Preparing a Sole Proprietorship for a New Fiscal Period (85 points)
True/False
Indicate whether the sentence or statement is true or false.
F
1. All accounts in a general ledger are listed on a post-closing trial balance.
T
2. Adjusting entries are recorded on the next journal page following the page on which the last daily transactions
for the month are recorded.
F
3. Permanent accounts are also referred to as temporary accounts.
T
4. The ending account balances of permanent accounts for one fiscal period are the beginning account balances
for the next fiscal period.
T
5. Journal entries used to prepare temporary accounts for a new fiscal period are closing entries.
T
6. Temporary accounts must start each fiscal period with a zero balance.
T
7. To close a temporary account, an amount equal to its balance is recorded in the account on the side opposite
to its balance.
F
8. A source document is required for closing entries.
T
9. The income summary account balance must be reduced to zero to prepare the account for the next fiscal
period.
F
10. The owner’s drawing account is closed to the income summary account.
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
C
D
B
C
B
11. Adjustments are analyzed and planned
a. in the general ledger.
c. on a work sheet
b. on the financial statements.
d. in the general journal
12. After the adjusting entry for Supplies has been posted, Supplies Expense has an up-to-date balance, which is
the
a. same as the beginning balance for
c. value of supplies bought during the fiscal
Supplies
period.
b. same as the ending balance for Supplies. d. value of supplies used during the fiscal
period.
13. The journal entry to adjust Prepaid Insurance is
a. debit Prepaid Insurance; credit Insurance c. Debit Income Summary; credit Prepaid
Expense
Insurance.
b. debit Insurance Expense; credit Prepaid
d. Debit Prepaid Insurance; credit Income
Insurance
Summary.
14. Temporary accounts begin each new fiscal period with a
a. debit balance.
c. zero balance.
b. credit balance.
d. a balance on the side of its normal
balance.
15. When the total expenses are greater than the total revenue,
a. the income summary account has a credit c. debits equal credits.
balance.
A
16.
B
17.
C
18.
D
19.
B
20.
b. the income summary account has a debit d. the income summary account has a zero
balance.
balance.
Information needed for closing entries is found in the
a. Income Statement and Balance Sheet
c. Trial Balance and Adjustments columns of
columns of the work sheet.
the work sheet.
b. Income Statement and Adjustments
d. General ledger.
columns of the work sheet.
The journal entry to close the expense accounts is
a. debit Income Summary; credit owner’s
c. debit each expense account;credit Income
capital.
Summary.
b. debit Income Summary for the total
d. debit owner’s capital; credit each expense
expenses;credit each expense account.
account for the total expenses.
Which accounting concept applies when expenses are reported in the same fiscal period that they are used to
produce revenue?
a. Business Entity
c. Matching Expenses with Revenue
b. Going Concern
d. Adequate Disclosure
The last step in the accounting cycle is
a. journalize and post closing entries.
c. analyze transactions, journalize and post
them.
b. prepare a worksheet and financial
d. prepare a post-closing trial balance.
statements.
When a company has more than one source of revenue
a. separate closing entries are required.
c. all revenue accounts are closed to owner’s
capital in one closing entry
b. all revenue accounts are closed to the
d. each revenue account is closed in a
income summary account in one closing
separate closing entry to owner’s capital.
entry
Completion
Complete each sentence or statement by inserting P for permanent or T for temporary
21. A/P Blue Note Music is a_____ account.P
22. Advertising Expense is a _____ account.T
23. Branford Marsalis, drawing is a _____ account.T
24. A/R Jimmy Dorsey is a _____ account.P
25. Sales - Sheet Music is a ______ account.T
Preparing a Sole Proprietorship for a New Fiscal Period (85 points)
Answer Section
TRUE/FALSE
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
F
T
F
T
T
T
T
F
T
F
PTS:
PTS:
PTS:
PTS:
PTS:
PTS:
PTS:
PTS:
PTS:
PTS:
1
1
1
1
1
1
1
1
1
1
PTS:
PTS:
PTS:
PTS:
PTS:
PTS:
PTS:
PTS:
PTS:
PTS:
1
1
1
1
1
1
1
1
1
1
MULTIPLE CHOICE
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
ANS:
C
D
B
C
A
A
B
C
D
B
COMPLETION
21. ANS: P
PTS: 1
22. ANS: T
PTS: 1
23. ANS: T
PTS: 1
24. ANS: P
PTS: 1
25. ANS: T
PTS: 1