Deck 5: The Accounting Cycle: Reporting Financial Results

Question 1

IFRS 1 requires that management and auditors should depart from compliance with GAAP if it is necessary to achieve a fair presentation when reporting financial results.

Answer 1

True

Question 2

The Dividends account is closed directly to retained earnings at year-end.

Answer 2

True

Question 3

Accountants refer to the period of time from October 1 - December 31 as "busy season."

Answer 3

False

Question 4

Most disclosures appear within the body of the financial statements;however,a few disclosures may also appear in the notes that accompany the financial statements.

Question 5

Dividends declared are an expense and reduce net income.

Question 6

The report form of the balance sheet lists liabilities and owners' equity below assets.

Question 7

A company's annual report includes comparative statements for several years.

Question 8

After all the closing entries have been posted the Income Summary account will have a zero balance.

Question 9

Stockholders typically prepare the financial statements of publicly owned companies.

Question 10

The income summary account appears on the statement of retained earnings.

Question 11

The balance sheet is prepared first because if it balances,all the accounting information is correct and can be used to prepare the other financial statements.

Question 12

Closing entries do not affect the cash account.

Question 13

The income statement,statement of retained earnings,and the balance can all be prepared directly from the Management's Discussion and Analysis.

Question 14

Publicly owned companies must file their audited financial statements and detailed supporting schedules with the Financial Accounting Standards Board.

Question 15

The Financial Accounting Standards Board (FASB)maintains and periodically updates a well-defined list of disclosure items that companies must include in their annual reports.

Question 16

A current asset must be capable of being converted into cash within a relatively short period of time,usually less than five years.

Question 17

Real accounts can only be closed at the end of the year with a single compound entry.

Question 18

A revenue account is closed by debiting Income Summary and crediting Service Revenue.

Question 19

Companies need not disclose information that may have a damaging effect on the business,such as product liability lawsuits.

Question 20

At year-end,all equity accounts must be closed.

Question 21

Publicly-owned companies are:

A)Managed and owned by the government.
B)Must be not-for-profit companies.
C)Usually listed on a stock exchange.
D)Not permitted to be owned by individuals.

Question 22

Publicly traded companies must file audited financial statements with the:

A)AICPA.
B)IRS.
C)SEC.
D)AAA.

Question 23

Working capital equals current assets divided by current liabilities.

Question 24

The current ratio is a measure of short-term debt paying ability.

Question 25

An after-closing trial balance consists only of asset,liability,and owners' equity accounts.

Question 26

An annual report filed with the Securities and Exchange Commission must include a section called "Management Discussion and Analysis" (MD&A).

Question 27

Interim financial statements usually report on a period of time less than one year.

Question 28

Which of the following financial statements is usually prepared first?

A)Income statement.
B)Statement of retained earnings.
C)Income tax return.
D)Balance sheet.

Question 29

The current ratio equals current assets plus current liabilities.

Question 30

The current ratio is a measure of liquidity.

Question 31

The statement of retained earnings is based upon which of the following relationships?

A)Retained Earnings - Net Income - Dividends.
B)Retained Earnings - Net Income + Dividends.
C)Retained Earnings + Net Income + Dividends.
D)Retained Earnings + Net Income - Dividends.

Question 32

The adjusted trial balance contains income statement accounts and balance sheet accounts,while the after-closing trial balance will only have balance sheet accounts.

Question 33

The net income percentage can be measured by dividing net income by total assets.

Question 34

An annual report:

A)Must be audited by the IRS.
B)Is delivered to stockholders and the public on the last day of the fiscal year.
C)Includes comparative financial statements for several years.
D)Must be filed with the SEC by all companies in the United States.

Question 35

The purpose of the after-closing trial balance is to give assurance that the accounts are in balance and ready for the new accounting period.

Question 36

The normal order in which the financial statements are prepared is:

A)Balance sheet,income statement,statement of retained earnings.
B)Income statement,statement of retained earnings,balance sheet.
C)Income tax return,income statement,balance sheet.
D)Income statement,annual report,balance sheet.

Question 37

Return on equity is a commonly used measure of a company's profitability.

Question 38

The return on equity ratio equals net income divided by common stock.

Question 39

Of the following,which is not an alternative title for the income statement?

A)Earnings statement.
B)Statement of Operations.
C)Profit and Loss Statement.
D)Statement of Financial Position.

Question 40

Measures of profitability tell us how quickly current assets can be converted into profits.

Question 41

Net income from the Income Statement appears on:

A)The Balance Sheet.
B)The Statement of Retained Earnings.
C)Neither the Balance Sheet nor the Statement of Retained Earnings.
D)Both the Balance Sheet and the Statement of Retained Earnings.

Question 42

The adequacy of a company's disclosure is based on:

A)Laws established by Congress.
B)IRS rules and FASB requirements.
C)A combination of official rules,tradition,and professional judgment.
D)The needs of stockholders and creditors.

Question 43

The closing entry for an expense account would consist of a:

A)Debit to Income Summary and a credit to the expense account.
B)Debit to the expense account and a credit to Income Summary.
C)Credit to Retained Earnings and a debit to the expense account.
D)Credit to Revenue and a debit to the expense account.

Question 44

The Income Summary account has debits of $85,000 and credits of $75,000.The company had which of the following:

A)Net income of $10,000.
B)Net income of $160,000.
C)Net loss of $10,000.
D)Net loss of $160,000.

Question 45

The dividends account should be:

A)Closed to income summary.
B)Closed to retained earnings.
C)Closed only if there is a profit.
D)Not closed at all.

Question 46

A statement of retained earnings shows:

A)The changes in the Cash account occurring during the accounting period.
B)The revenue,expense,and dividends of the period.
C)The types of assets that have been purchased with the earnings retained during the accounting period.
D)The changes in the Retained Earnings account occurring during the accounting period.

Question 47

Dividends declared:

A)Reduce retained earnings.
B)Increase retained earnings.
C)Reduce net income.
D)Increase net income.

Question 48

All of the following statements are true regarding the Income Statement except?

A)The Income Statement may also be called the earnings statement.
B)The measurement of income is not absolutely accurate or precise due to assumptions and estimates.
C)The Income Statement only includes those events that have been evidenced by actual business transactions.
D)The net income (or net loss)generated on the Income Statement appears at the top of the company's year-end balance sheet.

Question 49

The concept of adequate disclosure:

A)Demands a "good faith effort" by management.
B)Grants users of the financial statements access to a company's accounting records.
C)Does not apply to events occurring after the balance sheet date.
D)Specifies which accounting methods must be used in a company's financial statements.

Question 50

In the notes to financial statements,adequate disclosure would typically not include:

A)The accounting methods in use.
B)Lawsuits pending against the business.
C)Customers that account for 10 percent or more of the company's revenues.
D)The optimism of the CFO regarding future profits.

Question 51

A debit balance in the income summary account indicates:

A)An error was made.
B)A Net Profit.
C)A Net Loss.
D)The closing process is incomplete.

Question 52

The concept of adequate disclosure requires a company to inform financial statement users of each of the following,except:

A)The accounting methods in use.
B)The due dates of major liabilities.
C)Destruction of a large portion of the company's inventory on January 20,three weeks after the balance sheet date,but prior to issuance of the financial statements.
D)Income projections for the next five years based upon anticipated market share of a new product;the new product was introduced a few days before the balance sheet date.

Question 53

Dividends will have what effect upon retained earnings?

A)Increase.
B)Decrease.
C)No effect.
D)Depends upon if there is income or loss.

Question 54

During the closing process:

A)All income statement accounts are credited to income summary.
B)All income statement accounts are debited to income summary.
C)All revenue accounts are credited and expense accounts are debited.
D)All revenue accounts are debited and expense accounts are credited.

Question 55

The balance in Income Summary:

A)Should equal retained earnings.
B)Will always be equal to the increase in retained earnings.
C)Will equal net income less dividends.
D)Will equal net income or net loss.

Question 56

Declaring a dividend will:

A)Increase net income.
B)Decrease net income.
C)Not change net income.
D)Increase the net worth of a company.

Question 57

If Income Summary has a net credit balance,it signifies:

A)A net loss.
B)Net income.
C)A reduction of net worth.
D)Dividends have been declared.

Question 58

Assets are considered current assets if they are cash or will usually be converted into cash:

A)Within a month or less.
B)Within 3 months.
C)Within a year or less.
D)Within 6 months or less.

Question 59

Closing entries would be prepared before:

A)The opening balance sheet is prepared.
B)The after-closing trial balance.
C)An adjusted trial balance.
D)Adjusting entries.

Question 60

Retained Earnings at the end of a period:

A)Is equal to the balance in the Retained Earnings account in the adjusted trial balance at the end of a period.
B)Is determined in the Statement of Retained Earnings.
C)Is equal to Retained Earnings at the beginning of the period,minus net income (or plus net loss)for the period.
D)Appears in the Income Statement for the period.

Question 61

When closing the accounts at the end of the period,which of the following is closed directly into the Retained Earnings account?

A)Depreciation Expense.
B)Accumulated Depreciation.
C)Revenue and liability accounts.
D)The Income Summary account.

Question 62

The purpose of making closing entries is to:

A)Prepare revenue and expense accounts for the recording of the next period's revenue and expenses.
B)Enable the accountant to transfer the balances from all permanent accounts to the Income Summary account.
C)Establish new balances in the balance sheet accounts.
D)Reduce the number of expense accounts.

Question 63

After preparing the financial statements for the current year,the accountant for Exquisite Gems closed the Dividends account at year-end by debiting Income Summary and crediting the Dividends account.What is the effect of this entry on current-year net income and the balance in the Retained Earnings account at year-end?

A)Net income is overstated and the balance in the Retained Earnings account is correct.
B)Net income is correct and the balance in the Retained Earnings account is overstated.
C)Net income is understated and the balance in the Retained Earnings account is correct.
D)Net income is understated and the balance in the Retained Earnings account is overstated.

Question 64

Income Summary will have what balance before it is closed?

A)Zero.
B)$11,750.
C)$ 7,250.
D)$11,000.

Question 65

[The following information applies to the questions displayed below.]
Shown below is the adjusted Trial Balance for Simon Inc. ,on December 31,after the first year of operations,after adjusting entries:

The entry to close Depreciation Expense account will:

A)Transfer the balance of Depreciation Expense directly to Retained Earnings.
B)Include a debit to Income Summary.
C)Include a debit to Depreciation Expense.
D)Include a credit to Capital Stock.

Question 66

[The following information applies to the questions displayed below.]
Shown below is a trial balance for Novelty Toys,Inc. ,on December 31,after adjusting entries:

The entry to close the Fees Earned account will:

A)Produce a zero balance in that account when posted.
B)Include a debit to Income Summary.
C)Include a credit to Fees Earned.
D)Include a debit to Capital Stock.

Question 67

The total debits in the After-Closing Trial Balance will equal:

A)$25,375.
B)$29,125.
C)$40,875.
D)$18,125.

Question 68

Which of the following accounts will be closed to Income Summary?

A)Prepaid Expenses.
B)Unearned Revenue.
C)Dividends.
D)Depreciation Expense.

Question 69

Income Summary appears on which financial statement:

A)Income statement.
B)Balance sheet.
C)Retained Earnings statement.
D)Income summary does not appear on any financial statement.

Question 70

Which of the following account titles would not be debited in the process of preparing closing entries for Andrew's Auto Shop?

A)Income Summary.
B)Fees Earned.
C)Dividends.
D)Retained Earnings.

Question 71

[The following information applies to the questions displayed below.]
Shown below is the adjusted Trial Balance for Simon Inc. ,on December 31,after the first year of operations,after adjusting entries:

The entry to close the Service Fees Earned account will:

A)Produce a zero balance in that account when posted.
B)Include a debit to Income Summary.
C)Include a credit to Service Fees Earned.
D)Include a debit to Capital Stock.

Question 72

Which of the following accounts should not be closed?

A)Expenses and revenues.
B)Dividends.
C)Income summary.
D)Accumulated depreciation.

Question 73

After closing the accounts,Retained Earnings at December 31 equals:

A)$11,000.
B)$7,250.
C)Zero.
D)$22,250.

Question 74

Closing entries never involve posting a credit to the:

A)Income Summary account.
B)Accumulated Depreciation account.
C)Dividends account.
D)Depreciation Expense account.

Question 75

If sales are $270,000,expenses are $220,000 and dividends are $30,000,Income Summary:

A)Will have a credit balance of $50,000.
B)Will have a debit balance of $50,000.
C)Will have a debit balance of $20,000.
D)Will have a credit balance of $20,000.

Question 76

[The following information applies to the questions displayed below.]
Shown below is a trial balance for Novelty Toys,Inc. ,on December 31,after adjusting entries:

The entry to close Salaries Expense account will:

A)Transfer the total of Salaries Expense directly to Retained Earnings.
B)Include a debit to Income Summary.
C)Include a debit to Salaries Expense.
D)Include a credit to Capital Stock.

Question 77

Net income for the period equals:

A)$18,375.
B)$11,000.
C)$ 5,800.
D)$11,250.

Question 78

If a business closes its accounts only at year-end:

A)Financial statements are prepared only at year-end.
B)Adjusting entries are made only at year-end.
C)Revenue and expense accounts reflect year-to-date amounts throughout the year.
D)Monthly and quarterly financial statements cannot be prepared.

Question 79

Closing entries should be made:

A)Every year.
B)Only when an entity goes out of business.
C)Only if there is a profit.
D)Only if there is a loss.

Question 80

Net income for the period equals:

A)$20,960.
B)$16,640.
C)$21,920.
D)$23,360.