Owner's capital must be closed each accounting period

Multiple Choice: Chose the one best answer for each of the following (2 points each)

1. The purpose of adjusting entries is to:

a. Adjust the capital account for the revenue, expense, and withdrawals recorded during the accounting period

b. Adjust daily the balances in asset, liability, revenue, and expense accounts for the effects of business transactions

c. Apply the realization principle and the matching principle to transactions affecting two or more accounting periods

d. Prepare revenue and expense accounts for recording the transactions of the next accounting period

2. Before month-end adjustments are made, the January 31 trial balance of Jackson Tours contains revenue of $27,900 and expenses of $17,340. Adjustments are necessary for the following items:

Portion of prepaid rent applicable to January, $2,700

Depreciation for January, $1,440

Portion of fees collected in advance earned in January, $3,300

Fees earned in January, not yet billed to customers, $1,950

Net income in Jackson Tours’ January income statement is:

a. $10,560

b. $17,070

c. $7,770

d. $11,670

3. Which of the following accounts is not closed to the Income Summary account at the end of the accounting period?

a. Rent Expense

b. Accumulated Depreciation

c. Unearned Revenue

d. Supplies Expense

e. Both b and c

4. Under the accrual basis of accounting:

a. Cash must be received before revenue is recognized

b. Net income is calculated by matching cash outflows against cash inflows

c. Events that change a company’s financial statements are recognized in the period they occur rather than in the period in which cash is paid or received

d. The ledger accounts must be adjusted to reflect a cash basis of accounting before financial statements are prepared under generally accepted accounting principles.

5. Adjusting entries affect at least

a. One revenue and one expense account

b. One asset and one liability account

c. One revenue and one balance sheet account

d. One income statement account and one balance sheet account

6. The following items appeared on a company's December 31 work sheet for the current period. Based on the following information, what is the net income for the current period? image1.wmf a. $1,400. b. $1,855. c. $1,905. d. $2,060. e. $4,670.

7. . J. Awn, the proprietor of Awn Services, withdrew $8,700 from the business during the current year. The entry to close the withdrawals account at the end of the year is: a. Debit J. Awn, Withdrawals $8,700; credit Cash, $8,700 b. Debit J. Awn, Capital $8,700; credit J. Awn, Withdrawals $8,700 c. Debit J. Awn, Withdrawals $8,700; credit J. Awn, Capital $8,700 d. Debit J. Awn, Capital $8,700, credit Salary Expense $8,700 e. Debit Income Summary $8,700; credit J. Awn, Capital $8,700

8. At the beginning of the year, a company's balance sheet reported the following balances: Total Assets = $125,000; Total Liabilities = $75,000; and Owner's Capital = $50,000. During the year, the company reported revenues of $46,000 and expenses of $30,000. In addition, owner's withdrawals for the year totaled $20,000. Assuming no other changes to owner's capital, the balance in the owner's capital account at the end of the year would be: a. $66,000. b. $86,000. c. $(4,000). d. $46,000. e. $54,000.

9. . An error is indicated if the following account has a balance appearing on the post-closing trial balance: a. Office Equipment. b. Accumulated Depreciation-Office Equipment. c. Depreciation Expense-Office Equipment. d. Ted Nash, Capital. e. Salaries Payable.

10. Which of the following statements is true? a. Owner's capital must be closed each accounting period. b. A post-closing trial balance should include only permanent accounts. c. Information on the work sheet can be used in place of preparing financial statements. d. By using a work sheet to prepare adjusting entries you need not journalize or post these entries to the ledger accounts. e. Closing entries are only necessary if errors have been made.

The following information is available for Nixon Company for the year ended December 31, 2012:

Accounts payable 2,700

Building not currently used 9,500

Accumulated depreciation, equipment 4,000

Nixon, Capital 20,800

Intangible assets 2,500

Notes payable (due in 5 years) 7,500

Accounts receivable 1,500

Cash 2,600

Short-term investments 1,000

Land 10,000

Equipment 7,500

Long-term investments 400

Instructions

Use the above information to prepare a classified balance sheet for the year ended December 31, 2012. Note: It may be necessary to use three columns in one of the asset sections to be sure no figures interfere with what is added and subtracted.