Question 1

Which of the following statements regarding reporting under GAAP and IFRS is not true:
A) Both GAAP and IFRS define the initial asset value as historical cost for nearly all assets.
B) The definition of an asset under GAAP and IFRS involves three basic criteria.
C) Both GAAP and IFRS define the initial asset value as replacement value.
D) The definition of a liability under GAAP and IFRS involves three basic criteria.
E) After acquisition, one of two asset measurement systems is applied.

Accepted Answer

While both GAAP and IFRS define the initial asset value as historical cost for nearly all assets and the definition of an asset under GAAP and IFRS involves three basic criteria, neither GAAP nor IFRS define the initial asset value as replacement value. Additionally, the definition of a liability under GAAP and IFRS involves three basic criteria. Lastly, after acquisition, one of two asset measurement systems is applied.

Question 2

Temporary accounts include all of the following except:
A) Consulting revenue.
B) Dividends.
C) Rent expense.
D) Prepaid rent.
E) Income Summary.

Accepted Answer

Prepaid rent is an asset account, not a temporary account. Temporary accounts are those that are closed out at the end of the accounting period and include revenues, expenses, and dividends. Consulting revenue, rent expense, and income summary are all temporary accounts.

Question 3

For the year ended December 31,a company has revenues of $317,000 and expenses of $196,000.The company paid $50,000 in dividends during the year.The balance in the Retained earnings account before closing is $81,000.Which of the following entries would be used to close the dividends account?
A) Debit Income Summary $50,000; credit Retained earnings $50,000.
B) Debit Retained earnings $50,000; credit Dividends $50,000.
C) Debit Retained earnings $81,000; credit Income Summary $81,000.
D) Debit Income Summary $81,000, credit Dividends $81,000.
E) Debit Dividends $50,000; credit Retained earnings $50,000.

Accepted Answer

The answer of For the year ended December 31,a company...

Question 4

Palmer Company is at the end of its annual accounting period.The accountant has journalized and posted all external transactions and all adjusting entries,has prepared an adjusted trial balance,and completed the financial statements.The next step in the accounting cycle is:
A) Prepare a work sheet.
B) Prepare reversing entries.
C) Close temporary accounts.
D) Prepare a post-closing trial balance.
E) Prepare an unadjusted trial balance.

Accepted Answer

After preparing financial statements, the next step in the accounting cycle is to close temporary accounts (revenues, expenses, and dividends) to the retained earnings account to prepare the company for the next accounting period.

Question 5

Based on the following information from Schrute Company's balance sheet,calculate the current ratio.
$$\begin{array} { | l | r | } 
\hline \text { Current assets } & \$ 87,000 \
\hline \text { Investments } & 50,000 \
\hline \text { Plant assets } & 220,000 \
\hline \text { Current liabilities } & 39,000 \
\hline \text { Long-term liabilities } & 90,000 \
\hline \text { Retained earnings } & 228,000 \
\hline
\end{array}$$
A) .44.
B) 3.51.
C) 3.33.
D) 1.06.
E) 2.23.

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities: $87,000 / $39,000 = 2.23$.

Question 6

All of the following statements regarding a work sheet are true except:
A) A worksheet aids in the preparation of financial statements.
B) A worksheet reduces possible errors when working with many accounts and adjustments.
C) A worksheet is not useful in planning and organizing an audit of financial statements.
D) A worksheet helps in preparing interim financial statements.
E) A worksheet shows the effects of proposed or "what-if" transactions.

Accepted Answer

A worksheet can be useful in planning and organizing an audit of financial statements as it can help auditors understand the accounting system and identify potential risks or errors. Therefore, the statement that a worksheet is not useful in planning and organizing an audit of financial statements is false, making choice C incorrect. The other statements are true, making choices A, B, D, and E correct.

Question 7

Reversing entries:
A) Are necessary when journal entries have been incorrectly recorded.
B) Are a required step in the accounting cycle.
C) Will often result temporarily in abnormal account balances in some accounts.
D) Are required only if the company uses accounting software to record journal entries.
E) Must be made before preparing the post-closing trial balance.

Accepted Answer

Reversing entries are optional entries made at the beginning of a new accounting period to reverse the effect of certain adjusting entries made at the end of the previous period. They are not necessary due to errors, not required in the accounting cycle, not related to the use of software, and not a prerequisite for preparing the post-closing trial balance. They can result in temporary abnormal balances in some accounts until the related transactions occur.

Question 8

The following information is available for Zephyr Company before closing the accounts.After all of the closing entries are made,what will be the balance in the Retained earnings account?
$$\begin{array} { l r } 
\text { Net income } & \$ 115,000 \
\text { Retained earnings } & 110,000 \
\text { Dividends } & 39,000
\end{array}$$
A) $115,000.
B) $225,000.
C) $264,000.
D) $186,000.
E) $956,000.

Accepted Answer

The balance in the Retained Earnings account after closing entries will be calculated as follows: Starting Retained Earnings + Net Income - Dividends = $110,000 + $115,000 - $39,000 = $186,000.

Question 9

The purpose of reversing entries is to:
A) Simplify a company's recording of certain journal entries in the future.
B) Correct errors made in previous journal entries.
C) Ensure that closing entries have been properly posted to the ledger accounts.
D) Make certain that only permanent accounts are carried forward into the next accounting period.
E) Complete a required step in the accounting cycle.

Accepted Answer

Reversing entries are made at the beginning of a new accounting period to simplify the recording of subsequent transactions related to accruals or deferrals from the previous period. They are not about correcting errors, ensuring closing entries are posted, affecting which accounts are carried forward, or a required step in every accounting cycle.

Question 10

Which of the following types of businesses might have an operating cycle longer than one year?
A) Ski resort.
B) Clothing retailer.
C) Florist.
D) Wheat farmer.
E) Commercial airplane manufacturer.

Accepted Answer

The answer of Which of the following types of businesses...

Question 11

The following information is available for Brendon Company before closing the accounts.What will be the amount in the Income Summary account that should be closed to Retained earnings?
$$\begin{array} { l r } 
\text { Retained earnings } & \$ 112,000 \
\text { Dividends } & 32,000 \
\text { Fees earned } & 187,000 \
\text { Depreciation Expense-Equipment } & 12,000 \
\text { Wages expense } & 71,400 \
\text { Interest expense } & 3,300 \
\text { Insurarnce expense } & 11,700 \
\text { Rent expense } & 24,200
\end{array}$$
A) $80,000.
B) $64,400.
C) $43,000.
D) $32,400.
E) $42,400.

Accepted Answer

The answer of The following information is available for Brendon...

Question 12

Use the information in the adjusted trial balance presented below to calculate current assets for Taron Company:
$\begin{array}{lrr}
\text {Account Title}&\text {Dr.}&\text {Cr} \
\text { Cash } & \$ 23,000 \
\text { Accounts receivable } & 16,000 \
\text { Prepaid insurance } & 6,600 \
\text { Equipment } & 100,000\
\text { Accumulated depreciation-Equipment } & & \$ 5,000 \
\text { Land } & 95,000 & \
\text { Accounts payable } & & 17,000 \
\text { Interest payable } & & 2,400 \
\text { Unearned revenue } & & 5,000 \
\text { Long-term notes payable } & & 30,000 \
\text { Retained earnings } & & 136,200 \
\text { Totals } & \$ 240,600 & \$ 240,600
\end{array}$
A) $21,200.
B) $45,600.
C) $24,400.
D) $95,600.
E) $41,200.

Accepted Answer

Current assets for Taron Company include Cash, Accounts Receivable, and Prepaid Insurance, which sum up to $23,000 + $16,000 + $6,600 = $45,600.

Question 13

For the year ended December 31,a company had revenues of $187,000 and expenses of $109,000.$37,000 in dividends were paid during the year.Which of the following entries could not be a closing entry?
A) Debit Income Summary $78,000; credit Retained earnings $78,000.
B) Debit Retained earnings $37,000; credit Dividends $37,000.
C) Debit revenues $187,000; credit Income Summary $187,000.
D) Debit Income Summary $109,000, credit expenses $109,000.
E) Debit Income Summary $187,000; credit revenues $187,000.

Accepted Answer

The closing entry for revenues is to debit Income Summary and credit revenues for the total amount of revenues earned during the period. Option E correctly reflects this entry. 
Options A, B, and D reflect valid closing entries for expenses, dividends, and net income (which is the difference between revenues and expenses). 
Option C is incorrect as revenues are closed to Income Summary, not the other way around.

Question 14

Permanent accounts include all of the following except:
A) Accumulated Depreciation-Equipment.
B) Prepaid Insurance.
C) Unearned Revenue.
D) Accounts Receivable.
E) Depreciation Expense-Equipment.

Accepted Answer

Permanent accounts are those that carry their balances over into the next accounting period. Depreciation Expense-Equipment is an income statement account, not a permanent account, and is reset to zero at the beginning of each fiscal year.

Question 15

Which of the following statements about a company's operating cycle is not true:
A) Non-current items are those expected to come due within one year or the company's operating cycle.
B) The operating cycle is the time span from when cash is used to acquire goods and services until cash is received from the sale of goods and services.
C) The length of a company's operating cycle depends on its activities.
D) For a merchandiser selling products, the operating cycle is the time span between paying suppliers for merchandise and receiving cash from customers.
E) Most operating cycles are less than one year.

Accepted Answer

Non-current items are not expected to come due within one year or the company's operating cycle.

Question 16

Which of the following accounts would be included in a post-closing trial balance?
A) Accounts Receivable.
B) Dividends.
C) Consulting Fees Earned.
D) Depreciation Expense-Equipment.
E) Salaries Expense.

Accepted Answer

A post-closing trial balance includes all balance sheet accounts that have balances after closing entries are made. Accounts Receivable is a balance sheet account with a balance that carries over into the next accounting period. Dividends, Consulting Fees Earned, Depreciation Expense-Equipment, and Salaries Expense are temporary accounts that would have been closed to Retained Earnings and would not appear in a post-closing trial balance.

Question 17

Flagg records adjusting entries at its December 31 year-end.At December 31,employees had earned $12,000 of unpaid and unrecorded salaries.The next payday is January 3,at which time $30,000 will be paid.Prepare the journal entry on January 3 to record payment assuming the adjusting and reversing entries were made on December 31 and January 1.
A) Debit Salaries expense $12,000; debit Salaries payable $18,000; credit Cash $30,000.
B) Debit Salaries expense $30,000; credit Cash $30,000.
C) Debit Salaries payable $30,000; credit Cash $30,000.
D) Debit Salaries expense $18,000, debit Salaries payable $12,000; credit Cash $30,000.
E) Debit Salaries expense $18,000; credit Cash $18,000.

Accepted Answer

The answer of Flagg records adjusting entries at its December...

Question 18

Flagg records adjusting entries at its December 31 year end.At December 31,employees had earned $12,000 of unpaid and unrecorded salaries.The next payday is January 3,at which time $30,000 will be paid.Prepare the January 1 journal entry to reverse the effect of the December 31 salary expense accrual.
A) Debit Salaries expense $12,000; credit Salaries payable $12,000.
B) Debit Salaries expense $18,000; debit Salaries payable $12,000; credit Cash $30,000.
C) Debit Salaries payable $18,000; credit Cash $18,000.
D) Debit Salaries payable $12,000, credit Salaries expense $12,000.
E) Debit Salaries expense $18,000; credit Salaries payable $18,000.

Accepted Answer

To reverse the effect of the December 31 salary expense accrual, we need to debit the Salaries Payable account and credit Salaries Expense account for the same amount of $12,000. This will ensure that the expense is removed from the income statement and the liability is removed from the balance sheet. Choice D is the only option that includes the correct debit and credit accounts with the correct amounts, making it the best choice.

Question 19

All of the following statements regarding the Income Statement columns on the worksheet are true except:
A) The balances in the Income Statement credit column are revenues.
B) The balances in the Income Statement credit column are unearned revenues.
C) The balances in the Income Statement debit column are expenses.
D) The difference between the totals of the Income Statement columns is net income or net loss.
E) The net income or net loss from the Income Statement columns is entered in the Balance Sheet & Statement of Retained Earnings columns.

Accepted Answer

The balances in the Income Statement credit column are not typically unearned revenues. The credit column includes revenues, not liabilities like unearned revenues.

Question 20

Use the information in the adjusted trial balance presented below to calculate the current ratio for Taron Company:
$\begin{array}{lrr}
\text {Account Title}&\text {Dr.}&\text {Cr} \
\text { Cash } & \$ 23,000 \
\text { Accounts receivable } & 16,000 \
\text { Prepaid insurance } & 6,600 \
\text { Equipment } & 100,000\
\text { Accumulated depreciation-Equipment } & & \$ 5,000 \
\text { Land } & 95,000 & \
\text { Accounts payable } & & 17,000 \
\text { Interest payable } & & 2,400 \
\text { Unearned revenue } & & 5,000 \
\text { Long-term notes payable } & & 30,000 \
\text { Retained earnings } & & 136,200 \
\text { Totals } & \$ 240,600 & \$ 240,600
\end{array}$
A) 1.87.
B) .54.
C) 3.92.
D) 1.77.
E) 1.60.

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. Current assets include cash, accounts receivable, and prepaid insurance. Current liabilities include accounts payable, interest payable, and unearned revenue. In this case, current assets total $45,600 ($23,000 + $16,000 + $6,600) and current liabilities total $24,400 ($17,000 + $2,400 + $5,000). Therefore, the current ratio is $45,600 / $24,400 = 1.87.

Quiz 3: Adjusting Accounts for Financial Statements

Which of the following statements regarding reporting under GAAP and IFRS is not true:

Temporary accounts include all of the following except:

For the year ended December 31,a company has revenues of $317,000 and expenses of $196,000.The company paid $50,000 in dividends during the year.The balance in the Retained earnings account before closing is $81,000.Which of the following entries would be used to close the dividends account?

Palmer Company is at the end of its annual accounting period.The accountant has journalized and posted all external transactions and all adjusting entries,has prepared an adjusted trial balance,and completed the financial statements.The next step in the accounting cycle is:

All of the following statements regarding a work sheet are true except:

Reversing entries:

The purpose of reversing entries is to:

Which of the following types of businesses might have an operating cycle longer than one year?

For the year ended December 31,a company had revenues of $187,000 and expenses of $109,000.$37,000 in dividends were paid during the year.Which of the following entries could not be a closing entry?

Permanent accounts include all of the following except:

Which of the following statements about a company's operating cycle is not true:

Which of the following accounts would be included in a post-closing trial balance?

All of the following statements regarding the Income Statement columns on the worksheet are true except: