ACC/290T Summative Assessment: Completing the Accounting Cycle

Here are the accounts listed as having balances in the end-of-year accounting records of Medford Company. Cost of Goods SoldAccounts PayableCapital StockCashSales RevenueDividendsRetained Earnings (beginning)Inventory Which debit or credit would appear in the CLOSING entries for the year? Only ONE answer is correct.

CREDIT to Cost of Goods Sold

A debate is raging inside the top management team of Millcreek Company. The chief executive officer (CEO) is preparing to take the company's financial statements to a group of private investors in order to raise additional equity financing for the company. The CEO has prepared an income statement which the controller (the head accountant) says is wrong. The controller claims that the CEO has forgotten to report interest expense on a loan Millcreek got last year. The CEO claims that no interest expense should be reported because the interest won't be paid in cash until next year. To illustrate the concept of accrual accounting, which is the concept that must be used under Generally Accepted Accounting Principles (GAAP), the controller is preparing to show the CEO the ADJUSTING entries Millcreek is required to make under GAAP. On May 1, Millcreek Company borrowed cash under a one-year loan agreement. The annual interest rate is 3%. As of the end of the year, no entry has yet been made to record the accrued interest on the loan. Which debit or credit is correctly included in the ADJUSTING journal entry necessary on December 31 on Millcreek's books (the BORROWER) to record the unpaid interes

CREDIT to Interest Payable

On October 1 of Year 1, Della Company made a cash loan to another company. The interest rate on the loan is 13%. No cash payments will be collected on the loan until September 30 of Year 2. Which debit or credit is correctly included in the ADJUSTING journal entry necessary on Della's books (the LENDER) on December 31 of Year 1 with respect to this loan?

CREDIT to Interest Revenue

On September 1 of Year 1, Dee Company received cash for rent in advance. This rental receipt covers the period from September 1 of Year 1 to August 31 of Year 2. This receipt of cash was recorded as a liability, Unearned Rent. Which debit or credit is correctly included in the ADJUSTING journal entry necessary on December 31 of Year 1 with respect to this rent received in advance

CREDIT to Rent Revenue

On December 31, Morgan Company received a statement from its book distributor notifying Morgan that the company had earned $50,000 for its December royalties. This amount will be paid to Morgan next year in February. Because December 31 is the end of Morgan's fiscal year, the company makes adjusting entries at that time. Which debit or credit is correctly included in the adjusting journal entry necessary on December 31 to record the royalty revenue that Morgan has earned but not yet received?

CREDIT to Royalty Revenue

Logan Company pays its employees at the end of the day Friday for work done during that 5-day work week. In the current year, December 31 occurred on a Wednesday, so 3 days of wages were earned but not paid by the end of day on December 31. Which debit or credit is correctly included in the adjusting journal entry necessary on December 31 to record the wages that Logan Company has not yet paid?

CREDIT to Wages Payable

At the end of each accounting period, a company "closes the books." The balances in some accounts are left as they are and continue unchanged into the next accounting year. The balances of other accounts are set at zero. Which one of these items is closed to a zero balance at the end of each accounting period?

Cost of goods sold

On March 1 of Year 1, Murray Company paid cash for insurance. This insurance payment covers the period from March 1 of Year 1 to February 28 of Year 2. On March 1 of Year 1 this amount was recorded as an asset, Prepaid Insurance. Which debit or credit is correctly included in the adjusting journal entry necessary on December 31 with respect to this insurance paid in advance?

DEBIT to Insurance Expense

On May 1, Clark Company paid cash for rent. This payment of the cash was recorded as an asset, Prepaid Rent. Which debit or credit is correctly included in the ADJUSTING journal entry necessary on December 31 with respect to this prepaid rent?

DEBIT to Rent Expense

At the end of the year, what is included in the CLOSING ENTRY to close a REVENUE account?

DEBIT to Revenue

At the end of each accounting period, before the books are closed, some ledger accounts have debit balances and others have credit balances. At the end of the year, before any closing entries are made, which account typically has a debit balance?

Dividends

A fundamental principle in accounting is that expenses are recognized in the period in which those costs provide benefit to the business in the form of increased revenue. What name is given to this important principle?

Matching principle

Accounts in a company's general ledger are divided into different categories. One of these categories is defined as follows: "Accounts that are temporary and are really just subcategories of Retained Earnings." What label is given to these accounts?

Nominal

Generally accepted accounting principles (GAAP) require that the financial statements of all publicly traded companies be reported using accrual-basis accounting. What is a correct description of accrual accounting?

Recording revenues and expenses when earned or incurred, not when cash is received or paid

In which type of business would accrual-basis accounting result in the same income measure as cash-basis accounting?

Small business in which all sales amounts are collected in cash at the time of the sale and all expenses are paid in cash immediately