ACCT 115 Chapter 5: Accounting Chapter Five
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Chandler, Inc. is owned by Roscoe Chandler and providesappraisal services to individuals and companies wishing to purchaseand sell fine art. Chandler, Inc. began business on January 1,2016, and is just completing its first year of business. Roscoeasks for your help in completing the accounting cycle for thecompany by assisting with the closing process.
Before the closing entries are made, you begin with an adjustedtrial balance. The closing entries are essentially the link fromthe adjusted trial balance to the post-closing trial balance.
Chandler, Inc.
ADJUSTED TRIAL BALANCE
December 31, 2016
ACCOUNTTITLE | DEBIT | CREDIT | |
---|---|---|---|
1 | Cash | 76,000.00 | |
2 | Accounts Receivable | 29,000.00 | |
3 | Prepaid Insurance | 16,000.00 | |
4 | Equipment | 60,000.00 | |
5 | Accumulated Depreciation-Equipment | 40,000.00 | |
6 | Accounts Payable | 6,000.00 | |
7 | Salaries Payable | 8,000.00 | |
8 | Income Taxes Payable | 4,000.00 | |
9 | Common Stock | 2,000.00 | |
10 | Retained Earnings | 18,000.00 | |
11 | Dividends | 5,000.00 | |
12 | Income Summary | ||
13 | Fees Earned | 175,600.00 | |
14 | Rent Revenue | 92,000.00 | |
15 | Interest Revenue | 17,200.00 | |
16 | Salaries Expense | 71,000.00 | |
17 | Selling Expense | 25,600.00 | |
18 | Income Taxes Expense | 15,000.00 | |
19 | Depreciation Expense-Equipment | 47,200.00 | |
20 | Insurance Expense | 17,000.00 | |
21 | Miscellaneous Expense | 1,000.00 | |
22 | Totals | 362,800.00 | 362,800.00 |
The final step of the accounting cycle is the closing process.The main goal of this stage of the cycle is to ensure that thebalance of each temporary account is returned to zero and that netincome is transferred to the retained earnings account. The firststep in successfully undertaking the closing process is tounderstand the difference between a temporary account and apermanent account. Roscoe has some questions about the process.
Answer questions (1) - (3) below.
1. If a temporary account has an ending balance of $57,000, whatis its beginning balance for the following accounting period?
2. If a permanent account has an ending balance of $57,000, whatis its beginning balance for the following accounting period?
3. Roscoe will be preparing his yearly financial statementsafter completing Chandler, Inc.âs closing process, and is asomewhat confused about the characteristics of the accounts on hisChart of Accounts. He has started by creating the chart below, andasks for your help in completing it. For each account or type ofaccount listed, choose all descriptions that apply.
Temporary Account | Permanent Account | Closed to Income SummaryAccount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Yes | No | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asset accounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Retained Earnings account | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liability accounts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dividends account | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Roscoe has attempted to prepare the closing entries forChandler, Inc. on this panel. Heâs not sure if heâs entered thejournal entries correctly, and asks you to review them. You findthat two of the entries are correct, but two are incorrect. Determine which entries are incorrect, and enter all four of theclosing entries for Chandler, Inc. as of Dec. 31 on the Journalpanel. PAGE 25 JOURNAL
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1) Which of the following items would be reported net of taxesafter income from continuing operations?
Select one:
a. Gain or loss on the sale of property.
b. Loss due to a factory strike.
c. Interest expense.
d. Gain or loss on the sale of a major segment of theentity.
2)
Given the following list of accounts, calculate TotalAssets:
Accounts Receivable | $ 5,000 |
Capital Stock | 20,000 |
Cash | 14,300 |
Equipment | 15,400 |
Fees Earned | 44,400 |
Miscellaneous Expense | 18,200 |
Rent Expense | 4,150 |
Retained Earnings | 6,550 |
Wages Expense | 13,900 |
Select one:
a. $54,700
b. $26,550
c. $79,100
d. $34,700
3)
Which of the following is NOT associated with accrual basisaccounting?
Select one:
a. Income statement.
b. Matching principle.
c. Statement of cash flows.
d. Revenue recognition principle.
4)
Which of the following is an example of an intangible asset?
Select one:
a. Trademark
b. Timber
c. Equipment
d. Marketable securities
5)
Which of the following would be shown under the financingactivities section on the statement of cash flows?
Select one:
a. Cash received from customers.
b. The payment of cash to retire a long-term note.
c. Depreciation expense.
d. The proceeds from the sale of a building.
6)
A machine was purchased for $32,000 on April 1st. It has auseful life of 5 years and a residual value of $4,000. What is thedepreciation expense for the first fiscal year ending on December31st under the straight-line method?
Select one:
a. $1,400
b. $6,400
c. $4,200
d. $5,600
7)
The entry to record the signing of a contract to receiveinventory and make payment at a future date includes
Select one:
a. No debits or creditsâjust a memorandum.
b. A debit to cost of goods sold.
c. A credit to cash.
d. A debit to inventory.
8)
An inventory cost flow assumption is NOT needed for a productline
Select one:
a. If all of the inventory available for sale was purchased atthe same unit cost.
b. If all of the inventory looks the same.
c. If there is still some inventory on hand at the end of theyear.
d. If there is no beginning inventory carried over from theprevious accounting period.
9)
Fees received this period from customers for services to beperformed in the next accounting period, would be a(n)
Select one:
a. Expense disclosed on the statement of cash flows.
b. Revenue disclosed on the income statement.
c. Liability disclosed on the balance sheet.
d. Item not included on the financial statements until the nextaccounting period.
10)
Which of the following is TRUE of a corporation?
Select one:
a. They are incorporated with a national agency.
b. At least one owner has unlimited liability.
c. They are a separate taxable entity.
d. More than 70% of businesses are organized this way.
11)
The effects on the accounts of recording the cost of merchandisesold for cash using a perpetual inventory system include an
Select one:
a. Increase in Accounts Payable.
b. Increase in Merchandise Inventory.
c. Increase in Sales.
d. Increase in Cost of Goods Sold;
12)
Which of the following is NOT a limitation of externallyreported accounting information?
Select one:
a. The income statement contains atypical data due to the timingof the fiscal year end.
b. Accounting information relies on estimates.
c. Management has some discretion regarding the reportingclassification and choice of accounting measurement methods.
d. There is a hodge-podge of valuation techniques used on thefinancial statements.
13)
Given the following information regarding merchandise inventoryat the end of the fiscal year:
Ending inventory at cost $34,000
Ending inventory at market $33,400
Which of the following is correct?
Select one:
a. No journal entry should be made based upon the informationgiven.
b. Inventory should be reported on the balance sheet at$34,000.
c. Inventory should be reported on the balance sheet at$33,400.
d. A journal entry should be made to recognize a gain of$600.
14)
Which of the following describes the closing process when acompany has net earnings for the period?
Select one:
a. The Dividends account is debited for its balance.
b. The individual asset accounts are credited for theirbalances.
c. The individual expense accounts are debited for theirbalances.
d. The Income Summary account is debited for its balance.