Question 1

If a prepaid expense is initially recorded as an expense, the end-of-period adjusting entry records the unexpired portion.

Accepted Answer

The adjusting entry at the end of the period is made to reclassify the unexpired portion of the prepaid expense from an expense to an asset, reflecting the correct financial position.

Question 2

The post-closing trial balance proves the accuracy of the accounts.

Accepted Answer

The post-closing trial balance only ensures that total debits equal total credits after closing entries, but it does not verify the accuracy of individual account balances.

Question 3

If a prepaid expense is initially recorded as an expense, the end-of-period adjusting entry records the expired portion.

Accepted Answer

If a prepaid expense is initially recorded as an expense, the end-of-period adjusting entry should record the unexpired portion as an asset, not the expired portion.

Question 4

If service revenue is $260,000, total expenses are $175,000, additional capital stock issued of $13,000 and dividends declared are $4,000, what is the change in retained earnings as a result of the closing process?
A) an increase of $260,000
B) an increase of $81,000
C) an increase of $4,000
D) an increase of $9,000

Accepted Answer

The change in retained earnings is calculated as service revenue minus total expenses minus dividends declared: $260,000 - $175,000 - $4,000 = $81,000.

Question 5

To close out the income summary ________.
A) debit income summary, credit retained earnings for the amount of net income
B) credit income summary and debit retained earnings for the amount of the net loss
C) Both A and B
D) Neither A nor B

Accepted Answer

To close out the income summary, you debit income summary and credit retained earnings for net income, and credit income summary and debit retained earnings for a net loss.

Question 6

Which of the following accounts would not be shown on the post-closing trial balance?
A) Rent Expense
B) Retained Earnings
C) Cash
D) Common Stock

Accepted Answer

Rent Expense is a temporary account that is closed at the end of the accounting period and would not appear on the post-closing trial balance.

Question 7

List the steps required to close temporary accounts.

Accepted Answer

The answer of List the steps required to close temporary...

Question 8

Which of the following accounts would not be shown on the post-closing trial balance?
A) Dividends Payable
B) Depletion Expense
C) Patent
D) Investment in Bonds

Accepted Answer

The answer of Which of the following accounts would not...

Question 9

Prepaid expenses may be initially recorded as assets or expenses.

Accepted Answer

Prepaid expenses can be recorded as assets when payment is made in advance for future benefits, or as expenses if the benefit is consumed within the same accounting period.

Question 10

Which of the following accounts would be shown on the post-closing trial balance?
A) Dividends
B) Investments
C) Bad Debt Expense
D) Loss on Sale of equipment

Accepted Answer

Investments are a balance sheet account and remain open after closing entries, appearing on the post-closing trial balance.

Question 11

The post-closing trial balance contains only permanent accounts.

Accepted Answer

The post-closing trial balance only includes permanent accounts such as assets, liabilities, and equity accounts. Temporary accounts such as revenue, expenses, and dividends paid are closed out at the end of the accounting period and do not appear on the post-closing trial balance.

Question 12

Which of the following accounts would be shown on the post-closing trial balance?
A) Salaries Payable
B) Salaries Expense
C) Wage Expense
D) Depreciation Expense

Accepted Answer

The answer of Which of the following accounts would be...

Question 13

If a prepaid expense is initially recorded as an asset, the end-of-period adjusting entry records the unexpired portion.

Accepted Answer

The end-of-period adjusting entry records the expired portion of the prepaid expense, not the unexpired portion.

Question 14

Nantucket Corporation has the following income statement accounts for the year ended December 31.
 $$\begin{array} { l r l r } 
\text { Sales } & \$ 750,000 & \text { Rent Expense } & \$ 105,000 \
\text { Salaries Expense } & 425,000 & \text { Utilities Expense } & 11,000 \
\text { Dividend Revenue } & 4,500 &\text { Depreciation Expense } & 16,500 \
\text { Interest Expense } & 9,500& \text { Income Tax Expense } & 38,000 \
\text { Gain on Sale of Equipment } & 6,000& \text { Insurance Expense } & 23,000
\end{array}$$ Required: Prepare the necessary closing entries for December 31.

Accepted Answer

The answer of Nantucket Corporation has the following income statement...

Question 15

To close out the dividends account ________.
A) debit retained earnings and credit the dividends account
B) credit retained earnings and debit the dividends account
C) debit retained earnings and credit dividends payable
D) credit retained earnings and debit dividends payable

Accepted Answer

To close out the dividends account, you debit retained earnings and credit the dividends account. This transfers the balance from the dividends account to retained earnings, reflecting the reduction in retained earnings due to the distribution of dividends.

Question 16

If a prepaid expense is initially recorded as an asset, the end-of-period adjusting entry records the expired portion.

Accepted Answer

Prepaid expenses are initially recorded as assets because they provide future economic benefits. At the end of the period, an adjusting entry is made to recognize the portion that has expired as an expense, reducing the asset account.

Question 17

Prepaid expenses may be initially recorded as liabilities or revenues.

Accepted Answer

Prepaid expenses are initially recorded as assets because they represent future economic benefits that the company will receive.

Question 18

The post-closing trial balance contains both permanent and temporary accounts.

Accepted Answer

The post-closing trial balance only contains permanent accounts because temporary accounts are closed at the end of the accounting period.

Question 19

If a prepaid expense is recorded as an expense, and the adjusting entry is not made at the end of the period, assets on the balance sheet will be overstated.

Accepted Answer

If a prepaid expense is recorded as an expense and not adjusted, expenses are overstated and assets are understated, not overstated.

Question 20

Management InfoSys Incorporated had the following account balances at year end.
 $$\begin{array} { l r l r } 
\text { Sales } & \$ 950,000 & \text { Rent Expense } & \$ 115,000 \
\text { Salaries Expense } & 435,000 & \text { Utilities Expense } & 11,000 \
\text { Dividend Revenue } & 5,500& \text { Depreciation Expense } & 26,500 \
\text { Interest Expense } & 9,500 &\text { Income Tax Expense } & 40,000 \
\text { Gain on Sale of Equipment } & 6,000 &\text { Insurance Expense } & 22,000
\end{array}$$ Required: Prepare the closing entries at December 31.

Accepted Answer

The answer of Management InfoSys Incorporated had the following account...

Quiz 4: Review of the Accounting Cycle