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Exam 2: Review of the Accounting Process

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Question 21

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Incurring an expense for advertising on account would be recorded by:

A) Debiting liabilities.
B) Crediting assets.
C) Debiting an expense.
D) Debiting assets.

E) A) and D)
F) A) and C)

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Question 22

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-Buildings and equipment (B&E)

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Question 23

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The payment of cash to a supplier would be recorded in a purchases journal.

The sale of merchandise on account would be recorded in a sales journal.

You are reviewing O'Brian Co.'s adjusted trial balance for the year ended 12/31/09. You notice several omissions and incorrect items during your review, some of which are noted below. For each one, you are to determine what effect, if any, these items would have on the stated components of O'Brian Co.'s 2009 Income Statement and 12/31/09 Balance Sheet if they are not corrected or updated. Assume, no income taxes. Use the following code for your answers. You need not include any dollar amounts. N = No Effect O = Overstated U = Understated - $\begin{array}{|l|c|c|c|c|}\hline \text { Additional Information } & \begin{array}{c}12 / 31 / 09 \\\text { Assets }\end{array} & \begin{array}{c}12 / 31 / 09 \\\text { Liabilities }\end{array} & \begin{array}{c}12 / 31 / 09 \\\text { Owners' } \\\text { Equity }\end{array} & \begin{array}{c}2009 \\\text { Net } \\\text { Income }\end{array} \\\hline\text { Supplies purchased during the year for }\\\$ 1,000 \text { cash were recorded by a debit to }\\\text { Supplies Expense and a credit to Cash. }\\\text { Only } \$ 200 \text { of supplies remain at the end }\\\text { of the year, but no further entries have }\\\text { been made. }\\\hline\end{array}$

When converting an income statement from a cash basis to an accrual basis, expenses:

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 - $\begin{array} { | c | c | c | c | c | } \hline \text { Additional Information } & \begin{array} { c } 12 / 31 / 09 \\\text { Assets }\end{array} & \begin{array} { c } 12 / 31 / 09 \\\text { Liabilities }\end{array} & \begin{array} { c } 12 / 31 / 09 \\\text { Owners' Equity }\end{array} & \begin{array} { c } 2009 \\\text { Net Income }\end{array} \\\hline \begin{array} { l } \$ 2,000 \text { interest on a loan was not } \\\text { yet paid or recorded }\end{array} & & & & \\\hline\end{array}$

You are reviewing O'Brian Co.'s adjusted trial balance for the year ended 12/31/09. You notice several omissions and incorrect items during your review, some of which are noted below. For each one, you are to determine what effect, if any, these items would have on the stated components of O'Brian Co.'s 2009 Income Statement and 12/31/09 Balance Sheet if they are not corrected or updated. Assume, no income taxes. Use the following code for your answers. You need not include any dollar amounts. N = No Effect O = Overstated U = Understated - $\begin{array} { | l | c | c | c | c | } \hline \text { Additional Information } & \begin{array} { c } 12 / 31 / 09 \\\text { Assets }\end{array} & \begin{array} { c } 12 / 31 / 09 \\\text { Liabilities }\end{array} & \begin{array} { c } 12 / 31 / 09 \\\text { Owners } \\\text { Equity }\end{array} & \begin{array} { c } 2009 \\\text { Net } \\\text { Income }\end{array} \\\hline \begin{array} { l } \text { Interest earned during the year on a note } \\\text { receivable was not yet collected or } \\\text { recorded }\end{array} & & & & \\\hline\end{array}$

When the amount of revenue collected in advance decreases during an accounting period:

-Short-term notes payable

-Sold inventory on account.

Flint Hills, Inc. has prepared a year-end 2009 trial balance. Certain accounts in the trial balance do not reflect all activities that have occurred. Required: Prepare adjusting journal entries, as needed, for the following items. 1. The Supplies account shows a balance of $540, but a count of supplies reveals only $210 on hand. 2. Flint Hills initially records the payments of all insurance premiums as expenses. The trial balance shows a balance of $420 in Insurance expense. A review of insurance policies reveals that $125 of insurance is unexpired. 3. Flint Hills' employees work Monday through Friday, and salaries of $2,400 per week are paid each Friday. Flint Hills' year-end falls on Tuesday. 4. On December 31, 2009, Flint Hills received a utility bill for December electricity usage of $190 that will be paid in early January.

Sold merchandise to a customer in exchange for a promissory note.

Describe the difference between external events and internal events and give two examples of each.

Based on the information presented above, prepare the 2009 Income Statement for Krafty Foods.

Permanent accounts would not include:

You are reviewing O'Brian Co.'s adjusted trial balance for the year ended 12/31/09. You notice several omissions and incorrect items during your review, some of which are noted below. For each one, you are to determine what effect, if any, these items would have on the stated components of O'Brian Co.'s 2009 Income Statement and 12/31/09 Balance Sheet if they are not corrected or updated. Assume, no income taxes. Use the following code for your answers. You need not include any dollar amounts. N = No Effect O = Overstated U = Understated - $\begin{array} { | l | c | c | c | c | } \hline \text { Additional Information } & \begin{array} { c } 12 / 31 / 09 \\\text { Assets }\end{array} & \begin{array} { c } 12 / 31 / 09 \\\text { Liabilities }\end{array} & \begin{array} { c } 12 / 31 / 09 \\\text { Owners' } \\\text { Equity }\end{array} & \begin{array} { c } 2009 \\\text { Net } \\\text { Income }\end{array} \\\hline \begin{array} { l } \text { Cash dividends declared and paid in } \\\text { December 2009 were unrecorded. }\end{array} & & & & \\\hline\end{array}$

-Sold inventory for cash.

The accounting equation can be stated as:

Paid property taxes that have already been accrued.