Chapter 8 review
K/U
True and False
1. A worksheet is prepared at the end of the fiscal period.
_________
2. A completed worksheet contains all the information necessary to prepare the income
statement and the balance sheet.
_________
3. The date on the worksheet is the fiscal period of the business.
_________
4. On the worksheet, the drawings figure is extended to the debit side of the income
statement columns.
_________
5. In order for a worksheet to be in balance, the difference between the balance sheet
columns must be the same as the difference between the trial balance columns.
_________
6. When the balancing figure is placed on the debit side of the income statement
columns, the business has experienced a net income.
_________
7. The examination of a firm’s accounting records and procedures is called an audit.
_________
8. Adjusting entries are necessary because the books of account are allowed to become
inaccurate between statement dates.
_________
9. The main purpose of adjusting entries is to accurately report total assets.
_________
10. Adjusting entries are normally prepared by accounting clerks.
_________
11. Making adjusting entries is in accordance with the matching principle.
_________
12. When supplies are used, Supplies Expense should be debited.
_________
13. The dollar figure for supplies on the trial balance at the end of a fiscal period does
not accurately reflect the value of supplies on hand.
_________
14. Prepaid Insurance is an asset account.
_________
15. The balance in the Prepaid Insurance account represents the amount of insurance
used up during the fiscal period.
_________
16. The adjusting entry for insurance used is a debit to Insurance Expense and a credit to
Prepaid Insurance.
_________
17. If an invoice for truck repairs dated December 30, 20–4, arrives in the mail on
January 3, 20–5, it should be included in the income statement for the year ended
December 31, 20–4.
_________
18. Adjusting entries are first recorded in the general journal.
_________
19. Only income statement accounts are closed at the end of the fiscal period.
_________
20. Accounts are closed after the income statement and balance sheet have been
prepared.
_________
21. When expense accounts are closed, the Income Summary account is debited.
_________
22. When the Drawings account is closed, the Income Summary account is debited.
_________
_________
23. A post-closing trial balance includes no income statement accounts.
K/U
24. The Accumulated Depreciation account is increased when it is credited.
_________
25. Compared to the straight-line method, using the declining-balance method of
depreciation results in a higher net income in the early years of the asset.
_________
26. Revenue and expense accounts are closed in Sage Simply Accounting software when
the session date is advanced to the new fiscal year.
_________
27. With accrual accounting, accountants wait until money is received to record revenue.
_________
Multiple Choice
28. Which of the following would be an incorrect extension on a worksheet?
A. HST Payable to the credit side of the balance sheet columns.
B. Sales to the credit side of the income statement columns.
C. Equipment to the credit side of the balance sheet columns.
D. Rent Expense to the debit side of the income statement columns.
29. Which of the following is not an extension error on a worksheet?
A. Supplies extended to the debit side of the income statement columns.
B. Capital extended to the debit side of the income statement columns.
C. Accounts Payable extended to the credit side of the income statement columns.
D. Salaries Expense extended to the debit side of the income statement columns.
30. To this point, the accounting cycle consists of the following steps:
1. Transactions occur.
2. Postings to the ledger are made.
3. A trial balance is created.
4. The income statement and balance sheet are prepared.
5. The worksheet is prepared.
6. Entries are recorded in the journal.
Select the correct sequence for the above events.
A. 1, 5, 3, 4, 2, 6
B. 1, 6, 5, 2, 4, 3
C. 1, 6, 2, 4, 5, 3
D. 1, 6, 2, 3, 5, 4
31. On a worksheet, which of the following items would not be extended to the credit side of the
balance sheet columns?
A. Accounts Payable
B. Capital
C. Drawings
D. Bank Loan
32. Which of the following is not a current asset?
A. Accounts Receivable
B. Supplies
C. Equipment
D. Bank
Figure 1
Bank
A/R
Equipment
A/P
Bank Loan (3 years)
Mortgage Payable
Capital
Drawings
Sales
Rent Expense
Wages Expense
Telephone Expense
Worksheet
Trial
Balance
Dr
Cr
70 000
20 000
80 000
10 000
30 000
80 000
?
5 000
22 000
11 000
4 000
2 000
Income
Statement
Dr
Cr
33. In Figure 1, the capital figure in the trial balance columns should be
A. $290 000.
B. $140 000.
C. $50 000.
D. $45 000.
34. In Figure 1, the total value of current assets is
A. $70 000.
B. $90 000.
C. $170 000.
D. $200 000.
35. In Figure 1, the total value of long-term liabilities is
A. $80 000.
B. $110 000.
C. $120 000.
D. $170 000.
Balance
Sheet
Dr
Cr
36. In Figure 1, after extending the worksheet correctly, a _________________ would be
indicated.
A. net income of $22 000
B. net loss of $17 000
C. net income of $5000
D. None of the above.
37. In Figure 1, the total for the debit side of the balance sheet column will be
A. $170 000.
B. $175 000.
C. $200 000.
D. $215 000.
38. In Figure 1, the owner’s capital figure to appear on the balance sheet should be
A. $50 000.
B. $55 000.
C. $60 000.
D. None of the above.
39. Adjusting entries
A. are the responsibility of junior accounting clerks.
B. are usually made to correct errors made by junior accounting clerks.
C. are normally made monthly.
D. None of the above.
40. Which of the following is not one of the reasons why adjusting entries at the end of the fiscal
period are necessary?
A. The matching principle must be followed.
B. During fiscal periods, certain account balances become inaccurate.
C. Making adjusting entries every day would be too time consuming.
D. As much revenue as possible should be recorded on the income statement.
41. At the beginning of Year 1, the Supplies account had a debit balance of $1800. During the
year, the business purchased $800 of supplies. An inventory count of supplies at the end of
the year revealed that $750 of supplies remained. The adjusting entry as a result of this
information is
A. debit Supplies Expense $1050, credit Supplies $1050.
B. debit Supplies Expense $1850, credit Supplies $1850.
C. debit Supplies Expense $2600, credit Supplies $2600.
D. debit Supplies Expense $3350, credit Accumulated Depreciation $3350.
42. A business purchased a 1-year insurance policy costing $360 on May 15 of the current year.
The journal entry to record this transaction is
A. debit Prepaid Insurance $360, credit Bank $360.
B. debit Insurance Expense $360, credit Bank $360.
C. debit Insurance Expense $225, credit Prepaid Insurance $225.
D. debit Prepaid Insurance $210, credit Insurance Expense $210.
43. A business purchased a 1-year insurance policy costing $360 on May 15 of the current year.
The amount of insurance expense to be recorded in the adjusting entry for the year ended
December 31 is
A. $320.
B. $225.
C. $240.
D. $210.
44. Which of the following statements concerning the Accumulated Depreciation account is
false?
A. It is an asset account.
B. It appears on the balance sheet.
C. It has a credit balance.
D. It is closed at the end of the fiscal period.
45. An accountant failed to make a necessary adjusting entry for supplies used. What is the
result?
A. Assets are overstated.
B. Net income is overstated.
C. Ending capital on the balance sheet is overstated.
D. All of the above.
46. Which of the following statements concerning the worksheet is false?
A. The value of supplies in the balance sheet columns will be less than the supplies figure in
the trial balance columns.
B. Supplies extend to the debit side of the income statement columns.
C. The prepaid insurance figure will be the same when extended to the balance sheet
columns.
D. Accumulated depreciation will be extended to the credit side of the balance sheet
columns.
47. Which of the following is not closed at the end of the fiscal period?
A. all revenue accounts
B. all expense accounts
C. the Capital account
D. the Drawings account
48. Closing entries are made at the end of the fiscal period so that
A. the balance sheet will be up to date.
B. the Capital account will be up to date.
C. the income statement accounts will begin the next fiscal period with a zero balance.
D. Both B and C are correct.
49. The journal entry to close the Drawings account is
A. debit Drawings, credit Income Summary.
B. debit Income Summary, credit Drawings.
C. debit Drawings, credit Capital.
D. debit Capital, credit Drawings.
50. A debit balance in the Income Summary account indicates
A. the firm had a net income during the fiscal period.
B. the firm had a net loss during the fiscal period.
C. the owner withdrew funds during the fiscal period.
D. None of the above.
51. Which of the following accounts appears on a post-closing trial balance?
A. HST Payable
B. Sales Revenue
C. Rent Expense
D. Drawings
52. The post-closing trial balance differs from the trial balance in the following way(s).
A. The dates in the headings are different.
B. The value of the capital account is different.
C. The same accounts appear on both forms.
D. Both A and B are true.
53. A new delivery truck was purchased for $36 000 on January 1 of Year 1. It was expected to
last four years, and to then have a trade-in value of $12 000. If the straight-line method is
used, what will be the value of the delivery truck on the balance sheet dated December 31,
Year 3?
A. $24 000
B. $18 000
C. $12 000
D. None of the above.
54. New office furniture was purchased for $8000 on January 1 of Year 1. The business expected
to replace the furniture four years later, and to receive $2000 as trade-in value at the time of
replacement. If the company uses the declining balance method of depreciation (20% rate),
what will be the book value of the office furniture on the balance sheet dated December 31,
Year 3?
A. $6400
B. $4096
C. $2000
D. None of the above.
55. Company A and Company B each purchased a $25 000 truck on January 1 of Year 1. The
trucks were expected to last five years and to then have no trade-in value. Company A uses
the straight-line method of depreciation; Company B uses the declining-balance method
(30% rate). Assuming that the two companies’ accounts were identical in every other way, at
the end of Year 2 Company A will have
A. a total assets figure $5000 lower than Company B.
B. a total assets figure $2750 higher than Company B.
C. the same total assets figure as Company B.
D. a total assets figure $1425 higher than Company B.
56. When the 50% rule is applied to the declining balance method for an item that was purchased
in the first month of the fiscal year,
A. the depreciation expense will be higher.
B. the net income will be higher.
C. fewer taxes will be paid.
D. the accumulated depreciation account will have a debit balance.