Question

1.

The Bark Company fails to record these two journal entries:

1. Expiration of Prepaid Insurance: $10
2. Cash dividends declared: $40

Working capital will be:

Select one:

a. $10 overstated

b. $30 overstated

c. $10 understated

d. $50 overstated

e. $50 understated

2.

The Looper River Company makes three adjusting entries at 12/31:

• Depreciation $50
• Accrued Revenue $80
• Accrued Expense $65

Indicate the net effect of these three entries on Net Income and Working Capital, respectively:

Select one:

a. Increase $15, Increase $15

b. Decrease $65, Decrease $15

c. Decrease $15, Increase $15

d. Decrease $35, Decrease $65

e. Decrease $35, Increase $15

3.

Following all closing entries, the trial balance totals will be:

$15,000 7,000 3,000 5,000 24,000 LAKE CORPORATION ADJUSTED TRIAL BALANCE DECEMBER 31, 2012 Cash Accounts Receivable Supplies Prepaid Insurance Equipment Accumulated Depreciation, Equipment Accounts Payable Common Stock Retained Earnings Dividends Commission Revenue Depreciation Expense, Equipment Wages Expense Insurance Expense $ 6,000 12,000 20,000 10,000 8,000 34,000 2.000 14,000 4.000 $82,000 $82,000

Select one:

a. $48,000

b. $82,000

c. $62,000

d. $88,000

e. $54,000

Answer 1

1)	Working Capital = Current Asset - Current Liabilities
	Prepaid Insurance = Current Assets = Which are now expired but not recorded that means woking capital overstated by $10
	Cash Dividends = Current Liabilities = Which not recorded means working capital overstated by $40
	therefore working capital overstated by = $10+$40 =$50
	Correct Option: d) $50 Overstated
2)	Effect On Net Income
	Accrued Revenue		$                           80
	Less:
	Accured Expenses		$                           65
	Depreciation		$                           50
	Net Effect		$                         -35
	Decrease by $35
	Effect on working capital
	Accrued Revenue (Current Asset)
	Less:
	Accrued Expenses
	Effect On Working Capital
	Increase by $15
	Correct Option: e.Decrease $35, Increase $15
3)	b. $82,000