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Chapter 2 Review of the Accounting Process
Using the chart of accounts provided, indicate by account number the account or accounts that would
be debited and credited in the following transactions and indicate the type of transaction as: (1) an
external transaction, (2) an internal transaction recorded as an adjusting journal entry, or (3) a closing
entry. The company uses a perpetual inventory system. All prepayments are initially recorded in
permanent accounts.
TRANSACTION
Account(s)
Account(s)
Transaction
debited
credited
type
EXAMPLE: Sold $110,000,000 in capital stock for
cash.
1100
3100
1
94. Purchased building and equipment for $10,000,000, paying 20% cash and issuing a 30-year
note for the balance.
95. Invested idle cash in short-term money market funds.
96. Purchased inventory on account.
97. Sold inventory on account.
98. Sold merchandise to a customer in exchange for a promissory note.
99. Accrued the interest earned but not collected on notes receivable.
Chapter 2 Review of the Accounting Process
100. Collected a note receivable at maturity, including the interest that had already been accrued.
101. Collected cash on account from customers.
102. Sold inventory for cash.
Chapter 2 Review of the Accounting Process
103. Received payment for services to be performed next year.
104. Salaries and wages have been earned but are unpaid at the end of an accounting period.
105. Closed the income summary account, assuming there was a net income for the period.
Chapter 2 Review of the Accounting Process
106. Accrued property taxes were paid.
107. Declared cash dividends on common stock.
108. Paid rent for the next three months.
Chapter 2 Review of the Accounting Process
109. 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 and wages, $920.
3. Recorded sales for the first week: Cash: $7,100; On account: $5,300.
4. Paid for inventory purchased in event (1).
5. Placed an order for $6,200 of inventory.
Chapter 2 Review of the Accounting Process
110. 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 salaries and wages, $320.
8. Paid for supplies purchased in item (5).
9. Paid royalties due on first week's sales.
10. Recorded depreciation on equipment, $50.
Chapter 2 Review of the Accounting Process
111. Flint Hills, Inc. has prepared a year-end 2016 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, 2016, Flint Hills received a utility bill for December electricity usage of
$190 that will be paid in early January.
Answer:
112. The following is selected financial information for Osmond Dental Laboratories for 2015 and
2016:
2015
2016
Retained earnings, January 1
$53,000
?
Net income
37,000
42,000
Dividends declared and paid
15,000
18,000
Capital stock
70,000
?
Osmond issued 2,000 shares of additional capital stock in 2016 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, 2016.
113. The Yankel Corporation’s controller prepares adjusting entries only at the end of the fiscal
year. The following adjusting entries were prepared on December 31, 2016:
Debit Credit
Interest expense 1,800
Interest payable 1,800
Insurance expense 60,000
Prepaid insurance 60,000
Interest receivable 3,000
Interest revenue 3,000
Additional information:
1. The company borrowed $30,000 on June 30, 2016. Principal and interest are due on June
30, 2017. This note is the company’s only interest-bearing debt.
2. Insurance for the year on the company’s office buildings is $90,000. The insurance is
paid in advance.
3. On August 31, 2016, Yankel lent money to a customer. The customer signed a note with
principal and interest at 9% due in one year.
Required:
Determine the following:
1. What is the interest rate on the company’s note payable?
2. The 2016 insurance payment was made at the beginning of which month?
3. How much did Yankel lend its customer on August 31?
Chapter 2 Review of the Accounting Process
Chapter 2 Review of the Accounting Process
Use the following to answer questions 114–118:
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 2016 Income Statement and 12/31/16 Balance Sheet. Assume no
income taxes.
Use the following code for your answers and be sure to include the dollar amounts of the effects next
to the letter O or U:
N = No Effect
O = Overstated
U = Understated
114.
Additional Information
12/31/16
Assets
12/31/16
Liabilities
12/31/16
Owners’ Equity
2016
Net Income
$2,000 interest on a loan was not
yet paid or recorded
Answer:
Chapter 2 Review of the Accounting Process
115.
Additional Information
12/31/16
Assets
12/31/16
Liabilities
12/31/16
Owners’ Equity
2016
Net Income
The estimated uncollectible
accounts receivable is now zero
and should be $25,000.
Answer:
116.
Additional Information
12/31/16
Assets
12/31/16
Liabilities
12/31/16
Owners’ Equity
2016
Net Income
$10,000 of the paid and recorded
rent expense pertains to the year
2017.
Answer:
Chapter 2 Review of the Accounting Process
117.
Additional Information
12/31/16
Assets
12/31/16
Liabilities
12/31/16
Owners’ Equity
2016
Net Income
$20,000 in depreciation on some
equipment was still unrecorded.
Answer:
118.
Additional Information
12/31/16
Assets
12/31/16
Liabilities
12/31/16
Owners’ Equity
2016
Net Income
$4,000 in cash dividends
declared and paid in December
2016 were unrecorded.
Chapter 2 Review of the Accounting Process
Use the following to answer questions 119–124:
You are reviewing O'Brian Co.'s adjusted trial balance for the year ended 12/31/16. 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
2016 Income Statement and 12/31/16 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
119.
Additional Information
12/31/16
Assets
12/31/16
Liabilities
12/31/16
Owners’
Equity
2016
Net
Income
Uncollectible accounts of $7,000, as a
percentage of sales, are estimated at the
end of the year. The entry has not been
recorded.
Answer:
Chapter 2 Review of the Accounting Process
120.
Additional Information
12/31/16
Assets
12/31/16
Liabilities
12/31/16
Owners’
Equity
2016
Net
Income
The journal entry for depreciation on
equipment for 2016 was recorded for
$48,000. It should have been $66,000.
Answer:
121.
Additional Information
12/31/16
Assets
12/31/16
Liabilities
12/31/16
Owners’
Equity
2016
Net
Income
Cash dividends declared and paid on
December 15, 2016, were not recorded.
Chapter 2 Review of the Accounting Process
122.
Additional Information
12/31/16
Assets
12/31/16
Liabilities
12/31/16
Owners’
Equity
2016
Net
Income
$10,000 of the rent revenue collected and
recorded as earned this year pertains to
2017.
Answer:
123.
Additional Information
12/31/16
Assets
12/31/16
Liabilities
12/31/16
Owners’
Equity
2016
Net
Income
Interest earned during the year on a note
receivable was not yet collected or
recorded
Chapter 2 Review of the Accounting Process
124.
Additional Information
12/31/16
Assets
12/31/16
Liabilities
12/31/16
Owners’
Equity
2016
Net
Income
Supplies purchased during the year for
$1,000 cash were recorded by a debit to
Supplies Expense and a credit to Cash.
Only $200 of supplies remain at the end
of the year, but no further entries have
been recorded.
Answer:
