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Chapter 5: Worksheet and Financial Statements

Answer Key

1. Which of the following situations indicates a loss on the income statement?

a. Total debits exceed total credits
b. Total credits exceed total debits
c. Total debits equal total credits
d. None of the above
2. The income statement debit column contains
a. Asset account balances
b. Liability account balances
c. Contra asset account balances
d. Expense account balances
e. Revenue account balances
3. If the income statement debit and credit columns are not equal after adding the respective
columns,
a. The entity incurred a loss
b. The entity generated profit
c. An error has been made
d. The entity either generated profit or incurred a loss
e. The liabilities must exceed the assets
4. Accounting Data flow from the
a. Income statement to the statement of owner’s equity
b. Balance sheet to the income statement
c. Statement of the owner’s equity to the balance sheet
d. Both a and c are correct
e. None of the above
5. Which of the following types of information is not found in financial statements
a. Selling prices
b. Profits
c. Revenues
d. Assets
6. Which columns of the worksheet show profits
 a. Adjustments
b. Income statement
c. Trial balance
d. Both a and b
7. Which part of the accounting cycle provides information to help the business decide whether
to expand its operations?
a. Adjusting entries
b. Closing entries
c. Adjusted trial balance
d. Financial statements
8. Which of the following is a cash inflow from financing activities?

a. Receipt from collections on notes receivable

b. Receipt from issuance of notes payable
c. Receipt from sale of property and equipment
d. Receipt from interest on notes receivable

9. Assuming an entity is profitable in the current period, the total of the balance sheet credit
column in the worksheet will be

a. Larger than the income statement debit column

b. Larger than the balance sheet debit column
c. Larger than the income statement credit column
d. Smaller than the balance sheet debit column

10. If total credits exceed total debits in the balance sheet,

a. A mistake has been made

b. A loss has occurred
c. A profit has occurred
d. Liabilities exceed assets

11. The amount of profit will appear on the debit side of the income statement columns on a
worksheet

a. If withdrawals have been made during the period

b. If total expenses exceeded total revenue for the period
c. If profit exceeds the owners equity
d. If total revenue exceeded total expenses for the period
e. If total assets exceeded total liabilities for the period
12. Which columns show unadjusted amounts?

a. Trial balance
b. Adjustments
c. Balance sheet
d. Income statement

13. Which of the following is a cash outflow from operating activities?

a. Payment to acquire property and equipment

b. Payment for interest expense
c. Payment to settle notes payable
d. Payment to owners in the form of withdrawals

14. The trial balance debit or credit amount of each account is combined with the amount of any
debit or credit adjustment to that account to determine the New Balance of the account. This
process is known as

a. Cross-footing
b. Balancing
c. Footing
d. Totaling

15. This is the process of combining horizontally, line by line, the amount of each account in the
unadjusted trial balance columns with the corresponding amounts in the adjustment columns

a. Cross-footing
b. Balancing
c. Footing
d. Totaling

16. The trial balance is a summary device used by the accountant for his convenience. The
adjusted trial balance column of the worksheet is prepared by combining the trial balance and
adjustments columns.

a. Statement 1 is true, Statement 2 is false

b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false
17. Withdrawals are found in the debit column of the balance sheet section of the worksheet.
The statement of cash flows is a report that shows changes in capital.

a. Statement 1 is true, Statement 2 is false

b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false

18. The figure for profit on the worksheet is carried over the credit column of the balance sheet.
Depreciation expense is found on the balance sheet.

a. Statement 1 is true, Statement 2 is false

b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false
19. The account wages payable would appear on the income statement. Commissions earned
would appear on the balance sheet.
a. Statement 1 is true, Statement 2 is false
b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false
20. Paying taxes to the government is an example of a financing activity. Buying and producing
goods and services are examples of operating activities.
a. Statement 1 is true, Statement 2 is false
b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false

Chapter 6: Complete the Accounting Cycle

1. Closing entries ultimately will affect

a. The cash account
b. Total liabilities
c. Total assets
d. The owner’s capital account
2. Which of the following sequences of documents or records describes the proper sequence in
the accounting cycle?
a. Journal, source documents, ledger, financial statements
 b. Source documents, ledger, journal, financial statements
c. Source documents, journal, ledger, financial statements
d. Source documents, financial statements, journal, ledger
3. Closing entries reduce the following type of accounts to a zero balance at the end of the
period
a. Income and expenses
b. Income summary
c. Withdrawals
d. All of the above
e. None of the above
4. Which of the following accounts would appear on the post-closing trial balance?
a. Building
b. Depreciation expense-building
c. Owner’s withdrawals
d. Service revenues
5. Closing entries will
a. Increase the capital balance
b. Decrease the capital balance
c. Neither increase or decrease the capital balance
d. Either increase or decrease the capital balance

6. When there is a loss, the entry to close the income summary account is

a. Debit income summary, Credit Loss

b. Debit income summary, Credit Owner’s Capital
c. Debit owner’s capital, Credit income summary
d. Debit loss, Credit income summary

7. The post-closing trial balance contains

a. Nominal accounts
b. Real accounts
c. Both a and b
d. Neither a or b

8. On the completed worksheet, which columns should be out of balance after the initial
footing?

a. Balance sheet columns only

b. Adjusted trial balance columns only
 c. Income statement columns only
d. Both balance sheet and income statement columns
e. None of the above

9. The primary objective of reversing entries is to

a. Correct errors.
b. Place the expenses for the current period in the proper accounts
c. Transfer the balance of the expense accounts to the owner’s capital account
d. Simplify the bookkeeping associated with accruals from the prior period.

10. If no adjustments are needed for a particular entity, its

a. Post-closing trial balance will be identical to its trial balance

b. Adjusted trial balance will be identical to its post-closing trial balance
c. Trial balance will be identical to its adjusted trial balance
d. Trial balance, adjusted trial balance, and post closing trial balance will be
identical.

11. Reversing entries are never required. Reversing entries are made to correct errors in the
accounts.

a. Statement 1 is true, Statement 2 is false

b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false

12. The adjusting entries involving Rent Receivable and Salaries Payable could be reversed. The
adjusting entries involving Depreciation Expense-Building and Supplies Expense could be
reversed.

a. Statement 1 is true, Statement 2 is false

b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false

13. Nominal accounts are reduced to zero by closing entries. Closing entries clear income and
expense accounts at the end of the period.

a. Statement 1 is true, Statement 2 is false

b. Statement 1 is false, Statement 2 is true
 c. Both statements are true
d. Both statements are false
14. Supplies expense is a temporary account. Unearned Revenue is a temporary account.
a. Statement 1 is true, Statement 2 is false
b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false
15. Post-closing trial balance tests the equality of accounts after adjustments and closing of
entries are posted. The balance of the owner’s equity account represents the cumulative net
result of income, expense, and withdrawal transactions.
a. Statement 1 is true, Statement 2 is false
b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false

Problem Solving
1. Compute the profit or loss of the business given that the balances of their cash, accounts
payable, expenses, and revenue are 721,500, 200,000, 284,110 and 985,610.
a. (180,000)
b. 180,000
c. (701,500) r e v e n u e - e x p e n s e
d. 701,500 985,610−284,110=701,500
2. Profit for Steffen Gun Store is 250,000 for the current year. The owner withdrew 30,000 per
month for personal use. The owner’s capital account will show a net…
a. Decrease of 110,000 250,000−360,000=−110,000 TW=30,000×12=360,000
b. Decrease of 360,000
c. Increase of 360,000
d. Increase of 110,000

Use the following information to answer questions 3-5. Andrea Kikay Store had the following
balance sheet account balances:

Accounts Payable 100,000

Accounts Receivable 60,000
Building ?
Cash 120,000
Equipment 8,000
Andrea, Capital ?
Land 70,000

3. If the balance of Andrea, Capital account was 680,000, what would be the balance of the
building account?
a. 780,000
b. 522,000 780,000-258,000=522,000
c. 422,000 total of ap minus capital - total of c, ar, e, and l
d. 322,000
4. If the balance of the building account was 150,000 and the equipment is sold for 8,000, what
would be the total owner’s equity.
a. 308,000
b. 300,000 400,000 − 100,000= 300,000
c. 158,000
d. 150,000
5. If the total balance of the Building account was 80,000 and 30,000 of accounts payable were
paid in cash, what would be the total liabilities and owner’s equity?
a. 238,000
b. 70,000
c. 30,000
308,000−70,000= 238,000
d. 308,000 70,000+238,000= 308,000
6. Supplies have an 80,000 unadjusted balance on your trial balance. At the year-end you count
supplies of 50,000. What adjustment will appear on your worksheet?
a. Dr supplies 50,000; Cr Supplies Expense 50,000
b. Dr supplies 30,000; Cr Supplies Expense 30,000
c. Dr supplies expense 30,000; Cr supplies 30,000 80,000-50,000=30,000
d. No adjustment is needed because the supply account already has a correct balance.

7. You have the following trial balance data:

Cash: 10,000 Retained Earnings: 12,000

Accounts Receivable: 5,000 Sales Revenue: 20,000
Inventory: 7,000 Cost of Goods Sold: 8,000
Accounts Payable: 6,000 Salaries Expense: 2,000
Common Stock: 4,000 Rent Expense: 1,000

What is the total of the debit column and the total of the credit column in the trial balance?
 Debit column (Assets and Credit column (Liabilities,
Expenses): Equity, Revenue):
-Cash = 10,000 -Accounts Payable = 6,000
-Accounts Receivable = 5,000 -Common Stock = 4,000
-Inventory = 7,000 -Retained Earnings = 12,000
-Cost of Goods Sold = 8,000 -Sales Revenue = 20,000
-Salaries Expense = 2,000
a. 33,000 (Debit), 42,000 (Credit) -Rent Expense = 1,000 Total Credits = 6,000 + 4,000 +
12,000 + 20,000 = 42,000
b. 33,000 (Debit), 33,000 (Credit) Total Debits = 10,000 + 5,000 +
c. 31,000 (Debit), 42,000 (Credit) 7,000 + 8,000 + 2,000 + 1,000
= 33,000
d. 31,000 (Debit), 31,000 (Credit)

8. If the company needs to record 500 of accrued salaries at the end of the period, what would be
the adjusting journal entry?
a. Debit Salaries Expense 500; Credit Cash 500
Salaries Expense 500
b. Debit Salaries Expense 500; Credit Salaries Payable 500 Salaries Payable 500
c. Debit Salaries Payable 500; Credit Salaries Expense 500
d. Debit Cash 500; Credit Salaries Payable 500

9. Using the following adjusted trial balance data, prepare the Income Statement:

● Sales Revenue: 25,000

● Cost of Goods Sold: 10,000
● Salaries Expense: 3,000
● Rent Expense: 2,000
● Supplies Expense: 1,000

What is the net income for the period?

a. 8,000
b. 9,000 25,000-10,000-3,000-2,000-1,000=9,000
c. 10,000
d. 11,000

10. Based on the following adjusted trial balance data, prepare the Balance Sheet:

● Cash: 12,000
● Accounts Receivable: 5,000
● Inventory: 8,000
● Accounts Payable: 6,000
● Common Stock: 4,000
● Retained Earnings: 10,000
● Net Income: 11,000

What are the total assets and total liabilities & equity?
 Assets
Cash 12,000
Accounts Receivable 5,000
Inventory 8,000
Total Assets 25,000

a. Total Assets: 25,000; Total Liabilities & Equity: 21,000 Liabilities and Equity
b. Total Assets: 25,000; Total Liabilities & Equity: 25,000 Accounts Payable 6,000
Common Stock 4,000
c. Total Assets: 22,000; Total Liabilities & Equity: 21,000 Retained Earnings 10,000
d. Total Assets: 22,000; Total Liabilities & Equity: 22,000 Net Income 11,000
Total Liabilities & Equity 25,000
RVP Salon made the following adjusting entries at the end of its accounting period on
December 31, 2023:

1. Accrued Salaries: 1,500

2. Accrued Interest: 300
3. Prepaid Rent (one year paid in advance, 6 months used): 2,400

The company uses reversing entries for accrued expenses and prepaid expenses.

11. What is the reversing entry for the accrued salaries of 1,500 at the beginning of the next
period (January 1, 2024)?
Original adjusting entry
a. Debit Salaries Expense 1,500; Credit Salaries Payable 1,500
b. Debit Salaries Payable 1,500; Credit Salaries Expense 1,500 Dr. Salaries Expense 1,500
Cr. Salaries Payable 1,500
c. Debit Salaries Payable 1,500; Credit Cash 1,500
d. Debit Cash 1,500; Credit Salaries Payable 1,500

12. What is the reversing entry for the accrued interest of 300 at the beginning of the next period
(January 1, 2024)?
Original adjusting entry
a. Debit Interest Expense 300; Credit Interest Payable 300
b. Debit Interest Payable 300; Credit Interest Expense 300 Dr. Interest Expense 300
Cr. Interest Payable 300
c. Debit Interest Payable 300; Credit Cash 300
d. Debit Cash 300; Credit Interest Payable 300

13. What is the reversing entry for the prepaid rent of 2,400 at the beginning of the next period
(January 1, 2024), given that 6 months of rent have been used?

a. Debit Rent Expense 1,200; Credit Prepaid Rent 1,200 Original adjusting entries
b. Debit Prepaid Rent 1,200; Credit Rent Expense 1,200
Dr. Rent Expense 1,200
c. Debit Prepaid Rent 2,400; Credit Rent Expense 2,400 Cr. Prepaid Rent 1,200
d. Debit Rent Expense 2,400; Credit Prepaid Rent 2,400

14. On January 5, 2024, RVP Salon pays 1,500 for salaries that were accrued. What is the correct
journal entry after considering the reversing entry?
 a. Debit Salaries Expense 1,500; Credit Cash 1,500
b. Debit Salaries Payable 1,500; Credit Cash 1,500
c. Debit Salaries Expense 1,500; Credit Salaries Payable 1,500
d. Debit Cash 1,500; Credit Salaries Expense 1,500

15. On January 1, 2024, RVP Salon pays 2,400 for the next year's rent. What is the correct journal
entry after considering the reversing entry?

a. Debit Rent Expense 2,400; Credit Cash 2,400

b. Debit Prepaid Rent 2,400; Credit Cash 2,400
c. Debit Rent Expense 1,200; Credit Cash 1,200
d. Debit Prepaid Rent 1,200; Credit Cash 1,200

Marnie Dinosaur Store a sole proprietorship and has completed her fiscal year on December 31,
2023. The following adjustments and closing entries were made:

1. Sales Revenue: 180,000

2. Cost of Goods Sold: 90,000
3. Salaries Expense: 25,000
4. Rent Expense: 12,000
5. Income Tax Expense: 8,000
6. Owner's Drawings: 15,000

16. What is the closing entry for Sales Revenue?

a. Debit Sales Revenue 180,000; Credit Income Summary 180,000

b. Debit Owner's Capital 180,000; Credit Sales Revenue 180,000
c. Debit Sales Revenue 180,000; Credit Drawing 180,000
d. Debit Drawing 180,000; Credit Sales Revenue 180,000

17. What is the closing entry for Salaries Expense?

a. Debit Salaries Expense 25,000; Credit Owner's Capital 25,000

b. Debit Income Summary 25,000; Credit Salaries Expense 25,000
c. Debit Salaries Expense 25,000; Credit Owner's Drawing 25,000
d. Debit Owner's Drawing 25,000; Credit Salaries Expense 25,000

18. After closing all revenue and expense accounts, what is the closing entry for Owner's
Drawing?
 a. Debit Owner's Drawing 15,000; Credit Owner's Capital 15,000
b. Debit Owner's Capital 15,000; Credit Owner's Drawing 15,000
c. Debit Owner's Drawing 15,000; Credit Income Summary 15,000
d. Debit Income Summary 15,000; Credit Owner's Drawing 15,000

19. What is the closing entry to recognize the Income Tax Expense of 8,000?

a. Debit Income Tax Expense 8,000; Credit Owner's Capital 8,000

b. Debit Owner's Capital 8,000; Credit Income Tax Expense 8,000
c. Debit Income Tax Expense 8,000; Credit Cash 8,000
d. Debit Income Summary 8,000; Credit Income Tax Expense 8,000

20. After all closing entries, what is the effect on Owner's Capital?
Sales Revenue: 180,000
a. Decrease by 27,000 Less:
b. Increase by 28,000 COGS: 90,000
Salaries: 25,000
c. Decrease by 29,000 Rent: 12,000
Income Tax: 8,000
d. Increase by 30,000 Net Income = 180,000 - (90,000 + 25,000 + 12,000 + 8,000) = 45,000

Apply Net Income and Drawings to Owner’s Capital

Add: Net Income = +45,000
Less: Drawings = –15,000

Net Increase in Owner's Capital = 45,000 – 15,000 = 30,000