Question 8 At the end of + year, the adjusted trial balance for Drool Corporation contains the following amounts for the income statement accounts (the balance in each account is the normal balance for that type of account). Account Balance Advertising Fees Earned Interest Revenue Wage and Salary Expense Utilities Expense Insurance Expense Depreciation Expense Interest Expense Income Tax Expense Dividends $58,500 2,700 14,300 12,500 7,300 16,250 2,600 3,300 2,000 Required 1. Prepare all necessary journal entries to close Drool Corporation's accounts at the end of the year. 2. Assume that the accountant for Drool forgets to record the closing entries. What will be the effect on net income for the following year? Question 9 Read each definition on the next page and then write the number of that definition in the blank beside the appropriate term it defines. 1. Recognition Historical cost Realizable value Cash basis Accrual basis Revenues Expenses Adjusting entries Straight-line method Contra account Interim statement Unearned revenue Accrual Accrued liability Accrued asset Accounting cycle Work sheet Permanent accounts Temporary accounts Closing entries Prepaid expense A device used at the end of the period to gather the information needed to prepare financial statements without actually recording and posting adjusting entries. 2. Inflows or other enhancements of assets or settlements of liabilities from delivering or producing goods, rendering services, or other activities. 3. Journal entries made at the end of a period by a company using the accrual basis of accounting. 4. Journal entries made at the end of the period to return the balance in all temporary accounts to zero and transfer the net income or loss and the dividends of the period to Retained Earnings. 5. A liability resulting from the receipt of cash before the recognition of revenue. 6. The name given to balance sheet accounts because they are permanent and are not closed at the end of the period. 7. An asset resulting from the recognition of a revenue before the receipt of cash. 8. The amount of cash, or its equivalent, that could be received by selling an asset currently. 9. The assignment of an equal amount of depreciation to each period. 10. A series of steps performed each period and culminating with the preparation of a set of financial statements. 11. A system of accounting in which revenues are recognized when earned and expenses when incurred. 12. Cash has not yet been paid or received, but expense has been incurred or revenue earned. 13. Financial statements prepared monthly, quarterly, or at other intervals less than a year in duration. 14. The process of recording an item in the financial statements as an asset, liability, revenue, expense, or the like. 15. An asset resulting from the payment of cash before the incurrence of expense. 16. The name given to revenue, expense, and dividend accounts because they are temporary and are closed at the end of the period. 17. A system of accounting in which revenues are recognized when cash is received and expenses when cash is paid. 18. A liability resulting from the recognition of an expense before the payment of cash. 19. An account with a balance that is opposite that of a related account. 20. The amount that is paid for an asset and that is used as a basis for recognizing it on the balance sheet and carrying it on later balance sheets. 21. Outflows or other using up of assets or incurrences of liabilities resulting from delivering goods, rendering services, or carrying out other activities.