Question 1

What broad purposes are accomplished by closing entries?

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Question 2

Susan Kane won the mayoral election in the City of Ashley partly on the basis of her charge that Allen Ross,the former mayor,was responsible for the budget deficit.After taking office,she hired a major international accounting firm to straighten things out.This excerpt appeared in an article from a leading business publication,West End Business Review:
[A riddle] Q: When is a budget deficit not a deficit?
A: When it is a surplus,of course.
Ashley Mayor Susan Kane was once again caught with egg on her face last week as she and her financial advisers tried to defend that riddle.On one hand,Comptroller Jim Guan [a Kane appointee],explaining $75 million in assets the mayor [Kane] hopes to hold in reserve in the 2007 Ashley city budget,testified in hearings that the city had actually ended 2005 with a $6 million surplus,not the much-reported deficit.He said further that the modest surplus grew to $54 million as a result of tax-enrichment supplements to the 2005 balance sheet.
On the other hand,the mayor stuck by the same guns she used last year on her predecessor.The city had ended 2005,under the Allen Ross administration,not merely without a surplus,but with a deficit.The apparent discrepancy can be explained.
Like most U.S.cities,Ashley operates under a modified accrual accounting basis.This is a combination of the cash basis and the accrual basis.The modified accrual basis differs from the accrual basis in that revenue is recorded when it is collected.The collection of Ashley's parking tax,which is assessed on all city parking lots and garages,is an example.
The tax is assessed and collected on a quarterly basis but the city doesn't collect the amount due for the last quarter of 2006 until the first quarter of 2007.Under ideal accrual methods,the parking revenues should be recorded in the 2006 financial statements.Under a cash approach,the revenues would be recorded in the 2007 budget.What the city did before was to record the money whenever it was advantageous politically.That,combined with the infamous revolving funds,allowed the city to hide the fact it was running large deficits under [former] Mayor Ross.That also means that no one really knew where the city stood.
The auditors are now reallocating the parking revenues to the 2007 budget but are accruing other revenues by shifting the period of collection from a year in the past.Overall,more revenues were moved into earlier fiscal years than into later years,inflating those budgets.Thus,the 2007 deficit is a surplus.
The article concluded:
The upshot is that both Mayor Kane and Mr.Guan [the comptroller] were correct.There was a deficit in the 2005 corporate or checkbook fund,but because of corrections taking place now,a surplus exists.
a. Do you agree with the way the auditors handled parking revenues? Support your answer by explaining which method of accounting you think a city should use.
b. Comment on the statement, "Systematically applied accounting principles will allow all to know exactly where the city stands."

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Question 3

Use the following unadjusted trial balance to prepare adjusting entries,given the additional information below it.Assume financial statements are prepared quarterly.Omit explanations.
 $\begin{array}{c}
\text {Crivelli Financial Services }\
\text {Unadjusted Trial Balance}\
\text { September 30, 2010}\ 
\begin{array}{|l|r|r|}
\hline \text { Cash } & \$ 20,000 \
\text { Accounts Receivable } & 6,400 \
\text { Office Supplies } & 1,000 \
\text { Prepaid Rent } & 3,600 \
\text { Office Furniture } & 9,600\
\text { Accumulated Depreciation -Office Furniture } & & 400 \
\text { Accounts Payable } & & 14,800 \
\text { Unearned Revenue } & & 2,000 \
\text { Common Stock } & & 20,400 \
\text { Consulting Revenue } && 12,000 \
\text { Salaries Expense } & 7,400 & \
 \text { Insurance Expense } & 1,600  \
& \$ 49,600 & \$ 49,600\
\hline
\end{array}
\end{array}$ 
a. Of the revenue received in advance, 60 percent remained unearned on September 30.
b. The office furniture has an estimated five-year useful life and zero value at the end of that time. Record depreciation for the quarter.
c. Salaries earned, but unpaid, totaled $1,520.
d. The Prepaid Rent applies to the six months beginning July 1, 2010.
e. Office supplies on hand totaled $300 at the end of the quarter.
f. Services performed but not yet billed or recorded amount to $1,800.

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Question 4

The following amounts are taken from the balance sheets of Baltic Corporation:
 $$\begin{array} { | l | r | r | } 
\hline & \text { December } 31,2010 & \text { December } 31,2009 \
\hline & & \
\text { Accrued liabilities } & 44,000 & \$ 37,500 \
\text { Prepaid expenses } & 14,000 & 18,500 \
\hline
\end{array}$$ During 2010,expenses related to accrued liabilities were $30,500,and expenses related to prepaid expenses were $21,000. 
a. Compute cash payments related to accrued liabilities.
b. Compute cash payments related to prepaid expenses.

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Question 5

In the journal provided,prepare year-end adjustments for the following situations.Omit explanations.
a. Accrued interest on notes receivable is $560.
b. Of the $7,200 received in advance of earning a service, one-third was still unearned by year end.
c. Two years of rent, totaling $24,000, was paid in advance. By year end, four months' worth had expired.
d. Services totaling $685 had been performed, but not yet billed.
e. Depreciation on trucks totaled $1,700 for the year.
f. Supplies available for use during the year amounted to $3,400. However, by year end, only $700 in supplies remained.
g. Payroll for the five-day work week, to be paid on Friday, is $6,000. Year end falls on a Tuesday.
h. Estimated federal income taxes were $2,100.

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Question 6

Why will the Income Summary account never appear on any financial statement?

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Question 7

Distinguish between adjusting and closing entries.

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Question 8

The Retained Earnings,Dividends,and Income Summary accounts for Gegor's Repair Shop,Inc.,for the accounting period are presented below in T account form after the recording and posting of closing entries. From the T accounts,determine the following: a. Revenue for the period b. Net income (or net loss) c. Dividends for the period d. Ending balance of Retained Earnings

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Question 9

During the performance of the steps in the accounting cycle,trial balances are prepared at three key points.Using specific names where applicable,discuss the time of preparation and the purpose served by each of these trial balances.

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Question 10

Answer the following questions.(Show your work.)
a. Revenue of $60,000 was earned, but only $45,000 was collected. Expenses of $36,000 were incurred, but only $30,000 was paid. What is reported net income?
b. Wages of $4,000 are paid every Friday for a five-day workweek. If year end falls on a Tuesday, the adjusting entry for wages would be recorded at what amount?
c. A company vehicle is purchased for $24,000. Assuming an eight-year useful life and zero value at that time, what is the balance of accumulated depreciation after five years?
d. Supplies Expense of $3,600 was recorded for a given year. Assuming that $2,400 in supplies were purchased during the year and that $640 in supplies remained at year end, what was the cost of supplies at the beginning of the year?

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a. Revenue...

Question 11

In the journal provided,prepare year-end adjustments for the following situations.Omit explanations.
a. Accrued interest on notes receivable is $105.
b. Of the $12,000 received in advance of earning a service, one-third was still unearned by year end.
c. Three years' rent, totaling $36,000, was paid in advance at the beginning of the year.
d. Services totaling $5,300 had been performed, but not yet billed.
e. Depreciation on trucks totaled $3,400 for the year.
f. Supplies available for use totaled $690. However, by year end, only $100 in supplies remained.
g. Payroll for the five-day work week, to be paid on Friday, is $30,000. Year end falls on a Monday.
h. Estimated federal income taxes were $4,160.

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Question 12

Below are the adjusted accounts of DeMay Realtors,Inc.,for the month ended July 31,20xx,listed in alphabetical order:
 $$\begin{array} { l r l } 
\text { Accounts Payable } & \$ 1,200 & \text { Dividends } &\$3,000\
\text { Accounts Receivable } & 10,800 & \text { Income Taxes Expense } &300\
 \text { Accumulated Depreciation - } & & \text { Income Taxes Payable } &300\
\text { Office Equipment } & 12,000 & \text { Land }&4,500 \
\text { Cash } & 3,450 & \text { Office Equipment }&30,000 \
\text { Commissions Revenue } & 22,500 & \text { Salaries Expense } &6,900\
\text { Common Stack } & 24,000 & \text { Utilities Expense } &450\
\text { Depreciation Expense- } & & \
\text { Office Equipment } & 600 &
\end{array}$$ Prepare a post-closing trial balance.

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Question 13

Presented below are the Retained Earnings,Dividends,and Income Summary accounts for Happy Puppy Pet Grooming Boutique for the year ended December 31,20xx. In the journal provided,prepare the closing entries that resulted in the T accounts above.Assume that the only revenue is Revenue from Services and the only expense is Advertising Expense (omit explanations).

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Question 14

Joan Miller owns an advertising agency.One of the adjustments her accountant made at the end of July was $360 for unpaid wages of the secretary.Joan Miller might ask,"Why go to the trouble of making this adjustment? Why worry about it? Doesn't everything come out in the end,when the secretary is paid in August? Because wages expense in total is the same for the two months,isn't the net income in total unchanged?" Give three reasons why adjusting entries can help Joan Miller assess the performance of her business.(Net income was $1,600.)

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Question 15

The 20xx income statement for Newton Company showed rent expense of $10,800 and salaries expense of $7,200.The related balance sheet account balances at year end for last year and this year were as follows:
 $$\begin{array} { | l | r | r | } 
\hline & \text { This Year } & \text { Last Year } \
\hline & & \
 \text { Prepaid rent } & \$ 1,200 & \$ \
\text { Salaries payable } & 400 & \text { 800 } \
\hline
\end{array}$$ 
a. Compute cash paid for rent during the year.
b. Compute cash paid for salaries during the year.

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Question 16

Given the adjusted trial balance below,prepare (in good form)an income statement,statement of retained earnings,and balance sheet.The name of the business is Duncore Secretarial Service and the accounting period coincides with the calendar year.
 $\begin{array}{c}
 \text { Duncore Secretarial Service}\
 \text {  Adjusted Trial Balance}\
 \text {  December 31, 2010}\\begin{array}{|l|r|r|}
\hline \text { Cash } & \$265 \
\text { Accounts Receivable } & 600 \
\text { Supplies } & 10 \
\text { Prepaid Insurance } & 10 \
\text { Office Equipment } & 1,000\
\text { Accumulated Depreciation-Office Equipment } &&150 \
\text { Accounts Payable } &&600   \
\text { Salaries Payable } &&35 \
\text { Common Stock } && 500 \
\text { Retained Earnings } && 200 \
\text { Service Revenue Earned } &  &1,100\
\text { Salaries Expense } & 560 \
\text { Supplies Expense } & 40 \
\text { Insurance Expense } & 50 \
\text { Depreciation Expense-Office Equipment } & 50 \
&\$2,585&\$2,585\
\hline 
\end{array}\end{array}$

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Question 17

Use the following unadjusted trial balance to prepare adjusting entries,given the additional information below it.Assume that financial statements are prepared quarterly.Omit explanations.
 $\begin{array}{c}
\text {Shayna's Financial Services }\
\text {Unadjusted Trial Balance }\
\text {September 30, 2010}\
\begin{array}{|l|r|r|}
\hline\text { Cash } & \$ 30,000 \
\text { Accounts Receivable } & 9,600 \
\text { Office Supplies } & 1,600 \
\text { Prepaid Rent } & 5,400 \
\text { Office Furniture } & 14,400\
\text { Accumulated Depreciation-Office Furniture } & & \$600 \
\text { Accounts Payable } & & 22,200 \
\text { Unearned Revenue } & & 3,000 \
\text { Common Stock } & & 30,600 \
\text { Consulting Revenue } & 18,000 \
\text { Salaries Expense } & 11,000 & \
\text { Insurance Expense } & 2,400 & \
&\$74,400&\$74,400\
\hline
\end{array}\end{array}$
 
a. Of the revenue received in advance, 60 percent remained unearned on September 30.
b. The office furniture has an estimated 12-year useful life and zero value at the end of that time. Record depreciation for the quarter.
c. Salaries earned, but unpaid, totaled $2,600.
d. The Prepaid Rent applies to the six months beginning July 1, 2010.
e. Office supplies on hand totaled $600 at the end of the quarter.
f. Services performed but not yet billed or recorded amount to $3,000.

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Question 18

Answer the following questions.(Show your work.)
a. A machine was purchased on July 1, 20xx. It had a cost of $36,000 and an estimated useful life of nine years with zero value at that time. What is the machine's carrying value after four years?
b. On April 1, 20xx, a company paid in advance $54,000 for three years' insurance. How much Prepaid Insurance remains on the balance sheet on December 31, 20xx?
c. A company began the year with $800 in supplies, purchased $2,000 in supplies, and ended the period with $600 in supplies. How much is Supplies Expense for the period?
d. A company was paid $1,800 in advance for services to be performed. At year end, one-third had not yet been earned. How much in Service Revenue should be recorded?

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a. A...

Question 19

The following steps in the accounting cycle are presented out of order below.Arrange the steps in proper order by placing a number from 1 through 5 in the blanks provided.Also identify each step as either a recurring activity (RA)-one that would be repeated during the fiscal period-or an end-of-period activity (EOP)-one performed at the end of the accounting period.
______
a. Record entries in a journal.
______
b. Adjust the accounts and prepare an adjusted trial balance.
______
c. Close the accounts and prepare a post-closing trial balance.
______
d. Analyze business transactions from source documents.
______
e. Post entries to the ledger and prepare a trial balance.

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Question 20

Prepare year-end adjusting entries for each of the following situations:
a. The Store Supplies account showed a beginning debit balance of $400 and purchases of $2,800. The ending debit balance was $800.
b. Depreciation on buildings is estimated to be $7,300.
c. A one-year insurance policy was purchased for $2,400. Nine months have passed since the purchase.
d. Accrued interest on notes payable amounted to $200.
e. The company received a $9,600 advance payment during the year on services to be performed. By the end of the year, one-third of the services had been performed.
f. Payroll for the five-day workweek, to be paid on Friday, is $10,000. The last day of the period is a Tuesday.
g. Services totaling $920 had been performed but not yet billed or recorded.

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Quiz 3: Measuring Business Income

What broad purposes are accomplished by closing entries?

Why will the Income Summary account never appear on any financial statement?

Distinguish between adjusting and closing entries.

During the performance of the steps in the accounting cycle,trial balances are prepared at three key points.Using specific names where applicable,discuss the time of preparation and the purpose served by each of these trial balances.