Testbank

to accompany

Accounting
8th Edition

by
John Hoggett, Lew Edwards,
John Medlin, Matthew Tilling
& Evelyn Hogg

Prepared by

Barbara Burns
Testbank to accompany Accounting 8e

John Wiley & Sons Australia, Ltd 2012

Chapter 5: Completing the accounting cycle

Multiple Choice

1. In which order do these steps in the accounting cycle occur?

1. Prepare closing entries
2. Post to the ledger
3. Enter business transactions in the journal
4. Prepare adjusting entries
5. Prepare financial statements
a. 1, 2, 3, 4, 5
b. 5, 4, 3, 1, 2
c. 4, 2, 1, 5, 3
d. 3, 2, 4, 5, 1

ANSWER D
Section 5.1

2. In which order do these steps in the accounting cycle occur?

1. Prepare financial statements
2. Prepare reversing entries
3. Prepare adjusting entries
4. Prepare closing entries
5. Prepare an adjusted trial balance
a. 3, 5, 1, 4, 2
b. 5, 3, 4, 1, 2
c. 3, 5, 4, 2, 1
d. 5, 3, 1, 2, 4

ANSWER A
Section 5.1

3. Closing the accounts refers to:

a. Establishing zero balances in the balance sheet accounts
b. Establishing a zero balance in the cash at bank account
c. Establishing zero balances in all ledger accounts
d. Transferring income and expense account balances to the profit and loss
summary account, which is then closed to the equity account

ANSWER D
Section 5.2

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 Chapter 5: Completing the accounting cycle

4. Income and expense accounts can be referred to as:

a. Permanent accounts
b. Real accounts
c. Temporary accounts
d. Deferred accounts

ANSWER C
Section 5.2

5. Which of these is not a permanent account?

a. Prepaid insurance
b. Rent expense
c. Loan
d. Owners capital account

ANSWER B
Section 5.2

6. In the closing process which accounts are closed?

a. All ledger accounts
b. All asset, liability and equity accounts
c. All income and expense accounts
d. All accounts that have been adjusted

ANSWER C
Section 5.2

7. Accounting entries made to reduce the temporary accounts to zero balances are
known as:
a. Correcting entries
b. Adjusting entries
c. Closing entries
d. Reversing entries

ANSWER C
Section 5.2

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Testbank to accompany Accounting 8e

8. This is Kululus year-end trial balance:

$
Cash 50
Sales Revenue 80
Accounts Payable 30
Equity 70
Interest Expense 60
Interest Receivable 50
Interest Revenue 40
How many of the above are temporary accounts?
a. One
b. Two
c. Three
d. Four

ANSWER C
Sales Revenue, Interest Expense and Interest Revenue
Section 5.2

9. Before calculating the profit for the period, the totals of the income statement
debit and credit columns on the worksheet are $60 000 and $80 000 respectively.
What is the amount of the profit or loss?
a. $20 000 profit
b. $20 000 loss
c. $80 000 profit
d. $60 000 loss

ANSWER A
Section 5.3

10. Interim statements are:

a. Summary statements
b. Prepared by junior staff when the accountant is busy
c. Prepared between the annual reports, usually half-yearly, quarterly or monthly
d. Used by creditors to deal with an emergency

ANSWER C
Section 5.3

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 Chapter 5: Completing the accounting cycle

11. Which of these is not recorded on a worksheet?

a. Closing entries
b. Drawings
c. Adjusting entries
d. Profit for the period

ANSWER A
Section 5.3

12. Which of these accounts is closed to the profit and loss summary account?
a. GST outlays
b. Depreciation expense
c. Owners drawings
d. Prepaid insurance

ANSWER B
Section 5.3

13. On a worksheet if the opening balance of the salaries expenses account was $7000,
a reversing entry for $800 was completed for salaries accrued in the previous year
and $600 of salaries were prepaid in the current year the balance of salaries expense
transferred to the Income statement column would be:
a. $6,800
b. $7,200
c. $8,400
d. $5,600

ANSWER D
Section 5.3

14. Closing entries are made:

a. In the ledger only
b. In the journal and the ledger
c. In the journal only
d. On the worksheet

ANSWER B
Section 5.4

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Testbank to accompany Accounting 8e

15. What is the closing entry for drawings of $25 000?

a. No closing entry is required
b. Debit profit and loss summary account $25 000; credit drawings $25 000
c. Debit bank $25 000; credit drawings $25 000
d. Debit owners capital account $25 000; credit drawings $25 000

ANSWER D
Section 5.4

16. If cleaning expenses for the year are $8 200, made up of cash payments of $7 900
and accrued cleaning of $300 what is the amount of cleaning that is closed to the
profit and loss summary account?
a. Nil
b. $300
c. $7 900
d. $8 200

ANSWER D
Section 5.4

17. The correct closing entry for a profit of $105 300 is:
a. No closing entry is required
b. Debit profit and loss summary account $105 300; credit owners capital account
$105 300
c. Debit owners capital account $105 300; credit profit and loss summary account
$105 300
d. Debit owners capital account $105 300; credit bank $105 300

ANSWER B
Section 5.4

18. Closing which of these accounts results in a credit to the Profit and Loss Summary
account?
a. Sales
b. Depreciation
c. Rent Expense
d. Drawings

ANSWER A
Section 5.4

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 Chapter 5: Completing the accounting cycle

19. Which statement relating to closing entries is incorrect?

a. The closing process is simple with a computerised accounting system
b. Closing entries are only made once a year
c. Closing entries are made each time a trial balance is prepared
d. The need for closing entries arises from the accounting period assumption

ANSWER C
Section 5.4

20. The balance of the Salaries Expense account is $1200. Which is the correct closing
general journal entry?
Debit Credit
$ $
a. Cash 1200
Salaries Expense 1200
b. Salaries Expense 1200
Profit and Loss Summary 1200
c. Salaries Expense 1200
Cash 1200
d. Profit and Loss Summary 1200
Salaries Expense 1200

ANSWER D
Section 5.4

21. The balance in the Profit and Loss Summary account before it is closed represents:
a. Total income
b. Total expense
c. Profit (or loss)
d. Profit (or loss) less cash drawings

ANSWER C
Section 5.4

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Testbank to accompany Accounting 8e

22. J. Brown (sole trader) had a profit of $110 000 for the year. The closing general
journal entry for the profit is:
Debit Credit
$ $
a. Cash 110 000
Capital 110 000
b. Profit and Loss Summary 110 000
Capital 110 000
c. Capital 110 000
Cash 110 000
d. Capital 110 000
Profit and Loss Summary 110 000

ANSWER B
Section 5.4

23. End of year records from Abbi's Boutique show:

$
Cash 20
GST Outlays 35
Salaries Payable 10
Rent Expense 100
Interest Expense 50
Prepaid Rent 30
Salary Expense 20
Rent Collected in Advance 20
During the closing process the total debit to the Profit and Loss Summary
account would be:
a. $90
b. $170
c. $80
d. $110

ANSWER B
Rent Expense $100, Interest Expense $50, Salaries Expense $20.
Section 5.4

24. The major purpose of a post-closing trial balance is to:

a. Prepare the accounting reports
b. Confirm that the ledger is in balance at the start of the new accounting period
c. Determine if any closing entries have been missed
d. Determine if any adjusting entries have been missed

ANSWER B
Section 5.5

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 Chapter 5: Completing the accounting cycle

25. The statement relating to the Profit and Loss Summary Account that is incorrect is:
a. The balance in each income and expense account is transferred to the Profit and
Loss Summary Account
b. The balance in the Profit and Loss Summary Account is transferred to the
owner's Capital account
c. The Profit and Loss Summary Account is established to summarise the balances
in the income and expense accounts
d. The Profit and loss Summary Account is a permanent account

ANSWER D
Section 5.4

26. The major purpose of a post-closing trial balance is to:

a. Verify the worksheet calculations
b. Determine if any adjusting entries have been omitted
c. Test for equality of debits and credits in the general ledger to ensure the
opening position is correct for the next period
d. Make sure that all post-closing account balances are equal to the pre-closing
account balances

ANSWER C
Section 5.5

27. The post closing trial balance contains only:

a. income statement accounts
b. asset and liability accounts
c. balance sheet accounts
d. income and expense accounts.

ANSWER C
Section 5.5

28. Assume that no reversing entries are made by this firm. If wages of $11,200 were
accrued by it at the end of the year and the first payment of wages in the subsequent
year was $101,600 how would this payment be recorded?
a. Debit salaries payable $11,200; debit salaries expense $90,400; credit cash
$101,600
b. Credit salaries payable $11,200; debit salaries expense $112800; credit cash
$101,600
c. Debit salaries payable $11,200; debit salaries expense $101,600; credit cash
$112,800
d. Debit salaries expense $90,400; credit cash $90,400

ANSWER A
Section 5.6

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Testbank to accompany Accounting 8e

29. The statement relating to reversing entries that is correct is:

a. Reversing entries are always necessary
b. There are alternative ways of dealing with the effect of accruals in subsequent
periods without using reversing entries.
c. Reversing entries are never appropriate for deferral type entries
d. Depreciation is an adjustment that requires reversing in the subsequent period

ANSWER B
Section 5.7

30. The statement relating to reversing entries that is correct is:

a. They reverse the effect of credit transactions
b. They reverse the effect of certain adjusting entries
c. They reverse the effect of errors
d. They reverse the effects of closing entries

ANSWER B
Section 5.7

31. In a company balance sheet equity is separated into two main categories:
a. Share capital and retained profits
b. Retained profits and reserves
c. Share capital and dividends
d. Retained profits and investments

ANSWER A
Section 5.8

32. The retained profits balance of Go Company was $50 000 on the first day of the
year. Profit during the year was $20 000. Near year-end a $10 000 dividend was
declared that is to be paid in the following year. Year-end retained profits are:
a. $70 000
b. $60 000
c. $50 000
d. $40 000

ANSWER B
Section 5.8

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 Chapter 5: Completing the accounting cycle

33. Dividends require two accounting entries, one when the dividend is declared and
another when it is paid. What is the correct entry to record the declaration of a
cash dividend of 20c a share calculated on 100 000 shares?
a. Debit bank $20 000; credit dividend payable $20 000
b. Debit retained profits $20 000; credit dividend payable $20 000
c. Debit bank $20 000; credit share capital $20 000
d. Debit dividend payable $20 000; credit retained profits $20 000

ANSWER B
Section 5.8

34. On 1 January Y Company Pty Ltd issued 100 000 shares for $2 each. The correct
entry to record this transaction is:
a. Debit bank $200 000; credit shareholders equity $200 000
b. Debit bank $200 000; credit share capital $200 000
c. Debit bank $100 000; credit share capital $100 000
d. Debit share capital $100 000; credit bank $100 000

ANSWER B
Section 5.8

35. When closing the accounts of a partnership it is true that:

a. Partners salaries must be treated as drawings because partners are owners
b. A retained profits account is used rather than a profit and loss summary account
c. Profit is credited to each partners capital account according to the profit
sharing agreement
d. A loss for the period is carried forward and is not transferred to the partners
capital accounts

ANSWER C
Section 5.8

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Testbank to accompany Accounting 8e

Fill-in the blanks

1. Balance sheet accounts are known as permanent accounts and income statement
accounts are known as t________________ accounts.

ANSWER temporary
Section 5.2

2. In the closing process the balances of the income and expense accounts are
closed off to the _______ and _____ summary account.

ANSWER profit, loss

Section 5.2

3. The accounting entries made to close the temporary accounts are called
___________________ entries.

ANSWER closing
Section 5.2

4. Monthly financial statements prepared during the year are called

i________________ statements.

ANSWER interim
Section 5.3

5. If expenses exceed income, before it is closed, the Profit and Loss Summary
account will have a debit/credit balance.

ANSWER debit
Section 5.3

6. After the closing entries have been posted, the t_______________ accounts will
have zero balances.

ANSWER temporary
Section 5.3

7. The post-closing trial balance should contain only b____________ s________

accounts.

ANSWER balance sheet

Section 5.5

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 Chapter 5: Completing the accounting cycle

8. R__________________ entries are made on the first day of the next financial
year to undo the effects of certain adjusting entries.

ANSWER Reversing
Section 5.7

9. The financial statements of sole proprietorships, partnerships and companies are

essentially the same except for transactions that directly affect e____________
accounts.

ANSWER equity
Section 5.8

10. A d_________________ is a distribution of cash by a company to its

shareholders.

ANSWER dividend
Section 5.8

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Testbank to accompany Accounting 8e

Exam Type Questions

QUESTION 5.1

SWALLOWTAIL TRAINING
Cash at Bank
2011 $ $
Dec 31 Balance 119,320

Accounts Receivable
2011 $ $
Dec 31 Balance 3,050

Gym Equipment
2011 $ $
Dec 31 Balance 73,050

Accumulated Depreciation Gym Equipment

$ 2011 $
Dec 31 Balance 14,610

GST Collections
$ 2011 $
Dec 31 Balance 2,400

GST Outlays
2011 $ $
Dec 31 Balance 1,500

Accounts Payable
$ 2011 $
Dec 31 Balance 4,000

Accrued Wages & Salaries

$ 2011 $
Dec 31 Balance 2,000

Fees Earned
$ 2011 $
Dec 31 Balance 417,580

Wages and Salaries

2011 $ $
Dec 31 Balance 117,800

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 Chapter 5: Completing the accounting cycle

Depreciation of Gym Equipment

2011 $ $
Dec 31 Balance 7305

Other Expenses
2011 $ $
Dec 31 Balance 199,600

Drawings by Owner
2011 $ $
Dec 31 Balance 15,000

S Swallowtail Capital account

$ 2011 $
Dec 31 Balance 96,035

Profit and loss Summary account

2011 $ 2011 $
Dec 31 Dec 31

Required:

a) Prepare the closing entries in the ledger of Swallowtail Training for the year ended
31 December 2011.
b) Prepare a post closing trial balance at 1 January 2012, after the reversing entry.
c) Prepare a general journal entry on l January 2012 for the adjusting entry that needs
to be reversed.

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Testbank to accompany Accounting 8e

Solution Question 5.1

a) SWALLOWTAIL TRAINING
a) Cash at Bank
2011 $ $
Dec 31 Balance 119,320

Accounts Receivable
2011 $ $
Dec 31 Balance 3,050

Gym Equipment
2011 $ $
Dec 31 Balance 73,050

Accumulated Depreciation Gym Equipment

$ 2011 $
Dec 31 Balance 14,610

GST Collections
$ 2011 $
Dec 31 Balance 2,400

GST Outlays
2011 $ $
Dec 31 Balance 1,500

Accounts Payable
$ 2011 $
Dec 31 Balance 4,000

Accrued Wages & Salaries

$ 2011 $
Dec 31 Balance 2,000

Fees Earned
2011 $ 2011 $
Dec 31 P/L Summary A/c 417,580 Dec 31 Balance 417,580

Wages and Salaries

2011 $ 2011 $

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 Chapter 5: Completing the accounting cycle

Dec 31 Balance 117,800 Dec 31 P/L Summary A/c 117,800

Depreciation of Gym Equipment
2011 $ 2011 $
Dec 31 Balance 7,305 Dec 31 P/L Summary A/c 7,305

Other Expenses
2011 $ 2011 $
Dec 31 Balance 199,600 Dec 31 P/L Summary A/c 199,600

Drawings by Owner
2011 $ 2011 $
Dec 31 Balance 15,000 Dec 31 Capital A/c 15,000

S Swallowtail Capital account

2011 $ 2011 $
Dec 31 Drawings 15,000 Dec 31 Balance 96,035
Balance 173,910 P/L summary A/c 92,875
$188,910 188,910
Jan 1 Balance 173,910

Profit and loss Summary account

2011 $ 2011 $
Dec 31 Wages & Salaries 117,800 Dec 31 Fees Earned 417,580
Depreciation Equip 7,305
Other Expenses 199,600
Bal (profit) 92,875 ______
417,580 417,580
Dec 31 Capital account $92,875 Dec 31 Balance (profit) $92,875

b) Post Closing Trial Balance as at 1 January 2012

Debit Credit
$ $
Cash at Bank 119,320
Accounts Receivable 3,050
Gym Equipment 73,050
Accumulated Depreciation, Gym Equipment 14,610
GST Collections 2,400
GST Outlays 1,500
Accounts Payable 4,000
Accrued Wages & Salaries 2,000
Capital S Swallowtail 173,910
$196,920 $196,920

c) Reversing journal entry.

2012

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Testbank to accompany Accounting 8e

Jan 1 Dr Accrued Wages & Salaries $2,000

Cr Wages & Salaries expense $2,000

John Wiley and Sons Australia, Ltd 2012 1.18