QUICK STUDY – CHAPTER 4

1. List the following steps of the accounting cycle in their proper order.
a) ______Preparing the post-closing trial balance.
b) ______Posting the journal entries.
c) ______Journalizing and posting adjusting entries.
d) ______Preparing the adjusted trial balance.
e) ______Journalizing and posting closing entries.
f) ______Analyzing transactions and events.
g) ______Preparing the financial statements.
h) ______Preparing the unadjusted trial balance.
i) ______Journalizing transactions and events.

2. Complete the following descriptions related to temporary and permanent accounts.

a) Temporary accounts accumulate data related to ______accounting period.
b) Permanent accounts report on activities related to ______future accounting
periods, and they carry their ending balances into the next period.
c) ______accounts include all income statement accounts, the withdrawals
account, and the Income Summary account.
d) ______accounts generally consist of all balance sheet accounts, and these
accounts are not closed.

3. Compute Jamar Company’s current ratio using the following information.

4. The following are common categories on a classified balance sheet.

A. Current assets D. Intangible assets
B. Long-term investments E. Current liabilities
C. Plant assets F. Long-term liabilities
For each of the following items, select the letter that identifies the balance sheet
category where the item typically would appear.
1. ______Trademarks
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 2. ______Accounts receivable
3. ______Land not currently used in operations
4. ______Notes payable (due in three years).
5. ______Cash
6. ______Wages payable
7. ______Store equipment
8. ______Accounts payable

5. In preparing a work sheet, indicate the financial statement Debit column to which
a normal balance in the following accounts should be extended. Use IS for the
Income Statement Debit column and BS for the Balance Sheet and Statement of
Owner’s Equity Debit column.
a. ______ Insurance expense
b. ______ Equipment
c. ______ Owner, Withdrawals
d. ______ Depreciation expense—Equipment
e. ______ Prepaid rent
f. ______ Accounts receivable

6. List the following steps in preparing a work sheet in their proper order by writing
numbers 1–5 in the blank spaces provided.
a) ______ Prepare an adjusted trial balance on the work sheet.
b) ______ Prepare an unadjusted trial balance on the work sheet.
c) ______ Enter adjustments data on the work sheet.
d) ______ Extend adjusted balances to appropriate financial statement columns.
e) ______ Total the statement columns, compute net income (loss), and complete
work sheet.

7. The following selected information is taken from the work sheet for Wayman
Company as of December 31, 2011. Using this information, determine the amount
for K. Wayman, Capital, that should be reported on its December 31, 2011, balance
sheet.

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8. The ledger of Terrel Company includes the following unadjusted normal balances:
Prepaid Rent $800, Services Revenue $11,600, and Wages Expense $5,000.
Adjusting entries are required for (a) accrued rent expense $240; (b) accrued
services revenue $180; and (c) accrued wages expense $160. Enter these
unadjusted balances and the necessary adjustments on a work sheet and
complete the work sheet for these accounts. Note: Also include the following
accounts: Accounts Receivable, Wages Payable, and Rent Expense.

9. The ledger of Avril Company includes the following accounts with normal balances:
L. Avril, Capital $6,000; L. Avril, Withdrawals $400; Services Revenue $10,000;
Wages Expense $5,200; and Rent Expense $800. Prepare the necessary closing
entries from the available information at December 31.

10. Identify the accounts listed in question 9 that would be included in a post-
closing trial balance

11. On December 31, 2010, Lester Co. prepared an adjusting entry for $6,700 of
earned but unrecorded management fees. On January 16, 2011, Lester received
$15,500 cash in management fees, which included the accrued fees earned in
2010. Assuming the company uses reversing entries, prepare the January 1, 2011,
reversing entry and the January 16, 2011, cash receipt entry.

12. Answer each of the following questions related to international accounting

standards.
a) Explain how the closing process is different between accounting under IFRS
versus U.S. GAAP.
b) What basic principle do U.S. GAAP and IFRS rely upon in recording the initial
acquisition value for nearly all assets?
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13. Use the March 31 fiscal year-end information from the following ledger
accounts (assume that all accounts have normal balances) to prepare closing
journal entries and then post those entries to the appropriate ledger accounts.

14. The adjusted trial balance for Sundance Marketing Co. follows. Complete the
four right-most columns of the table by first entering information for the four closing
entries (keyed 1 through 4) and second by completing the post-closing trial balance.

15. The following adjusted trial balance contains the accounts and balances of

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 Showers Company as of December 31, 2011, the end of its fiscal year. (1) Prepare
the December 31, 2011, closing entries for Showers Company. (2) Prepare the
December 31, 2011, post-closing trial balance for Showers Company.

16. Use the following adjusted trial balance of Webb Trucking Company to prepare
the (1) income statement and (2) statement of owner’s equity, for the year ended
December 31, 2011. The K. Webb, Capital, account balance is $161,000 at
December 31, 2010.

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17. Use the information in the adjusted trial balance reported in Exercise 16 to
prepare Webb Trucking Company’s classified balance sheet as of December 31,
2011.

18. Use the information in the adjusted trial balance reported in Exercise 16 to
compute the current ratio as of the balance sheet date (round the ratio to two
decimals). Interpret the current ratio for the Webb Trucking Company. (Assume
that the industry average for the current ratio is 1.5.)

19. Calculate the current ratio in each of the following separate cases (round the
ratio to two decimals). Identify the company case with the strongest liquidity
position. (These cases represent competing companies in the same industry.)

20. These 16 accounts are from the Adjusted Trial Balance columns of a
company’s 10-column work sheet. In the blank space beside each account, write
the letter of the appropriate financial statement column (A, B, C, or D) to which a
normal account balance is extended).
A. Debit column for the Income Statement columns.
B. Credit column for the Income Statement columns.
C. Debit column for the Balance Sheet and Statement of Owner’s Equity columns.
D. Credit column for the Balance Sheet and Statement of Owner’s Equity columns.

1. ______ Office Supplies 7. ______ Interest Expense

2. ______ Accounts Payable 8. ______ Owner, Withdrawals
3. ______ Owner, Capital 9. ______ Service Fees Revenue
4. ______ Wages Payable 10. ______ Insurance Expense
5. ______ Machinery 11. ______ Accumulated Depreciation
6. ______ Interest Receivable 12. ______ Interest Revenue

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13. ______ Accounts Receivable 15. ______ Depreciation Expense
14. ______ Rent Expense 16. ______ Cash

21. Use the following information from the Adjustments columns of a 10-column
work sheet to prepare the necessary adjusting journal entries (a) through (e).

Unadjusted Trial
No. Account Adjustments Adjusted Trial Balance
Balance
Dr. Cr. Dr. Cr. Dr. Cr.
109 Interest receivable
(d) $ 580
124 Office supplies
(b) $1,650
128 Prepaid insurance
(a) 900
164 Accumulated
(c) 3,300
depreciation—Office
209 Salaries payable
(e) 660
409 Interest revenue
(d) 580
612 Depreciation expense
(c) 3,300
—Office equipment
620 Office salaries expense
(e) 660
636 Insurance expense—
(a) 432
Office equipment
637 Insurance expense—
(a) 468
Store equipment
650 Office supplies
(b) 1,650
expense
Totals $ 7,090 $ 7,090

22. The Adjusted Trial Balance columns of a 10-column work sheet for Propel
Company follow. Complete the work sheet by extending the account balances into
the appropriate financial statement columns and by entering the amount of net
income for the reporting period.

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 Balance Sheet & Statement
No. Account Adjusted Trial Balance Income Statement
of Owner's Equity
Dr. Cr. Dr. Cr. Dr. Cr.
101 Cash $ 6,000
106 Accounts receivable 26,200
153 Trucks 41,000
154 Accumulated
$16,500
depreciation—Trucks
183 Land 30,000
201 Accounts payable 14,000
209 Salaries payable 3,200
233 Unearned fees 2,600
301 J. Propel, Capital 64,500
302 J. Propel, Withdrawals 14,400
401 Plumbing fees earned 79,000
611 Depreciation expense—
5,500
Trucks
622 Salaries expense 37,000
640 Rent expense 12,000
677 Miscellaneous expenses 7,700
Totals $ 179,800 $ 179,800

23. These partially completed Income Statement columns from a 10-column work
sheet are for Welch’s Red Sail Rental Company. (1) Use the information to
determine the amount that should be entered on the net income line of the work
sheet. (2) Prepare the company’s closing entries. The owner, L. Welch, did not
make any withdrawals this period.

24. The following unadjusted trial balance contains the accounts and balances of
Dalton Delivery Company as of December 31, 2011, its first year of operations.
(1) Use the following information about the company’s adjustments to complete a
10-column work sheet.
a) Unrecorded depreciation on the trucks at the end of the year is $35,000.

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 b) The total amount of accrued interest expense at year-end is $8,000.
c) The cost of unused office supplies still available at the year-end is $1,000.
(2) Prepare the year-end closing entries for this company, and determine the
capital amount to be reported on its year-end balance sheet.

25. The following two events occurred for Tanger Co. on October 31, 2011, the end
of its fiscal year.
a) Tanger rents a building from its owner for $3,200 per month. By a
prearrangement, the company delayed paying October’s rent until
November 5. On this date, the company paid the rent for both October and
November.
b) Tanger rents space in a building it owns to a tenant for $750 per month. By
prearrangement, the tenant delayed paying the October rent until
November 8. On this date, the tenant paid the rent for both October and
November.
Required
[1] Prepare adjusting entries that the company must record for these events
as of October 31.
[2] Assuming Tanger does not use reversing entries, prepare journal entries
to record Tanger’s payment of rent on November 5 and the collection of

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 rent on November 8 from Tanger’s tenant.
[3] Assuming that the company uses reversing entries, prepare reversing
entries on November 1 and the journal entries to record Tanger’s payment
of rent on November 5 and the collection of rent on November 8 from
Tanger’s tenant.

26. Hinson Company records prepaid assets and unearned revenues in balance
sheet accounts. The following information was used to prepare adjusting entries
for the company as of August 31, the end of the company’s fiscal year.
a) The company has earned $5,000 in service fees that were not yet recorded
at period-end.
b) The expired portion of prepaid insurance is $2,700.
c) The company has earned $1,900 of its Unearned Service Fees account
balance.
d) Depreciation expense for office equipment is $2,300.
e) Employees have earned but have not been paid salaries of $2,400.
Prepare any necessary reversing entries for the accounting adjustments a
through e assuming that the company uses reversing entries in its accounting
system.

27. Argosy Company began the current period with a $14,000 credit balance in the
D. Argosy, Capital account. At the end of the period, the company’s adjusted
account balances include the following temporary accounts with normal balances.

After closing the revenue and expense accounts, what will be the balance of
the Income Summary account? After all closing entries are journalized and posted,
what will be the balance of the D. Argosy, Capital account?

28. Following are Nintendo’s revenue and expense accounts for a recent calendar
year (yen in millions). Prepare the company’s closing entries for its revenues and
its expenses.

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29. The following data are taken from the unadjusted trial balance of the Madison
Company at December 31, 2011. Each account carries a normal balance and the
accounts are shown here in alphabetical order.

[1] Use the data above to prepare a worksheet. Enter the accounts in proper order
and enter their balances in the correct debit or credit column.
[2] Use the following adjustment information to complete the worksheet.
a) Depreciation on equipment, $1
b) Supplies available at December 31, 2011, $5
c) Accrued salaries, $2
d) Expired insurance, $5
e) The $4 of unearned revenue has been earned

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