Full Name: Natalie Jimenez

Exercise Set A

• LO 5.1 Identify whether each of the following accounts is

nominal/temporary or real/permanent.
• Accounts Receivable
• Fees Earned Revenue
• Utility Expense
• Prepaid Rent
Solution
A. P
B. T
C. T
D. P

• LO 5.1 For 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.
• Interest Expense
• Buildings
• Interest Payable
• Unearned Rent Revenue
Solution
A. T, IS
B. P, BS
C. P, BS
D. P, BS

EA3. LO 5.1 For 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).
• Accounts Payable
• Accounts Receivable
• Cash
• Dividends
• Fees Earned Revenue
• Insurance Expense
• Prepaid Insurance
• Supplies
Solution
A. N, BS
B. N, BS
C. N, BS
D. Y, RES
E. Y, IS
F. Y, IS
G. N, BS
H. N, BS

EA4. LO 5.1 The 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

Solution
•
Service Revenue
$85,000

Income Summary

$85,000
•
Income Summary
$67,100

Advertising Expense

$5,600
Rent Expense

$6,000
Salaries Expense

$48,000
Utilities Expense

$7,500
•
Income Summary
$17,900

Retained Earnings
 $17,900
•
Retained Earnings
$4,000

Dividends

$4,000

EA5. LO 5.1 The 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

Solution
•
Fees earned revenue
90,000
 
Income Summary
 
90,000
•
Income Summary
63,300
 
Selling expense
 
45,000
Administrative expense
 
16,000
Miscellaneous expense
 
2,300
•
Income Summary
 26,700
 
Retained Earnings
 
26,700
•
Retained Earnings
6,000
 
Dividends
 
6,000

EA6. LO 5.1 Use the following excerpts from the year-end Adjusted Trial Balance to prepare the
four journal entries required to close the books:
Adjusted Trial Balance

Debit
Credit
Dividends
$24,000

Sales Revenue

$194,000
Automobile Expense
15,500

Insurance Expense
30,000

Salaries Expense
96,000

Supplies Expense
6,500

Solution
•
Sales Revenue
$194,000

Income Summary

$194,000
•
Income Summary
148,000
 
Automobile Expense
 
15,500
Insurance Expense
 
30,000
Salaries Expense
 
96,000
Supplies Expense
 
6,500
•
Income Summary
$46,000

Retained Earnings

$46,000
•
Retained Earnings
24,000
 
Dividends
 
24,000

EA7. LO 5.1 Use the following T-accounts to prepare the four journal entries required to close
the books:

Debit
Credit
Cash
Bal. 75,000

Service Revenue

Bal. 220,000
Advertising Expense
Bal. 12,000

Rent Expense
Bal. 18,000
 Salaries Expense
Bal. 120,000

Dividends
Bal. 25,000

Retained Earnings

Bal. 30,000

Solution
•
Service Revenue
220,000
 
Income Summary
 
220,000
•
Income Summary
$150,000

Advertising Expense

$12,000
Rent Expense

$18,000
Salaries Expense

$120,000
•
Income Summary
70,000
 
Retained Earnings
 
70,000
•
Retained Earnings
$25,000

Dividends

$25,000
EA8. LO 5.1 Use the following T-accounts to prepare the four journal entries required to close
the books:
Debit
Credit
Cash
Bal. 23,300

Revenue Earned

Bal. 43,000
Commission Expense
Bal. 6,000

Supplies Expense
Bal. 3,200

Wages Expense
Bal. 28,000

Dividends
Bal. 4,000

Retained Earnings

Bal. 21,500

Solution
•
Revenue Earned
$43,000

Income Summary

$43,000
•
Income Summary
$37,200

Commission Expense

$6,000
Supplies Expense

$3,200
Wages Expense

$28,000
 •
Income Summary
5,800
 
Retained Earnings
 
5,800
•
Retained Earnings
4,000
 
Dividends
 
4,000

EA9. LO 5.2 Identify whether each of the following accounts would be listed in the company’s
Post-Closing Trial Balance.
• Accounts Payable
• Advertising Expense
• Dividends
• Fees Earned Revenue
• Prepaid Advertising
• Supplies
• Supplies Expense
• Unearned Fee Revenue
Solution
A. Y
B. N
C. N
D. N
E. Y
F. Y
G. N
H. Y

EA10. LO 5.2 Identify 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

Solution - The following accounts would not be included: Insurance expense, Service revenue,
and Salaries expense.

EA11. LO 5.3 For 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.
• Accounts Payable
• Accounts Receivable
• Cash
• Equipment
• Land
• Notes Payable (due two years later)
• Prepaid Insurance
• Supplies
Solution
A. CL
B. CA
C. CA
D. PPE
E. PPE
F. LL
G. CA
H. CA

EA12. LO 5.3 Using the following Balance Sheet summary information, calculate for the two
years presented:
• working capital
• current ratio

12/31/2018
12/31/2019
Current assets
$76,000
$295,000
Current liabilities
48,000
163,500

Solution
 •
 
12/31/2018
12/31/2019
Current Assets
$76,000
$295,000
Current Liabilities
$48,000
$163,500
Working Capital (CA – CL)
$28,000
$131,500
•
 
12/31/2018
12/31/2019
Current Assets
$76,000
$295,000
Current Liabilities
$48,000
$163,500
Current Ratio (CA/CL)
1.58
1.80

EA13. LO 5.3 Using the following account balances, calculate for the two years presented:
• working capital
• current ratio

12/31/2018
12/31/2019
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

Solution
•
 
12/31/2018
12/31/2019
Current Assets
8,700
31,050
Current Liabilities
4,625
21,220
Working Capital (CA - CL)
4,075
9,830
•
 
12/31/2018
12/31/2019
Current Assets
8,700
31,050
Current Liabilities
4,625
21,220
Current Ratio (CA/CL)
1.88
1.46

EA14. LO 5.3 Using the following Balance Sheet summary information, calculate for the two
companies presented:
• working capital
• current ratio
Then:
• evaluate which company’s liquidity position appears stronger, and why.

Company J
Company K
Current assets
$158,500
$122,000
Current liabilities
141,000
 104,000
Solution
•
 
Company J
Company K
Current Assets
158,500
122,000
Current Liabilities
141,000
104,000
Working Capital (CA - CL)
17,500
18,000
•
 
Company J
Company K
Current Assets
$158,500
$122,000
Current Liabilities
$141,000
$104,000
Current Ratio (CA/CL)
1.12
1.17
• Which is stronger? K
Why? It has a higher working capital and a higher current ratio.

EA15.LO 5.3 Using the following account balances, calculate:

• working capital
• current ratio

Debit
Credit
Cash
$ 27 000

Accounts Receivable
7,300

Prepaid Insurance
17,000
Accounts Payable

$ 14,900
Salaries Payable

16,200
Common Stock

12,000
Service Revenue

66,000
Administrative Expenses
57,800

$109,100
$109,100

Solution
•
Current Assets
$51,300
Current Liabilities
$31,100
Working Capital (CA – CL)
$20,200
•
Current Assets
51,300
Current Liabilities
31,100
Current Ratio (CA/CL)
1.65

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