Deck 4: Adjusting and Closing Entries

Question 1

A year end balance on an accrued wages account is reported in the year end accounts as:

A) A deduction in the profit and loss statement.
B) A liability in the balance sheet.
C) A prepaid expense.
D) An asset in the balance sheet.
E) None of the above.

Answer 1

B

Question 2

On 31^st December 20X1, immediately prior to entering adjusting entries, the prepaid insurance account of the White Lion Hotel has a balance of $1,200. This concerns a payment made on 30^th September 20X1 for 12 months of insurance cover. The adjusting entry that needs to be made on 31^st December 20X1 is:

A) Debit prepaid insurance $300, credit insurance expense $300.
B) Debit prepaid insurance $1,200, credit insurance expense $1,200.
C) Debit insurance expense $1,200, credit prepaid insurance $1,200.
D) Debit insurance expense $300, credit prepaid insurance $300.
E) None of the above.

Answer 2

D

Question 3

An inventory count conducted on 31^st December 20X1 has determined that the Regal Hotel has a cleaning supplies inventory of $260. Accounting records indicate that the hotel had $140 of cleaning supplies at the commencement of the year and purchased $880 of cleaning supplies during the year. What amount should be expensed for cleaning supplies in the year ended 31^st December 20X1?

A) $760
B) $1,280
C) $1,020
D) $880
E) None of the above

Answer 3

A

Question 4

With respect to the 'Accumulated Depreciation' account, which of the following statements is correct?

A) It appears as a liability in the balance sheet.
B) It reflects that part of an asset's cost that has been expensed.
C) When deducted from an asset's original cost, it reflects what the asset is currently worth.
D) It appears as an expense in the profit and loss statement.
E) None of the above statements are correct.

Question 5

The Excelsior hotel purchased a limousine costing $100,000 on 1 July 20X2. The limousine has an expected useful life of 8 years and it is estimated it will have a salvage value of $20,000. Assuming the hotel depreciates its fleet of vehicles using the straight line approach, what depreciation entry will be required for the limousine for the year ending 30 June 20X3 (assume no prior depreciation entries have been made for the limousine)?

A) Debit Accumulated Depreciation $12,500; Credit Depreciation Expense $12,500
B) Debit Depreciation Expense $10,000; Credit Accumulated Depreciation $10,000
C) Debit Depreciation Expense $10,000; Credit Limousines $10,000
D) Debit Accumulated Depreciation $10,000; Credit Depreciation Expense $10,000
E) None of the above.

Question 6

The Prima Hotel pays its waged staff $28,000 every 7 days. The hotel's year end falls 3 days into its 7 day wage payment cycle. The adjusting entry that it needs to make in connection with wages is:

A) Debit Wages Prepaid $12,000; Credit Accrued Wages $12,000
B) Debit Accrued Wages $12,000; Credit Wage Expense $12,000
C) Debit Wage Expense $12,000; Credit Accrued Wages $12,000
D) No adjusting entry required.
E) None of the above.

Question 7

The following information relates to the next two questions. On 1^st December the Divine Hotel received a down payment of $30,000 for a 3 day conference that it will host 31^st December - 2^nd January.
-On 1^st December, the Divine Hotel should record the down payment in its accounts as:

A) Debit Revenue $30,000; Credit Unearned Revenue $30,000
B) Debit Cash $30,000; Credit Conference Revenue $30,000
C) Debit Cash $30,000; Credit Unearned Revenue $30,000
D) Debit Cash $30,000; Credit Contingent Revenue $30,000
E) None of the above

Question 8

The following information relates to the next two questions. On 1^st December the Divine Hotel received a down payment of $30,000 for a 3 day conference that it will host 31^st December - 2^nd January.
-The Divine Hotel should make the following 31^st December year end adjusting entry:

A) Debit Unearned Revenue $10,000; Credit Contingent Revenue $10,000
B) Debit Revenue $10,000; Credit Unearned Revenue $10,000
C) Debit Contingent Revenue $10,000; Credit Revenue $10,000
D) Debit Unearned Revenue $10,000; Credit Revenue $10,000
E) None of the above

Question 9

The Upmarket Hotel has an interest yielding investment earning $18,000 per year. Its year end is 31^st December. Indicate what adjusting entry is required if the last time that interest was received and recorded occurred on 31^st October.

A) Debit Interest Receivable $3,000; Credit Interest Revenue $3,000
B) Debit Interest Revenue $3,000; Credit Interest Receivable $3,000
C) Debit Unearned Interest $3,000; Credit Interest Revenue $3,000
D) Debit Interest Receivable $3,000; Credit Unearned Interest $3,000
E) None of the above

Question 10

To provide for the possibility that a portion of a hotel's accounts receivable ledger may prove to be uncollectible, periodically, the following entry should be entered in the hotel's accounts.

A) Debit Allowance for Doubtful Accounts; Credit Accounts Receivable
B) Debit Bad Debts Expense; Credit Accounts Receivable
C) Debit Bad Debts Expense; Credit Allowance for Doubtful Accounts
D) Debit Allowance for Doubtful Accounts; Credit Sales
E) None of the above

Question 11

An inventory count conducted on 31^st December 20X1 indicated that Sports World had $180 of office stationery at that time. Accounting records indicate that the business had $120 of stationery at the beginning of the year and purchased $1,040 of stationery during the year. What amount should be expensed for office stationery in the year ended 31^st December 20X1?

A) $760
B) $1,280
C) $1,020
D) $980
E) None of the above

Question 12

With respect to company's car 'depreciation expense' account, which of the following statements is correct?

A) The balance on the account is off-set against the cost of cars that the company owns to give the net book value of cars in the balance sheet.
B) It reflects that part of a company's cars that have been expensed since the cars were purchased.
C) It reflects the amount of depreciation charged on company cars in the current accounting period.
D) It appears as a liability in the balance sheet.
E) None of the above statements are correct.

Question 13

The ABC company pays its salaried staff $40,000 every 10 working days (ie every 2 weeks). If the company's year end were to fall four working days following the last payment made to salaried employees, the following salaries adjusting entry would have to be made:

A) Debit Salaries Prepaid $16,000; Credit Accrued Salaries $16,000
B) Debit Salary Expense $16,000; Credit Accrued Salaries $16,000
C) Debit Accrued Salaries $16,000; Credit Salary Expense $16,000
D) Debit Accrued Salaries $16,000; Credit Salaries Prepaid $16,000
E) None of the above.

Question 14

The Outward Bounds Tour Operating company made an annual insurance premium payment of
$2,400 on 1^st November 2009. It recorded this payment by debiting its insurance expense
Account $2,400 and crediting its cash account $2,400. The insurance adjusting entry that will
Need to be made at its financial year end of 31 December 2009 is:

A) Debit Insurance Expense $400; Credit Insurance Prepaid $400
B) Debit Insurance Prepaid $2,000; Credit Insurance Expense $2,000
C) Debit Insurance Expense $2,000; Credit Insurance Prepaid $2,000
D) Debit Insurance Prepaid $400; Credit Insurance Prepaid $400
E) None of the above

Question 15

At the end of its financial year a company has an accounts receivable balance of $540,000 and an 'allowance for doubtful accounts' credit balance of $4,000. Following a review of the company's accounts receivable ledger, the auditor has determined that $3,000 should be provided for as doubtful accounts. The year end adjusting entry required is:

A) Debit Sales account $3,000; Credit Accounts Receivable $3,000
B) Debit Allowance for Doubtful Accounts $3,000; Credit Bad Debts expense $3,000.
C) Debit Allowance for Doubtful Accounts $1,000; Credit Accounts Receivable $1,000.
D) Debit Allowance for Doubtful Accounts $1,000; Credit Bad Debts expense $1,000.
E) None of the above

Question 16

Which of the following factors does not result in a need to make a financial year-end adjusting entry.

A) Bad and doubtful accounts
B) Depreciation
C) Revenue earned but not yet received
D) Dividend payments
E) Expenses uncured but not paid for

Question 17

Which of the following accounts will have a zero balance following the completion of financial year end closing entries?

A) Office supplies.
B) Accumulated depreciation.
C) Prepaid rent.
D) Allowance for doubtful accounts.
E) Depreciation expense.

Question 18

Which of the following statements about the accrual basis of accounting is false:

A) An expense is recognised in the period when the benefit deriving from the associated expenditure arises.
B) The wages accrued account records the cost of work performed but not paid for at the end of the accounting period.
C) Revenue is recognised when it is earned and certain.
D) The accrual basis of accounting lies behind the concept of depreciating an asset as it is used.
E) An expense is recognised in the period that it is paid for.

Question 19

The Sydney Jazz Festival company made an annual insurance premium payment of $1,200 on 1^st March 2011. It recorded this payment by debiting its insurance prepaid account $1,200 and crediting its cash account $1,200. The insurance adjusting entry that will need to be made at its financial year end of 31 December 2011 is:

A) Debit Insurance Expense $200; Credit Insurance Prepaid $200
B) Debit Insurance Prepaid $1,000; Credit Insurance Expense $200
C) Debit Insurance Expense $1,000; Credit Insurance Prepaid $1,000
D) Debit Insurance Prepaid $200; Credit Insurance Prepaid $200
E) None of the above

Question 20

At the end of its financial year a company has an accounts receivable balance of $320,000 and an 'allowance for doubtful accounts' credit balance of $2,100. Following a review of the company's accounts receivable ledger, the auditor has determined that 1% of the accounts receivable balance should be provided for as doubtful accounts. The year end adjusting entry required is:

A) Debit Sales account $1,100; Credit Accounts Receivable $1,100
B) Debit Allowance for Doubtful Accounts $1,100; Credit Bad Debts expense $1,100.
C) Debit Bad Debts expense $3,200; Credit Allowance for Doubtful Accounts $3,200.
D) Debit Bad Debts expense $1,100; Credit Allowance for Doubtful Accounts $1,100.
E) None of the above

Question 21

Which of the following accounts will have a zero balance following the completion of financial year end closing entries?

A) Office supplies.
B) Revenue.
C) Prepaid rent.
D) Unearned revenue.
E) Accrued wages.

Question 22

Jo Smith earned a salary of $540 for the last week of June. She is due to be paid for this work on 2^nd July. The adjusting entry for Jo's employer at 30 June is:

A) Debit Salaries Accrued $540; Credit Salaries Expense $540.
B) Debit Salaries Expense $540; Credit Salaries Accrued $540.
C) Debit Salaries Accrued $540; Credit Cash $540.
D) Debit Salaries Expense $540; Credit Cash $540.
E) None of the above.

Question 23

A hotel and country club bought a lawn mower on 1^st January 2012 for $10,000. It has been estimated that the lawn mower will be sold off for a salvage value of $2,000 after four years. If the hotel uses the straight line depreciation method, what is the accounting entry to record the lawn mower's depreciation for the hotel's year ending 31 March 2012:

A) Debit Accumulated Depreciation $625; Credit Depreciation Expense $625.
B) Debit Depreciation Expense $625; Credit Accumulated Depreciation $625.
C) Debit Depreciation Expense $500; Credit Accumulated Depreciation $500.
D) Debit Accumulated Depreciation $500; Credit Depreciation Expense $500.
E) None of the above.

Question 24

The Sea Breeze Hotel and Golf club operates a periodic inventory system in connection with its office supplies. Prior to the posting of its current financial year end adjusting entries, the office supplies account has a $200 debit balance and the office supplies purchases account has a debit balance of $1,100. A year end stock check has established that the hotel has $300 of office supplies on hand. What year end adjusting entry is required?

A) Debit Supplies inventory $1,100; Credit Supplies purchases: $1,100
Debit Supplies inventory $1,000; Credit Supplies expense $1,000.
B) Debit Supplies purchases $1,100; Credit Supplies inventory: $1,100
Debit Supplies inventory $1,000; Credit Supplies expense $1,000.
C) Debit Supplies purchases $1,100; Credit Supplies inventory: $1,100
Debit Supplies expense $1,000; Credit Supplies inventory $1,000.
D) Debit Supplies inventory $1,100; Credit Supplies purchases: $1,100
Debit Supplies expense $1,000; Credit Supplies inventory $1,000.
E) None of the above

Question 25

The Iconic Hotel has an investment of $30,000 earning 6% interest per annum which is paid semi-annually. The last time the hotel updated its records with respect to this account was when it received an interest payment of $900 for the six months ended 31 December 2011. What adjusting entry should the hotel make for its 31 March 2012 financial year end with respect to this interest bearing account?

A) Debit Interest Receivable $450; Credit Unearned Revenue $450.
B) Debit Interest Receivable $450; Credit Interest Revenue $450.
C) Debit Cash $450; Credit Interest Revenue $450.
D) Debit Interest Revenue $450; Credit Interest Receivable $450.
E) Debit Interest Revenue $1,800; Credit Interest Receivable $1,800.

Question 26

The Snow Drift ski resort pays its salaried staff $40,000 for 10 days work (Monday - Friday) every two weeks. The resort's financial year end falls 4 working days into its fortnightly salary payment cycle. The adjusting entry that it needs to make in connection with wages is:

A) Debit Wages Pending $16,000; Credit Wages Accrued $16,000
B) Debit Wages Accrued $16,000; Credit Wage Expense $16,000
C) Debit Wage Expense $16,000; Credit Wages Accrued $16,000
D) Debit Wage Expense $16,000; Credit Wages Pending $16,000
E) None of the above

Question 27

A year end adjusted balance on a prepaid insurance account is reported in the year end financial statements as:

A) An additional expense in the profit and loss statement.
B) An asset in the balance sheet.
C) A reduction to an expense in the profit and loss statement.
D) A liability in the balance sheet.
E) None of the above.

Question 28

The Snow Drift ski resort pays its salaried staff $50,000 for 10 days work (Monday - Friday) every two weeks. The resort's financial year end falls 5 working days into its fortnightly salary payment cycle. The adjusting entry that it needs to make in connection with wages is:

A) Debit Wages Expense $25,000; Credit Accounts Payable $25,000
B) Debit Wages Accrued $25,000; Credit Wage Expense $25,000
C) Debit Wage Expense $25,000; Credit Wages Accrued $25,000
D) Debit Wage Expense $25,000; Credit Cash $25,000
E) Debit Wages Accrued $25,000; Credit Cash $25,000

Question 29

On 1^st May 2012 Byron Bay Events invested $72,000 in a term deposit earning 5% per annum. Its year end is 31^st December 2012. Indicate what adjusting entry is required at 31^st December.

A) Debit Interest Receivable $2,400; Credit Unearned Revenue $2,400
B) Debit Interest Revenue $2,400; Credit Interest Receivable $2,400
C) Debit Cash $3,600; Credit Interest Revenue $3,600
D) Debit Interest Receivable $2,400; Credit Interest Revenue $2,400
E) Debit Interest Receivable $1,200; Credit Interest Revenue $1,200