Question 1

The Income Summary account is used:

Accepted Answer

The income summary account is used to close the revenue and expense accounts at the end of an accounting period by transferring their balances to the income summary account. This is done to prepare for the transfer of the net income or loss to the owner's equity account.

Question 2

At the beginning of the year,Beta Company's balance sheet reported Total Assets of $195,000 and Total Liabilities of $75,000.During the year,the company reported total revenues of $226,000 and expenses of $175,000.Also,owner withdrawals during the year totaled $48,000.Assuming no other changes to owner's capital,the balance in the owner's capital account at the end of the year would be:

Accepted Answer

Owner's Capital at the beginning of the year is $120,000 (Total Assets of $195,000 - Total Liabilities of $75,000). Add revenues of $226,000, subtract expenses of $175,000 and subtract owner withdrawals of $48,000 and owner's capital at the end of the year would be $123,000.

Question 3

A company shows a $600 balance in Prepaid Insurance in the Unadjusted Trial Balance columns of the work sheet.The Adjustments columns show expired insurance of $200.This adjusting entry results in:

Accepted Answer

The adjusting entry for expired insurance reduces the balance of prepaid insurance by $200, resulting in a decrease in assets and a decrease in net income. Therefore, the correct choice is A, which indicates a $200 decrease in net income.

Question 4

Which of the following errors would cause the Balance Sheet and Statement of Owner's Equity columns of a work sheet to be out of balance?

Accepted Answer

The answer of Which of the following errors would cause...

Question 5

A company had revenues of $75,000 and expenses of $62,000 for the accounting period.The owner withdrew $8,000 in cash during the same period.Which of the following entries could not be a closing entry?

Accepted Answer

Closing entries are made to close temporary accounts (revenues, expenses, and withdrawals) into the permanent capital account. Option B is not a valid closing entry because it credits a revenue account instead of the capital account. The correct closing entry would be to debit the Income Summary account for $13,000, credit Revenues for $75,000, and credit Expenses for $62,000, resulting in a net income of $13,000 that would be closed to the Owner's Capital account. Option A and D are valid closing entries as they close the temporary accounts to the owner's capital account. Option C is also valid but would result in a net loss being closed to the capital account. Option E is not a closing entry as it is simply recording the owner's withdrawal.

Question 6

It is obvious that an error occurred in the preparation and/or posting of closing entries if:

Accepted Answer

Balance sheet accounts should not have zero balances after closing entries because they are permanent accounts that carry their balances into the next accounting period.

Question 7

The following items appeared on a company's December 31 work sheet for the current period.Based on the following information,what is net income for the current period?

Accepted Answer

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Question 8

The J.Godfrey,Capital account has a credit balance of $17,000 before closing entries are made.If total revenues for the period are $55,200,total expenses are $39,800,and withdrawals are $9,000,what is the ending balance in the J.Godfrey,Capital account after all closing entries are made?

Accepted Answer

Ending Capital Balance = Beginning Capital Balance + Revenues - Expenses - Withdrawals
Ending Capital Balance = $17,000 + $55,200 - $39,800 - $9,000 = $23,400

Question 9

Statements that show the effects of proposed transactions as if the transactions had already occurred are called:

Accepted Answer

Pro forma statements are used to show the potential effects of proposed transactions or events on a company's financial statements. These statements are prepared as if the transactions have already occurred, allowing companies to evaluate the potential impact on their financial position and results of operations.

Question 10

If the Balance Sheet and Statement of Owner's Equity columns of a work sheet fail to balance when the amount of the net income is added to the Balance Sheet and Statement of Owner's Equity Credit column,the cause could be:

Accepted Answer

The answer of If the Balance Sheet and Statement of...

Question 11

Which of the following statements is incorrect?

Accepted Answer

On the work sheet, the adjusted amounts are sorted into columns according to whether the accounts are used in preparing the income statement or the balance sheet, not the unadjusted or adjusted trial balance.

Question 12

The following information is available for the Travis Travel Agency.After these closing entries what will be the balance in the Jay Travis,Capital account?
Total revenues………………. $125,000
Total expenses………………. 60,000
Jay Travis,Capital…………… 80,000
Jay Travis,Withdrawals……... 15,000

Accepted Answer

Ending Capital Balance = Beginning Capital Balance + Revenues - Expenses - Withdrawals
Ending Capital Balance = $80,000 + $125,000 - $60,000 - $15,000 = $130,000

Question 13

The balances in the unadjusted columns of a work sheet will agree with:

Accepted Answer

The unadjusted columns of a work sheet contain the balances from the company's general ledger. Therefore, the balances in the unadjusted columns should agree with the balances in the company's unadjusted trial balance. They may not agree with the balances in the company's financial statements or post-closing trial balance yet because adjustments may need to be made. Management's decisions and budgeted balances are not relevant to the balances in the unadjusted columns of a work sheet.

Question 14

If in preparing a work sheet an adjusted trial balance amount is mistakenly 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:

Accepted Answer

The answer of If in preparing a work sheet an...

Question 15

A company's ledger accounts and their end-of-period balances before closing entries are posted are shown below.What amount will be posted to Tricia DeBarre,Capital in the process of closing the Income Summary account? (Assume all accounts have normal balances.)

Accepted Answer

To find out the amount that will be posted to Tricia DeBarre, Capital, we need to close the revenue and expenses accounts to the Income Summary account first. Adding the revenue accounts gives us total revenue of $117,740 (81,500 + 16,020 + 20,220). Subtracting the total expenses of $100,960 (47,120 + 3,480 + 50,360) from the total revenue gives us a net income of $16,780.
Since the Income Summary account has a credit balance of $16,780, we need to post this amount to the capital account. Since we are closing the Income Summary account, we are transferring this amount to the owner's equity section of the balance sheet, which increases the owner's equity. Since Tricia DeBarre, Capital, is an equity account, we need to credit it for $16,780. Therefore, the correct answer is C.

Question 16

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:

Accepted Answer

The Income Summary account is a temporary account used in the closing process to hold the amounts of revenues and expenses. The net difference of these accounts is then transferred to the owner's capital account.

Question 17

Dina Kader withdrew a total of $35,000 from her business during the current year.The entry needed to close the withdrawals account is:

Accepted Answer

To close the withdrawals account, the correct entry is to debit the owner's capital account and credit the withdrawals account. This reflects the decrease in the owner's equity due to the withdrawals.

Question 18

In the process of completing a work sheet,you determine that the Income Statement debit column totals $83,000,while the Income Statement credit column totals $65,000.To enter net income (or net loss)for the period into the work sheet would require an entry to

Accepted Answer

The answer of In the process of completing a work...

Question 19

J.Awn,the proprietor of Awn Services,withdrew $8,700 from the business during the current year.The entry to close the withdrawals account at the end of the year is:

Accepted Answer

To close the withdrawals account, the amount withdrawn is transferred to the owner's capital account, reducing the owner's equity in the business. This is done by debiting the capital account and crediting the withdrawals account.

Question 20

At the beginning of the year,a company's balance sheet reported the following balances: Total Assets = $125,000; Total Liabilities = $75,000; and Owner's Capital = $50,000.During the year,the company reported revenues of $46,000 and expenses of $30,000.In addition,owner's withdrawals for the year totaled $20,000.Assuming no other changes to owner's capital,the balance in the owner's capital account at the end of the year would be:

Accepted Answer

Owner's Capital = $50,000 at beginning of the year. Add revenues of $46,000 during the year subtract expenses of $30,000 during the year and subtract owner withdrawals of $20,000 during the year. The ending balance in the owner's capital account at the end of the year would be $46,000.

Quiz 4: Completing the Accounting Cycle