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Exam 2: Review of the Accounting Process

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Question 1

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Adjusting journal entries are required to comply with the realization and matching principles.

A) True
B) False

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verified

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Question 2

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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 - $\begin{array}{|l|c|c|c|c|}\hline \text { Additional Information } & \begin{array}{c}12 / 31 / 09 \\\text { Assets }\end{array} & \begin{array}{c}12 / 31 / 09 \\\text { Liabilities }\end{array} & \begin{array}{c}12 / 31 / 09 \\\text { Owners' } \\\text { Equity }\end{array} & \begin{array}{c}2009 \\\text { Net } \\\text { Income }\end{array} \\\hline \begin{array}{l}\text { The journal entry for depreciation on } \\\text { equipment for } 2009 \text { was recorded for } \\\$ 48,000 . \text { It should have been } \$ 66,000 .\end{array} & \\\hline\end{array}$

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Question 3

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Describe what is meant by unearned revenues and give two examples.

-Accounts receivable

Prepare a classified balance sheet for China Tea Company as of December 31, 2009.

Accrued the interest earned but not collected on notes receivable.

What is the purpose of the closing process?

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 - $\begin{array} { | l | c | c | c | c | } \hline { \text { Additional Information } } & \begin{array} { c } 12 / 31 / 09 \\\text { Assets }\end{array} & \begin{array} { c } 12 / 31 / 09 \\\text { Liabilities }\end{array} & \begin{array} { c } 12 / 31 / 09 \\\text { Owners' Equity }\end{array} & \begin{array} { c } 2009 \\\text { Net Income }\end{array} \\\hline \begin{array} { l } \text { \$10,000 of the paid and recorded } \\\text { rent expense pertains to the year } \\2010 .\end{array} & & & & \\\hline\end{array}$

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 - $\begin{array} { | l | c | c | c | c | } \hline { \text { Additional Information } } & \begin{array} { c } 12 / 31 / 09 \\\text { Assets }\end{array} & \begin{array} { c } 12 / 31 / 09 \\\text { Liabilities }\end{array} & \begin{array} { c } 12 / 31 / 09 \\\text { Owners' Equity }\end{array} & \begin{array} { c } 2009 \\\text { Net Income }\end{array} \\\hline \begin{array} { l } \text { \$4,000 in cash dividends } \\\text { declared and paid in December } \\2009 \text { were unrecorded. }\end{array} & & & & \\\hline\end{array}$

Carolina Mills purchased $270,000 in supplies this year. The supplies account increased by $10,000 during the year to an ending balance of $66,000. What was supplies expense for Carolina Mills during the year?

Collected a note receivable at maturity, including the interest that had already been accrued.

-Supplies expense

An example of a contra account is:

The income statement summarizes the operating activity of a firm at a particular point in time.

Accruals occur when the cash flow precedes either revenue or expense recognition.

Prepare an income statement for China Tea Company for the year ended December 31, 2009.

Permanent accounts would not include:

Based on the information presented above, prepare the 12/31/09 Balance Sheet for Krafty Foods.

What is an accrued liability?

Closed the income summary account, assuming there was a net income for the period.