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5.6: Practice Questions

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    Multiple Choice

    1.

    LO 5.1Which of the following accounts is considered a temporary or nominal account?

    1. Fees Earned Revenue
    2. Prepaid Advertising
    3. Unearned Service Revenue
    4. Prepaid Insurance
    2.

    LO 5.1Which of the following accounts is considered a permanent or real account?

    1. Interest Revenue
    2. Prepaid Insurance
    3. Insurance Expense
    4. Supplies Expense
    3.

    LO 5.1If a journal entry includes a debit or credit to the Cash account, it is most likely which of the following?

    1. a closing entry
    2. an adjusting entry
    3. an ordinary transaction entry
    4. outside of the accounting cycle
    4.

    LO 5.1If a journal entry includes a debit or credit to the Retained Earnings account, it is most likely which of the following?

    1. a closing entry
    2. an adjusting entry
    3. an ordinary transaction entry
    4. outside of the accounting cycle
    5.

    LO 5.1Which of these accounts would be present in the closing entries?

    1. Dividends
    2. Accounts Receivable
    3. Unearned Service Revenue
    4. Sales Tax Payable
    6.

    LO 5.1Which of these accounts would not be present in the closing entries?

    1. Utilities Expense
    2. Fees Earned Revenue
    3. Insurance Expense
    4. Dividends Payable
    7.

    LO 5.1Which of these accounts is never closed?

    1. Dividends
    2. Retained Earnings
    3. Service Fee Revenue
    4. Income Summary
    8.

    LO 5.1Which of these accounts is never closed?

    1. Prepaid Rent
    2. Income Summary
    3. Rent Revenue
    4. Rent Expense
    9.

    LO 5.1Which account would be credited when closing the account for fees earned for the year?

    1. Accounts Receivable
    2. Fees Earned Revenue
    3. Unearned Fee Revenue
    4. Income Summary
    10.

    LO 5.1Which account would be credited when closing the account for rent expense for the year?

    1. Prepaid Rent
    2. Rent Expense
    3. Rent Revenue
    4. Unearned Rent Revenue
    11.

    LO 5.2Which of these accounts is included in the post-closing trial balance?

    1. Sales Revenue
    2. Salaries Expense
    3. Retained Earnings
    4. Dividends
    12.

    LO 5.2Which of these accounts is not included in the post-closing trial balance?

    1. Land
    2. Notes Payable
    3. Retained Earnings
    4. Dividends
    13.

    LO 5.2On which of the following would the year-end Retained Earnings balance be stated correctly?

    1. Unadjusted Trial Balance
    2. Adjusted Trial Balance
    3. Post-Closing Trial Balance
    4. The Worksheet
    14.

    LO 5.2Which of these accounts is included in the post-closing trial balance?

    1. Supplies Expense
    2. Accounts Payable
    3. Sales Revenue
    4. Insurance Expense
    15.

    LO 5.3If current assets are $112,000 and current liabilities are $56,000, what is the current ratio?

    1. 200 percent
    2. 50 percent
    3. 2.0
    4. $50,000
    16.

    LO 5.3If current assets are $100,000 and current liabilities are $42,000, what is the working capital?

    1. 200 percent
    2. 50 percent
    3. 2.0
    4. $58,000

    Questions

    1.

    LO 5.1Explain what is meant by the term real accounts (also known as permanent accounts).

    2.

    LO 5.1Explain what is meant by the term nominal accounts (also known as temporary accounts).

    3.

    LO 5.1What is the purpose of the closing entries?

    4.

    LO 5.1What would happen if the company failed to make closing entries at the end of the year?

    5.

    LO 5.1Which of these account types (Assets, Liabilities, Equity, Revenue, Expense, Dividend) are credited in the closing entries? Why?

    6.

    LO 5.1Which of these account types (Assets, Liabilities, Equity, Revenue, Expense, Dividend) are debited in the closing entries? Why?

    7.

    LO 5.1The account called Income Summary is often used in the closing entries. Explain this account’s purpose and how it is used.

    8.

    LO 5.1What are the four entries required for closing, assuming that the Income Summary account is used?

    9.

    LO 5.1After the first two closing entries are made, Income Summary has a credit balance of $125,500. What does this indicate about the company’s net income or loss?

    10.

    LO 5.1After the first two closing entries are made, Income Summary has a debit balance of $22,750. What does this indicate about the company’s net income or loss?

    11.

    LO 5.2What account types are included in a post-closing trial balance?

    12.

    LO 5.2Which of the basic financial statements can be directly tied to the post-closing trial balance? Why is this so?

    13.

    LO 5.3Describe the calculation required to compute working capital. Explain the significance.

    14.

    LO 5.3Describe the calculation required to compute the current ratio. Explain the significance.

    15.

    LO 5.4Describe the progression of the three trial balances that a company would have during the period, and explain the difference between the three.

    Exercise Set A

    EA1.

    LO 5.1Identify whether each of the following accounts is nominal/temporary or real/permanent.

    1. Accounts Receivable
    2. Fees Earned Revenue
    3. Utility Expense
    4. Prepaid Rent
    EA2.

    LO 5.1For each of the following accounts, identify whether it is nominal/temporary or real/permanent, and whether it is reported on the Balance Sheet or the Income Statement.

    1. Interest Expense
    2. Buildings
    3. Interest Payable
    4. Unearned Rent Revenue
    EA3.

    LO 5.1For each of the following accounts, identify whether it would be closed at year-end (yes or no) and on which financial statement the account would be reported (Balance Sheet, Income Statement, or Retained Earnings Statement).

    1. Accounts Payable
    2. Accounts Receivable
    3. Cash
    4. Dividends
    5. Fees Earned Revenue
    6. Insurance Expense
    7. Prepaid Insurance
    8. Supplies
    EA4.

    LO 5.1The following accounts and normal balances existed at year-end. Make the four journal entries required to close the books:

    Advertising Expense $5,600, Dividends 4,000, Rent Expense 6,000, Salaries Expense 48,000, Service Revenue 85,000, Utilities Expense 7,500. EA5.

    LO 5.1The following accounts and normal balances existed at year-end. Make the four journal entries required to close the books:

    Retained Earnings 22,000, Dividends 6,000, Fees Earned revenue 90,000, Selling Expenses 45,000, Administrative Expenses 16,000, Miscellaneous Expense 2,300. EA6.

    LO 5.1Use the following excerpts from the year-end Adjusted Trial Balance to prepare the four journal entries required to close the books:

    Adjusted Trial Balance. Dividends 24,000 debit. Sales revenue 194,000 credit. Automobile expense 15,500 debit. Insurance expense 30,000 debit. Salaries expense 96,000 debit. Supplies expense 6,500 debit. EA7.

    LO 5.1Use the following T-accounts to prepare the four journal entries required to close the books:

    T-Accounts. Cash debit balance 75,000. Service Revenue credit balance 220,000. Advertising expense debit balance 12,000. Rent Expense debit balance 18,000. Salaries Expense debit balance 120,000. Dividends debit balance 25,000. Retained Earnings credit balance 30,000. EA8.

    LO 5.1Use the following T-accounts to prepare the four journal entries required to close the books:

    T-Accounts. Cash debit balance 23,300. Revenue Earned credit balance 43,000. Commission expense debit balance 6,000. Supplies Expense debit balance 3,200. Wages Expense debit balance 28,000. Dividends debit balance 4,000. Retained Earnings credit balance 21,500. EA9.

    LO 5.2Identify whether each of the following accounts would be listed in the company’s Post-Closing Trial Balance.

    1. Accounts Payable
    2. Advertising Expense
    3. Dividends
    4. Fees Earned Revenue
    5. Prepaid Advertising
    6. Supplies
    7. Supplies Expense
    8. Unearned Fee Revenue
    EA10.

    LO 5.2Identify which of the following accounts would not be listed on the company’s Post-Closing Trial Balance.

    Prepaid insurance $9,444, Land 34,000, Notes payable 48,000, Retained earnings 31,315, Insurance expense 12,689, Service revenue 82,500, Supplies 9,700, Salaries expense 51,500. EA11.

    LO 5.3For each of the following accounts, identify in which section of the classified balance sheet it would be presented: current assets, property, intangibles, other assets, current liabilities, long-term liabilities, or stockholder’s equity.

    1. Accounts Payable
    2. Accounts Receivable
    3. Cash
    4. Equipment
    5. Land
    6. Notes Payable (due two years later)
    7. Prepaid Insurance
    8. Supplies
    EA12.

    LO 5.3Using the following Balance Sheet summary information, calculate for the two years presented:

    1. working capital
    2. current ratio
    12/31/18 and 12/31/19, respectively: Current assets 76,000, 295,000. Current liabilities 48,000, 163,500. EA13.

    LO 5.3Using the following account balances, calculate for the two years presented:

    1. working capital
    2. current ratio
    12/31/18 and 12/31/19, respectively: Accounts payable 2,000, 6,120. Accounts receivable 3,000, 8,450. Cash 4,500, 18,600. Prepaid advertising 1,200, 4,000. Utilities payable 950, 6,500. Wages payable 1,675, 8,600. EA14.

    LO 5.3Using the following Balance Sheet summary information, calculate for the two companies presented:

    1. working capital
    2. current ratio

    Then:

    1. evaluate which company’s liquidity position appears stronger, and why.
    Company J and Company K, respectively: Current assets 158,500, 122,000. Current liabilities 141,000, 104,000. EA15.

    LO 5.3Using the following account balances, calculate:

    1. working capital
    2. current ratio
    Cash 27,000 debit. Accounts receivable 7,300 debit. Prepaid insurance 17,000 debit. Accounts payable 14,900 credit. Salaries payable 16,200 credit. Common stock 12,000 credit. Service revenue 66,000 credit. Administrative expenses 57,800 debit. Total debits and total credits 109,100.

    Exercise Set B

    EB1.

    LO 5.1Identify whether each of the following accounts are nominal/temporary or real/permanent.

    1. Rent Expense
    2. Unearned Service Fee Revenue
    3. Interest Revenue
    4. Accounts Payable
    EB2.

    LO 5.1For each of the following accounts, identify whether it is nominal/temporary or real/permanent, and whether it is reported on the Balance Sheet or the Income Statement.

    1. Salaries Payable
    2. Sales Revenue
    3. Salaries Expense
    4. Prepaid Insurance
    EB3.

    LO 5.1For each of the following accounts, identify whether it would be closed at year-end (yes or no) and on which financial statement the account would be reported (Balance Sheet, Income Statement, or Retained Earnings Statement).

    1. Retained Earnings
    2. Prepaid Rent
    3. Rent Expense
    4. Rent Revenue
    5. Salaries Expense
    6. Salaries Payable
    7. Supplies Expense
    8. Unearned Rent Revenue
    EB4.

    LO 5.1The following accounts and normal balances existed at year-end. Make the four journal entries required to close the books:

    Automobile Expense $9,000, Dividends 6,000, Insurance Expense 7,500, Office Expense 14,000, Sales Revenue 120,000, Wages Expense 60,000. EB5.

    LO 5.1The following accounts and normal balances existed at year-end. Make the four journal entries required to close the books:

    Retained Earnings 78,500, Dividends 12,500, Fees Earned revenue 195,000, Selling Expenses 101,000, Administrative Expenses 46,500, Miscellaneous Expense 3,600. EB6.

    LO 5.1Use the following excerpts from the year-end Adjusted Trial Balance to prepare the four journal entries required to close the books:

    Adjusted Trial Balance. Dividends 20,000 debit. Service revenue 225,000 credit. Advertising expense 18,000 debit. Rent expense 30,000 debit. Utilities expense 6,600 debit. Wages expense 148,000 debit. EB7.

    LO 5.1Use the following T-accounts to prepare the four journal entries required to close the books:

    T-Accounts. Cash debit balance 35,580. Revenue Earned credit balance 146,000. Advertising expense debit balance 24,000. Insurance Expense debit balance 18,000. Salaries Expense debit balance 90,000. Dividends debit balance 5,000. Retained Earnings credit balance 26,580. EB8.

    LO 5.1Use the following T-accounts to prepare the four journal entries required to close the books:

    T-Accounts. Cash debit balance 25,222. Rent Revenue credit balance 112,000. Advertising expense debit balance 6,000. Insurance Expense debit balance 12,000. Salaries Expense debit balance 75,000. Dividends debit balance 16,000. Retained Earnings credit balance 22,222. EB9.

    LO 5.2Identify which of the following accounts would be listed on the company’s Post-Closing Trial Balance.

    1. Accounts Receivable
    2. Accumulated Depreciation
    3. Cash
    4. Office Expense
    5. Note Payable
    6. Rent Revenue
    7. Retained Earnings
    8. Unearned Rent Revenue
    EB10.

    LO 5.2Identify which of the following accounts would not be listed on the company’s Post-Closing Trial Balance.

    Accounts payable $19,000, Advertising expense 23,760, Cash 55,332, Common stock 38,000, Dividend 9,000, Fee revenue 60,000, Prepaid insurance 21,466, Land 45,000. EB11.

    LO 5.3For each of the following accounts, identify in which section of the classified balance sheet it would be presented: current assets, property, intangibles, other assets, current liabilities, long-term liabilities, or stockholder’s equity.

    1. Building
    2. Cash
    3. Common Stock
    4. Copyright
    5. Prepaid Advertising
    6. Notes Payable (due six months later)
    7. Taxes Payable
    8. Unearned Rent Revenue
    EB12.

    LO 5.3Using the following Balance Sheet summary information, calculate for the two years presented:

    1. working capital
    2. current ratio
    12/31/18 and 12/31/19, respectively: Current assets 366,500, 132,000. Current liabilities 120,000, 141,500. EB13.

    LO 5.3Using the following account balances, calculate for the two years presented:

    1. working capital
    2. current ratio
    12/31/18 and 12/31/19, respectively: Accounts payable 45,000, 12,600. Accounts receivable 52,000, 15,200. Cash 11,500, 19,780. Prepaid insurance 1,060, 2,400. Salaries payable 9,400, 12,800. Utilities payable 3,500, 2,550. EB14.

    LO 5.3Using the following Balance Sheet summary information, calculate for the two companies presented:

    1. working capital
    2. current ratio

    Then:

    1. evaluate which company’s liquidity position appears stronger, and why.
    Company L and Company M, respectively: Current assets 425,000, 215,500. Current liabilities 335,000, 132,700. EB15.

    LO 5.3From the following Company B adjusted trial balance, prepare simple financial statements, as follows:

    Adjusted Trial Balance. Cash 35,300 debit. Accounts receivable 16,750 debit. Supplies 12,650 debit. Accounts payable 20,850 credit. Tax payable 3,000 credit. Common stock 30,000 credit. Fee earned revenue 92,550 credit. Operating expense 81,700 debit. Total debits and total credits 146,400.

    Problem Set A

    PA1.

    LO 5.1Identify whether each of the following accounts would be considered a permanent account (yes/no) and which financial statement it would be reported on (Balance Sheet, Income Statement, or Retained Earnings Statement).

    1. Accumulated Depreciation
    2. Buildings
    3. Depreciation Expense
    4. Equipment
    5. Fees Earned Revenue
    6. Insurance Expense
    7. Prepaid Insurance
    8. Supplies Expense
    9. Dividends
    PA2.

    LO 5.1The following selected accounts and normal balances existed at year-end. Make the four journal entries required to close the books:

    Accounts receivable $45,000, Prepaid insurance 4,500, Land 50,000, Accounts payable 39,000, Notes payable 55,000, Retained earnings 12,000, Dividends 2,000, Fees earned revenue 65,000, Selling expenses 34,500, Administrative expenses 12,750, Miscellaneous expense 1,250. PA3.

    LO 5.1The following selected accounts and normal balances existed at year-end. Notice that expenses exceed revenuein this period. Make the four journal entries required to close the books:

    Accounts receivable $46,200, Prepaid insurance 5,800, Land 12,000, Accounts payable 29,900, Notes payable 32,500, Retained earnings 55,400, Dividends 8,000, Fees earned revenue 89,200, Selling expenses 62,000, Administrative expenses 29,500, Miscellaneous expense 4,140. PA4.

    LO 5.1Use the following Adjusted Trial Balance to prepare the four journal entries required to close the books:

    Adjusted Trial Balance. Cash 38,750 debit. Prepaid insurance 4,500 debit. Equipment 35,000 debit. Notes Payable 32,000 credit. Common Stock 10,000 credit. Retained Earnings 17,325 credit. Dividends 22,000 debit. Sales revenue 200,000 credit. Automobile expense 24,575 debit. Insurance expense 18,000 debit. Salaries expense 110,000 debit. Supplies expense 6,500 debit. Total debits and total credits each are 259,325. PA5.

    LO 5.1Use the following Adjusted Trial Balance to prepare the four journal entries required to close the books:

    Adjusted Trial Balance. Cash 22,900 debit. Prepaid insurance 4,000 debit. Fixed Assets 44,000 debit. Notes Payable 40,000 credit. Common Stock 25,000 credit. Retained Earnings 48,350 credit. Dividends 22,000 debit. Sales revenue 150,000 credit. Automobile expense 26,500 debit. Insurance expense 20,000 debit. Salaries expense 122,500 debit. Supplies expense 1,450 debit. Total debits and total credits each are 263,350. PA6.

    LO 5.1Use the following T-accounts to prepare the four journal entries required to close the books:

    T-Accounts. Accounts Receivable debit balance 45,500. Fees Earned Revenue credit balance 60,000. Commission expense debit balance 7,200. Supplies Expense debit balance 5,500. Wages Expense debit balance 42,000. Dividends debit balance 3,500. Retained Earnings credit balance 51,000. PA7.

    LO 5.1Assume that the first two closing entries have been made and posted. Use the T-accounts provided as follows to:

    1. complete the closing entries
    2. determine the ending balance in the Retained Earnings account
    T-Accounts. Income Summary debit 212,000 and credit 277,500. Retained Earnings credit balance 45,900. Dividends debit balance 7,500. PA8.

    LO 5.1Correct any obvious errors in the following closing entries by providing the four corrected closing entries. Assume all accounts held normal account balances in the Adjusted Trial Balance.

    1. Debit Income summary and credit Service Revenue 280,000.
    2. Debit Automobile expense 16,500, Insurance expense 24,000, Salaries expense 190,000, Supplies expense 18,500, and credit Income summary 249,000.
    3. Debit Retained earnings and credit Income summary 263,500.
    4. Debit Dividends and credit Retained earnings 10,000.
    PA9.

    LO 5.2Assuming the following Adjusted Trial Balance, create the Post-Closing Trial Balance that would result, after all closing journal entries were made and posted:

    Adjusted Trial Balance. Cash 22,900 debit. Prepaid insurance 4,000 debit. Fixed assets 44,000 debit. Notes payable 40,000 credit. Common stock 25,000 credit. Retained earnings 48,350 credit. Dividends 22,000 debit. Sales revenue 150,000 credit. Automobile expense 26,500 debit. Insurance expense 20,000. Salaries expense 122,500. Supplies expense 1,450. Debit total 263,350, credit total 263,350. PA10.

    LO 5.2The following Post-Closing Trial Balance contains errors. Prepare a corrected Post-Closing Trial Balance:

    Post-Closing Trial Balance. Cash 29,900 debit. Prepaid insurance 5,500 debit. Fixed assets 50,000 credit. Notes payable 46,000 credit. Common stock 32,000 debit. Retained earnings 7,400 credit. Debit total 67,400, credit total 103,400. PA11.

    LO 5.2Assuming the following Adjusted Trial Balance, recreate the Post-Closing Trial Balance that would result after all closing journal entries were made and posted:

    Adjusted Trial Balance. Cash 17,900 debit. Accounts receivable 9,900 debit. Supplies 1,600 debit. Prepaid insurance 2,500 debit. Salaries payable 8,600 credit. Common stock 10,000 credit. Retained earnings 2,800 credit. Dividends 4,000 debit. Service fee revenue 37,050 credit. Salaries expense 16,900 debit. Supplies expense 4,200 debit. Insurance expense 1,450 debit. Debit total 58,450, credit total 58,450. PA12.

    LO 5.3Use the following Adjusted Trial Balance to prepare a classified Balance Sheet:

    Adjusted Trial Balance. Cash 16,500 debit. Accounts receivable 17,200 debit. Supplies 2,200 debit. Prepaid insurance 2,100 debit. Equipment 14,000 debit. Accounts payable 14,200 credit. Unearned fee revenue 4,300 credit. Common stock 30,000 credit. Service fee revenue 21,500 credit. Salaries expense 12,000 debit. Rent expense 6,000 debit. Total debits and total credits 70,000. PA13.

    LO 5.3Using the following Balance Sheet summary information, for the two years presented calculate:

    1. working capital
    2. current ratio
    12/31/18 and 12/31/19, respectively: Current assets 101,600, 97,350. Current liabilities 33,650, 32,800. PA14.

    LO 5.3Using the following Balance Sheet summary information, calculate for the two companies presented:

    1. working capital
    2. current ratio
    Company L and Company M, respectively: Current assets $124,680, $180,550. Current liabilities 63,250, 153,250. PA15.

    LO 5.3Using the following account balances, calculate for the two years presented:

    1. working capital
    2. current ratio
    12/31/18 and 12/31/19, respectively: Unearned revenue $12,600, $6,000. Cash 33,200, 12,750. Prepaid rent 9,000, 6,000. Supplies 5,600, 2,500. Taxes payable 4,800, 5,500. Wages payable 8,500, 9,250. PA16.

    LO 5.4From the following Company R adjusted trial balance, prepare the following:

    1. Income Statement
    2. Retained Earnings Statement
    3. Balance Sheet (simple—unclassified)
    4. Closing journal entries
    5. Post-Closing Trial Balance
    Adjusted Trial Balance. Cash 44,000 debit. Accounts receivable 13,800 debit. Prepaid insurance 6,400 debit. Land 16,000 debit. Accounts payable 14,900 credit. Salaries payable 4,500 credit. Common stock 31,000 credit. Retained earnings 10,200 credit. Dividends 12,000 debit. Service Revenue 86,000 credit. Insurance expense 7,600 debit. Salaries expense 32,000 debit. Miscellaneous expense 14,800 debit. Total debits and total credits 146,000. PA17.

    LO 5.4From the following Company T adjusted trial balance, prepare the following:

    1. Income Statement
    2. Retained Earnings Statement
    3. Balance Sheet (simple—unclassified)
    4. Closing journal entries
    5. Post-Closing Trial Balance

    Adjusted Trial Balance. Cash 24,000 debit. Accounts receivable 14,900 debit. Prepaid insurance 5,300 debit. Land 13,500 debit. Accounts payable 12,400 credit. Salaries payable 1,500 credit. Common stock 34,000 credit. Retained earnings 10,200 credit. Dividends 5,000 debit. Service Revenue 56,300 credit. Insurance expense 7,900 debit. Salaries expense 39,000 debit. Miscellaneous expense 4,800 debit. Total debits and total credits 114,400.

    Problem Set B

    PB1.

    LO 5.1Identify whether each of the following accounts would be considered a permanent account (yes/no) and which financial statement it would be reported on (Balance Sheet, Income Statement, or Retained Earnings Statement).

    1. Common Stock
    2. Dividends
    3. Dividends Payable
    4. Equipment
    5. Income Tax Expense
    6. Income Tax Payable
    7. Service Revenue
    8. Unearned Service Revenue
    9. Net Income
    PB2.

    LO 5.1The following selected accounts and normal balances existed at year-end. Make the four journal entries required to close the books:

    Accounts receivable $33,200, Prepaid insurance 6,000, Land 48,000, Accounts payable 27,050, Notes payable 65,800, Retained earnings 9,350, Dividends 2,200, Fees earned revenue 70,500, Selling expenses 41,770, Administrative expenses 22,400, Miscellaneous expense 1,835. PB3.

    LO 5.1The following selected accounts and normal balances existed at year-end. Notice that expenses exceed revenuein this period. Make the four journal entries required to close the books:

    Accounts receivable $85,500, Prepaid insurance 18,000, Land 15,000, Accounts payable 82,350, Notes payable 35,000, Retained earnings 129,650, Dividends 15,000, Fees earned revenue 311,000, Selling expenses 210,000, Administrative expenses 105,000, Miscellaneous expense 8,500. PB4.

    LO 5.1Use the following Adjusted Trial Balance to prepare the four journal entries required to close the books:

    Adjusted Trial Balance. Cash 75,500 debit. Accounts receivable 15,500 debit. Accounts Payable 4,000 credit. Unearned Revenue 6,000 credit. Common Stock 20,000 credit. Retained Earnings 12,500 credit. Dividends 30,000 debit. Service revenue 355,000 credit. Advertising expense 30,000 debit. Rent expense 36,000 debit. Utilities expense 9,500 debit. Wages expense 201,000 debit. Total debits and total credits each are 397,500. PB5.

    LO 5.1Use the following Adjusted Trial Balance to prepare the four journal entries required to close the books:

    Adjusted Trial Balance. Cash 8,625 debit. Accounts receivable 11,600 debit. Accounts Payable 8,450 credit. Unearned Revenue 1,500 credit. Common Stock 10,000 credit. Retained Earnings 12,275 credit. Dividends 2,000 debit. Service revenue 97,500 credit. Advertising expense 2,500 debit. Rent expense 18,000 debit. Utilities expense 12,000 debit. Wages expense 75,000 debit. Total debits and total credits each are 129,725. PB6.

    LO 5.1Use the following T-accounts to prepare the four journal entries required to close the books:

    T-Accounts. Cash debit balance 17,340. Rent Revenue credit balance 240,000. Advertising expense debit balance 12,000. Insurance Expense debit balance 34,500. Salaries Expense debit balance 128,000. Dividends debit balance 22,000. Retained Earnings credit balance 59,500. PB7.

    LO 5.1Assume that the first two closing entries have been made and posted. Use the T-accounts provided below to:

    1. complete the closing entries
    2. determine the ending balance in the Retained Earnings account
    T-Accounts. Income Summary debit 148,500 and credit 162,200. Retained Earnings credit balance 11,500. Dividends debit balance 4,000. PB8.

    LO 5.1Correct any obvious errors in the following closing entries by providing the four corrected closing entries. Assume all accounts held normal account balances in the Adjusted Trial Balance.

    1. Debit Income summary and credit Service Revenue 75,000.
    2. Debit Automobile expense 8,800, Insurance expense 4,800, Salaries expense 45,000, Supplies expense 3,500, and credit Income summary 62,100.
    3. Debit Retained earnings and credit Income summary 45,222.
    4. Debit Dividends and credit Retained earnings 6,000.
    PB9.

    LO 5.2Assuming the following Adjusted Trial Balance, create the Post-Closing Trial Balance that would result after all closing journal entries were made and posted:

    Adjusted Trial Balance. Cash 8,625 debit. Accounts receivable 11,600 debit. Accounts payable 8,450 credit. Unearned revenue 1,500 credit. Common stock 10,000 credit. Retained earnings 12,275 credit. Dividends 2,000 debit. Service revenue 97,500 credit. Advertising expense 2,500 debit. Rent expense 18,000 debit. Utilities expense 12,000 debit. Wages expense 75,000 debit. Debit total 129,725, credit total129,725. PB10.

    LO 5.2The following Post-Closing Trial Balance contains errors. Prepare a corrected Post-Closing Trial Balance:

    Post-Closing Trial Balance. Cash 32,660 credit. Supplies 7,200 debit. Land 25,000 credit. Notes payable 47,700 debit. Common stock 7,000 credit. Retained earnings 10,160 credit. Total debits 54,900, total credits 74,820. PB11.

    LO 5.2Assuming the following Adjusted Trial Balance, re-create the Post-Closing Trial Balance that would result after all closing journal entries were made and posted:

    Adjusted Trial Balance. Cash 5,450 debit. Accounts receivable 4,700 debit. Supplies 250 debit. Prepaid insurance 1,250. Salaries payable 650 credit. Common stock 5,000 credit. Retained earnings 750 credit. Dividends 1,400 debit. Service fee revenue 17,300 credit. Salaries expense 9,050 debit. Supplies expense 1,000 debit. Insurance expense 600 debit. Debit total 23,700, credit total 23,700. PB12.

    LO 5.3Use the following Adjusted Trial Balance to prepare a classified Balance Sheet:

    Adjusted Trial Balance. Cash $17,000 debit. Accounts receivable 8,500 debit. Supplies 1,500 debit. Prepaid insurance 5,000 debit. Equipment 12,000 debit. Accounts payable 5,000 credit. Unearned fee revenue 4,000 credit. Common stock 15,000 credit. Service fee revenue 32,500 credit. Salaries expense 9,500 debit. Rent expense 3,000 debit. Total debits and total credits 56,500. PB13.

    LO 5.3Using the following Balance Sheet summary information, calculate for the two years presented:

    1. working capital
    2. current ratio
    Company P and Company Q, respectively: Current assets $88,500, $39,000. Current liabilities 67,430, 18,800. PB14.

    LO 5.3Using the following Balance Sheet summary information, calculate for the two years presented:

    1. working capital
    2. current ratio
    12/31/18 and 12/31/19, respectively: Current assets $10,500, $12,050. Current liabilities 7,500, 10,800. PB15.

    LO 5.3Using the following account balances, calculate for the two years presented:

    1. working capital
    2. current ratio
    12/31/18 and 12/31/19, respectively: Accounts Payable 12,790, 1,530. Accounts receivable 16,330, 2,200. Cash 21,040, 5,550. Prepaid insurance 4,500, 1,200. Salaries payable 6,500, 4,000. Utilities payable 1,200, 550. PB16.

    LO 5.4From the following Company S adjusted trial balance, prepare the following:

    1. Income Statement
    2. Retained Earnings Statement
    3. Balance Sheet (simple—unclassified)
    4. Closing journal entries
    5. Post-Closing Trial Balance

    Adjusted Trial Balance. Cash 55,200 debit. Accounts receivable 30,200 debit. Prepaid insurance 6,000 debit. Land 30,000 debit. Accounts payable 14,300 credit. Salaries payable 6,100 credit. Common stock 26,000 credit. Retained earnings 38,900 credit. Dividends 16,500 debit. Service Revenue 211,850 credit. Insurance expense 24,000 debit. Salaries expense 128,350 debit. Miscellaneous expense 6,900 debit. Total debits and total credits 297,150.

    Thought Provokers

    TP1.

    LO 5.1Assume you are the controller of a large corporation, and the chief executive officer (CEO) has requested that you refrain from posting closing entries at 20X1 year-end, with the intention of combining the two years’ profits in year 20X2, in an effort to make that year’s profits appear stronger.

    Write a memo to the CEO, to offer your response to the request to skip the closing entries for year 20X1.

    TP2.

    LO 5.1Search the Securities and Exchange Commission website (https://www.sec.gov/edgar/searchedga...anysearch.html) and locate the latest Form 10-K for a company you would like to analyze. Submit a short memo:

    • State the name and ticker symbol of the company you have chosen.
    • Review the company’s end-of-period Balance Sheet, Income Statement, and Statement of Retained Earnings.
    • Use the information in these financial statements to answer these questions:
      1. If the company had used the income summary account for its closing entries, how much would the company have credited the Income Summary account in the first closing entry?
      2. How much would the company have debited the Income Summary account in the second closing entry?

    Provide the web link to the company’s Form 10-K, to allow accurate verification of your answers.

    TP3.

    LO 5.1Assume you are a senior accountant and have been assigned the responsibility for making the entries to close the books for the year. You have prepared the following four entries and presented them to your boss, the chief financial officer of the company, along with the company CEO, in the weekly staff meeting:

    Debit Service revenue and credit Income summary 522,000. Debit Income summary for 463,520 and credit Promotional expenses 48,520, Salaries expense 375,500, and Travel expenses 39,500. Debit Income summary and credit Retained Earnings 58,480. Debit Retained earnings and credit Dividends 28,000.

    As the CEO was reviewing your work, he asked the question, “What do these entries mean? Can we learn anything about the company from reviewing them?”

    Provide an explanation to give to the CEO about what the entries reveal about the company’s operations this year.

    TP4.

    LO 5.2Search the US Securities and Exchange Commission website (https://www.sec.gov/edgar/searchedga...anysearch.html) and locate the latest Form 10-K for a company you would like to analyze. Submit a short memo:

    • State the name and ticker symbol of the company you have chosen.
    • Review the company’s Balance Sheets.
    • Reconstruct a Post-Closing Trial Balance for the company from the information presented in the financial statements.

    Provide the web link to the company’s Form 10-K, to allow accurate verification of your answers.

    TP5.

    LO 5.3Search the Securities and Exchange Commission website (https://www.sec.gov/edgar/searchedga...anysearch.html) and locate the latest Form 10-K for a company you would like to analyze. Submit a short memo:

    • State the name and ticker symbol of the company you have chosen.
    • Review the company’s end-of-period Balance Sheet for the most recent annual report.
    • List the amount of Current Assets and Current Liabilities for the currently reported year, and for the previous year. Use these amounts to calculate the company’s (A) working capital and (B) current ratio.

    Provide the web link to the company’s Form 10-K, to allow accurate verification of your answers.

    This page titled 5.6: Practice Questions is shared under a CC BY-NC-SA 4.0 license and was authored, remixed, and/or curated by OpenStax via source content that was edited to the style and standards of the LibreTexts platform.