy
Type: Knowledge
74. Accounts that are used to describe revenues, expenses, and owner's withdrawals, and are closed at the end of
the reporting period, are:
A. Real accounts.
C. Closing accounts.
D. Permanent accounts.
E. Ledger accounts.
Type: Knowledge
A. Permanent accounts are another name for nominal accounts.
B. Temporary accounts carry a zero balance at the beginning of each accounting period.
C. The Income Summary account is a temporary account.
D. Real accounts remain open as long as the asset, liability, or equity items recorded in the accounts continue in
existence.
E. Permanent accounts are another name for real accounts.
Type: Knowledge
76. Closing the temporary accounts at the end of each accounting period:
A. Serves to transfer the effects of these accounts to the proper equity account on the balance sheet.
B. Prepares the withdrawals account for use in the next period.
C. Gives the revenue and expense accounts zero balances.
D. Gives the withdrawals account a zero balance.
Type: Knowledge
77. Accounts that are used to describe assets, liabilities, and equity, that are not closed as long as the company
continues to own the assets, owe the liabilities, or have equity, and whose balances appear on the balance sheet
are called:
A. Nominal accounts.
C. Permanent accounts.
D. Contra accounts.
E. Accrued accounts.
Type: Knowledge
78. Real accounts are:
A. Another name for temporary accounts.
B. Another name for permanent accounts.
C. Closed at the end of the accounting period.
D. Income statement accounts.
E. Not shown on the balance sheet.
Difficulty: Easy
Type: Knowledge
79. Journal entries recorded at the end of each accounting period to prepare the revenue, expense, and
withdrawals accounts for the upcoming year and to update the owner's capital account for the events of the year
just finished are:
A. Adjusting entries.
B. Closing entries.
C. Final entries.
D. Work sheet entries.
Difficulty: Easy
Type: Knowledge
80. The Income Summary account is:

A. The account from which the amount of the net income or loss is transferred to the owners' capital accounts in
a partnership.
B. A temporary account.
C. Used in the closing process to summarize the amounts of revenues and expenses.
D. Not a permanent account.
Difficulty: Easy
Type: Knowledge
81. The special account used only in the closing process to temporarily hold the amounts of revenues and
expenses before the net difference is added to (or subtracted from) the owner's capital account is the:
A. Income Summary account.
B. Closing account.
C. Balance column account.
D. Contra account.
E. Nominal account.
Type: Knowledge
82. J. Flow, the proprietor of Flow Services, withdrew $8,700 from his business during 2015. These
withdrawals will result in which of the following closing entries at the end of 2015?
A.
B.
C.
D.
E.
Type: Application
83. Given the following accounts and their adjusted balances before closing entries are posted, what amount
will be posted to Bessie Cool, Capital in the process of closing the Income Summary account? Assume all
accounts have normal balances.
A. $7,180 credit.
B. $16,780 debit.
C. $16,780 credit.
D. $18,280 credit.
E. $23,780 credit.
Type: Application
84. A company had revenues of $75,000, withdrawals of $10,000 and expenses of $62,000 during an
accounting period. Which of the following entries should not be journalized in the closing process?
A.
B.
C.
D.
E. All of these should be journalized in the closing process.
Type: Application
85. After all appropriate closing entries to the following accounts have been made, what will be the balance in
the Jeff Corvette, Capital account?
A. $65,000.
B. $80,000.
C. $130,000.
D. $145,000.
E. $280,000.
Type: Application
86. The J. Dawson, Capital account has a credit balance of $1,200 before closing entries are made. If total
revenues for the year are $65,200, total expenses $49,800, and withdrawals are $2,400, what is the ending
balance in the J. Dawson, Capital account after all closing entries have been made?
A. $5,200.
B. $7,600.
C. $14,200.
D. $16,600.
E. $23,200.
Type: Application
87. The Income Summary account is used:
A. To adjust and update asset accounts.
B. To close the revenue and expense accounts.
C. To determine the appropriate withdrawal amount.
D. To replace the income statement under certain circumstances.
E. To replace the capital account in some businesses.
Type: Knowledge
88. Emilia Feridy, the proprietor of EF Services, withdrew a total of $50 for to pay for her daughter's swimming
lessons. What is the entry needed to record this transaction?
A. Debit Emilia Feridy, Capital and credit Cash for $50.
B. Debit Emilia Feridy, Withdrawals and credit Cash for $50.
C. Debit Emilia Feridy, Withdrawals and credit Emilia Feridy, Capital for $50.
D. Debit Emilia Feridy, Capital and credit Emilia Feridy, Withdrawals for $50.
E. Debit Cash and credit Emilia Feridy, Withdrawals for $50.
Type: Application
89. Which statement is incorrect?

A. Revenue accounts are closed to Income Summary.
B. Expense accounts are closed to Income Summary.
C. Income Summary is closed to Capital.
D. Withdrawals are closed to Income Summary.
E. Withdrawals are closed to Capital.
Type: Knowledge
90. A trial balance prepared after the adjusting and closing entries have been posted, and which is the final step
in the accounting cycle, is a(n):
A. Unadjusted trial balance.
B. Post-closing trial balance.
C. Book of final entry.
D. Adjusted trial balance.
E. Work sheet.
Difficulty: Easy
Type: Knowledge
91. An error is indicated if the following account has a balance appearing on the post-closing trial balance:
A. Office Equipment.
B. Accumulated Depreciation, Office Equipment.
C. Depreciation expense, Office Equipment.
D. Ted Nash, Capital.
E. Salaries Payable.
Type: Knowledge
92. A post-closing trial balance shows:

A. All ledger accounts with a balance, none of which can be temporary accounts.
B. All ledger accounts with a balance, none of which can be real accounts.
C. All ledger accounts with a balance, which include some temporary and some real accounts.
D. Only revenue and expense accounts.
E. Only asset accounts.
Type: Knowledge
93. Which of the following statements is true?
A. Journalizing consists of analyzing and recording transactions in T-accounts.
B. Preparing a post-closing trial balance helps to prove the accuracy of the adjusting and closing procedures.
C. The information on the work sheet can be used in place of preparing financial statements.
D. By using a work sheet to prepare adjusting entries you need not post these entries to the ledger accounts.
E. All of these statements are true.
Type: Knowledge
94. The eight recurring steps performed each accounting period, starting with recording transactions in the
journal and continuing through the post-closing trial balance, is called the:
A. Accounting period.
B. Operating cycle.
C. Accounting cycle.
D. Closing cycle.
E. Natural business year.
Type: Knowledge
95. Which of the following is the final step in the accounting cycle?
A. Journalizing.
B. Preparing an adjusted trial balance.
C. Preparing a post-closing trial balance.
D. Preparing the statements.
E. Preparing a work sheet.
Type: Knowledge
96. A classified balance sheet:
A. Measures a company's ability to pay its bills on time.
B. Organizes assets and liabilities into important subgroups.
C. Presents revenues, expenses and net income.
D. Shows operating, investing, and financing activities.
E. Shows the effect of net income and withdrawals on owner's capital.
Difficulty: Easy
Type: Knowledge
97. The asset section of a classified balance sheet includes:

A. Current assets, long-term investments, property, plant and equipment, and intangible assets.
B. Current assets, long-term assets, equity, and intangible assets.
C. Current assets, long-term investments, property, plant and equipment, and withdrawals.
D. Current liabilities, long-term investments, property, plant and equipment, and intangible assets.
E. Current assets, liabilities, property, plant and equipment, and intangible assets.
Difficulty: Easy
Type: Knowledge
98. Current liabilities become due:

A. Within one year.
B. Within the operating cycle of a business.
C. When bills have to be paid.
D. A or B, whichever is longer.
Type: Knowledge
99. The normal order for the asset section of a classified balance sheet is:
A. Current assets, prepaid expenses, long-term investments, intangible assets.
B. Long-term investments, current assets, property, plant and equipment, intangible assets.
C. Current assets, long-term investments, property, plant and equipment, intangible assets.
D. Intangible assets, current assets, long-term investments, property, plant and equipment.
E. Property, plant and equipment, intangible assets, long-term investments, current assets.
Type: Knowledge
100. The ending balance of owner's capital is calculated as:
A. Owner's capital account balance plus net income minus the withdrawals account balance.
B. Owner's capital account balance minus net loss plus the withdrawals account balance.
C. Net income minus the withdrawals account balance.
D. Assets plus liabilities.
Type: Knowledge
101. Reversing entries:

A. Are optional.
B. Are mandatory.
C. Fix errors in journal entries.
D. Are required by CRA.
E. Are not posted to the ledger.
Type: Knowledge
102. Reversing entries are:

A. Optional.
B. Linked to accrued assets and liabilities that were created by adjusting entries at the end of the previous
accounting period.
C. Used to simplify a company's record keeping.
D. Dated the first day of the next accounting period.
Type: Knowledge
A. Is used to measure a company's profitability.
B. Is used to measure the relationship between assets and long-term debt.
C. Measures the effect of operating income on profit.
D. Is used to evaluate a company's ability to pay its short-term obligations.
E. Only relates to long term liabilities.
Type: Knowledge

A. Is current assets divided by current liabilities.
B. Helps to assess a company's ability to pay its debts in the near future.
C. Suggests there may be problems in a business if it is less than 1.
D. Is a measure of a company's liquidity.
Difficulty: Hard
Type: Knowledge
105. (A) In a sole proprietorship, Income Summary is closed to what account? (B) In following the steps of the
accounting cycle, what two steps must be done before preparation of an unadjusted trial balance?
(A) Owner's capital account. (B) Journalizing and posting.
Difficulty: Easy
Type: Knowledge
106. The following are the steps in the accounting cycle. List them in the order in which they are completed:
Completing the work sheet

Posting
Preparing an unadjusted trial balance
Journalizing
Preparing the statements
Closing the temporary accounts
Adjusting the ledger accounts
Preparing a post-closing trial balance
(1) Journalizing
(2) Posting
(3) Preparing an unadjusted trial balance
(4) Completing the work sheet
(5) Adjusting the ledger accounts
(6) Preparing the statements
(7) Closing the temporary accounts
(8) Preparing a post-closing trial balance
Type: Knowledge
107. The alphabetized adjusted trial balance for SimCo Electrical Outfitters at August 31, 2015, is shown
below. Identify how each account balance would be classified on a balance sheet given the following
classification symbols:
Type: Knowledge
108. In the blank space beside each numbered item, enter the letter of its balance sheet classification. If the item
should not appear on the balance sheet, enter "z" in the blank.
Type: Knowledge
109. Calculate the current ratio in each of the following cases.
Type: Application
110. Describe a work sheet and explain why it is useful.
A work sheet is a useful tool for organizing the preparation and analysis of financial statements. It contains
pairs of debit and credit columns for the trial balance, adjusting entries, adjusted trial balance, income statement
accounts, and balance sheet accounts.
Type: Knowledge
111. Using the following partial Excel work sheet for Cozy Motel, prepare the Income Statement, the Statement
of Changes in Equity, and an unclassified Balance Sheet for the company. Assume the owner did not make any
Type: Application
112. The unadjusted trial balance of Edward Pace, CGA is entered on the work sheet below. Complete the work
sheet using the following information:
(a) Salaries earned by employees but unpaid and unrecorded, $500.

(b) An inventory of supplies showed $800 of unused supplies on hand.
(c) Estimated depreciation on equipment, $1,300.
Difficulty: Hard
Type: Application
113. Using the following partial Excel work sheet for Gold Forest Service Co., prepare the Income Statement,
the Statement of Changes in Equity, and an unclassified Balance Sheet. Assume the owner did not make any
Difficulty: Hard
Type: Application
114. Shown below are data taken from the unadjusted and adjusted trial balances for Wallaby Company at
December 31, 2015:
The differences between the unadjusted and adjusted trial balances can be explained by adjusting entries that
were made for an unrecorded sale, depreciation, expired insurance, office supplies expense, and accrued salaries
expense. Determine the amounts that should appear in the trial balance blanks labelled A through H and write
your answers below. (Show credit amounts in parentheses.)
A. ____________ B. ___________ C. ____________ D. ____________

E. ____________ F. ___________ G. ____________ H. ____________
(a) (8,100) (b) 10,000 (c) (113,420) (d) 49,600 (e) 220 (f) 6,800 (g) 464,700 (h) (540,000)
Difficulty: Hard
Type: Application
115. Below is an alphabetical listing of General Ledger accounts with identifying numbers for Scott's
Suntanning Parlour. Indicate the accounts debited and credited in each of the following transactions by placing
the proper account identifying number(s) in the columns to the right of each transaction.
Type: Application
116. Explain why closing entries are a necessary step in the accounting cycle.
Closing entries are a necessary step because we want the:
1. Revenue, expense, and withdrawals accounts (a) to be reflected in equity and (b) to begin with zero balances
after measuring the results from the period just ended.
2. Owner's capital account to reflect (a) increases from net income and (b) decreases from net losses and
withdrawals from the period just ended.
Type: Knowledge
117. Indicate beside each of the following accounts whether the account is a temporary or permanent account.
(a) Cash
(b) Prepaid insurance
(c) Unearned fees
(d) Accounts receivable
(e) Insurance expense
(f) Smith, capital
(g) Smith, withdrawals
(h) Rent expense
(i) Fees earned
(j) Supplies
(k) Supplies expense
(l) Depreciation expense, building
(m) Accumulated depreciation, building
(a) permanent (b) permanent (c) permanent (d) permanent (e) temporary (f) permanent (g) temporary (h)
temporary (i) temporary (j) permanent (k) temporary (l) temporary (m) permanent
Type: Knowledge
118. Explain the purpose of closing entries and describe the closing process.
The purpose of closing entries is to transfer the end of period balances in the temporary accounts to the owner's
capital account. The closing process has four steps: (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 the
capital account, (4) close withdrawals to the capital account.
Type: Knowledge
119. Explain why temporary accounts are closed each period.
Temporary accounts are closed at the end of each accounting period for two main reasons. First, the closing
process updates the owner's capital account to include the effects of all transactions and events recorded for the
period. Second, it prepares revenue, expense and withdrawal accounts for the next reporting period by bringing
the balances in those accounts to zero.
Type: Knowledge
120. Presented below are the year-end balances at October 31 of Max Missle Paintball Co. All accounts have
normal balances.
Prepare the necessary closing entries at October 31.
Type: Application
121. Shown below is Bill Brady Law's adjusted trial balance at the end of its annual accounting period.
Prepare the necessary closing entries.
Type: Application
122. The adjusted trial balance of Sara's Photography follows:

2. What is the balance of Sara's capital account after the bookkeeper posts the closing entries?
1.
2.
Type: Application
123. The following are selected accounts and their balances after adjustments at May 31, 2015, the end of
Mark's Furniture Refinishing's fiscal year.

2. What is the balance of Mark's capital account after the bookkeeper posts the closing entries?
1.
2.
Type: Application
124. The adjusted trial balance of Richardson Electric at May 31, 2015 is as follows:
Prepare the necessary closing entries at May 31.
Type: Application
125. The items that follow appeared in the Income Statement columns of the work sheet prepared for a sole
proprietorship at year-end, December 31, 2015. Also, the owner's withdrawals account was debited for $12,000
during the year. Prepare the necessary closing entries at December 31.
Difficulty: Hard
Type: Application
126. The amounts below appeared in the Income Statement and Balance Sheet columns of a company's
December 31 work sheet. In the space provided record the closing entries on December 31 (no explanations are
necessary).
Type: Application
127. Discuss the purpose of a post-closing trial balance.
A post-closing trial balance is a list of permanent accounts and their balances after all the closing entries are
journalized and posted. It is used to verify the equality of debits and credits of the permanent account balances.
It also verifies that the temporary accounts have zero balances.
Type: Knowledge
128. Identify the steps in the accounting cycle.
The accounting cycle consists of ten steps: (1) analyze transactions, (2) journalize entries, (3) post data to the
ledger, (4) prepare an unadjusted trial balance, (5) prepare and post adjusting entries, (6) prepare an adjusted
trial balance, (7) prepare financial statements, (8) prepare and post closing entries, (9) prepare a post-closing
trial balance.
Type: Knowledge
129. Describe a classified balance sheet.
Classified balance sheets usually report four groups of assets: current assets, long-term investments, property,
plant and equipment, and intangible assets. Liabilities are divided into current and long-term. For sole
proprietorships and partnerships capital accounts are reported under Equity. For corporations, the equity section
is called Shareholders Equity.
Type: Knowledge
130. Classified balance sheets commonly include the following categories.
(a) Current assets

(b) Investments
(c) Property, plant and equipment
(d) Intangible assets
(e) Current liabilities
(f) Long-term liabilities
(g) Equity
Indicate the typical classification of each item listed below by placing the letter of the correct balance sheet
category in the blank space next to the item.
(1) ______ Margarita Acosta, capital

(2) ______ Cash
(3) ______ Office supplies
(4) ______ Accounts receivable
(5) ______ Prepaid expenses
(6) ______ Merchandise inventory
(7) ______ Buildings used in business operations
(8) ______ Wages payable
(9) ______ Long-term note payable
(10) ______ Accounts payable
(11) ______ Patents
(12) ______ Land held for future plant expansion
(1) g (2) a (3) a (4) a (5) a (6) a (7) c (8) e (9) f (10) e (11) d (12) b
Type: Knowledge
Below is the year-end adjusted trial balance for Lucie Accounting.
Larson - Chapter 04
131. Using Ref 4-1 prepare an income statement, statement of changes in equity and a classified balance sheet.
This is Lucie's first year of operations.
Difficulty: Hard
Type: Application
132. Using the information from Lucie Accounting (Ref 4-1), calculate the current ratio.
$28,700 ¸ $16,000 = 1.79 to 1
Type: Application
133. Explain the purpose of reversing entries.
Reversing entries are an optional part of the accounting cycle. They apply to accrued assets and liabilities. The
purpose of the reversing entries is to simplify regular transaction journal entries made during the subsequent
accounting period. Reversing entries have no effect on the financial statements.
Difficulty: Hard
Type: Knowledge
134. Explain the current ratio. Describe how it is used to evaluate a company.
The current ratio is current assets divided by current liabilities. It is used to evaluate a company's ability to pay
its current debts with the amount of current assets available.
Type: Knowledge
135. Listed below are a number of accounts for Melcier Industries. Use the schedule shown below to classify
each account, and indicate if it is included in the closing process and, if so, how it is closed.
Type: Application
136. Work sheet preparation is a(n) ____________ step in the accounting cycle.
optional
Type: Knowledge
137. The closing process resets ________, __________, and ________ account balances to zero at the end of
every accounting period.
revenue; expense; withdrawals
Difficulty: Easy
Type: Knowledge
138. ___________________ is an account used only in the closing process.

Income Summary
Difficulty: Easy
Type: Knowledge
139. FastForward's post-closing trial balance has a debit total of $475,000 and a credit total of $457,000. This
indicates that __________________________.
an error was made involving either a debit or a credit number
Type: Knowledge
140. The ______________ refers to the steps in preparing financial statements for users.
accounting cycle
Difficulty: Easy
Type: Knowledge
141. Intangible assets are long-term resources that are used to produce or sell products and services, that lack
______________, and whose benefits are ____________.
physical form; uncertain
Type: Knowledge
142. Reversing entries are linked to ____________________ and _____________ that were created by
adjusting entries at the end of a reporting period.
accrued assets; liabilities
Difficulty: Hard
Type: Knowledge
143. A current ratio of 1.1 suggests that a company has ____________ current assets to cover current
liabilities.
sufficient
Type: Knowledge
1. A temporary account used only in the closing process to

where the balances of revenue and expense accounts are Post-closing
transferred. trial balance 9
2. A 10-column spreadsheet used to draft a company's
unadjusted trial balance, adjusting entries, adjusted trial Temporary
balance, and financial statements. accounts 7
period that transfer the end-of-period balances in revenue,
expense, and withdrawals accounts to the permanent owner's
capital account in order to prepare for the upcoming period
and update the owner's capital account for the events of the Accounting
period just finished. cycle 5
4. The average time between paying cash for employee
salaries or merchandise and receiving cash from customers. Work sheet 2
5. Recurring steps performed each accounting period,
starting with recording transactions in the journal and Working
continuing through the post-closing trial balance. papers 6
6. Analyses and other informal reports prepared by
accountants when organizing the useful information
presented in formal reports to internal and external decision Income
makers. summary 1
7. Accounts that are used to describe revenues, expenses, Permanent
and owner's withdrawals for one accounting period. accounts 8
Operating
8. Accounts that are used to report on activities related to cycle of a
one or more future accounting periods. business 4
9. A list of permanent accounts and their balances from the Closing
ledger after all closing entries are journalized and posted. entries 3
Type: Knowledge
1. Obligations that are due to be paid within the longer of Closing

one year or the operating cycle of a business. entries 7
2. A balance sheet that broadly groups the assets, liabilities,
and equity. Current assets 3
3. Cash or other assets that are expected to be sold,
collected, or used within the longer of one year or the Income
company's operating cycle. summary 5
Unclassified
4. The owner's claim on the assets of a company. balance sheet 2
Property, plant
5. A temporary account used only in the closing process. and equipment 6
6. Tangible long-lived assets used to produce or sell
products and services. Equity 4
period that transfer the end-of-period balances in revenue,
expense, and withdrawals accounts to the permanent
owner's capital account in order to prepare for the
upcoming period and update the owner's capital account for Current
the events of the period just finished. liabilities 1
8. Long-term assets used to produce or sell products or
services; these assets lack physical form and their benefits Long-term
are uncertain. investments 9
9. Assets such as notes receivable or investments in stocks
which are held for more than one year or the operating Intangible
cycle of the company. assets 8
10. A balance sheet that presents the assets and liabilities in Classified
relevant subgroups. balance sheet 10
Type: Knowledge
04 Summary
Category # of Questions
Difficulty: Easy 38
Difficulty: Hard 16
Difficulty: Moderate 91
Larson - Chapter 04 146
Learning Objective: 04-01 Describe and prepare a work sheet and explain its usefulness. 36
Learning Objective: 04-02 Describe the closing process and explain why temporary accounts are closed each period. 23
Learning Objective: 04-03 Prepare closing entries. 40
Learning Objective: 04-04 Explain and prepare a postclosing trial balance. 11
Learning Objective: 04-05 Complete the steps in the accounting cycle. 12
Learning Objective: 04-06 Explain and prepare a classified balance sheet. 21
Learning Objective: 04-07 Prepare reversing entries and explain their purpose. 6
Learning Objective: 04-08 Calculate the current ratio and describe what it reveals about a companys financial condition. 11
Type: Application 29
Type: Knowledge 116

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3. A work sheet is prepared before entering the adjustments in the accounts.

4. The work sheet is used to record transactions as they occur.

5. A work sheet can be prepared manually or with a computer spreadsheet program.

27. The withdrawals account is normally closed by debiting it.

36. The third closing entry is to close Withdrawals to Income Summary.

52. For a partnership, the equity section is called Shareholders Equity.

53. Reversing entries are optional.

65. Which of the following statements is incorrect?

(1) Office supplies used during the period, $1,200.

The Adjusted Trial Balance columns total:

72. Another name for temporary accounts is:

75. Which of the following statements is incorrect?

80. The Income Summary account is:

89. Which statement is incorrect?

93. Which of the following statements is true?

96. A classified balance sheet:

98. Current liabilities become due:

100. The ending balance of owner's capital is calculated as:

101. Reversing entries:

103. The current ratio:

104. The current ratio:

Completing the work sheet

110. Describe a work sheet and explain why it is useful.

(a) Salaries earned by employees but unpaid and unrecorded, $500.

A. ____________ B. ___________ C. ____________ D. ____________

119. Explain why temporary accounts are closed each period.

Prepare the necessary closing entries at October 31.

Prepare the necessary closing entries.

122. The adjusted trial balance of Sara's Photography follows:

1. Prepare the necessary closing entries at December 31.

1. Prepare the necessary closing entries at December 31.

Prepare the necessary closing entries at May 31.

127. Discuss the purpose of a post-closing trial balance.

128. Identify the steps in the accounting cycle.

129. Describe a classified balance sheet.

(a) Current assets

(1) ______ Margarita Acosta, capital

Below is the year-end adjusted trial balance for Lucie Accounting.

133. Explain the purpose of reversing entries.

1. A temporary account used only in the closing process

1. Obligations that are due to be paid within the longer of Closing

3. A work sheet is prepared before entering the adjustments in the accounts.

4. The work sheet is used to record transactions as they occur.

6. A work sheet is a substitute for the financial statements.

24. Income Summary is a temporary account.

27. The withdrawals account is normally closed by debiting it.

36. The third closing entry is to close Withdrawals to Income Summary.

52. For a partnership, the equity section is called Shareholders Equity.

53. Reversing entries are optional.

65. Which of the following statements is incorrect?

(1) Office supplies used during the period, $1,200.

The Adjusted Trial Balance columns total:

73. When closing entries are made:

80. The Income Summary account is:

89. Which statement is incorrect?

92. A post-closing trial balance shows:

97. The asset section of a classified balance sheet includes:

98. Current liabilities become due:

101. Reversing entries:

102. Reversing entries are:

A. ______ B. _ C. D. ____

A. ______ B. _ C. D. ____