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Exam 2: Review of the Accounting Process

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Question 31

True/False

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The closing process brings all temporary accounts to a zero balance and updates the balance in the retained earnings account.

A) True
B) False

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verified

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Question 32

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Invested idle cash in short-term money market funds.

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Question 33

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Fink Insurance collected premiums of $18,000,000 from its customers during the current year. The adjusted balance in the Unearned premiums account increased from $6 million to $8 million dollars during the year. What was Fink's revenues from earned insurance premiums for the current year?

The purpose of closing entries is to transfer:

Kline's 2009 net income (or loss):

XYZ Corporation receives $100,000 from investors for issuing them shares of its stock. XYZ's journal entry to record this transaction would include a:

Examples of external transactions include all of the following except:

Hughes Aircraft sold a four passenger airplane for $380,000, receiving a $50,000 down payment and a 12% note for the balance. The journal entry to record this sale would include a:

Molly's Auto Detailers maintains its records on the cash basis. During 2009, Molly's collected $72,000 from customers and paid $21,000 in expenses. Depreciation expense of $5,000 would have been recorded on the accrual basis. Over the course of the year, accounts receivable increased $4,000, prepaid expenses decreased $2,000, and accrued liabilities decreased $1,000. Molly's accrual basis net income would be:

A reversing entry at the beginning of a period for salaries would include a debit to salaries expense.

The statement of shareholders' equity discloses the changes in the temporary shareholders' equity accounts.

Cost of goods sold is:

-Unearned revenues

Raintree Corporation maintains its records on a cash basis. At the end of each year the company's accountant obtains the necessary information to prepare accrual basis financial statements. The following cash flows occurred during the year ended December 31, 2009: Selected balance sheet information: Additional information: 1. On June 30, 2008, Raintree lent a customer $50,000. Interest at 6% is payable annually on each June 30. Principal is due in 2012. 2. The annual insurance payment is made in advance on March 31. 3. Annual rent on the company's facilities is paid in advance on September 30. Required: 1. Prepare an accrual basis income statement for 2009 (ignore income taxes). 2. Determine the following balance sheet amounts on December 31, 2009: a. Interest receivable b. Prepaid insurance c. Prepaid rent $\begin{array}{l}\text { Cash receipts: }\\\begin{array}{lr}\text { From customers } & \$ 450,000 \\\text { Interest on note } & 3,000 \\\text { Issue of common stock } & 50,000 \\\quad \text { Total cash receipts } & \$ 503,000\end{array}\end{array}$ $\begin{array}{lr}\text { Cash disbursements: } & \\\text { Purchase of merchandise } & \$ 220,000 \\\text { Annual insurance payment } & 9,000 \\\text { Payment of salaries } & 180,000 \\\text { Dividends paid to shareholders } & 6,000 \\\text { Annual rent payment } & 12,000 \\\quad \text { Total cash disbursements } & \$ 427,000\end{array}$ $\begin{array}{l}\begin{array} { l r r } &12/31/08&12/31/09\\\text { Cash }&\$25,000&\$101,000\\\text { Accounts receivable } & 42,000 & 70,000 \\\text { Inventory } & 60,000 & 82,000 \\\text { Prepaid insurance } & 2,000 & ? \\\text { Prepaid rent } & 7,000 & ? \\\text { Interest receivable } & 1,500 & ? \\\text { Note receivable } & 50,000 & 50,000 \\\text { Equipment } & 150,000 & 150,000 \\\text { Accumulated depreciation-equipment } & ( 40,000 ) & ( 55,000 ) \\\text { Accounts payable (for merchandise) } & 50,000 & 62,000 \\\text { Salaries payable } & 20,000 & 28,000 \\\text { Common stock } & 200,000 & 250,000\end{array}\end{array}$

-Property taxes payable

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 - $\begin{array}{|l|c|c|c|c|}\hline \text { Additional Information } & \begin{array}{c}12 / 31 / 09 \\\text { Assets }\end{array} & \begin{array}{c}12 / 31 / 09 \\\text { Liabilities }\end{array} & \begin{array}{c}12 / 31 / 09 \\\text { Owners' Equity }\end{array} & \begin{array}{c}2009 \\\text { Net Income }\end{array} \\\hline \text {Estimated uncollectible accounts of }\\\text { \$ 7,000 are estimated at the end of the year }\\\text {and recorded as a debit to Bad Debts }\\\text { Expense and a credit to Accounts }\\\text {Receivable. The entry has not been made. }\\\hline\end{array}$

The following is selected financial information for Osmond Dental Laboratories for 2008 and 2009: Osmond issued 2,000 shares of additional capital stock in 2009 for $20,000. There were no other capital transactions. Required: Prepare a statement of shareholders' equity for Osmond Dental Laboratories for the year ended December 31, 2009. $\begin{array}{lrr}&2008&2009\\\text { Retained earnings, January } 1 & \$ 53,000 & ? \\\text { Net income } & 37,000 & 42,000 \\\text { Dividends declared and paid } & 15,000 & 18,000 \\\text { Capital stock } & 70,000 & ?\end{array}$

On November 1, 2009, Tim's Toys borrows $30,000,000 at 9% to finance the holiday sales season. The note is for a six-month term and both principal and interest are payable at maturity. What should be the balance of interest payable for the loan as of December 31, 2009?

Kline's 12/31/09 total shareholders' equity:

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