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Exam 2: Review of the Accounting Process

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Question 41

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Suppose that Laramie Company's adjusted trial balance ignored the following information. For each item of information, indicate what effects, if any, these omissions would have on the stated components of Laramie Company's 2009 Income Statement and 12/31/09 Balance Sheet. Assume no income taxes. Use the following code for your answers and be sure to include the dollar amounts of the effects: 0 = No Effect + = Overstated = Understated - $\begin{array} { | c | c | c | c | c | } \hline \text { Additional Information } & \begin{array} { c } 12 / 31 / 09 \\\text { Assets }\end{array} & \begin{array} { c } 12 / 31 / 09 \\\text { Liabilities }\end{array} & \begin{array} { c } 12 / 31 / 09 \\\text { Owners' Equity }\end{array} & \begin{array} { c } 2009 \\\text { Net Income }\end{array} \\\hline \begin{array} { l } \text { \$20,000 in depreciation on some } \\\text { equipment was still unrecorded. }\end{array} & & & & \\\hline\end{array}$

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Question 42

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Mary Parker Co. invested $15,000 in ABC Corporation and received capital stock in exchange. Mary Parker Co.'s journal entry to record this transaction would include a:

A) Debit to investments.
B) Credit to retained earnings.
C) Credit to capital stock.
D) Debit to expense.

E) C) and D)
F) B) and C)

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Question 43

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Purchased building and equipment for $10,000,000, paying 20% cash and issuing a 30-year note for the balance.

Allowance for uncollectible accounts

The balance sheet can be considered a change or flow statement.

Prepare the closing entries for China Tea Company for the year ended December 31, 2009.

The adjusting entry required to record accrued expenses includes:

Rite Shoes was involved in the transactions described below. Required: Prepare the appropriate journal entry for each transaction. If an entry is not required, state "No Entry." 1. Purchased $8,200 of inventory on account. 2. Paid weekly salaries, $920. 3. Recorded sales for the first week: Cash: $7,100; On account: $5,300. 4. Paid for inventory purchased in event (a.) 5. Placed an order for $6,200 of inventory.

Kline's 12/31/09 total current assets:

Prepare journal entries to record the following transactions of Daisy King Ice Cream Company. If an entry is not required, state "No Entry." 1. Started business by issuing 10,000 shares of capital stock for $20,000. 2. Signed a franchise agreement to pay royalties of 5% of sales. 3. Leased a building for three years at $500 per month and paid six months' rent in advance. 4. Purchased equipment for $5,400, paying $1,000 down and signing a two-year, 10% note for the balance. 5. Purchased $1,800 of supplies on account. 6. Recorded cash sales of $800 for the first week. 7. Paid weekly wages, $320. 8. Paid for supplies purchased in item (e). 9. Paid royalties due on first week's sales. 10. Recorded depreciation on equipment, $50.

Describe what is meant by prepaid expenses and give two examples.

A future economic benefit owned or controlled by an entity is:

Suppose that Laramie Company's adjusted trial balance ignored the following information. For each item of information, indicate what effects, if any, these omissions would have on the stated components of Laramie Company's 2009 Income Statement and 12/31/09 Balance Sheet. Assume no income taxes. Use the following code for your answers and be sure to include the dollar amounts of the effects: 0 = No Effect + = Overstated = Understated - $\begin{array}{|c|c|c|c|c|}\hline & 12 / 31 / 09 & 12 / 31 / 09 & 12 / 31 / 09 & 2009 \\\text { Additional Information } & \text { Assets } & \text { Liabilities } & \text { Owners' Equity } & \text { Net Income } \\\hline\text { The estimated uncollectible }\\\text { accounts receivable is now zero }\\\text { and should be } \$ 25,000 \text {. }\\\hline\end{array}$

What is the purpose of the statement of cash flows? List the three major categories of cash flows and give an example of a cash transaction for each category.

-Interest revenue

On December 31, 2009, Coolwear, Inc. had balances in its accounts receivable and allowance for uncollectible accounts of $48,400 and $0, respectively. No receivables were written off during the year. At the end of 2009, Coolwear estimated that $2,100 in receivables would not be collected. Bad debt expense for 2009 would be:

The adjusting entry required when amounts previously recorded as unearned revenues are earned includes:

Prepayments occur when:

On December 31, 2009, the end of Larry's Used Cars first year of operations, the accounts receivable was $53,600. The company estimates that $1,200 of the year-end receivables will not be collected. Accounts receivable in the 2009 balance sheet will be valued at:

After an unadjusted trial balance is prepared, the next step in the accounting processing cycle is the preparation of financial statements.