Ch.4/Week 3 (part 2)

Which of the statements below is (are) correct regarding the accounting cycle?

The accounting cycle contains 10 steps. The cycle contains steps for adjusting and closing accounts. The accounting cycle is a series of steps repeated each reporting period. The accounting cycle refers to steps followed by a company to prepare its financial statements.

Given that a company reported net income for the year, determine how a company would complete its work sheet for the period by choosing the correct statement below.

The company would add the net income amount to the Credit column of the Balance Sheet & Owner's Equity columns of a work sheet.

Vito Co. had current assets of $9,000 and current liabilities of $6,000 at the end of the year. Net income during the year was $21,000. The current ratio for the period is:

1.5 $9,000 / $6,000 = 1.5

Brown Co. had current assets of $15,000, total assets of $30,000 and current liabilities of $9,000 at the end of the year. The current ratio for the period is:

1.67 $15,000 / $9,000 = 1.67

Using the financial information of ABC Co. below, compute its current ratio for the period.

4.06

The first closing journal entry would include which of the following?

A credit to Income Summary for $6,000.

What is keying?

Adding an identifying letter to link the debit and the credit of an adjustment in the Adjustments columns

Describe an unclassified balance sheet.

An unclassified balance sheet is one whose items are broadly grouped into assets, liabilities, and equity.

Describe your understanding of the closing process by identifying the correct steps below.

Close all expense accounts. Close the Income Summary account. Close all revenue accounts. Close the Withdrawals account.

Define "current" as it applies to assets and liabilities on a classified balance sheet.

Current items are those expected to come due within one year or the company's operating cycle, whichever is longer.

Demonstrate the fourth closing journal entry to close the Withdrawals account by selecting the correct answer below.

Debit Owner's Capital $80; Credit Owner's Withdrawals $80

Which of the following is correct regarding a work sheet?

Each set of column totals must balance on the Trial Balance columns, Adjustments columns and the Adjusted Trial Balance columns.

Which of the accounts below would appear in the equity section of a classified balance sheet?

Owner, Capital

Which of the lists below contains only permanent accounts?

Owner, Capital; Accounts Payable; Accumulated Depreciation

Select the statement below that explains how to use the Income Summary account.

The Income Summary account is used during the closing process to facilitate the closing of revenue and expense accounts.

Explain how to add adjustments to a work sheet when more than one adjustment is required:

The adjustment can be added to a blank line. The adjustment can be combined into one adjustment amount.

Which of the following lists contains only temporary accounts?

Wages Expense; Income Summary; Owner, Withdrawals

The ______(adjusted/unadjusted) trial balance is prepared by combining the adjustments in the Adjustments columns with the balances for each account listed on the _______(adjusted/unadjusted) trial balance.

adjusted unadjusted

Before sorting/transferring amounts to the financial statement columns on a worksheet, the Trial Balance, ______(Income Statement, Adjustments) and Adjusted Trial Balance columns must ______(balance, clear).

adjustments balance

Review and complete the following statement regarding the Income Summary account. The Income Summary account is ______(debited/credited) for the sum of all revenue accounts and is ______(debited/credited) for the sum of all expense accounts and its balance will be transferred to the ______(Capital/Cash) account.

credited debited capital

Review the following totals from a work sheet. Based on these totals, the company experienced (a) net (income/loss)_______ of $______

loss $2,500

Closing means to transfer account balances from ______(asset/liability/permanent/temporary) accounts so that they will start with a ______(contra/larger/zero) balance at the beginning of the next period.

temporary zero

Explain your understanding of the closing process by choosing the correct statements below.

the closing process helps summarize a period's revenues and expenses. the closing process resets the balances in temporary accounts to zero.

When does the closing process take place?

At the end of an accounting period

Which of the following accounts would be sorted from the Adjusted Trial Balance of a work sheet to the Balance Sheet & Statement of Owner's Equity columns on a work sheet?

Cash; Accounts payable; Owner, Withdrawals

Summarize the steps in the closing process by selecting the correct choice below.

Close income statement credit balance accounts; close income statement debit balance accounts; close income summary; close withdrawals.

Choose the statement below that explains what "closing" means.

Closing means to bring an account balance to zero

Review the following statements and select the ones that are correct regarding sorting accounts from the Adjusted Trial Balance columns of a work sheet to the Income Statement and Balance Sheet columns in order to prepare for our last step of completing the worksheet.

Expense accounts go to the Income Statement Debit column. Owner, Withdrawals go to the Balance Sheet & Statement of Owner's Equity Debit column. Liabilities go to the Balance Sheet & Statement of Owner's Equity Credit column.

Match the item on the left with the definition on the right. Income statement Balance sheet Work sheet Trial balance Statement of cash flows

Income statement- Reports a business's revenues and expenses for a period of time. Balance sheet- Reports a business's assets, liabilities and equity on a specific date. Work sheet- An internal accounting aid which helps in preparing financial statements. Trial balance- A list of accounts and their balances at a point in time. Statement of cash flows- Reports the inflows and outflows of cash during a period of time.

Journalizing and posting adjusting entries from the work sheet is aided by which of the following?

Keying notations

In preparing a post-closing trial balance, which of the following statements are correct?

The total of all debit balances will equal the total of all credit balances. All permanent accounts with a balance in the general ledger will be included. The capital account on the post-closing trial balance will include the net income or net loss for the period.

A post-closing trial balance is a list of ______(permanent/temporary) accounts and their balances from the ______(journal/ledger) (after/before) all ______(adjusting/closing) entries have been journalized and posted.

permanent ledger after closing

The entries to close the revenue and expense accounts for Jefferson Company are shown below. The next closing entry in the closing process would include: (Check all that apply.)

A debit to Income Summary for $7,100. A credit to the Capital account for $7,100.

What are current liabilities?

Current liabilities are liabilities due to be paid within one year. Current liabilities are usually settled by paying out current assets such as cash.

Recall the column headings of a work sheet used to prepare financial statements. Which of the following items are on a worksheet.

Income Statement columns Unadjusted Trial Balance columns Adjustment columns Balance Sheet & Statement of Owner's Equity columns Adjusted Trial Balance columns

Demonstrate your knowledge of preparing a post-closing trial balance by selecting the accounts below that would be included on it.

Liability accounts Asset accounts Permanent accounts

Identify the accounts below that would be classified as a long-term investment.

Notes receivable due in 2 years Investments in stocks Investments in bonds

Explain the required steps to complete a work sheet by placing the following steps in the correct order.

1. Enter unadjusted trial balance. 2. Enter adjustments. 3. Prepare adjusted trial balance. 4. Sort adjusted trial balance amounts to financial statements. 5. Total financial statement columns, compute income or loss and balance columns.

Choose the formula below that is used to calculate the current ratio of a business.

Current assets divided by current liabilities

A company had the following selected balances: The third closing journal entry, after closing revenues and expenses, would include which of the following?

Debit Income Summary $9,400; and credit Owner's Capital $9,400.

At year-end, ABC Company is beginning its closing process. Use the following account balances to demonstrate the closing of its revenue accounts. (Check all that apply.)

Debit to Consulting Revenue for $12,000. A credit to Income Summary for $27,000. Debit Service Fees for $15,000.

Identify the accounts below that would be classified as intangible assets on a classified balance sheet.

Goodwill Patent Franchise Trademark Copyrights

Which of the following statements is (are) correct about completing a work sheet?

If a net income occurs, it is added to the Debit column of the Income Statement. If a loss occurs, it is added to the Debit column of the Balance Sheet. If a net income occurs, it is added to the Credit column of the Balance Sheet. Adding net income to the Credit column of the Balance Sheet & Owner's Equity columns implies that it is to be added to Owner, Capital.

Select the statement(s) below which correctly describe how to use the work sheet in the adjustment process.

Information from the Adjustments columns are used for the adjusting journal entries. Journalizing and posting adjusting entries is required after adjustments are entered in a work sheet.

Which of the following defines long-term liabilities?

Long-term liabilities are debts of a business that are not due to be settled within one year.

Identify which of the accounts below would be classified as a plant asset account.

Machinery Equipment Land used to produce or sell products and services Building

After an adjusted trial balance is prepared, what is the next step in completing the work sheet used in preparing financial statements?

Sort adjusted trial balance amounts to the financial statement columns.

Which of the statements below explains the accounting cycle?

The accounting cycle is repeated each reporting period and refers to the steps taken in preparing financial statements.

Using the financial information of ABC Co. below, evaluate the company's current ratio. Select all answers which apply.

The company's ratio is above the industry's ratio, so this company is able to cover its debt better than others in this industry. The company's ability to pay short-term obligations is not in doubt since its current ratio is greater than 1.0

Review the statements below and select the items that are correct regarding the operating cycle for a business.

The length of a company's operating cycle depends on its activities. 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 or services. Most operating cycles are less than one year. Most companies use a one-year period or operating cycle in deciding which assets and liabilities are current.

What is an intangible asset?

The value of intangible assets comes from the privileges or rights granted to or held by the owner. Intangible assets are long-term resources that benefit business operations, but lack physical form.

Identify the accounts below that would be classified as current liabilities on a classified balance sheet.

Unearned rent Taxes payable Accounts payable

Current assets are:

cash and other resources that are expected to be sold, collected or used within one year

Which of the statements below describe(s) a permanent account?

A permanent account's balance is carried forward to the next accounting period. A permanent account is reported on the balance sheet.

Which of the statements below describe(s) a temporary account?

A temporary account is closed at the end of an accounting period. A temporary account has a balance for only one period.

Which of the statements below is correct regarding the difference between a temporary account and a permanent account?

A temporary account will not appear on a post-closing trial balance.

Identify which of the accounts below would be classified as a current asset.

Accounts receivable Prepaid rent Office supplies Cash

The Income Summary account can be defined as which of the following?

An account that contains a credit for the sum of all revenues. An account whose balance equals net income or net loss. An account used during the closing process. A temporary account.

At year-end, Zagnut Company is beginning its closing process. Use the following account balances to demonstrate the closing of its expense accounts. (Check all that apply.)

Credit Insurance Expense for $900. Credit to Supplies Expense for $700. A debit to Income Summary for $1,600.

What is a work sheet?

It can help with adjusting and closing accounts and with preparing financial statements.

Define the Income Summary account.

It is a temporary account used during the closing process to summarize revenues and expenses.

Define plant assets by selecting the correct statements below.

Plant assets are property, plant and equipment that are tangible. Plant assets are used to produce or sell products or services. Plant assets are equipment and other assets that have a life greater than one year.

The Supplies account in the Unadjusted Trial Balance columns has a debit balance of $4,000. There is a $1,500 credit adjustment in the Adjustments columns across from the Supplies account. Describe how to compute the Supplies account balance on the Adjusted Trial Balance.

The $1,500 credit adjustment would be subtracted from the $4,000 debit balance in the Unadjusted Trial Balance.

Formal financial statements can be prepared from the columns of a work sheet. Which of the statements below are true regarding this process?

The Debit column of the Income Statement columns represent the expenses reported on the Income Statement.

Define equity by completing the following statement. Equity is the ______(creditor's/litigator's/owner's) claim on the assets of a business and is reported in the ______(asset/equity/liability) section of a balance sheet.

owner's equity

How can you add multiple adjustments to one account in a work sheet?

A new line can be added below the affected account in the unadjusted trial balance.

Which of the following statements correctly describes what a work sheet is?

A work sheet does not substitute for financial statements. A work sheet helps to organize financial data. A worksheet is an aid used by accountants. A work sheet is prepared at the end of an accounting period.

Which of the following statements is correct regarding a work sheet and the adjustment process?

Adjusting journal entries are prepared from the Adjustments columns of a work sheet.

What are the benefits of using a work sheet?

Aids in the preparation of financial statements Links accounts and adjustments to financial statements Reduces the risk of errors when working with many accounts and adjustments

Describe the general ledger after adjusting and closing entries have been posted.

All expense accounts will show a $0 balance after closing. The Income Summary account will show three closing entries. The Owner, Withdrawal account will have a $0 balance after closing. The abbreviations "adj." and "clos." have been entered in the explanation columns of the ledger.

The following categories are on a classified balance sheet. List them in the order that they would appear.

Current Asset Long-term investment Plant asset Intangible asset Current Liabilities Non current Liabilities

Identify the accounts below that would be classified as long-term liabilities on a classified balance sheet.

Notes payable Bonds payable Mortgage payable

What defines a long-term investment?

Notes receivable and stock and bond investments are assets that are expected to be held for more than one year. Long-term investments are investments in stocks and bonds when they are expected to be held for more than one year or the operating cycle.

Select the statements below that describe the purpose of a post-closing trial balance.

One purpose is to verify that all temporary accounts have zero balances. One purpose is to verify that total debits equal total credit for permanent accounts.

Which statements below are true regarding permanent and temporary accounts?

Owner, Capital is a permanent account, but Owner, Withdrawals is a temporary account. Temporary accounts have a balance for one period only. Permanent accounts are reported on the balance sheet. Permanent accounts will appear on a post-closing trial balance. Most temporary accounts are reported on the income statement.

A classified balance sheet has several categories for assets and liabilities including:

Plant assets. Long-term investments. Current assets. Noncurrent (long-term) liabilities.

Identify which of the following steps in the accounting cycle is optional.

Reversing journal entries

Determine which of the statements below are correct regarding the current ratio.

The current ratio is one measure of a company's ability to pay its short-term debts. The current ratio helps a supplier determine whether it wants to extend credit to a customer. A current ratio of less than 1.0 would indicate that a company might have a problem paying off short term debt. The current ratio can affect interest rates charged by creditors when lending money to a business.

Which of the following statements correctly summarizes how to compute net loss or net income using a work sheet?

The difference between the totals of the debit and credit columns of the Income Statement columns is net income or net loss.

Which of the following lists steps of the accounting cycle in the correct order (note that not all steps are listed)?

Trial balance, Adjusting journal entries, Post-closing trial balance.

The journal entry to close all of a company's expense accounts would include a ______(debit/credit) to each of the expense accounts and a corresponding ___-__(debit/credit) to the Income ______(statement/summary) account.

credit debit summary

The closing process takes place at the ______(end/beginning) of an accounting period, after the ______(adjusted/unadjusted) trial balance is prepared and ______(after/before) the financial statements are prepared.

end adjusted after

A work sheet is an internal aid which is helpful in preparing financial ______(statements/reports). It reduces risk of ______(errors/effects) when working with many accounts and adjustments.

statements errors

The purpose of the closing process is to reset ______(temporary/permanent) account balances to zero and to transfer the changes in all of these accounts to the Owner, ______(Capital/Summary/Withdrawal) account. Listen to the complete question

temporary capital

Current items can be described as those expected to come due within one ______(month/year) and are listed in the order of how ______(quickly/slowly) they could be converted to or paid in cash.

year quickly