FA Chapter 4 - practice exam PDF

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CHAPTER 4 COMPLETING THE ACCOUNTING CYCLE SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY I t e m

L O

BT I t e m

L O

BT I t e m

1. 2. 3. 4. 5. 6. 7. 8.

1 1 1 1 1 1 1 2

K K C C K K C K

9. 10. 11. 12. 13. 14. 15. 16.

2 2 2 2 2 2 3 3

K K K K K K C K

41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68.

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 3 2 2 2

K K K C C K C K K K K K K C K C AP C K K K AP K K K K K K

69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. 96.

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2

L O

BT

I t e m L O

BT

I t e m

L O

BT

6 6 6 6 6 6 7 7

C K K K K K K K

33. 34. sg 35. sg 36. sg 37. sg 38. sg 39. sg 40.

7 1 2 2 3 6 6 6

K K K K K C K K

5 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6

AN AN AN AN AN AN AN AN AN K K C K K C C K K K K K K K C AN AN AN AN

153. 154. 155. 156. 157. 158. 159. 160. 161. a 162. a 163. sg 164. sg 165. sg 166. sg 167. st 168. sg 169. st 170. sg 171. st 172. sg 173. st,a 174.

6 6 6 6 6 6 6 6 6 7 7 1 2 2 3 4 4 5 5 6 6 7

AN AN AN K K K K AP AP K K C K K K K K K AN K K K

True-False Statements 17. 18. 19. 20. 21. 22. 23. 24.

4 4 5 5 5 6 6 6

K C C K C K C C

25. 26. 27. 28. 29. 30. a 31. a 32.

a

sg

Multiple Choice Questions

sg st a

K K K K K K K K K C K K C K K C C C C C AN C C C C AN C C

97. 98. 99. 100. 101. 102. 103. 104. 105. 106. 107. 108. 109. 110. 111. 112. 113. 114. 115. 116. 117. 118. 119. 120. 121. 122. 123. 124.

3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5

K C K K K K K C C C K K K K K K K K K K AN K C K AN AN AN AN

125. 126. 127. 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. 144. 145. 146. 147. 148. 149. 150. 151. 152.

This question also appears in the Study Guide. This question also appears in a self-test at the student companion website. This question covers a topic in an appendix to the chapter.

4-2

Test Bank for Financial Accounting, Eighth Edition

SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY Brief Exercises 175. 176. 177.

2 2 2

AN 178. AN 179. AN 180.

2 3 5

K 181. K 182. AN 183.

5 6 6

AN AN AP

184. 185. a 186.

6 6 7

AP K AP

205. 206. 207. 208. 209. 210.

5 5 5 6 6 6

AN AN AN AP AN AP

Exercises 187. 188. 189. 190. 191. 192.

1 1 1 1 1 1

C C AN AN AN AN

193. 194. 195. 196. 197. 198.

1,6 2 2 2 2 2

AP AN AP AP AP AP

215.

5,6

AP

216.

5

AN

199. 200. 201. 202. 203. 204.

2 3 3 4 5 5

AP C AN C AN AN

211. 212. a 213. a 214. a

6 7 7 7

AP AN AN AN

Challenge Exercises 217.

6

AP

Completion Statements 218. 219. 220.

1 1 2

K K K

230.

6

K

231. 232.

1 2

K K

221. 222. 223.

233. 234.

2 2 3

K K K

224. 4 K 225. 6 K 226. 6 K Matching

227. 228. 229.

6 6 6

K K K

6 6

Short-Answer Essay a 235. 7 K K 237. K 236. 5 K

5

K

Matching Question: 230, IFRS Questions: 238-248 SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE I t e m T y p e I t e m 1. 2. 3. 4. 5. 6. 8. 9. 10. 11. 12. 13. 14. 32. 33.

TF TF TF TF TF TF TF TF TF TF TF TF TF TF TF

7. 31. 41. 42. 43. 44. 60. 61. 62. 63. 64. 65. 66. 67. 68.

T y pe I t e m

T y p e I t e m

TF TF MC MC MC MC MC MC MC MC MC MC MC MC MC

T y pe I t e m

T y p e I t e m

T y pe I t e m

T y pe

45. 46. 47. 48. 49. 50.

Learning Objective 1 MC 51. MC 57. MC 52. MC 58. MC 53. MC 59. MC 54. MC 162. MC 55. MC 187. MC 56. MC 188.

MC MC MC MC Ex Ex

189. 190. 191. 192. 193. 218.

Ex Ex Ex Ex Ex C

219. 231.

C SA

69. 70. 71. 72. 73. 74. 75. 76. 77.

Learning Objective 2 MC 78. MC 87. MC 79. MC 88. MC 80. MC 89. MC 81. MC 90. MC 82. MC 91. MC 83. MC 92. MC 84. MC 93. MC 85. MC 94. MC 86. MC 95.

MC MC MC MC MC MC MC MC MC

96. 165. 166. 175. 176. 177. 178. 194. 195.

MC MC MC BE BE BE BE Ex Ex

196. 197. 198. 199. 220. 221. 222. 232.

Ex Ex Ex Ex C C C SA

FOR INSTRUCTOR USE ONLY

Completing the Accounting Cycle

15. 16. 34. 17. 18. 107.

TF TF TF

97. 98. 99.

TF TF MC

108. 109. 110.

MC MC MC MC MC MC

100. 101. 102.

Learning Objective 3 MC 103. MC 106. MC 104. MC 167. MC 105. MC 179.

MC MC BE

111. 112. 113.

Learning Objective 4 MC 114. MC 169. MC 115. MC 202. MC 168. MC 224.

MC Ex C

200. 201. 223.

4-3

Ex Ex C

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE 19. TF 20. TF 21. TF 116. MC 22. 23. 24. 25. 26. 27. 28. 29. 30. 38.

117. 118. 119. 120.

TF TF TF TF TF TF TF TF TF TF

39. 40. 126. 127. 128. 129. 130. 131. 132. 133.

TF TF MC MC MC MC MC MC MC MC

163. 174. 165. 166.

MC MC MC MC

a

a

a

a

31. TF 32. TF a 33. TF a 162. MC Note:

MC MC MC MC

121. 122. 123. 124.

Learning Objective 5 MC 125. MC 181. MC 170. MC 203. MC 171. MC 204. MC 180. BE 205.

Learning Objective 6 134. MC 144. MC 154. 135. MC 145. MC 155. 136. MC 146. MC 156. 137. MC 147. MC 157. 138. MC 148. MC 158. 139. MC 149. MC 159. 140. MC 150. MC 160. 141. MC 151. MC 161. 142. MC 152. MC 172. 143. MC 153. MC 173. Learning Objective a7 167. MC 171. MC 175. 168. MC 172. MC a186. 169. MC 173. MC a212. 170. MC 174. MC a213.

TF = True-False MC = Multiple Choice SA = Short-Answer Essay

BE Ex Ex Ex

206. 207. 215. 216.

Ex Ex CE CE

236. 237.

SA SA

MC MC MC MC MC MC MC MC MC MC

182. 183. 184. 185. 192. 208. 209. 210. 211. 215.

BE BE BE BE BE Ex Ex Ex Ex C

217. 225. 226. 227. 228. 229. 230. 233. 234.

C C C C C C MA SA SA

214. 235.

Ex SA

MC BE Ex Ex

BE = Brief Exercise EX = Exercise CE = Challenge Exercise

a

C = MA =

Completion Matching

Matching Question: 230 IFRS Questions: 238-248

CHAPTER LEARNING OBJECTIVES 1. Prepare a worksheet. The steps in preparing a worksheet are: (a) Prepare a trial balance on the worksheet, (b) Enter the adjustments in the adjustments columns, (c) Enter adjusted balances in the adjusted trial balance columns, (d) Extend adjusted trial balance amounts to appropriate financial statement columns, and (e) Total the statement columns, compute net income (or net loss), and complete the worksheet. 2. Explain the process of closing the books. Closing the books occurs at the end of an accounting period. The process is to journalize and post closing entries and then rule and balance all accounts. In closing the books, companies make separate entries to close

FOR INSTRUCTOR USE ONLY

4-4

Test Bank for Financial Accounting, Eighth Edition revenues and expenses to Income Summary, Income Summary to Retained Earnings, and Dividends to Retained Earnings. Only temporary accounts are closed.

3. Describe the content and purpose of a post-closing trial balance. A post-closing trial balance contains the balances in permanent accounts that are carried forward to the next accounting period. The purpose of this trial balance is to prove the equality of these balances. 4. State the required steps in the accounting cycle. The required steps in the accounting cycle are: (1) analyze business transactions, (2) journalize the transactions, (3) post to ledger accounts, (4) prepare a trial balance, (5) journalize and post adjusting entries, (6) prepare an adjusted trial balance, (7) prepare financial statements, (8) journalize and post closing entries, and (9) prepare a post-closing trial balance. 5. Explain the approaches to preparing correcting entries. One way to determine the correcting entry is to compare the incorrect entry with the correct entry. After comparison, the company makes a correcting entry to correct the accounts. An alternative to a correcting entry is to reverse the incorrect entry and then prepare the correct entry. 6. Identify the sections of a classified balance sheet. A classified balance sheet categorizes assets as current assets; long-term investments; property, plant, and equipment; and intangibles. Liabilities are classified as either current or long-term. There is also an owner's (owners’) equity section, which varies with the form of business organization. a

7. Prepare reversing entries. Reversing entries are the opposite of the adjusting entries made in the preceding period. Some companies choose to make reversing entries at the beginning of a new accounting period to simplify the recording of later transactions related to the adjusting entries. In most cases, only accrued adjusting entries are reversed.

TRUE-FALSE STATEMENTS 1.

A worksheet is a mandatory form that must be prepared along with an income statement and balance sheet.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

2.

If a worksheet is used, financial statements can be prepared before adjusting entries are journalized.

Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

3.

If total credits in the income statement columns of a worksheet exceed total debits, the enterprise has net income.

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

4.

It is not necessary to prepare formal financial statements if a worksheet has been prepared because financial position and net income are shown on the worksheet.

Ans: F, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

5.

The adjustments on a worksheet can be posted directly to the accounts in the ledger from the worksheet.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

FOR INSTRUCTOR USE ONLY

Completing the Accounting Cycle 6.

4-5

The adjusted trial balance columns of a worksheet are obtained by subtracting the adjustment columns from the trial balance columns.

Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

7.

The balance of the depreciation expense account will appear in the income statement debit column of a worksheet.

Ans: T, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

8.

Closing entries are unnecessary if the business plans to continue operating in the future and issue financial statements each year.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

9.

The Dividends account is closed to the Income Summary account in order to properly determine net income (or loss) for the period.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

10.

After closing entries have been journalized and posted, all temporary accounts in the ledger should have zero balances.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

11.

Closing revenue and expense accounts to the Income Summary account is an optional bookkeeping procedure.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

12.

Closing the Dividends account to Retained Earnings is not necessary if net income is greater than dividends during the period.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

13.

The Dividends account is a permanent account whose balance is carried forward to the next accounting period.

Ans: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

14.

Closing entries are journalized after adjusting entries have been journalized.

Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

15.

The amounts appearing on an income statement should agree with the amounts appearing on the post-closing trial balance.

Ans: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

16.

The post-closing trial balance is entered in the first two columns of a worksheet.

Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

17.

A business entity has only one accounting cycle over its economic existence.

Ans: F, LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

18.

The accounting cycle begins at the start of a new accounting period. FOR INSTRUCTOR USE ONLY

4-6

Test Bank for Financial Accounting, Eighth Edition

Ans: T, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

19.

Both correcting entries and adjusting entries always affect at least one balance sheet account and one income statement account.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

20.

Correcting entries are made any time an error is discovered even though it may not be at the end of an accounting period.

Ans: T, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

21.

An incorrect debit to Accounts Receivable instead of the correct account Notes Receivable does not require a correcting entry because total assets will not be misstated.

Ans: F, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

22.

In a corporation, Retained Earnings is a part of owners' equity.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

23.

A company's operating cycle and fiscal year are usually the same length of time.

Ans: F, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

24.

Cash and supplies are both classified as current assets.

Ans: T, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

25.

Long-term investments would appear in the property, plant, and equipment section of the balance sheet.

Ans: F, LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

26.

A liability is classified as a current liability if the company is to pay it within the forthcoming year.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

27.

A company's liquidity is concerned with the relationship between long-term investments and long-term debt.

Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Risk Analysis, AICPA PC: Problem Solving, IMA: Business Economics

28.

Current assets are customarily the first items listed on a classified balance sheet.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

29.

The operating cycle of a company is determined by the number of years the company has been operating.

Ans: F, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

30.

The accumulated depreciation account shows the total amount of depreciation that the company has expensed thus far in the asset's life.

Ans: T, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting a

31.

The use of reversing entries changes the amount reported in the financial statements. FOR INSTRUCTOR USE ONLY

Completing the Accounting Cycle

4-7

Ans: F, LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA a

32.

Each reversing entry is the exact opposite of the adjusting entry made in the previous period.

Ans: T, LO: 7, Bloom: K, Difficulty: Ea...