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Fundamental Accounting Principles, 24e (Wild)

Chapter 4 Completing the Accounting Cycle

1) Accounts that appear in the balance sheet are often called temporary accounts.

2) Income Summary is a temporary account only used for the closing process.

3) Revenue accounts are temporary accounts that should begin each accounting period with zero
balances.

4) Closing revenue and expense accounts at the end of the accounting period serves to make the
revenue and expense accounts ready for use in the next period.

5) The closing process takes place before financial statements have been prepared.

6) Revenue and expense accounts are permanent accounts and should not be closed at the end of
the accounting period.

7) Closing entries result in the owner's capital account being transferred into net income or net
loss for the period ending.

8) The closing process is a step in the accounting cycle that prepares accounts for the next
accounting period.

9) Closing entries are required at the end of each accounting period to close all ledger accounts.

10) Closing entries are designed to transfer the end-of-period balances in the revenue accounts,
the expense accounts, and the withdrawals account to owner's capital.

11) The Income Summary account is a permanent account that will be carried forward period
after period.

12) Closing entries are necessary so that owner's capital will begin each period with a zero
balance.

13) Permanent accounts carry their balances into the next accounting period.

14) If a company plans to continue business into the future, closing entries are not required.

15) The first step in the accounting cycle is to analyze transactions and events to prepare for
journalizing.

16) The accounting cycle refers to the sequence of steps used in preparing the work sheet.

17) The first five steps in the accounting cycle include analyzing transactions, journalizing,
posting, preparing an unadjusted trial balance, and recording adjusting entries.

18) The last four steps in the accounting cycle include preparing the adjusted trial balance,
preparing financial statements, and recording closing and adjusting entries.
19) A classified balance sheet organizes assets and liabilities into important subgroups that
provide more information to decision makers.

20) An unclassified balance sheet provides more information to users than a classified balance
sheet.

63) Which of the following accounts is a temporary account:


A) Accounts receivable.
B) J. Jones, capital.
C) Accounts payable.
D) Cash.
E) Salaries expense.

64) Which of the following accounts is a permanent account?


A) Fees earned.
B) Office supplies expense.
C) Interest revenue.
D) Accounts payable.
E) Salaries expense.

65) When closing entries are made:


A) All ledger accounts are closed to start the new accounting period.
B) All temporary accounts are closed but permanent accounts are not closed.
C) All asset accounts are closed but liability accounts are not closed.
D) All permanent accounts are closed but temporary accounts are not closed.
E) All balance sheet accounts are closed.

66) Revenues, expenses, and withdrawals accounts, which are closed at the end of each
accounting period are:
A) Real accounts.
B) Temporary accounts.
C) Closing accounts.
D) Permanent accounts.
E) Balance sheet accounts.

67) Which of the following statements is incorrect?


A) Permanent account is another name for revenue accounts.
B) Temporary accounts carry a zero balance at the beginning of each accounting period.
C) The Income Summary account is a temporary account.
D) Permanent accounts remain open as long as the asset, liability, or equity items recorded in the
accounts continue in existence.
E) The closing process applies only to temporary accounts.

68) Assets, liabilities, and equity accounts are not closed; these accounts are called:
A) Nominal accounts.
B) Temporary accounts.
C) Permanent accounts.
D) Contra accounts.
E) Accrued accounts.

69) Closing the temporary accounts at the end of each accounting period does all of the following
except:
A) Serves to transfer the effects of these accounts to the owner's capital account on the balance
sheet.
B) Prepares the withdrawals account for use in the next period.
C) Brings the revenue and expense accounts to zero balances.
D) Has no effect on the owner's capital account.
E) Causes owner's capital to reflect increases from revenues and decreases from expenses and
withdrawals.
70) Journal entries recorded at the end of each accounting period to prepare the revenue, expense,
and withdrawals accounts for the upcoming period and to update the owner's capital account for
the events of the period just finished are referred to as:
A) Adjusting entries.
B) Closing entries.
C) Final entries.
D) Work sheet entries.
E) Updating entries.

71) The closing process is necessary in order to:


A) Ensure compliance with payroll regulations.
B) Ensure that all permanent accounts are closed to zero at the end of each accounting period.
C) Ensure that the company complies with state laws.
D) Ensure that net income or net loss and owner withdrawals for the period are closed into the
owner's capital account.
E) Ensure that management is aware of how well the company is operating.

72) Closing entries are required:


A) If management has decided to cease operating the business.
B) Only if the company adheres to the accrual method of accounting.
C) If a company's bookkeeper does not choose to prepare reversing entries.
D) If the temporary accounts are to reflect correct amounts for each accounting period.
E) In order to satisfy the Internal Revenue Service guidelines.

146) Match the following terms with the appropriate definition.

A. Permanent accounts F. Work sheet


B. Accounting cycle G. Closing entries
C. Temporary accounts H. Post-closing trial balance
D. Classified balance sheet I. Operating cycle
E. Income summary J. Pro forma financial statements

____ 1. Organizes assets and liabilities into subgroups, including separation of current and
noncurrent.
____ 2. The time span from when cash is used to acquire goods and services until cash is received
from the sale of those goods and services.
____ 3. A temporary account only used for the closing process that contains a credit for the sum
of all revenues and a debit for the sum of all expenses.
____ 4. A widely used working paper that is a useful tool for preparers in working with
accounting information, usually not available to external decision makers.
____ 5. A list of permanent accounts and their balances after all closing entries.
____ 6. The steps in preparing financial statements.
____ 7. Entries used to transfer end-of-period balances in revenue, expense, and withdrawals
accounts to the permanent owner's capital account.
____ 8. Statements that show the effects of proposed transactions as if the transactions had
already occurred.
____ 9. Accounts that report on activities related to one or more future accounting periods; they
carry their ending balances into future periods.
____10. Accounts that accumulate data related to one accounting period only; they include
revenues, expenses, withdrawals, and the Income Summary account.

159) In the table below, indicate with an "X" in the proper column whether the account is a
temporary account or a permanent account.

Account Temporary Permanent


a. Cash
b. Prepaid rent
c. Unearned revenue
d. Accounts receivable
e. Insurance expense
f. S. Holder, Capital
g. S. Holder, Withdrawals
h. Rent expense
i. Fees earned
j. Supplies
k. Supplies expense
l. Depreciation expense–Equipment
m. Accumulated depreciation–Equipment…..

Fundamental Accounting Principles, 24e (Wild)


Chapter 5 Accounting for Merchandising Operations

1) Merchandise inventory refers to products that a company owns and plans to sell to customers.

2) A service company earns net income by buying and selling merchandise.


3) Gross profit is also called gross margin.

4) Cost of goods sold is also called cost of sales.

5) A wholesaler buys products from manufacturers or other wholesalers and sells them to
consumers.

6) A retailer buys products from manufacturers and sells them to wholesalers.

7) Cost of goods sold represents the expense of buying and preparing merchandise for sale.

8) A company had sales of $350,000 and cost of goods sold of $200,000. Its gross profit equals
$150,000.

9) A company had net sales of $545,000 and cost of goods sold of $345,000. Its gross margin
equals $890,000.

10) A company had a gross profit of $300,000 based on sales of $400,000. Its cost of goods sold
equals $700,000.

77) A merchandiser:
A) Earns net income by buying and selling merchandise.
B) Receives fees only in exchange for services.
C) Earns profit from commissions only.
D) Earns profit from fares only.
E) Buys products from consumers.

78) Cost of goods sold:


A) Is another term for merchandise sales.
B) Is the term used for the expense of buying and preparing merchandise for sale.
C) Is another term for revenue.
D) Is also called gross margin.
E) Is a term only used by service firms.

79) A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:
A) $(417,000).
B) $695,000.
C) $278,000.
D) $417,000.
E) $973,000.
80) A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold
equals:
A) $(217,000).
B) $375,000.
C) $157,500.
D) $217,500.
E) $532,500.

81) Which of the following statements regarding gross profit is not true?
A) Gross profit is also called gross margin.
B) Gross profit less other operating expenses equals income from operations.
C) Gross profit is not calculated on the multiple-step income statement.
D) Gross profit must cover all operating expenses to yield a return for the owner of the business.
E) Gross profit equals net sales less cost of goods sold.

82) Which of the following statements regarding merchandise inventory is not true?
A) Merchandise inventory is reported on the balance sheet as a current asset.
B) Merchandise inventory refers to products a company owns and intends to sell.
C) Merchandise inventory may include the costs of freight-in and making them ready for sale.
D) Merchandise inventory appears on the balance sheet of a service company.
E) Purchasing merchandise inventory is part of the operating cycle for a business.

83) Which of the following statements regarding the operating cycle of a merchandising company
is not true?
A) The operating cycle begins with the purchase of merchandise.
B) The operating cycle is shortened by credit sales.
C) The operating cycle ends with the collection of cash from the sale of merchandise.
D) The operating cycle can vary in length among different merchandising companies.
E) The operating cycle sometimes involves accounts receivable.

84) Merchandise inventory:


A) Is a long-term asset.
B) Is a current asset.
C) Includes supplies the company will use in future periods.
D) Is classified with investments on the balance sheet.
E) Must be sold within one month.

85) The operating cycle for a merchandiser that sells only for cash moves from:
A) Purchases of merchandise to inventory to cash sales.
B) Purchases of merchandise to inventory to accounts receivable to cash sales.
C) Inventory to purchases of merchandise to cash sales.
D) Accounts receivable to purchases of merchandise to inventory to cash sales.
E) Accounts receivable to inventory to cash sales.
86) The current period's ending inventory is:
A) The next period's beginning inventory.
B) The current period's cost of goods sold.
C) The prior period's beginning inventory.
D) The current period's net purchases.
E) The current period's beginning inventory.
Fundamental Accounting Principles, 24e (Wild)
Chapter 6 Inventories and Cost of Sales

1) Goods in transit are automatically included in inventory regardless of whether title has passed
to the buyer.

2) Goods on consignment are goods shipped by their owner, called the consignor, to another party
called the consignee. The consignee sells goods for the owner.

3) If obsolete or damaged goods can be sold, they will be included in inventory at their original
cost.

4) If the seller is responsible for paying freight charges, then ownership of inventory passes when
goods arrive at their destination.

5) Net realizable value for damaged or obsolete goods is sales price less the cost of making the
sale.

6) The cost of an inventory item includes its invoice cost minus any discount, plus any added or
incidental costs necessary to put it in a place and condition for sale.

7) One application of internal control when taking a physical count of inventory is the use of pre-
numbered inventory tickets.

8) Incidental costs for acquiring merchandise inventory, such as import duties, freight, storage,
and insurance, should not be added to the cost of inventory.

9) The physical count of inventory is used to adjust the Inventory account balance to the actual
inventory available.

10) Most companies do not take a physical count of inventory each year, but rather rely on
inventory records to determine the inventory value.

60) Damaged and obsolete goods that can be sold:


A) Are never counted as inventory.
B) Are included in inventory at their full cost.
C) Are included in inventory at their net realizable value.
D) Should be disposed of immediately.
E) Are assigned a value of zero.
61) Merchandise inventory includes:
A) All goods owned by a company and held for sale.
B) All goods in transit.
C) All goods on consignment.
D) Only damaged goods.
E) Only non-damaged goods.

62) Goods in transit are included in a purchaser's inventory:


A) At any time during transit.
B) When the goods are shipped FOB shipping point.
C) When the supplier is responsible for freight charges.
D) If the goods are shipped FOB destination.
E) After the half-way point between the buyer and seller.

63) Consignment goods are:


A) Goods shipped by the owner to the consignee who sells the goods for the owner.
B) Reported in the consignee's books as inventory.
C) Goods shipped to the consignor who sells the goods for the owner.
D) Not reported in the consignor's inventory since they do not have possession of the inventory.
E) Always paid for by the consignee when they take possession.

64) Regardless of the inventory costing system used, cost of goods available for sale must be
allocated at the end of the period between
A) beginning inventory and net purchases during the period.
B) ending inventory and beginning inventory.
C) net purchases during the period and ending inventory.
D) ending inventory and cost of goods sold.
E) beginning inventory and cost of goods sold.
65) On December 31 of the current year, Plunkett Company reported an ending inventory balance
of $215,000. The following additional information is also available:

 Plunkett sold and shipped goods costing $38,000 to Savannah Enterprises on


December 28 with shipping terms of FOB shipping point. The goods were not
included in the ending inventory amount of $215,000.
 Plunkett purchased goods costing $44,000 on December 29. The goods were shipped
FOB destination and were received by Plunkett on January 2 of the following year.
The shipment was a rush order that was supposed to arrive by December 31. These
goods were included in the ending inventory balance of $215,000.
 Plunkett's ending inventory balance of $215,000 included $15,000 of goods being
held on consignment from Carole Company. (Plunkett Company is the consignee.)
 Plunkett's ending inventory balance of $215,000 did not include goods costing
$95,000 that were shipped to Plunkett on December 27 with shipping terms of FOB
destination and were still in transit at year-end.

Based on the above information, the amount that Plunkett should report in ending inventory on
December 31 is:
A) $194,000
B) $209,000
C) $200,000
D) $171,000
E) $156,000

66) Bedrock Company reported a December 31 ending inventory balance of $412,000. The
following additional information is also available:

 The ending inventory balance of $412,000 included $72,000 of consigned inventory


for which Bedrock was the consignor.
 The ending inventory balance of $412,000 included $22,000 of office supplies that
were stored in the warehouse and were to be used by the company's supervisors and
managers during the coming year.

Based on this information, the correct balance for ending inventory on December 31 is:
A) $412,000
B) $340,000
C) $318,000
D) $362,000
E) $390,000
67) Buffalo Company reported a December 31 ending inventory balance of $412,000. The
following additional information is also available:

 The ending inventory balance of $412,000 did not include goods costing $48,000 that
were purchased by Buffalo on December 28 and shipped FOB destination on that
date. Buffalo did not receive the goods until January 2 of the following year.
 The ending inventory balance of $412,000 included damaged goods at their original
cost of $38,000. The net realizable value of the damaged goods was $10,000.

Based on this information, the correct balance for ending inventory on December 31 is:
A) $374,000
B) $384,000
C) $460,000
D) $422,000
E) $438,000

68) Costs included in the Merchandise Inventory account can include all of the following except:
A) Invoice price minus any discount.
B) Transportation-in.
C) Storage.
D) Insurance.
E) Damaged inventory that cannot be sold.

69) Internal controls that should be applied when a business takes a physical count of inventory
should include all of the following except:
A) Prenumbered inventory tickets.
B) A manager confirms that all inventories are ticketed only once.
C) Counters confirm the validity of inventory existence, amounts, and quality.
D) Second counts by a different counter.
E) Counters of inventory should be those who are responsible for the inventory.