During the course of the year 2 audit of Smithsone Company, the auditor discovered the following situations that may or may not require an adjusting journal entry. Each audit finding is independent of any of the other findings. Select the account or accounts that would comprise the adjusting journal entry, if required, to correct the audit finding. Accounts may be used once, more than once, or not at all. Audit finding The bank’s confirmation reply regarding the company’s line of credit indicated that the December, year 2, interest was unpaid at year-end. Accruals for monthly interest expense have been made for 11 months in year 2 by the company. Employee overtime pay for hours worked before year-end, but paid in the following year, were not recorded in year 2. In the last week of year 2, the company recorded revenue for services rendered to some clients in year 3. During year 2, a former client sued the company for inappropriate work. Legal counsel has advised that it is “reasonably possible” that the company will be assessed damages. An amount can be estimated. Section list for amount: Cash Accrued liabilities Interest expense Accounts receivable Common stock Other income Other current assets Revenues Accumulated depreciation Property and equipment Allowance for doubtful accounts Disclosure but not entry required Accounts payable Operating expenses No entry or disclosure required
During the course of the year 2 audit of Smithsone Company, the auditor discovered the following situations that may or may not require an
Audit finding
The bank’s confirmation reply regarding the company’s line of credit indicated that the December, year 2, interest was unpaid at year-end. Accruals for monthly interest expense have been made for 11 months in year 2 by the company.
Employee overtime pay for hours worked before year-end, but paid in the following year, were not recorded in year 2.
In the last week of year 2, the company recorded revenue for services rendered to some clients in year 3. During year 2, a former client sued the company for inappropriate work. Legal counsel has advised that it is “reasonably possible” that the company will be assessed damages. An amount can be estimated.
Section list for amount:
Cash
Accrued liabilities
Interest expense
Common stock
Other income
Other current assets
Revenues
Accumulated
Property and equipment
Allowance for doubtful accounts
Disclosure but not entry required
Accounts payable
Operating expenses
No entry or disclosure required
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