ACCT 115 Chapter 5: Accounting Chapter Five

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8 Mar 2016

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Closing the temporary accounts: close revenue accounts to income summary, close expense accounts to income summary, close income summary account to retained earnings, close dividend. Publicly owned companies have to publish annual reports: includes comparative financial statements and information. Statement of retained earnings: retained earnings the portion of owners" equity created by earning net income and retaining the related resources in the business. = re at the end of the period. Not reported in the income statement as an expense. Represent a decision to distribute a portion of the corporation"s income to stockholders. Adequate disclosure financial statements should be accompanied by any information necessary for the statements to be interpreted properly. Notes always include the accounting method in use & the due dates of major liabilities. Closing entries for revenue accounts: revenue accounts have credit balances, transferring credit balance to the income summary, temporary (nominal) accounts accumulate the transactions of only one accounting period.

Related Questions

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

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

	DATE	DESCRIPTION	DEBIT	CREDIT
1		Closing Entries
2	Dec. 31	Income Summary	284,800.00
3		Fees Earned		175,600.00
4		Rent Revenue		92,000.00
5		Interest Revenue		17,200.00
6	31	Income Summary	176,800.00
7		Salaries Expense		71,000.00
8		Selling Expense		25,600.00
9		Income Taxes Expense		15,000.00
10		Depreciation Expense-Equipment		47,200.00
11		Insurance Expense		17,000.00
12		Miscellaneous Expense		1,000.00
13	31	Retained Earnings	461,600.00
14		Income Summary		461,600.00
15	31	Retained Earnings	5,000.00
16		Dividends		5,000.00

purpleporcupine232

1. Which statement is normally prepared first? (Points : 3) Income statement Balance sheet Statement of cash flows Retained earnings statement2. When a business borrows money, it incurs a(n) (Points : 3) tax. liability. cash payment. all of these.3. More than 70% of businesses are organized as what type of business? (Points : 3) Not-for-profit Corporation Partnership Sole proprietorship4. Brennan, Inc. had revenues of $234,000, expenses of $175,000, and dividends of $40,000 during 2009. Which of the following statements is correct? (Points : 3) Net income for 2009 totaled $19,000. Net income for 2009 totaled $59,000. Total retained earnings increased by $59,000 during 2009. Total retained earnings decreased by $40,000 during 2009.5. The statement of cash flows is integrated with the balance sheet because (Points : 3) the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet. the cash at the beginning of the period plus or minus the net income equals the end of period cash reported on the balance sheet. the cash at the beginning of the period plus or minus assets and liabilities equals the end of period cash reported on the balance sheet. the cash at the beginning of the period plus or minus the cash flows from operating activities equals the end of period cash reported on the balance sheet.6. The basic financial statements do NOT include the (Points : 3) income statement. tax return balance sheet. statement of cash flows.7. A __________ is an economic event that under generally accepted accounting principles affects an element of the financial statements and must be recorded. (Points : 3) framework control set of rules transaction8. The payment of a liability (Points : 3) decreases assets and stockholders' equity. increases assets and decreases liabilities. decreases assets and increases liabilities. decreases assets and decreases liabilities. 9. Co. received $1,000 from Newbie as rent for the use of a building owned by UNI. How does this transaction affect UNI's accounts if UNI recognizes a liability? (Points : 3) Cash is increased and revenue is increased. Cash is increased and revenue is decreased. Cash is increased and unearned revenue is increased. It is not recorded.10. Depreciation Expense and Accumulated Depreciation are classified, respectively, as (Points : 3) expense and contra asset. asset and contra liability. revenue and asset. contra asset and expense.11. Deferred expenses (prepaid expenses) are items initially recorded as assets but are expected to become __________ over time. (Points : 3) Liabilities Assets stockholders%u2019 equity Expenses12. A&M Co. provided services of $1,000,000 to clients on account. How does this transaction affect A&M%u2019s accounts? (Points : 3) Increase accounts receivable and cash by $1,000,000 each Increase accounts receivable and revenues by $1,000,000 each Increase accounts receivable and unearned revenues by $1,000,000 each No effect at this time13. Multiple-step income statements show: (Points : 3) gross profit but not income from operations. neither gross profit nor income from operations. both gross profit and income from operations. income from operations but not gross profit.14. Since merchandise inventory is normally sold within a year, how is it reported on the balance sheet? (Points : 3) As a revenue As the cost of merchandise sold It does not appear on the Balance Sheet As a current asset15. The credit terms of a sale are normally indicated on a(n) (Points : 3) purchase order. invoice. bill of lading. account receivable.16. Inventory shortage is recorded when (Points : 3) merchandise is returned by a buyer. merchandise purchased from a seller is incomplete or short. merchandise is returned to a seller. there is a difference between a physical count of inventory and inventory records. 17. The bank reconciliation (Points : 3) should be prepared by an employee who records cash transactions. is part of the internal control system. is for information purposes only. is sent to the bank for verification.18. A special cash fund used to make small payments that occur frequently is called a(n) (Points : 3) operating expenses fund. change fund. market fund. petty cash fund.19. The objectives of internal control are to (Points : 3) control the internal organization of the accounting department personnel and equipment. provide reasonable assurance that assets are safeguarded, information is processed accurately, and laws and regulations are complied with. prevent fraud and promote the social interest of the company. provide control over %u201Cinternal-use only%u201D reports and employee internal conduct.20. When a firm uses internal auditors, it is adhering to which of the following internal control elements? (Points : 3) Risk assessment Proofs and security measures Monitoring Separating responsibilities for related operations21. What type of account is Allowance for Doubtful Accounts? (Points : 3) Contra asset Asset Revenue Expense22. Merchandise inventory is reported on the balance sheet in the section entitled (Points : 3) current assets. fixed assets. current liabilities. stockholders' equity.23. Receivables are usually a significant portion of (Points : 3) total current liabilities. total liabilities. total current assets. total assets.24. The inventory data for an item for November are: Nov.1 Inventory 25 units at $20 10 Purchased 30 units at $21 30 Purchased 10 units at $22 Sold 35 unitsUsing the first-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30? (Points : 3) $640 $605 $623 $66025. All amounts paid to get an asset in place and ready for use are referred to as (Points : 3) capital expenditures. revenue expenditures. residual value. cost of an asset.26. Fixed assets are ordinarily presented in the balance sheet (Points : 3) at current market values. at replacement costs. at cost less accumulated depreciation. in a separate section along with intangible assets.27. Goodwill is (Points : 3) amortized similar to other intangibles. only written down if an impairment in value occurs. charged to expense immediately. amortized over 40 years or its economic life, whichever is shorter.28. If a capital expenditure is treated as a revenue expenditure, then (Points : 3) expenses are overstated and owners' equity is understated. expenses are overstated and assets are overstated. expenses are understated and owners' equity is overstated. net income is overstated and owners' equity is understated.29. A bond indenture is (Points : 3) a contract between the corporation issuing the bonds and the underwriters selling the bonds. the amount due at the maturity date of the bonds. a contract between the corporation issuing the bonds and the bondholders. the amount for which the corporation can buy back the bonds prior to the maturity date.30. Gross earnings for a payroll period less payroll deductions are referred to as (Points : 3) overtime pay. bonus pay. gross pay. net pay.31. How is treasury stock shown on the balance sheet? (Points : 3) As an asset As a decrease in stockholders' equity As an increase in stockholders' equity Treasury stock is not shown on the balance sheet.32. Current liabilities are (Points : 3) due but not receivable for more than one year. due but not payable for more than one year. due and receivable within one year. due and payable within one year.33. The total earnings of an employee for a payroll period are referred to as (Points : 3) take-home pay. pay net of taxes. net pay. gross pay.34. Where is interest expense listed on the income statement? (Points : 3) Other expense section Cost of merchandise sold Operating expenses Interest expense is on the balance sheet, not the income statement.35. A corporation has 50,000 shares of $100 par value stock outstanding. If the corporation issues a 4-for-1 stock split, the number of shares outstanding after the split will be (Points : 3) 200,000 shares. 50,000 shares. 250,000 shares. 12,500 shares.

sangriaporpoise636

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.

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

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.

Which of the following is an example of an intangible asset?

Select one:

a. Trademark

b. Timber

c. Equipment

d. Marketable securities

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.

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

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.

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.

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.

ACCT 115 Chapter 5: Accounting Chapter Five

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