Deck 4: Adjustments, Financial Statements, and Financial Results

Question 1

Assume Minor Company recorded the following adjusting entry at year-end: $$\begin{array} { | c | r | r | } \hline \text { Dr Insurance expense } & \$ 800 & \\\hline \text { Cr Prepaid insurance } & & \$ 800 \\\hline\end{array}$$ If the beginning balance in prepaid insurance was $700 and $1,500 was paid for an insurance premium during the year, the ending balance in the prepaid insurance account (after the above adjusting entry) would be which of the following?

A) $100 debit.
B) $1,400 debit.
C) $1,500 debit.
D) $2,200 debit.

Answer 1

$1,400 debit.

Question 2

On January 1, 20X1, Thomas Company paid $1,000 for a two-year insurance policy on the building. The accounting period ends December 31. At the end of 20X1, the financial statements should report which of the following?
$\begin{array} { l ll l } & \text { On the Statement of Financial Position } & \text { On the Statement of Earnings } \\\end{array}$
a) $\begin{array} { l ll l } & \text { Prepaid insurance, } \$ 0&&&&&&& & \text { Insurance expense, } \$ 1,000 \\\end{array}$
b) $\begin{array} { l ll l } & \text { Prepaid insurance, } \$ 250 &&&&&&& \text { Insurance expense, } \$ 250 \\\end{array}$
c) $\begin{array} { l ll l } & \text { Prepaid insurance, } \$ 500 &&&&&&& \text { Insurance expense, } \$ 500 \\\end{array}$
d) $\begin{array} { l ll l } & \text { Prepaid insurance, } \$ 1,000 &&&&&& \text { Insurance expense, } \$ 0 \\\end{array}$

A) Choice A
B) Choice B
C) Choice C
D) Choice D

Answer 2

Choice C

Question 3

An adjusted trial balance shows that

A) all journal entries have been made.
B) debits equal credits in the ledger accounts after the adjusting entries have been made.
C) all accounts have the correct balance.
D) no posting errors have been made.

Answer 3

debits equal credits in the ledger accounts after the adjusting entries have been made.

Question 4

On July 1, Rawling Store paid $6,000 to Iceberg Realty for six months' rent, starting July 1. Prepaid rent was debited for the full amount. If ?nancial statements are prepared on July 31, the adjusting entry to be made by Rawling Store is

A) debit rent expense, $6,000; credit prepaid rent, $6,000.
B) debit prepaid rent, $1,000; credit rent expense, $1,000.
C) debit prepaid rent, $6,000; credit rent expense, $6,000.
D) debit rent expense, $1,000; credit prepaid rent, $1,000.

Question 5

On October 1, 20X1, Ethan Company borrowed $10,000 on a 4-month note with an annual interest rate of 9 percent. How much interest expense should be reported for 20X1, assuming that the note is paid on time and Ethan Company's accounting year coincides with the calendar year?

A) $-0-.
B) $225.
C) $300.
D) $900.

Question 6

On March 1, 20X1, the premium on a two-year insurance policy on equipment was paid amounting to $1,800. At the end of 20X1 (end of the accounting period), the ?nancial statements for 20X1, would report which of the following?

A) Insurance expense, $0; Prepaid insurance $1,800.
B) Insurance expense, $750; Prepaid insurance $1,050.
C) Insurance expense, $900; Prepaid insurance $900.
D) Insurance expense, $1,800; Prepaid insurance $0.

Question 7

The balance in the Prepaid Rent account before adjustment at the end of the year is $12,000 and represents three months' rent starting on November 1. The adjusting entry required on December 31 is

A) debit prepaid rent, $4,000; credit rent expense $4,000.
B) debit prepaid rent, $8,000; credit rent expense, $8,000.
C) debit rent expense, $12,000; credit prepaid rent, $12,000.
D) debit rent expense, $8,000; credit prepaid rent, $8,000.

Question 8

The process that begins with analyzing transactions and ends with the preparation of a post-closing trial balance is called

A) the ?scal period.
B) the business cycle.
C) the accounting period.
D) the accounting cycle.

Question 9

Ultra Realty received a cheque for $21,000 on July 1, which represents a 6-month advance payment of rent on a building it rents to a client. Unearned Rental Revenue was credited for the full $21,000. Financial statements will be prepared on July 31. Ultra Realty should make the following adjusting entry on July 31:

A) debit Unearned Rental Revenue, $3,500; credit Rental Revenue, $3,500.
B) debit Rental Revenue, $3,500; credit Unearned Rental Revenue, $3,500.
C) debit Unearned Rental Revenue, $21,000; credit Rental Revenue, $21,000.
D) debit Cash, $3,500; credit Rental Revenue, $3,500.

Question 10

An adjusted trial balance

A) is prepared after the financial statements are completed.
B) proves the equality of the total debit balances and total credit balances of ledger accounts after all adjustments have been made.
C) is a required financial statement under international financial reporting standards.
D) cannot be used to prepare financial statements.

Question 11

A legal ?rm received $2,000 cash for legal services to be rendered in the future. The full amount was credited to Unearned Service Revenue. If the legal services have been provided at the end of the accounting period and no adjusting entry is made, this would cause

A) expenses to be overstated.
B) pro?t to be overstated.
C) liabilities to be understated.
D) revenues to be understated.

Question 12

On April 1, 20X1, Allen Company signed a $12,000, one-year, 10 percent note payable. At due date, April 1, 20X2, the principal and interest will be paid. Interest expense should be reported on the statement of earnings (for the year ended December 31, 20X1) as which of the following?

A) $700.
B) $800.
C) $900.
D) $1,200.

Question 13

Which is the correct order of the steps in the accounting cycle during the accounting period?

A) transaction analysis, journal entries, trial balance
B) transaction analysis, posting to the accounts, journal entries
C) transaction analysis, posting to the accounts, adjusting the accounts
D) transaction analysis, journal entries, posting to the accounts

Question 14

The primary difference between prepaid and accrued expenses is that prepaid expenses have

A) been incurred and accrued expenses have not incurred.
B) not been paid and accrued expenses have been paid.
C) been paid and accrued expenses have not been paid.
D) not been recorded and accrued expenses have been recorded.

Question 15

On January 1, 20X2, the ledger of Global Corporation correctly showed supplies inventory of $500. During 20X2, supplies purchases amounted to $700. A count (inventory) of supplies on hand at December 31, 20X2, showed $400. The 20X2 statement of earnings should report supplies expense amounting to which of the following?

A) $700.
B) $800.
C) $1,100.
D) $1,200.

Question 16

The Pitter Corporation purchased a notebook computer for $3,000 on December 1. The useful life of the notebook computer is estimated to be 5 years. If ?nancial statements are to be prepared on December 31, the company should make the following adjusting entry:

A) debit depreciation expense, $600; credit accumulated depreciation, $600.
B) debit depreciation expense, $50; credit accumulated depreciation, $50.
C) debit depreciation expense, $2,400; credit accumulated depreciation, $2,400.
D) debit o?ce equipment, $50; credit accumulated depreciation, $50.

Question 17

The Town Laundry purchased $5,500 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $3,000 on hand. The adjusting entry that should be made by the company on June 30 is

A) debit Laundry Supplies Expense, $3,000; credit Laundry Supplies, $3,000.
B) debit Laundry Supplies Expense, $2,500; credit Laundry Supplies, $2,500.
C) debit Laundry Supplies, $2,500; credit Laundry Supplies Expense, $2,500.
D) debit Laundry Supplies, $3,000; credit Laundry Supplies Expense, $3,000.

Question 18

At the end of its accounting period, December 31, 20X2, May Corporation owed $1,000 for property taxes which had not been recorded nor paid. Therefore, the 20X2 adjusting entry should be which of the following?

A) $1,000 credited to an expense account and debited to a liability account.
B) $1,000 debited to an expense account and credited to an asset account.
C) $1,000 credited to a liability account and debited to an expense account.
D) $1,000 debited to a liability account and credited to an asset account.

Question 19

Joe Company purchased supplies inventory for $5,000. Due to an error in posting, the inventory account was debited for only $500 when trade payables were credited for $5,000. During which phase of the accounting information cycle, would this error be discovered?

A) recording transaction in the journal.
B) preparation of the ?nancial statements.
C) preparation of the trial balance.
D) analysis of each transaction.

Question 20

Prepaid expenses are

A) paid and recorded in an asset account before they are used or consumed.
B) paid and recorded in an asset account after they are used or consumed.
C) incurred but not yet paid or recorded.
D) incurred and already paid or recorded.

Question 21

The earnings statement of Waylon Taylor Textiles Ltd. for $20 \times 7$ included the following items:

$\begin{array}{|l|r|}\hline \text { Interest revenue } & \$ 75,500 \\\hline \text { Salaries expense } & \$ 65,000 \\\hline \text { Insurance expense } & \$ 9,600 \\\hline\end{array}$

The following balances have been excerpted from the company's Statement of Financial Position:

$\begin{array}{|l|r|r|}\hline & \text { December 31, 20X7 } & \text { December 31, 20X6 } \\\hline \text { Accrued interest receivable } & \$ 9,100 & \$ 7,500 \\\hline \text { Accrued salaries payable } & \$ 8,900 & \$ 4,200 \\\hline \text { Prepaid insurance } & \$ 1,100 & \$ 1,500 \\\hline\end{array}$

-How much cash did WTT pay out for salaries during 20X7?

A) $69,700
B) $60,300
C) $73,900
D) $60,800

Question 22

The earnings statement of Waylon Taylor Textiles Ltd. for $20 \times 7$ included the following items:

$\begin{array}{|l|r|}\hline \text { Interest revenue } & \$ 75,500 \\\hline \text { Salaries expense } & \$ 65,000 \\\hline \text { Insurance expense } & \$ 9,600 \\\hline\end{array}$

The following balances have been excerpted from the company's Statement of Financial Position:

$\begin{array}{|l|r|r|}\hline & \text { December 31, 20X7 } & \text { December 31, 20X6 } \\\hline \text { Accrued interest receivable } & \$ 9,100 & \$ 7,500 \\\hline \text { Accrued salaries payable } & \$ 8,900 & \$ 4,200 \\\hline \text { Prepaid insurance } & \$ 1,100 & \$ 1,500 \\\hline\end{array}$

-How much cash did WTT receive for interest during 20X7?

A) $75,500
B) $77,100
C) $73,900
D) $66,400

Question 23

An accountant has billed her clients for services performed in October. In November, she receives payments from her clients. What entry will she make upon receipt of the payments?

A) debit unearned revenue and credit service revenue.
B) debit cash and credit accounts receivable.
C) debit accounts receivable and credit service revenue.
D) debit cash and credit service revenue.

Question 24

The difference between the equipment account balance and the accumulated amortization equipment account balance is called which of the following?

A) market value
B) acquisition cost
C) net realizable value
D) net book value

Question 25

The earnings statement of Waylon Taylor Textiles Ltd. for $20 \times 7$ included the following items:

$\begin{array}{|l|r|}\hline \text { Interest revenue } & \$ 75,500 \\\hline \text { Salaries expense } & \$ 65,000 \\\hline \text { Insurance expense } & \$ 9,600 \\\hline\end{array}$

The following balances have been excerpted from the company's Statement of Financial Position:

$\begin{array}{|l|r|r|}\hline & \text { December 31, 20X7 } & \text { December 31, 20X6 } \\\hline \text { Accrued interest receivable } & \$ 9,100 & \$ 7,500 \\\hline \text { Accrued salaries payable } & \$ 8,900 & \$ 4,200 \\\hline \text { Prepaid insurance } & \$ 1,100 & \$ 1,500 \\\hline\end{array}$

-How much cash did WTT pay out for insurance during 20X7?

A) $8,500
B) $8,100
C) $10,000
D) $9,200

Question 26

At the end of 20X4, Dallas Company made the following adjusting entry to record $10,000 accrued (unpaid) wages: $$\begin{array} { | l | r | r | } \hline \text { Dr Wage expense } & 10,000 & \\\hline \text { Cr Wages payable } & & 10,000 \\\hline\end{array}$$ A payroll of $40,000 (including the $10,000 accrued wages) was paid during the first week of January, 20X5. The entry to record the payment of this payroll should include a

A) $10,000 debit to wages expense and a $30,000 debit to wages payable.
B) $30,000 debit to wages expense and a $10,000 debit to wages payable.
C) $40,000 debit to wages expense and a $10,000 debit to wages payable.
D) $50,000 debit to wages expense and a $10,000 debit to wages payable.

Question 27

Which of the following statements about materiality is not correct?

A) An item is material if its inclusion or omission would in?uence or change the judgement of a reasonable person.
B) The amount involved must make a difference or it should not be disclosed.
C) Materiality is a matter of both its nature and relative size.
D) A traditional guideline for auditors is 5 to 10 percent of net earnings.

Question 28

Auto Kool has implemented a policy that requires all tools expenditures below $100 to be expensed. This is an application of

A) the matching principle.
B) the materiality constraint.
C) the full disclosure principle.
D) representational faithfulness.

Question 29

Which of the following statements is true about earnings per share?

A) It is the only ratio required to be disclosed on the statement of earnings.
B) It assesses the ability of the ?rm to pay their bills as they come due.
C) It evaluates the e?ciency with which the company uses their assets to generate sales revenue.
D) It represents the pro?t available to the preferred shareholders.

Question 30

Which of the following is the essential difference between an unadjusted trial balance and an adjusted trial balance?

A) An unadjusted trial balance is prepared at the start of the accounting year, while an adjusted trial balance is prepared at the end of the year.
B) An unadjusted trial balance is prepared by companies which make adjusting entries, while an adjusted trial balance is prepared by companies that do not make adjusting entries.
C) An unadjusted trial balance is prepared before the adjusting entries are re?ected, while an adjusted trial balance is prepared after the adjusting entries are re?ected.
D) An unadjusted trial balance is prepared after the post-closing trial balance.

Question 31

Manfretti Corporation received cash of $12,000 on August 1, 20X7 for one year's rent in advance and recorded the transaction with a credit to Rent Revenue. The December 31, 20X7 adjusting entry is

A) debit rent revenue and credit unearned rent, $5,000.
B) debit rent revenue and credit unearned rent, $7,000.
C) debit unearned rent and credit rent revenue, $5,000.
D) debit cash and credit unearned rent, $7,000.

Question 32

Which of the following is not an example of an adjusting entry?

A) Recording unpaid interest at year end relating to an outstanding loan balance.
B) Recording amortization on o?ce computers purchased during the year.
C) Recording the loss on the sale of equipment made during the year.
D) Reducing the prepaid rent account for the portion of rent consumed.

Question 33

Which of the following accounts would most likely lead to a deferred adjustment?

A) Prepaid expenses
B) Wages payable
C) Subscriptions revenue receivable
D) Rent receivable

Question 34

Which of the following statements about adjusting entries is true?

A) Adjusting entries always include at least one balance sheet account and one income statement account.
B) Adjusting entries may involve the cash account.
C) Adjusting entries always involve an expense account.
D) Adjusting entries are required whenever the accounting records are updated.

Question 35

Which of the following would most likely lead to an accrued adjustment?

A) Interest revenue earned but not yet collected.
B) Prepaid insurance
C) Prepaid wages.
D) Rent received in advance.

Question 36

Which of the following is an example of an adjusting entry?

A) Recording the payment of year-end dividends.
B) Recording the receipt of inventory in the last week of the year that will be paid next year.
C) Recording the salary expense earned in the last week of the year, to be paid next year.
D) Recording the increase in the market value of land.

Question 37

Manitoba Metals Ltd lent $100,000 to Coltraine Ltd. at an interest rate of 5%. Both the loan and all the interest are to be repaid after two years. At the end of the ?rst year what is the entry required on Manitoba's books? (Dr.=Debit and Cr.=Credit)

A) Dr. Interest expense $5,000, Cr. Interest payable $5,000
B) Dr. Interest receivable $5,000, Cr. Interest revenue $5,000
C) Dr. Interest revenue $5,000, Cr. Interest payable $5,000
D) no entry is required until the amount becomes due.

Question 38

Failure to make an adjusting entry to recognize service revenue receivable would cause which of the following?

A) an overstatement of assets, pro?t, and shareholders' equity.
B) an overstatement of assets and shareholders' equity and an understatement of pro?t.
C) no effect on assets, liabilities, pro?t, nor shareholders' equity.
D) an understatement of assets, pro?t, and shareholders' equity.

Question 39

Which of the following would normally be recorded with an adjusting entry?

A) Sales on credit
B) Payment for supplies bought on account
C) Depreciation expense
D) Salaries expense

Question 40

Charging the cost of a wastebasket with an estimated useful life of 10 years to an expense account when purchased is an example of the application of

A) the historical cost principle.
B) the matching principle.
C) the materiality constraint.
D) the full disclosure principle.

Question 41

The bank statements of Waylon Taylor Textiles Ltd. for $20 \times 7$ included the following items:
$\begin{array}{|l|r|}\hline \text { Insurance premiums paid } & \$ 12,400 \\\hline \text { Interest collected } & \$ 25,900 \\\hline \text { Salaries paid } & \$ 125,200 \\\hline\end{array}$
The following balances have been excerpted from the company's Statement of Financial Position:
$\begin{array}{|l|r|r|}\hline & \text { December 31, 20X7 } & \text { December 31, 20X6 } \\\hline \text { Prepaid insurance } & \$ 1,400 & \$ 1,700 \\\hline \text { Accrued interest receivable } & \$ 3,700 & \$ 2,900 \\\hline \text { Accrued salaries payable } & \$ 12,300 & \$ 10,600 \\\hline\end{array}$

-How much insurance expense should WTT report on its 20X7 statement of earnings?

A) $15,100
B) $12,700
C) $12,100
D) $9,600

Question 42

For the year 20X1, Tally Corporation reported $50,000 pre-tax pro?t (average annual income tax rate of 40%). What was the after-tax pro?t?

A) $10,000.
B) $15,000.
C) $20,000.
D) $30,000.

Question 43

A Statement of Earnings reports which of the following?

A) revenues, expenses, assets, and liabilities during an accounting period.
B) profit of a business at a point in time.
C) profit of a business for a period of time.
D) resources, liabilities, and shareholders' equity of a business at a point in time.

Question 44

The basic ?nancial statements prepared for external users do not include which of the following?

A) The statement of ?nancial position.
B) The income statement.
C) The revenue statement.
D) The statement of cash ?ows.

Question 45

The statement of cash flows does which of the following?

A) Explains what caused profit during the accounting period.
B) Identifies all assets held at the end of the accounting period by type and amount.
C) Explains that the trial balance is in balance.
D) Explains all the sources and uses of cash during the accounting period.

Question 46

In a classi?ed statement of ?nancial position which of the following is NOT true

A) The asset and liability sections are divided into short-term and long-term sections.
B) The long-term assets and liabilities are presented before the short- term assets and liabilities.
C) Shareholders' equity is made up of retained earnings and share capital.
D) The current assets are listed in order of liquidity.

Question 47

$\begin{array}{l}\text { Time Corporation reported the following for } 20X 1 \text { : }\\\begin{array} { | l | r | } \hline \text { Share Capital } & 5,000 \text { shares outstanding } \\\hline \text { Revenues } & \$ 100,000 \\\hline \text { Expenses } & \$ 95,000 \\\hline\end{array}\end{array}$

-What was the amount of earnings per share?

A) $1.00.
B) $2.00.
C) $19.00.
D) $20.00.

Question 48

At the end of 20X3, Libby Company reported an ending balance for retained earnings of $50,000. During 20X4, the company reported the following amounts: dividends declared and paid $30,000, and pro?t $40,000. The 20X4 retained earnings account should report an ending balance of

A) $60,000.
B) $80,000.
C) $90,000.
D) $100,000.

Question 49

The bank statements of Waylon Taylor Textiles Ltd. for $20 \times 7$ included the following items:
$\begin{array}{|l|r|}\hline \text { Insurance premiums paid } & \$ 12,400 \\\hline \text { Interest collected } & \$ 25,900 \\\hline \text { Salaries paid } & \$ 125,200 \\\hline\end{array}$
The following balances have been excerpted from the company's Statement of Financial Position:
$\begin{array}{|l|r|r|}\hline & \text { December 31, 20X7 } & \text { December 31, 20X6 } \\\hline \text { Prepaid insurance } & \$ 1,400 & \$ 1,700 \\\hline \text { Accrued interest receivable } & \$ 3,700 & \$ 2,900 \\\hline \text { Accrued salaries payable } & \$ 12,300 & \$ 10,600 \\\hline\end{array}$

-How much interest revenue should WTT report on its 20X7 statement of earnings?

A) $19,300
B) $25,100
C) $32,500
D) $26,700

Question 50

Because of its complexity and susceptibility to errors, which step in the process do independent auditors examine most closely?

A) ?nancial statement preparation
B) tax reports
C) deferred and accrued adjustments
D) closing entries

Question 51

On the cash ?ow statement, the changes in revenues and expenses caused by accruals and deferrals are classi?ed as which of the following?

A) investing activities
B) ?nancing activities
C) operating activities
D) non-operating activities.

Question 52

The statement of changes in equity would not include which of the following?

A) Pro?t.
B) Net sales.
C) The closing balance in the relevant accounts from the previous year.
D) Dividends declared.

Question 53

Which of the following errors would most likely lead to an overstatement of income?

A) Recording revenue in the next period when the cash is collected although it is earned in the current year.
B) Recording an expense incurred in this year when the cash is paid next year.
C) Failure to adjust deferred rent revenue account for the portion of rent earned this year.
D) Failure to adjust prepaid expenses account for the portion of insurance expired this year.

Question 54

Proitt would appear on which of the following?

A) Income statement only.
B) Statement of financial position only.
C) Statement of changes in equity and income statement.
D) Income statement and statement of financial position.

Question 55

The bank statements of Waylon Taylor Textiles Ltd. for $20 \times 7$ included the following items:
$\begin{array}{|l|r|}\hline \text { Insurance premiums paid } & \$ 12,400 \\\hline \text { Interest collected } & \$ 25,900 \\\hline \text { Salaries paid } & \$ 125,200 \\\hline\end{array}$
The following balances have been excerpted from the company's Statement of Financial Position:
$\begin{array}{|l|r|r|}\hline & \text { December 31, 20X7 } & \text { December 31, 20X6 } \\\hline \text { Prepaid insurance } & \$ 1,400 & \$ 1,700 \\\hline \text { Accrued interest receivable } & \$ 3,700 & \$ 2,900 \\\hline \text { Accrued salaries payable } & \$ 12,300 & \$ 10,600 \\\hline\end{array}$

-How much salaries expense should WTT report on its 20X7 statement of earnings?

A) $126,900
B) $123,500
C) 102,300
D) $148,100

Question 56

If a business declared and paid a $500 dividend, it would appear on which of the following?

A) Income statement only.
B) Statement of ?nancial position only.
C) Statement of changes in equity and the statement of cash ?ows.
D) Statement of changes in equity only.

Question 57

Financial statements should be prepared

A) using the retained earnings account.
B) using permanent accounts only.
C) from a post-closing trial balance.
D) from an adjusted trial balance.

Question 58

Which of the following statements best describes the relationship between pro?t for the period and the ending balance in retained earnings?

A) Pro?t for the period reduces the ending balance of retained earnings.
B) Retained earnings at the end of the period increases the amount of pro?t.
C) Pro?t for the period increases the ending balance of retained earnings.
D) Pro?t for the period has no effect on the ending balance of retained earnings.

Question 59

The statement of changes in shareholder's equity

A) is a required statement under private entity GAAP
B) is a required statement under IFRS
C) is a required statement under both private entity GAAP and IFRS
D) is not a required statement under either private entity GAAP or IFRS

Question 60

Before the closing entries were made at the end of 20X2, the following data were taken from the accounts of Joe Corporation: $$\begin{array} { | l | r | } \hline \text { Share capital } & \$ 70,000 \\\hline \text { Retained earnings, beginning balance January 1, 20X2 } & 100,000 \\\hline \text { Total revenue earned during 20X2 } & 300,000 \\\hline \text { Total expenses incurred during 20X2 } & 200,000 \\\hline \text { Total cash collected during 20X2 } & 40,000 \\\hline\end{array}$$ What is the amount of shareholders' equity that should appear on Joe Corporation's statement of financial position dated December 31, 20X2?

A) $300,000.
B) $270,000.
C) $230,000.
D) $110,000.

Question 61

Return on equity is a ratio that:

A) is calculated by dividing profit plus preferred dividends by average common shareholders' equity.
B) cannot be calculated if the company has preferred shares in addition to common shares.
C) shows the relationship between net earnings and retained earnings.
D) shows the relationship between net earnings and average shareholders' equity.

Question 62

Which of the following statements about a high net pro?t margin is FALSE?

A) It demonstrates how effective your business is at converting sales into pro?t.
B) It may mean that you are capitalizing on some competitive advantage that can provide your business with extra capacity and ?exibility during the hard times.
C) It may mean that you are keeping your operating expenses under control to earn an acceptable pro?t.
D) It may mean that your business might need to take on debt to pay its expenses.

Question 63

Which of the following is true about closing the books of a corporation?

A) Expenses are closed to the Expense Summary account.
B) Only revenues are closed to the Income Summary account.
C) Revenues and expenses are closed to the Income Summary account.
D) Revenues, expenses, and the Dividends account are closed to the Income Summary account.

Question 64

Select the statement that best describes the primary purpose of preparing closing entries.

A) To facilitate adjusting entries.
B) To reduce the balances in the temporary accounts to zero in order to accumulate the revenues and expenses of the next period.
C) To complete the recording of various transactions which are begun in one period and concluded in a later period.
D) To determine the amount of pro?t or loss for the period.

Question 65

A calendar year reporting company preparing its annual ?nancial statements should use the phrase "At December 31, 20XX" in the heading of which of the following?

A) All the required ?nancial statements it prepares.
B) The statement of ?nancial position only.
C) The Statement of Earnings and statement of ?nancial position, but not the statement of cash ?ows.
D) The Statement of earnings, but neither the statement of ?nancial position nor the statement of cash ?ows.

Question 66

The final step in the accounting cycle is to prepare

A) closing entries.
B) adjusting entries.
C) financial statements.
D) a post-closing trial balance.

Question 67

Closing entries

A) are prepared before the financial statements.
B) reduce the number of permanent accounts.
C) cause the revenue and expense accounts to have zero balances.
D) summarize the activity in every account.

Question 68

$\begin{array}{l}\text { Manfred Mann Corporation's books revealed the following data for the current year: }\\\begin{array} { | l | r | } \hline \text { Net earnings } & \$ 50,000 \\\hline \text { Retained earnings } & \$ 750,000 \\\hline \text { Common shares January 1 } & 25,000 \text { shares } \\\hline \text { Common shares December 31 } & 30,000 \text { shares } \\\hline\end{array}\end{array}$

-The earnings per share is closest to:

A) $30.50
B) $2.00
C) $1.67
D) $1.82

Question 69

$\begin{array}{l}\text { At the end of } 20 \times 4 \text {, the following data were taken from the accounts of Timberline Company: }\\\begin{array} { | l | r | } \hline \text { Share capital } & \$ 209,000 \\\hline \text { Retained earnings, beginning balance January 1, 20X4 } & 100,000 \\\hline \text { Total revenue earned during 20X4 } & 190,000 \\\hline \text { Total expenses incurred during 20X4 } & 180,000 \\\hline \text { Total cash collected during 20X4 } & 200,000 \\\hline\end{array}\end{array}$

-The 20X4 closing entries would include which of the following?

A) $10,000 net credit to retained earnings.
B) $10,000 net debit to retained earnings.
C) $190,000 debit to retained earnings.
D) $180,000 credit to retained earnings.

Question 70

The primary purpose of the statement of cash ?ows is to report which of the following?

A) pro?t earned and dividends paid during the period.
B) all in?ows and out?ows of cash during the period.
C) assets owned and claims against those assets at the end of the period.
D) liability changes made by the ?nancial department of the company during the period.

Question 71

Which one of the following accounts would not be closed at the end of the accounting year?

A) Rent expense.
B) Dividends payable.
C) Sales revenue.
D) Salaries expense.

Question 72

A post-closing trial balance will show

A) zero balances for all accounts.
B) zero balances for statement of financial position accounts.
C) only statement of financial position accounts.
D) only income statement accounts.

Question 73

Which of the following is one of the sections on the statement of cash ?ows?

A) Operating activities.
B) Inventing activities.
C) Borrowing activities.
D) Cycling activities.

Question 74

Expenses paid before being used or consumed are initially recorded as liabilities.

Question 75

Which of the following applies to both the depreciation expense account and the accumulated depreciation account at the end of the ?rst year of operations?

A) They are closed.
B) They appear in a trial balance prepared prior to the adjusting and closing entries.
C) They are not closed at the end of the accounting period.
D) They appear in a trial balance prepared after the adjusting entries but before the closing entries.

Question 76

The statement of earnings is prepared by using the revenue and expense account balances from the

A) trial balance.
B) ledgers.
C) adjusted trial balance.
D) journal.

Question 77

A post-closing trial balance will show account balances for which of the following?

A) permanent and temporary accounts.
B) permanent accounts only.
C) temporary accounts only.
D) income statement accounts only.

Question 78

The purpose of preparing the post-closing trial balance is to

A) prove the equality of the permanent account balances that are carried forward into the next accounting period.
B) prove the equality of the temporary account balances that are carried forward into the next accounting period.
C) list all the statement of ?nancial position accounts in alphabetical order for easy reference.
D) prove that no mistakes were made.

Question 79

A trial balance prepared after the closing entries have been posted would exclude which one of the following accounts?

A) Inventory.
B) Trade receivables.
C) Accumulated depreciation.
D) Service revenue.

Question 80

The purpose of the post-closing trial balance is to

A) prove the equality of the temporary account balances that are carried forward into the next accounting period.
B) list all the balance sheet accounts in alphabetical order for easy reference.
C) prove the equality of the permanent account balances that are carried forward into the next accounting period.
D) prove that no mistakes were made.