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MODULE 4 ADJUSTING AND CLOSING ENTRIES - ACCRUALS Demonstration Problem 1 Anderson Architects The transactions for the year 2000 for Anderson Architects have already been recorded. This problem shows how to prepare adjusting entries for December 2000. Dec. 31 A note payable of $6,000 has been outstanding since September 1, 2000. Under the terms of the note, the note plus interest (12%) is to be paid on March 1, 2001. No interest has been recorded on the note. Dec. 31 Wages of $650 for December will be paid in January. Dec. 31 Services were performed for a client for $800. The client has not been billed yet. Dec. 31 Advertising costs of $105 for December will be paid in January. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT DEBIT Interest Expense Interest Payable Wages Expense Wages Payable Accounts Receivable Service Revenue Advertising Expense Accounts Payable 240 CREDIT 240 650 650 800 800 105 105 98 Practice Problem 1 Comfort Furniture Company The transactions for the year 2000 for Comfort Furniture Co. have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for Comfort Furniture Co. for December 2000. Dec. 31 Wages owed but unpaid at the end of December were $5,000. Dec. 31 The company signed a 12%, six-month note for $6,000 on November 1, 2000. No interest has been recorded for November and December. Dec. 31 Service provided to a customer for $350 has not been recorded. Dec. 31 Advertising cost of $90 for December has not been recorded. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT DEBIT Wages Expense Wages Payable Interest Expense Interest Payable Accounts Receivable Service Revenue Advertising Expense Accounts Payable 5,000 CREDIT 5,000 120 120 350 350 90 90 99 Practice Assignment 2 Conway Floor Covering Incorporated The transactions for Conway Floor Covering Inc. for the year 2000 have been recorded in the accounting system. This assignment requires you to record the adjusting entries for December 2000. Dec. 31 Performed services for a client for $850. The customer will be billed in January. Dec. 31 $15,000 was borrowed by signing a 10%, 2 year note on September 1, 2000. Record the interest on the note. Dec. 31 Employee wages of $950 for December will be paid in January. Dec. 31 Advertising costs of $95 for December will be paid in January. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT DEBIT Accounts Receivable Service Revenue Interest Expense Interest Payable Wages Expense Wages Payable Advertising Expense Accounts Payable 850 CREDIT 850 500 500 950 950 95 95 100 Homework Problem 1 Gym on Wheels Gym on Wheels provides gymnastics lessons at various daycare centers. The transactions for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000. Dec. 31 The note payable of $8,000 has been outstanding since July 1, 2000. Under the terms of the note, the note plus interest (12%) is to be paid on July 1, 2001. No interest has been recorded on the note. Dec. 31 Instructors’ salaries of $2,000 for December will be paid in January. Dec. 31 December fees of $160 will be collected in January. Dec. 31 $85 will be paid in January for advertising in December. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT DEBIT Interest Expense Interest Payable Salaries Expense Salaries Payable Accounts Receivable Service Revenue Advertising Expense Accounts Payable 480 CREDIT 480 2,000 2,000 160 160 85 85 101 Homework Problem 2 Borden Realty The transactions for Borden Realty for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000. Dec. 31 Services provided to customers for $2,600 were unrecorded at the end of December. Dec. 31 $115 will be paid in January for advertising in December. Dec. 31 $1,080 of salaries earned by employees during December will be paid in January. Dec. 31 The note payable of $12,000 has been outstanding since September 1, 2000. Under the terms of the note, the note plus interest (10%) is to be paid on September 1, 2001. No interest has been recorded on the note. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT DEBIT Accounts Receivable Service Revenue Advertising Expense Accounts Payable Salaries Expense Salaries Payable Interest Expense Interest Payable 2,600 CREDIT 2,600 115 115 1,080 1,080 400 400 102 Homework Problem 3 Party Town Incorporated The transactions for Party Town Inc. for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000. Dec. 31 A birthday party was arranged in December. The customer will pay $200 in January. Dec. 31 Party Town Inc. borrowed $20,000 by signing a 12%, 2 year note on July 1, 2000. Record the interest on the note. Dec. 31 Employee wages of $750 for December will be paid in January. Dec. 31 Advertising costs of $135 for December will be paid in January. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT DEBIT Accounts Receivable Service Revenue Interest Expense Interest Payable Salaries Expense Salaries Payable Advertising Expense Accounts Payable 200 CREDIT 200 1,200 1,200 750 750 135 135 103 Homework Problem 4 Star Interior Designs The transactions for Star Interior Designs for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000. Dec. 31 Performed services for a client for $1,250. The customer will be billed in January. Dec. 31 $10,000 was borrowed by signing a 12%, two year note on October 1, 2000. Record the interest on the note. Dec. 31 Employee wages of $1,150 for December will be paid in January. Dec. 31 Advertising costs of $115 for December will be paid in January. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT DEBIT Accounts Receivable Service Revenue Interest Expense Interest Payable Salaries Expense Salaries Payable Advertising Expense Accounts Payable 1,250 CREDIT 1,250 300 300 1,150 1,150 115 115 104 Homework Quiz Accruals 1. An expense has not been paid and has not yet been recognized in the accounts by a routine entry. To properly adhere to the Matching Principle, which of the following is required: a. Capital Stock entry b. Deferral entry c. Accrual entry d. Inventory entry 2. Warren, Inc. has wages that have been earned but not paid at the end of the accounting period. The entry to properly accrue Wages Expense includes: a. Wages Payable, debit; Wages Income, credit b. Wages Income, debit; Wages Payable, credit c. Wages Payable, debit; Wages Expense, credit d. Wages Expense, debit; Wages Payable, credit 3. Warren, Inc. neglects to make the required adjusting entry for wages at the end of the accounting period. Which of the following statements reflect the impact of this oversight? a. Salary Expense for the year is overstated. b. Liabilities at the end of the year are understated. c. Assets at the end of the year are understated. d. Owner's equity at the end of the year is understated. 4. Accrued Expenses usually appear on the Balance Sheet as: a. Cash b. Liabilities c. Assets d. Capital Stock 5. Accrued Revenue is recorded when: a. Services have already been earned and recorded. b. Services have already been paid for in cash and are expected to be earned in the upcoming accounting period. c. Services have already been paid for in cash. d. Services have been earned but have not yet been recorded. 6. Accrued Revenue usually appears on the Balance Sheet as: a. Cash b. Liabilities c. Assets d. Capital Stock 105 7. At December 31, 2002, interest expense of $960 is owed on a two-year bank note that will not be paid until July 2003, what is the appropriate accrual at the end of 2002? a. Interest Expense .................. 960 Cash ..........................…….. 960 b. Interest Payable .................. 960 Interest Expense ................. 960 c. Cash .............................. …. 960 Interest Expense ..............… 960 d. Interest Expense .................. 960 Interest Payable ..............… 960 8. Scott's Lawn Service borrowed $10,000 from 3rd National Bank on November 1, 2001. The loan is for a term of three years and carries a 10% rate of interest. Interest is due at the maturity of the loan. The entry to properly accrue 2001 Interest Expense should include: a. A debit to Interest Expense and a credit to Interest Payable. b. A debit to Interest Expense and a credit to Cash. c. A debit to Interest Expense and a credit to Accounts Receivable. d. A debit to Interest Expense and a credit to Loan Receivable. 9. Scott's Lawn Service borrowed $10,000 from 3rd National Bank on November 1, 2001. The loan is for a term of three years and carries a 10% rate of interest. Interest is due at the maturity of the loan. To properly accrue interest expense in 2001, Scott should: a. Do nothing as the loan is not due until November 2004. b. Recognize Interest Expense for 2 of the loan's 36-month term. c. Recognize Interest Expense for 12 of the loan's 36-month term. d. Recognize Interest Expense for 10 of the loan's 36-month term. 10. Scott's Lawn Service borrowed $10,000 from 3rd National Bank on November 1, 2001. The loan is for a term of three years and carries a 15% rate of interest. Interest is due at the maturity of the loan. To properly accrue interest expense in 2001, Scott should debit Interest Expense and credit Interest Payable for: a. $1,500 b. $1,000 c. $ 500 d. $ 250 11. Scott's Lawn Service borrowed $10,000 from 3rd National Bank on November 1, 2001. The loan is for a term of three years and carries a 15% rate of interest. Interest is due at the maturity of the loan. To properly accrue interest expense in 2002, Scott should debit Interest Expense and credit Interest Payable for: a. $1,500 b. $1,000 c. $ 500 d. $ 250 106 12. Sandra's Styling Salon, a Sole Proprietorship, pays weekly salaries of $5,000 each Friday for a five-day week ending on that day. The accrual required for a fiscal period ending on Thursday is: a. Debit Salaries Payable, $4,000; credit Cash, $4,000 b. Debit Salary Expense, $4,000; credit Drawing, $4,000 c. Debit Salary Expense, $4,000; credit Salaries Payable, $4,000 d. Debit Drawing, $4,000; credit Cash, $4,000 13. Sandra's Styling Salon, a Sole Proprietorship, pays weekly salaries of $8,000 each Friday for a five-day week ending on that day. The accrual required for a fiscal period ending on a Tuesday includes a debit to Salaries Expense and a credit to Salaries Payable for: a. $1,600 b. $2,000 c. $3,000 d. $3,200 14. Sandra's Styling Salon, a Sole Proprietorship, pays weekly salaries of $5,000 each Friday for a five-day week ending on that day. If $4,000 is accrued as Salaries Payable in the current fiscal period, the payment of salaries on the first Friday of the next fiscal period will include a: a. Debit to Salaries Expense for $4,000. b. Debit to Salaries Expense for $5,000. c. Debit to Salaries Payable for $5,000. d. Debit to Salaries Payable for $4,000. 15. Pace's Hardware, a Corporation, pays its employees each Friday for a five-day total workweek. The payroll is $12,000 per week. If the end of the accounting period occurs on a Wednesday, the adjusting entry to record Salaries Payable would include a: a. Debit to Salary Expense of $4,800. b. Debit to Salary Expense of $6,000. c. Credit to Salaries Payable of $2,400. d. Credit to Salaries Payable of $7,200. 16. 17. Rental Services, Inc. earned $2,000 of Rental Revenue in December 2001, but does not expect payment until January 2002. What is the appropriate accrual entry at December 31, 2001? a. Debit Rent Receivable; credit Cash. b. Debit Rent Receivable; credit Rent Revenue. c. Debit Rent Revenue; credit Rent Receivable d. Debit Cash; credit Rent Revenue Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of its calendar year. This process reveals that: 2,000 of Accounts Receivable outstanding at the beginning of December has been collected and recorded. The December utility bill has not yet been paid. A phone call to the provider reveals that the invoice will total $1,200 and will be mailed on January 4, 2002. Billing of $25,000 has been issued for the month. Services of $5,000 to Construction Experts were completed on December 30, 2001, but billing will not be rendered until January 3, 2002. 107 If Rental Services takes no action on any of the above items: a. Expenses for 2001 will be overstated by $1,200. b. Expenses for 2001 will be understated by $5,000. c. Expenses for 2002 will be overstated by $1,200. d. Expenses for 2002 will be understated by $5,000. 18. Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of its calendar year. This process reveals that: $2,000 of Accounts Receivable outstanding at the beginning of December has been collected and recorded. The December utility bill has not yet been paid. A phone call to the provider reveals that the invoice will total $1,200 and will be mailed on January 4, 2002. Billing of $25,000 has been issued for the month. Services of $5,000 to Construction Experts were completed on December 30, 2001, but billing will not be rendered until January 3, 2002. If Rental Services takes no action on any of the above items: a. Revenues for 2001 will be overstated by $1,200. b. Revenues for 2001 will be understated by $5,000. c. Revenues for 2002 will be overstated by $1,200. d. Revenues for 2002 will be understated by $5,000. 19. Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of its calendar year. This process reveals that: $2,000 of Accounts Receivable outstanding at the beginning of December has been collected and recorded. The December utility bill has not yet been paid. A phone call to the provider reveals that the invoice will total $1,200 and will be mailed on January 4, 2002. Billing of $25,000 has been issued for the month. Services of $5,000 to Construction Experts were completed on December 30, 2001, but billing will not be rendered until January 3, 2002. If Rental Services takes no action on any of the above items: a. Assets for 2001 will be overstated by $1,200. b. Assets for 2001 will be understated by $5,000. c. Liabilities for 2001 will be overstated by $1,200. d. Liabilities for 2001 will be understated by $5,000. 20. Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of its calendar year. This process reveals that: $2,000 of Accounts Receivable outstanding at the beginning of December has been collected and recorded. The December utility bill has not yet been paid. A phone call to the provider reveals that the invoice will total $1,200 and will be mailed on January 4, 2002. Billing of $25,000 has been issued for the month. Services of $5,000 to Construction Experts were completed on December 30, 2001, but billing will not be rendered until January 3, 2002. 108 Rental Services makes all appropriate accrual entries resulting from the above information. Revenues and expenses for the month of December, 2001 total: a. Revenues: $25,000; Expenses: $ -0b. Revenues: $30,000; Expenses: $ 1,200 c. Revenues: $25,000; Expenses: $ 1,200 d. Revenues: $30,000; Expenses: $ -021. Tony's Landscaping Service borrowed $5,000 from a bank by signing a 12%, one-year note on October 1, 2000. What is the amount of interest expense recognized on December 31, 2000? a. $600 b. $150 c. $200 d. $0 22. Tony's Landscaping Service borrowed $5,000 from a bank by signing a 12%, one-year note on October 1, 2000. Interest is accrued on December 31, 2000, by: a. Crediting Interest Expense; debiting Cash b. Debiting Interest Expense; crediting Interest Payable c. Debiting Interest Expense; crediting Notes Payable d. Debiting Interest Expense; crediting Cash 23. Tony's Landscaping Service borrowed $5,000 from a bank by signing a 12%, one-year note on October 1, 2000. The total amount (including interest) of cash paid on October 1, 2001, to the bank is: a. $5,600 b. $5,000 c. $6,200 d. $5,450 24. Tony's Landscaping Service borrowed $5,000 from a bank by signing a 12%, one-year note on October 1, 2000. The note and the interest are paid on October 1, 2001. However, interest for 2000 was accrued on December 31, 2000. When the note is repaid on October 1, 2001, Interest Expense is debited by: a. $0 b. $600 c. $450 d. $150 25. A company pays its employees every Friday. The amount paid every week is $120 per day. September 30, 2000, is a Tuesday. The amount of salary accrued on September 30, 2000, is: a. $0 b. $240 c. $360 d. $600 109 26. A company pays its employees every Friday. The amount paid every week is $600. September 30, 2000, is a Tuesday. The amount of salary paid on October 3, 2000 is: a. $0 b. $240 c. $360 d. $600 27. A company pays its employees every Friday. The amount paid every week is $600. September 30, 2000, is a Tuesday. Assume that salaries for September were accrued on September 30. The amount of salaries expense recognized on October 3, 2000 is: a. $0 b. $240 c. $360 d. $600 28. A company pays its employees every Friday. The amount paid every week is $600. September 30, 2000, is a Tuesday. Which of the following statements is true about the entry prepared on September 30, 2000? a. Salaries payable must be debited by $240 b. Salaries Payable must be credited by $240 c. Salaries Payable must be debited by $360 d. Salaries Payable must be credited by $360 29. A company pays its employees every Friday. The amount paid every week is $600. September 30, 2000, is a Tuesday. Assume that salaries for September were accrued on September 30. Which of the following statements is true about the entry prepared on October 3, 2000? a. Salaries payable must be debited by $240 b. Salaries Payable must be credited by $240 c. Salaries Payable must be debited by $360 d. Salaries Payable must be credited by $360 30. Accrued expenses occur when: a. Cash is paid before an expense is recognized b. Cash is paid after an expense is recognized c. An expense is recognized at the same time as the cash payment d. A liability is decreased when the expense is recognized 110 MODULE 4 ADJUSTING AND CLOSING ENTRIES - DEFERRALS Demonstration Problem 1 Anderson Architects The transactions for the year 2000 for Anderson Architects have already been recorded. This problem shows how to prepare adjusting entries for Anderson Architects for December 2000. Dec. 31 A computer was purchased on January 1, 1998 for $1,600. The useful life of the computer is 4 years. Dec. 31 On October 1, 2000, Anderson Architects had paid $4,800 as rent for a six month period. This had been recorded as prepaid rent. Dec. 31 The amount of supplies available at the end of December was $200. The amount of supplies at the beginning of the period was $450. $250 of supplies were purchased during the year. Dec. 31 Furniture costing $3,000 was purchased on Jan 1, 1997. The useful life of the furniture is estimated to be 5 years. Dec. 31 Services were provided to a customer for $450. The cash was collected in advance on November 28, 2000. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT Depreciation Expense Accumulated Depreciation Rent Expense Prepaid Rent Supplies Expense Supplies Depreciation Expense Accumulated Depreciation Unearned Revenue Service Revenue DEBIT CREDIT 400 400 2,400 2,400 500 500 600 600 450 450 111 Practice Problem 1 Comfort Furniture Company The transactions for the year 2000 for Comfort Furniture Co. have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for Comfort Furniture for December 2000. Dec. 31 The amount of supplies available at the end of December was $500. The amount of supplies at the beginning of the period was $1,100. Dec. 31 On January 1, 1998, Comfort Furniture purchased a computer for $2,400. The estimated useful life of the computer is 4 years. Record the depreciation for the year 2000. Dec. 31 On November 1, 2000, Comfort Furniture paid $2,400 as rent for a three month period. This had been recorded as prepaid rent. DATE 2000 Dec. 31 Dec. 31 Dec. 31 ACCOUNT Supplies Expense Supplies Depreciation Expense Accumulated Depreciation Rent Expense Prepaid Rent DEBIT CREDIT 600 600 600 600 1,600 1,600 112 Practice Assignment 2 Conway Floor Covering Incorporated The transactions for Conway Floor Covering Inc. for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000. Dec. 31 Services were provided to a customer for $550. The cash was collected in advance on December 10, 2000. Dec. 31 On September 1, 2000, Conway Floor Covering Inc. had paid $5,400 as rent for a six month period. This had been recorded as prepaid rent. Dec. 31 The amount of supplies available at the end of December was $400. The amount of supplies at the beginning of the period was $260. $350 of supplies were purchased during the year. Dec. 31 A computer was purchased on January 1, 1998, for $2,400. The useful life of the computer is 4 years. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT Unearned Revenue Service Revenue Rent Expense Prepaid Rent Supplies Expense Supplies Depreciation Expense Accumulated Depreciation DEBIT CREDIT 550 550 3,600 3,600 210 210 600 600 113 Homework Problem 1 Gym on Wheels Gym on Wheels provides gymnastics lessons at various daycare centers. The transactions for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000. Dec. 31 A number of children registered on December 1 and paid the month's fees in advance. These fees totaled $500 and unearned revenue was credited when the fees were paid. Dec. 31 The amount of supplies available at the end of December was $500. The amount of supplies at the beginning of the period was $1,500. Dec. 31 On January 1, 1998, Gym on Wheels had purchased a computer for $2,000. The estimated useful life of the computer is 4 years. Record the depreciation for 2000. Dec. 31 On December 1, 2000, Gym on Wheels had paid $2,400 as rent for a three month period. This had been recorded as prepaid rent. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT Unearned Revenue Service Revenue Supplies Expense Supplies Depreciation Expense Accumulated Depreciation Rent Expense Prepaid Rent DEBIT CREDIT 500 500 1,000 1,000 500 500 800 800 114 Homework Problem 2 Borden Realty The transactions for Borden Realty for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000. Dec. 31 A computer was purchased for $1,600 on January 1, 1998. The useful life of the computer is 4 years. Dec. 31 Furniture costing $4,800 was purchased on January 1, 2000. The useful life of the furniture is estimated to be 10 years and the salvage value is $800. Dec. 31 The amount of supplies available at the end of December was $850. The amount of supplies at the beginning of the period was $1,000. $1,850 of supplies were purchased during 2000. Dec. 31 On September 1, 2000, Borden Realty had paid $6,600 as rent for a six month period. This had been recorded as prepaid rent. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT Depreciation Expense Accumulated Depreciation Depreciation Expense Accumulated Depreciation Supplies Expense Supplies Rent Expense Prepaid Rent DEBIT CREDIT 400 400 400 400 2,000 2,000 4,400 4,400 115 Homework Problem 3 Party Town Incorporated The transactions for Party Town Inc. for the year 2000 have been recorded in the accounting system. This assignment requires you to prepare adjusting entries for December 2000. Dec. 31 Depreciation on the building owned by Party Town Inc. is estimated to be $12,500 for the period. Dec. 31 Party Town Inc. purchased furniture for $4,200 on January 1, 1997. The estimated useful life of the furniture is seven years. Record the depreciation for 2000. Dec. 31 Excess space in the building was rented to another business on October 1, 2000, and six months' rent of $7,200 was collected in advance. Dec. 31 The amount of party supplies available at the end of December was $150. The amount of supplies at the beginning of the period was $200. $550 of supplies were purchased during 2000. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT Depreciation Expense Accumulated Depreciation Depreciation Expense Accumulated Depreciation Unearned Rent Revenue Rent Revenue Supplies Expense Supplies DEBIT CREDIT 12,500 12,500 600 600 3,600 3,600 600 600 116 Homework Problem 4 Star Interior Designs The transactions for Star Interior Designs for the year 2000 have been recorded in the accounting system. This assignment requires you to record the adjusting entries for December 2000. Dec. 31 Depreciation on a truck owned by Star Interior Designs is estimated to be $1,250 for the period. Dec. 31 Furniture costing $3,600 was purchased on January 1, 1997. The estimated useful life of the furniture is six years. Record the depreciation for 2000. Dec. 31 Six months' rent of $7,200 was paid in advance on October 1, 2000. Dec. 31 The amount of supplies available at the end of December was $250. The amount of supplies at the beginning of the period was $200. $550 of supplies were purchased during the year. DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT Depreciation Expense Accumulated Depreciation Depreciation Expense Accumulated Depreciation Rent Expense Prepaid Rent Supplies Expense Supplies DEBIT CREDIT 1,250 1,250 600 600 3,600 3,600 500 500 117 Homework Quiz Deferrals 1. Rental Services, Inc. (RSI) records all advance rental receipts in the liability account, Unearned Rent. What entry does RSI make to record the receipt of these advance receipts? a. Debit: Unearned Rent; Credit: Rent Revenue b. Debit: Cash; Credit: Unearned Rent c. Debit: Unearned Rent; Credit: Rent Expense d. Debit: Rent Expense; Credit: Cash 2. Advance payments for services are called: a. Unrecorded Revenues b. Unrecorded Expenses c. Prepaid Expenses d. Unearned Revenues 3. The adjusting entry required to record depreciation on a building for the fiscal period consists of: a. Debit: Depreciation Expense; Credit: Building b. Debit: Depreciation Expense; Credit: Accumulated Depreciation c. Debit: Accumulated Depreciation; Credit: Depreciation Expense d. Debit: Building; Credit: Depreciation 4. Depreciation Expense and Accumulated Depreciation are classified, respectively, as: a. Depreciation Expense: Expense; Accumulated Depreciation: Contra Asset b. Depreciation Expense: Asset Deferral; Accumulated Depreciation: Contra Asset c. Depreciation Expense: Expense; Accumulated Depreciation: Asset d. Depreciation Expense: Contra Asset; Accumulated Depreciation: Expense 5. Caldwell Rentals receives rent for January 2002 from a tenant in December 2001. This payment will be: a. A 2001 Revenue b. A 2002 Expense c. A 2001 Expense d. A 2001 Liability 6. Rental Services, Inc. (RSI) pays $5,700 for three years' rent on its Office Building on August 1, 2001. The entry to record this transaction involves which of the following account titles and classifications? a. Debit: Prepaid Rent, Asset; Credit: Cash, Asset b. Debit: Cash, Asset; Credit: Unearned Rent, Asset c. Debit: Rent Expense, Expense; Credit: Cash, Asset d. Debit: Unearned Rent, Asset; Credit: Cash, Asset 118 7. Rental Services, Inc. (RSI) pays $7,500 for four years' rent on its Office Building on August 1, 2001. The adjusting entry required at December 31, 2001 is: a. Debit: Prepaid Rent; Credit: Cash b. Debit: Rent Expense; Credit: Unearned Rent c. Debit: Rent Expense; Credit: Prepaid Rent d. Debit: Unearned Rent; Credit: Cash <br> 8. Rental Services, Inc. (RSI) pays $10,800 for three years' rent on its Office Building on August 1, 2001. The dollar amount of the adjusting entry required at December 31, 2001 and 2002 is: a. December 21, 2001: $1,500; December 31, 2002: $3,600 b. December 21, 2001: $1,800; December 31, 2002: $1,800 c. December 21, 2001: $1,800; December 31, 2002: $3,600 d. December 21, 2001: $3,600; December 31, 2002: $3,600 9. Karl Company, a Sole Proprietorship, signed a two-year rental agreement on October 1, 2001, for $9,600. The agreement covers its building for the next two years. Karl debited Prepaid Rent to record the payment. The December 31, 2001 adjusting entry includes a credit to: a. Rent Expense of $1,200 b. Rent Expense of $8,400 c. Prepaid Rent of $1,200 d. Prepaid Rent of $8,400 10. At the beginning of the year, the Unearned Rent account has a balance of $30,000. The Unearned Rent account balance at the end of the year is $6,000. Given this information, Rent Revenue for the current year must be: a. $30,000 b. $24,000 c. $12,000 d. $ 6,000 11. The asset account, Supplies, has a balance of $1,950 at the beginning of the year and was debited during the year for $5,600, representing the total of supplies purchased during the year. If $1,500 of supplies is on hand at the end of the year, Supplies Expense reported on the income statement for the year is: a. $1,500 b. $1,900 c. $5,600 d. $6,050 12. At the beginning of the period, Stenger, Inc. had $3,600 in the asset account, Supplies. During the period, it purchased $1,400 of additional items, debiting the Supplies asset account. At the end of the period, Stenger determined that only $1,200 of supplies were still on hand. What adjusting entry should Stenger, Inc. make at the end of the period? a. Debit: Supplies .......................... 1,200 Credit: Supplies Expense ................ 1,200 b. Debit: Supplies .......................... 3,400 Credit: Supplies Expense ................ 3,400 c. Debit: Supplies Expense .................. 3,800 Credit: Supplies ........................ 3,800 119 d. Debit: Supplies Expense .................. Credit: Supplies ........................ 1,200 1,200 13. The Unearned Revenue account before adjustment at the end of the month has a credit balance of $2,400, representing an advance payment received on the first day of the month. If $1,600 of Revenue is earned during the month, the balance in the Unearned Revenue at the end of the month, after adjustments, is: a. $ 800 credit b. $1,600 credit c. $2,400 credit d. $4,000 credit 14. The Unearned Rent account has a beginning credit balance of $15,000. After adjusting entries at the end of the accounting period, $5,000 of the $15,000 is unearned. The adjusting entry required at the end of the period is: a. Debit: Unearned Rent; Credit: Rent Revenue b. Debit: Cash; Credit: Unearned Rent c. Debit: Unearned Rent; Credit: Rent Expense d. Debit: Rent Expense; Credit: Cash 15. The Unearned Rent account has a beginning credit balance of $15,000. After adjusting entries at the end of the accounting period, $5,000 of the $15,000 is unearned. The amount of the adjusting entry required at the end of the period is: a. $15,000 b. $10,000 c. $ 5,000 d. $ -0- 16. Rental Services, Inc. reviews its records at the end of December 2001 in anticipation of the end of its calendar year. This process reveals that: 2,000 of Accounts Receivable outstanding at the beginning of December has been collected and recorded. The December bills have all been paid. Expenses total $15,500. Billing for December services amounted to $25,000. The adjusted balance in the Unearned Revenue account at the end of the month should be a $10,000 credit. Its balance prior to adjustments was $18,000. Rental Services, Inc.'s Revenues for December, 2001 are:<BR> a. $25,000 b. $33,000 c. $35,000 d. $43,000 120 17. Failing to adjust an Unearned Revenue that has been partially earned and was originally recorded as a credit to Unearned Revenue will usually result in an: a. Overstatement of Revenues and an overstatement of Liabilities b. Overstatement of Revenues and an understatement of Liabilities c. Understatement of Revenues and an understatement of Liabilities d. Understatement of Revenues and an overstatement of Liabilities <br> 18. Copko Computer Services, a Sole Proprietorship, purchased new Computer Equipment for $52,000 on January 1, 2001. Copko assigned it a four-year life and a $6,000 salvage value. Depreciation Expense for 2001 amounts to: a. $11,500 b. $13,000 c. $14,500 d. $15,000 19. Copko Computer Services, a Sole Proprietorship, purchased new Computer Equipment for $52,000 on January 1, 2001. Copko assigned it a four-year life and a $6,000 salvage value. Book Value at the end of 2001 is: a. $46,500 b. $40,500 c. $34,500 d. $34,000 20. Copko Computer Services, a Sole Proprietorship, purchased new Computer Equipment for $52,000 on January 1, 2001. Copko assigned it a four-year life and a $6,000 salvage value. Depreciation Expense for 2003 and Accumulated Depreciation at the end of 2003 are: a. Depreciation Expense: $11,500; Accumulated Depreciation: $11,500 b. Depreciation Expense: $23,000; Accumulated Depreciation: $23,000 c. Depreciation Expense: $11,500; Accumulated Depreciation: $34,500 d. Depreciation Expense: $23,000; Accumulated Depreciation: $34,500 21. A company purchased furniture for $2,800 on January 1, 1998. The useful life of the furniture is estimated to be seven years. The depreciation expense for 2000 is: a. $400 b. $1,200 c. $800 d. $1,600 22. A company purchased furniture for $2,800 on January 1, 1998. The useful life of the furniture is estimated to be seven years. The balance in accumulated depreciation after posting the adjustments for 2000 is: a. $400 b. $1,200 c. $800 d. $1,600 121 23. A company purchased furniture for $2,800 on January 1, 1998. The useful life of the furniture is estimated to be seven years. The book value of the furniture after posting the adjustments for 2000 is: a. $400 b. $1,200 c. $800 d. $1,600 24. A company pays rent of $1,800 for three months in advance on November 1, 2000. Which of the following statements is true for the journal entry prepared on November 1? a. Rent Expense is debited b. Prepaid Rent is debited c. Prepaid Rent is credited d. Cash is debited 25. A company pays rent of $1,800 for three months in advance on November 1, 2000. Which of the following statements is true for the journal entry prepared on December 31? a. Rent Expense is debited b. Prepaid Rent is debited c. Rent Expense is credited d. Cash is credited 26. The balance in the Supplies account of a company on January 1, 2000 was $250. Supplies were purchased for $650 in 2000. The balance in the Supplies account on December 31, 2000, was $350. The Supplies Expense for 2000 was: a. $750 b. $550 c. $350 d. $650 27. The balance in the Supplies account of a company on January 1, 2000 was $250. Supplies were purchased for $650 in 2000. The balance in the Supplies account on December 31, 2000, was $350. The Supplies Expense is recorded by: a. Debiting Supplies Expense; crediting Cash b. Debiting Supplies; crediting Cash c. Debiting Supplies Expense; crediting Supplies d. Debiting Supplies; crediting Supplies Expense 28. A company sold subscriptions for six months on October 1, 2000. $600 was collected in advance from customers. Which of the following statements is true about the entry prepared on October 1? a. Revenue is credited b. Cash is credited c. Unearned Revenue is credited d. Unearned Revenue is debited 122 29. A company collected $600 on October 1, 2000, from customers for magazine subscriptions for six months from that date. An adjusting entry is prepared on December 31, 2000, by: a. Debiting Unearned Revenue; crediting Cash b. Debiting Unearned Revenue; crediting Revenue c. Debiting Revenue; crediting Unearned Revenue d. Debiting Accounts Receivable; crediting Revenue 30. Which of the following statements is true about deferred revenues? a. A liability is increased when cash is collected in advance b. A liability is decreased when cash is collected in advance c. A liability is increased when revenue is recognized d. Revenue is recognized when cash is collected 123 MODULE 4 CLOSING ENTRIES Demonstration Problem 1 Clean-Rite Service The transactions for Clean-Rite Service for March 2000 have been recorded in the accounting system. Clean-Rite Service is organized as a sole-proprietorship. This problem illustrates the preparation of closing entries for March 2000. The trial balance for March 31, 2000, is given below: Clean-Rite Service Trial Balance March 31, 2000 Account name Cash Supplies Equipment Truck Notes Payable Lisa, Capital Lisa, Drawings Service Revenue Supplies Expense Mar. 31 Mar. 31 Mar. 31 Mar. 31 DATE Mar. 31 Mar. 31 Mar. 31 Mar. 31 Debit $1,085 35 400 1,000 Credit $1,750 500 100 450 80 $2,700 $2,700 Close the revenue accounts. Close the expense accounts. Close the Income Summary account. Close the Drawings account. ACCOUNT Service Revenue Income Summary Income Summary Supplies Expense Income Summary Lisa, Capital Lisa, Capital Lisa, Drawings DEBIT 450 CREDIT 450 80 80 370 370 100 100 124 Demonstration Problem 2 The transactions for Music Stop for April 2000 have been recorded in the accounting system. Music Stop is organized as a corporation. This problem illustrates the preparation of closing entries. The trial balance for April 30, 2000, is given below: Music Stop Trial Balance April 30, 2000 Account name Cash Inventory Equipment Accounts Payable Note Payable Capital Stock Retained Earnings Sales Revenue Cost of Goods Sold Salaries Expense Utilities Expense Apr. 30 Apr. 30 Apr. 30 DATE 2000 Apr. 30 Apr. 30 Apr. 30 Debit $36,400 17,000 12,000 Credit $15,000 40,000 10,000 0 4,500 3,000 1,000 100 $69,500 $69,500 Close the revenue accounts. Close the expense accounts. Close the Income Summary account. ACCOUNT Sales Revenue Income Summary Income Summary Cost of Goods Sold Salaries Expense Utilities Expense Income Summary Retained Earnings DEBIT CREDIT 4,500 4,500 4,100 3,000 1,000 100 400 400 125 Practice Problem 1 Glenwood Nursery The transactions for Music Stop for April 2000 have been recorded in the accounting system. Glenwood Nursery is organized as a sole-proprietorship. This problem requires you to prepare closing entries for Glenwood Nursery. The trial balance for April 30, 2000, is given below: Glenwood Nursery Trial Balance April 30, 2000 Account name Cash Inventory Supplies Notes Payable John, Capital John, Drawings Sales Revenue Cost of Goods Sold Supplies Expense Apr. 30 Apr. 30 Apr. 30 Apr. 30 Debit $27,050 6,600 250 Credit $8,000 25,000 1,000 4,700 2,450 350 $37,700 _______ $37,700 Close the revenue accounts. Close the expense accounts. Close the income summary accounts. Close the drawings accounts. DATE 2000 Apr. 30 Apr. 30 Apr. 30 Apr. 30 ACCOUNT Sales Revenue Income Summary Income Summary Cost of Goods Sold Supplies Expense Income Summary John, Capital John, Capital John, Drawings DEBIT CREDIT 4,700 4,700 2,800 2,450 350 1,900 1,900 1,000 1,000 126 Practice Problem 2 Country Fresh Farms Incorporated June 30, 2000 The transactions for June 2000 for Country Fresh Farms Inc. have been recorded in the accounting system. This problem requires you to prepare closing entries for Country Fresh Farms Inc. The trial balance for June 30, 2000, is given below: Country Fresh Farms Incorporated Trial Balance June 30, 2000 Account name Cash Inventory Supplies Accounts Payable Capital Stock Retained Earnings Dividends Sales Revenue Cost of Goods Sold Salaries Expense Jun. 30 Jun. 30 Jun. 30 Jun. 30 DATE 2000 Jun. 30 Jun. 30 Jun. 30 Jun. 30 Debit $23,070 3,850 180 Credit $1,400 20,000 2,100 1,000 15,000 6,400 4,000 $38,500 ______ $38,500 Close the revenue accounts. Close the expense accounts. Close the Income Summary account. Close the Dividends account. ACCOUNT Sales Revenue Income Summary Income Summary Cost of Goods Sold Salaries Expense Income Summary Retained Earnings Retained Earnings Dividends DEBIT CREDIT 15,000 15,000 10,400 6,400 4,000 4,600 4,600 1,000 1,000 127 Homework Problem 1 Cookies and More Cookies and More sells cookies and baked products in a mall. Cookies and More is organized as a soleproprietorship. The transactions for December 2000 for Cookies and More have been recorded in the accounting system. This assignment requires you to close the accounts for this period. The trial balance for December 31, 2000, is given below: Cookies and More Trial Balance December 31, 2000 Account name Cash Inventory Supplies Accounts Payable Note Payable Kelly, Capital Kelly, Drawings Sales Revenue Cost of Goods Sold Supplies Expense Dec. 31 Dec. 31 Dec. 31 Dec. 31 DATE 2000 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Debit $16,230 4,750 270 Credit $1,650 12,000 5,000 2,000 10,000 3,400 2,000 _______ $28,650 _______ $28,650 Close the revenue accounts. Close the expense accounts. Close the Income Summary account. Close the Drawings account. ACCOUNT DEBIT Sales Revenue Income Summary Income Summary Cost of Goods Sold Supplies Expense Income Summary Kelly, Capital Kelly, Capital Kelly, Drawings 10,000 CREDIT 10,000 5,400 3,400 2,000 4,600 4,600 2,000 2,000 128 Homework Problem 2 Sullivan Sporting Goods The transactions for June 2000 for Sullivan Sporting Goods have been recorded in the accounting system. Sullivan Sporting Goods is organized as a sole-proprietorship. This assignment requires you to prepare closing entries for June 2000. The trial balance for June 30, 2000, is given below: Sullivan Sporting Goods Trial Balance June 30, 2000 Account name Cash Inventory Supplies Accounts Payable James, Capital James, Drawings Sales Revenue Cost of Goods Sold Utilities Expense Salaries Expense Jun. 30 Jun. 30 Jun. 30 Jun. 30 DATE 2000 Jun. 30 Jun. 30 Jun. 30 Jun. 30 Debit $17,680 12,150 320 Credit $1,400 25,000 800 15,000 8,000 85 2,365 $41,400 _______ $41,400 Close the revenue accounts. Close the expense accounts. Close the Income Summary account. Close the Drawings account. ACCOUNT DEBIT Sales Revenue Income Summary Income Summary Cost of Goods Sold Utilities Expense Salaries Expense Income Summary James, Capital James, Capital James, Drawings 15,000 CREDIT 15,000 10,450 8,000 85 2,365 4,550 4,550 800 800 129 Homework Problem 3 Comfort Furniture The transactions for August 2000 for Comfort Furniture have been recorded in the accounting system. Comfort Furniture is organized as a corporation. This assignment requires you to prepare closing entries for August 2000. The trial balance for August 2000 is given below: Comfort Furniture Trial Balance August 31, 2000 Account name Cash Accounts Receivable Inventory Supplies Accounts Payable Capital Stock Retained Earnings Dividends Sales Revenue Cost of Goods Sold Salaries Expense Supplies Expense Dec.31 Dec.31 Dec.31 Dec.31 DATE 2000 Aug. 31 Aug. 31 Aug. 31 Aug. 31 Debit $30,815 15,000 32,000 560 Credit $10,600 60,000 3,000 1,025 25,000 16,000 2,800 400 $98,600 $98,600 Close the revenue accounts. Close the expense accounts. Close the income summary account. Close the dividends account. ACCOUNT DEBIT Sales Revenue Income Summary Income Summary Cost of Goods Sold Supplies Expense Salaries Expense Income Summary Retained Earnings Retained Earnings Dividends 25,000 CREDIT 25,000 19,200 16,000 400 2,800 5,800 5,800 1,025 1,025 130 Homework Problem 4 APlus Hardware The transactions for December 2000 for Aplus Hardware have been recorded in the accounting system. Aplus Hardware is organized as a corporation. This assignment requires you to prepare closing entries for December 2000. The trial balance for December 2000 is given below: APlus Hardware Trial Balance December 31, 2000 Account name Cash Inventory Supplies Accounts Payable Capital Stock Retained Earnings Dividends Sales Revenue Cost of Goods Sold Salaries Expense Supplies Expense Rent Expense Dec. 31 Dec. 31 Dec. 31 Dec. 31 ACCOUNT Dec. 31 Sales Revenue Income Summary Income Summary Cost of Goods Sold Supplies Expense Salaries Expense Rent Expense Income Summary Retained Earnings Retained Earnings Dividends Dec. 31 Dec. 31 Credit $ 2,800 45,000 0 1,025 12,500 7,000 1,150 225 800 $60,300 _______ $60,300 Close the revenue accounts. Close the expense accounts. Close the income summary account. Close the dividends account. DATE Dec. 31 Debit $35,800 14,100 $ 200 DEBIT CREDIT 12,500 12,500 9,175 7,000 225 1,150 800 3,325 3,325 1,025 1,025 131 Homework Quiz Closing Entries 1. Which of the following statements about Closing Entries is true? a. Closing entries need not be journalized since company management knows they have been taken into consideration. b. Closing entries need not be posted to the ledger accounts if the financial statements have already been prepared. c. Closing entries are not required if adjusting entries have been prepared. d. Closing entries must be journalized and posted. <br> 2. In a Sole Proprietorship, which of the following accounts is closed to Income Summary at the end of the fiscal year? a. Drawing b. Accumulated Depreciation c. Prepaid Expenses d. Supplies Expense 3 In a Sole Proprietorship, which of the following accounts will NOT be closed to Income Summary at the end of the fiscal year? a. Salaries Expense b. Fees Earned c. Drawing d. Depreciation Expense 4. In a Corporation, which of the following accounts is closed at year-end? a. Capital Stock b. Prepaid Rent c. Dividends d. Accounts Payable 5. In a Sole Proprietorship, which of the following accounts will be closed to Owner's Capital at the end of the fiscal year? a. Salaries Expense b. Fees Earned c. Drawing d. Depreciation Expense 6. In a Sole Proprietorship, which of the following accounts will NOT be included in Closing Entries at the end of the fiscal year? a. Drawing b. Accumulated Depreciation c. Fees Earned d. Supplies Expense 132 7. Which of the following correctly depicts a Closing Entry? a. Debit: Income Summary; Credit: Prepaid Insurance b. Debit: Prepaid Insurance; Credit: Income Summary c. Debit: Insurance Expense; Credit: Income Summary d. Debit: Income Summary; Credit: Insurance Expense 8. Which of the following correctly depicts a Closing Entry? a. Debit: Income Summary; Credit: Unearned Revenue <br> b. Debit: Unearned Revenue; Credit: Income Summary <br> c. Debit: Fees Earned; Credit: Income Summary <br> d. Debit: Income Summary; Credit: Fees Earned <br> 9. The Dividends account is: a. Closed to Owner's Capital by being credited. b. Closed to Retained Earnings by being credited. c. Closed to Owner's Capital by being debited. d. Closed to Retained Earnings by being debited. 10. A summary of selected 2001 calendar year end ledger accounts for Fritz's Auto Services, a Sole Proprietorship, appears below: Fritz, Capital 12/31 4,000| 1/1 | 12/31 6,000 14,000 Fritz, Drawing 6/30 2,000| 12/31 11/30 2,000| 4,000 Income Summary 12/31 10,000| 12/31 12/31 14,000| 24,000 Net income for the year ended December 31, 2001 is: a. $ 4,000 b. $ 6,000 c. $10,000 d. $14,000 11. A summary of selected 2001 calendar year end ledger accounts for Fritz's Auto Services, a Sole Proprietorship, appears below: Fritz, Capital 12/31 4,000| 1/1 | 12/31 6,000 14,000 133 Fritz, Drawing 6/30 2,000| 12/31 11/30 2,000| 4,000 Income Summary 12/31 10,000| 12/31 12/31 14,000| 24,000 The 12/31 credit entry of $4,000 to Fritz, Drawing represents: a. Part of the entry required to close the Drawing account to Owner's Capital. b. Part of the entry required to close the Drawing account to Income Summary. c. Part of the entry required to close the Drawing account to Expenses. d. A correction of the 6/30 entry in the Drawing account. 12. A summary of selected 2001 calendar year end ledger accounts for Schneider Car Care, a Sole Proprietorship, appears below: Schneider, Capital 12/31 4,000| 1/1 | 12/31 6,000 26,000 Schneider, Drawing 6/30 2,000| 12/31 11/30 2,000| 4,000 Income Summary 12/31 10,000| 12/31 12/31 26,000| 36,000 Revenue for the year ended December 31, 2001 is: a. $10,000 b. $26,000 c. $36,000 d. $46,000 13. A summary of selected 2001 calendar year end ledger accounts for Schneider Car Care, a Sole Proprietorship, appears below: Schneider, Capital 12/31 4,000| 1/1 | 12/31 Schneider, Drawing 6/30 2,000| 12/31 11/30 2,000| 6,000 26,000 4,000 134 Income Summary 12/31 10,000| 12/31 12/31 26,000| 36,000 Expense for the year ended December 31, 2001 is: a. $10,000 b. $26,000 c. $36,000 d. $46,000 14. A summary of selected 2001 calendar year end ledger accounts for Schneider Car Care, a Sole Proprietorship, appears below: Schneider, Capital 12/31 4,000| 1/1 | 12/31 6,000 26,000 Schneider, Drawing 6/30 2,000| 12/31 11/30 2,000| 4,000 Income Summary 12/31 10,000| 12/31 12/31 26,000| 36,000 The ending balance in the Schneider, Capital account is: a. $28,000 credit b. $26,000 credit c. $22,000 credit d. $16,000 credit 15. Aaron's, Inc. shows the following income statement for the year ended December 31, 2001: Revenues: Sales Revenue Rent Revenue $400,000 20,000 Interest Expense Rent Expense Utilities Expense Salaries Expense $ 10,000 10,000 30,000 260,000 $420,000 Expenses: Net Income 135 310,000 $110,000 Based on this information, the entry to close Revenues and Expenses will include a: a. Credit to Retained Earnings for $110,000 b. Debit to Retained Earnings for $110,000 c. Credit to Retained Earnings for $420,000 d. Credit to Retained Earnings for $400,000 16. Aaron's, Inc. shows the following income statement for the year ended December 31, 2001: Revenues: Sales Revenue Rent Revenue $400,000 20,000 Interest Expense Rent Expense Utilities Expense Salaries Expense $ 10,000 10,000 30,000 260,000 $420,000 Expenses: Net Income 310,000 $110,000 Based on this information, the entry to close Revenues will include a: a. Credit to Sales Revenue for $310,000 b. Debit to Rent Revenue for $400,000 c. Credit to Sales Revenue for $420,000 d. Debit to Sales Revenue for $400,000 17. The December 31, 2001, account balances prior to the preparation of Closing Entries for Jolly Rancher Corporation follow: Debit $200 600 Cash Store supplies Service fees revenue Retained earnings Accounts payable Dividends Unearned service fees revenue Wage Expense Store supplies expense Credit $1,000 100 140 400 360 300 100 Based upon this information, after all closing entries have been made, the balance in Jolly Rancher's Retained Earnings account will be: a. $700 credit b. $500 credit c. $300 credit d. $100 credit 136 18. The December 31, 2001, account balances prior to the preparation of Closing Entries for Jolly Rancher Corporation follow: Debit $200 600 Cash Store supplies Service fees revenue Retained earnings Accounts payable Dividends Unearned service fees revenue Wage Expense Store supplies expense Credit $1,000 100 140 400 360 300 100 Based upon this information, after all closing entries have been made, the balance in Jolly Rancher's Dividends account will be: a. $700 debit b. $600 debit c. $400 debit d. $-019. The balance in the Retained Earnings account is $37,000 on December 31, 2000. On December 31, 2001, the balance of Retained Earnings is $34,200. During 2001, dividends of $8,400 were declared and paid. Based on this information, net income for 2001 is: a. $ 5,600 b. $14,000 c. $ 4,200 d. $ 8,400 20. On December 31, 2000, the balance in Pacman Inc.'s Retained Earnings account is $43,000. On December 31, 2001, the balance is $44,000. During 2001, dividends of $10,400 were declared and paid. Based on this information, Net Income for 2001 is: a. $ 3,400 b. $13,800 c. $ 7,000 d. $11,400 21. For a corporation, which of the following accounts are affected by the closing process? a. Capital Stock b. Cash c. Revenue d. Accounts Payable 22. Which of the following types of accounts is not affected by the closing process? a. Revenue b. Expense c. Drawings d. Cash 137 23. For sole-proprietorships, the balance in the Drawings account is transferred to: a. Capital b. Retained Earnings c. Capital Stock d. Drawings 24. For corporations, the balance in the Dividends account is transferred to: a. Capital b. Retained Earnings c. Capital Stock d. Drawings 25. After closing the revenue and expense accounts, the balance in the Income Summary account equals: a. Zero b. Net Income c. Revenues d. Expenses 26. At the end of the closing process, the balance in the Income Summary account equals: a. Zero b. Net Income c. Revenues d. Expenses 27. A business has earned revenues of $3,500 during a period. To close the revenue account we must: a. debit Revenue; credit Income Summary b. debit Income Summary; credit Revenue c. debit Capital ; credit Revenue d. debit Revenue; credit Capital 28. A Corporation has earned revenues of $3,500. Expenses for the month equal $1,800. The beginning balance in Capital Stock was $10,000 and in Retained Earnings was $1,000. No dividends were paid. After closing the balances in the Capital Stock and Retained Earnings accounts are: a. $11,700; $1,000 b. $10,000; $2,700 c. $11,700; $2,700 d. $12,700; $0 29. A sole-proprietorship has earned revenues of $4,500. Expenses for the month equal $2,000. The owner withdrew $500 for personal expenses. The beginning balance in the Capital account was $10,000. After closing the balances in the Capital and Drawings accounts are: a. $12,000; $0 b. $12,500; $500 c. $10,000; $3,000 d. $13,000; $0 138 30. A Corporation earned a net income of $2,000. Assume that the revenue and expense accounts have been closed to Income Summary. To close the Income Summary account: a. Capital account is credited b. Retained Earnings is credited c. Capital Stock is debited d. Income Summary is credited 139