CHAPTER 4: Completing the Accounting Cycle

Which of the following statements is incorrect concerning the worksheet?

• The worksheet is essentially a working tool of the accountant.

• The worksheet is distributed to management and other inter- ested parties.

• The worksheet cannot be used as a basis for posting to ledger accounts.

• Financial statements can be prepared directly from the work- sheet before journalizing and posting the adjusting entrie

Answer explanation

The worksheet is a working tool of the accountant; it is not distributed to management and other interested parties. The other choices are all true statements.

In a worksheet, net income is entered in the following columns:

• income statement(Dr) and statement of financial position(Dr).

• income statement(Cr) and statement of financial position(Dr).

• income statement(Dr) and statement of financial position(Cr).

• income statement(Cr) and statement of financial position(Cr).

Answer explanation

Net income is entered in the Dr column of the income state- ment and the Cr column of the statement of financial position. The other choices are incorrect because net income is entered in the (a) Cr (not Dr) column of the statement of financial position, (b) Dr (not Cr) column of the income statement and in the Cr (not Dr) column of the statement of financial position, and (d) Dr (not Cr) column of the income statement.

In the unadjusted trial balance of its worksheet for the year ended December 31, 2020, Kim Company reported Equipment of NT$120,000. The year-end adjusting entries require an adjustment of NT$15,000 for depreciation expense for the equipment. After the adjusted trial balance is completed, what amount should be shown in the financial statement columns?

• A debit of NT$105,000 for Equipment in the statement of financial position column.

• A credit of NT$15,000 for Depreciation Expense in the in- come statement column.

• A debit of NT$120,000 for Equipment in the statement of financial position column.

• A debit of NT$15,000 for Accumulated Depreciation— Equipment in the statement of financial position column.

Answer explanation

A debit of NT$120,000 for Equipment would appear in the statement of financial position column. The other choices are incorrect because (a) Equipment, less accumulated depreciation of NT$15,000, would total NT$105,000 under assets on the statement of financial position, not on the worksheet; (b) a debit, not credit, for Depreciation Expense would appear in the income statement column; and (d) a credit, not debit, of NT$15,000 for Accumulated Deprecia- tion—Equipment would appear in the statement of financial position column.

An account that will have a zero balance after closing entries have been journalized and posted is:

• Service Revenue.

• Supplies.

• Prepaid Insurance.

• Accumulated Depreciation—Equipment.

Answer explanation

The Service Revenue account will have a zero balance after closing entries have been journalized and posted because it is a tem- porary account. The other choices are incorrect because (b) Supplies, (c) Prepaid Insurance, and (d) Accumulated Depreciation—Equip- ment are all permanent accounts and therefore not closed in the clos- ing process.

When a net loss has occurred, Income Summary is:

• ebited and Retained Earnings is credited.

• credited and Retained Earnings is debited.

• debited and Dividends is credited.

• credited and Dividends is debited.

Answer explanation

The effect of a net loss is a credit to Income Summary and a debit to Retained Earnings. The other choices are incorrect because (a) Income Summary is credited, not debited, and Retained Earnings is debited, not credited; (c) Income Summary is credited, not deb- ited, and Dividends is not affected; and (d) Retained Earnings, not Dividends, is debited.

6. (LO 2) The closing process involves separate entries to close (1) expenses, (2) dividends, (3) revenues, and (4) income summary. The correct sequencing of the entries is:

• (4), (3), (2), (1).

• (1), (2), (3), (4).

• (3), (1), (4), (2).

• (3), (2), (1), (4).

Answer explanation

The correct order is (3) revenues, (1) expenses, (4) income summary, and (2) dividends. Therefore, choices (a), (b), and (d) are incorrect.

Which types of accounts will appear in the post-closing trial balance?

• Permanent (real) accounts.

• Temporary (nominal) accounts.

• Accounts shown in the income statement columns of a work- sheet.

• None of these answer choices is correct.

Answer explanation

Permanent accounts appear in the post-closing trial balance. The other choices are incorrect because (b) temporary accounts and (c) income statement accounts are closed to a zero balance and are therefore not included in the post-closing trial balance. Choice (d) is wrong as there is a correct answer for this question.

All of the following are required steps in the accounting

cycle except:

• journalizing and posting closing entries

• preparing financial statements.

• journalizing the transactions.

• preparing a worksheet.

Answer explanation

Preparing a worksheet is not a required step in the accounting cycle. The other choices are all required steps in the accounting cycle.

The proper order of the following steps in the accounting cycle is:

• prepare unadjusted trial balance, journalize transactions, post to ledger accounts, journalize and post adjusting entries.

• journalize transactions, prepare unadjusted trial balance, post to ledger accounts, journalize and post adjusting entries.

• journalize transactions, post to ledger accounts, prepare unadjusted trial balance, journalize and post adjusting entries.

• prepare unadjusted trial balance, journalize and post adjusting entries, journalize transactions, post to ledger accounts.

Answer explanation

The proper order of the steps in the accounting cycle is (1) journalize transactions, (2) post to ledger accounts, (3) prepare unadjusted trial balance, and (4) journalize and post adjusting entries. Therefore, choices (a), (b), and (d) are incorrect.

When Lopez Company purchased supplies worth $600, it incorrectly recorded a credit to Supplies for $6,000 and a debit to Cash for $6,000. Before correcting this error:

• Cash is overstated and Supplies is overstated.

• Cash is understated and Supplies is understated.

• Cash is understated and Supplies is overstated

• Cash is overstated and Supplies is understated.

Answer explanation

This entry causes Cash to be overstated and Supplies to be understated. Supplies should have been debited (increasing supplies) and Cash should have been credited (decreasing cash). The other choices are incorrect because (a) Supplies is understated, not over- stated; (b) Cash is overstated, not understated; and (c) Cash is over- stated, not understated, and Supplies is understated, not overstated.