Question 1

At the end of an accounting period wages expense of $190 000 is closed to the profit and loss summary account. The wages are made up of $180 000 paid in cash and accrued wages of $10 000. A reversing entry is made for accrued wages on the first day of the next accounting period. The first payment to employees for wages in the new year is $25 000. How would this payment be recorded?

Accepted Answer

A)  Debit wages expense $15 000; debit accrued wages $10 000; credit bank $25 000 
B)  Debit wages expense $25 000; credit bank $25 000 
C)  Debit wages expense $15 000; credit bank $15 000 
D)  Debit accrued wages $10 000; credit bank $10 000

Question 2

If telephone expenses for the year are $7900, made up of cash payments of $7400 and accrued telephone expense of $500 what is the amount of telephone expense that is closed to the profit and loss summary account?

Accepted Answer

A)  Nil 
B)  $500 
C)  $7900 
D)  $8400

Question 3

If a profit has been earned for the year, before the closing entries, the profit or loss summary account has a___________________ balance.

Accepted Answer

A)  debit 
B)  credit 
C)  positive 
D)  negative

Question 4

In which order do these steps in the accounting cycle occur?
I Prepare closing entries
II Post to the ledger
III Enter business transactions in the journal
IV Prepare adjusting entries
V Prepare financial statements

Accepted Answer

A)  I, II, III, IV, V 
B)  III, IV, II, I, V 
C)  IV, II, I, III, V 
D)  III, II, IV, V, I

Question 5

The balance in the profit or loss summary account before it is closed represents:

Accepted Answer

A)  profit (or loss) less drawings. 
B)  total expense. 
C)  profit (or loss). 
D)  total owner's capital.

Question 6

Accepted Answer

A)  $90. 
B)  $110. 
C)  $80. 
D)  $170.

Question 7

The retained profits balance of The Fruit Drop Company was $40 000 on the first day of the year. Profit during the year was $20 000. Near year-end a $10 000 dividend was declared that is to be paid in the following year. Year-end retained profits are:

Accepted Answer

A)  $70 000. 
B)  $60 000. 
C)  $50 000. 
D)  $40 000.

Question 8

Which of these is not a temporary account?

Accepted Answer

A)  Sales revenue 
B)  Bank 
C)  Drawings 
D)  Cleaning expense

Question 9

Which of the following statements relating to reversing entries is correct?

Accepted Answer

A)  Reversing entries are always necessary. 
B)  There are alternative ways of dealing with the effect of accruals in subsequent periods without using reversing entries. 
C)  Reversing entries are never appropriate for deferral type entries. 
D)  Depreciation is an adjustment that requires reversing in the subsequent period.

Question 10

King Ltd's year-end trial balance includes the following accounts.
F1S1S1W1F1F1F10Cash
F1S1S1W1F1F1F10Sales revenue
F1S1S1W1F1F1F10Accounts payable
F1S1S1W1F1F1F10Equity
F1S1S1W1F1F1F10Interest expense
F1S1S1W1F1F1F10Interest receivable
F1S1S1W1F1F1F10Motor vehicles
How many of these are temporary accounts?

Accepted Answer

A)  One 
B)  Two 
C)  Three 
D)  Four

Question 11

The major purpose of a post-closing trial balance is to:

Accepted Answer

A)  prepare the accounting reports. 
B)  confirm that the ledger is in balance at the start of the new accounting period. 
C)  determine if any closing entries have been missed. 
D)  determine if any adjusting entries have been missed.

Question 12

Before calculating the profit for the period, the totals of the income statement debit and credit columns on the worksheet are $60 000 and $80 000 respectively. What is the amount of the profit or loss?

Accepted Answer

A)  $20 000 loss 
B)  $60 000 profit 
C)  $80 000 profit 
D)  $20 000 profit

Question 13

The balance of the salaries expense account is $1200. Which is the correct closing general journal entry?

Accepted Answer

A)   
B)   
C)   
D)

Question 14

What is the closing entry for drawings of $25 000?

Accepted Answer

A)  Debit owner's capital account $25 000; credit drawings $25 000 
B)  Debit profit or loss summary account $25 000; credit drawings $25 000 
C)  Debit bank $25 000; credit drawings $25 000 
D)  None of the above

Question 15

Assume that no reversing entries are made by this firm. If wages of $12 400 were accrued by it at the end of the year and the first payment of wages in the subsequent year was $110 500 how would this payment be recorded?

Accepted Answer

A)  Debit salaries payable $12 400; debit salaries expense $98 100; credit cash $110 500 
B)  Credit salaries payable $12 400; debit salaries expense $122 900; credit cash $110 500 
C)  Debit salaries payable $12 400; debit salaries expense $110 500; credit cash $122 900 
D)  Debit salaries expense $98 100; credit cash$98 100

Question 16

Closing an account means:

Accepted Answer

A)  transferring the balance to the trial balance. 
B)  transferring the balance to the balance sheet. 
C)  reducing the balance to zero. 
D)  removing the account from the ledger.

Question 17

Entries made at the beginning of the next accounting period to reverse the effect of various adjustments, are called:

Accepted Answer

A)  adjusting entries. 
B)  contrary entries. 
C)  reversing entries. 
D)  negative entries.

Question 18

Adjusting entries prepared for interim financial statements are:

Accepted Answer

A)  always recorded in the journal. 
B)  always recorded in the ledger. 
C)  often recorded on a worksheet. 
D)  there are usually no adjusting entries made when interim financial statements are prepared.

Question 19

In the closing process which accounts are closed?

Accepted Answer

A)  All ledger accounts 
B)  All asset, liability and equity accounts 
C)  All income and expense accounts 
D)  All accounts that have been adjusted

Question 20

Closing the accounts refers to:

Accepted Answer

A)  establishing zero balances in the balance sheet accounts. 
B)  establishing a zero balance in the cash at bank account. 
C)  establishing zero balances in all ledger accounts. 
D)  transferring income and expense account balances to the profit or loss summary account, which is then closed to the equity account.

Exam 5: Completing the Accounting Cycle Closing and Reversing Entries