Audit example exercise.

During the course of the year 2 audit of Smithstone Company, the auditor discovered the following situations that the client had not recorded. Your task is to determine if proposing an adjusting entry is required. Each audit finding is independent of any of the other findings. In the boxes next to the situation 'ndicate fromthe below selection list of accounts or statements. Select the accountfs] that would comprise the adjusting journal entry, if required, to correct the audit finding. Items on the list may be used once, more than once, or not at all. List of possible accounts or statements Common Stock Sales Revenue Allowance for Doubtful Accounts Operating Expenses [Includes ALL of the expenses) COGS Interest Expense lvlisc. Income Accumulated Depreciation Disclosure but no entry required Accrued Liabilities [Includes all other payables) Interest Payable Trade Accounts Payable Building Other Current Assets Accounts Receivable Land No entry or disclosure required Adjusting Journal Entmf Statement E Audit Finding Dr. Cr. The bank's confirmation reply regarding the company's line of credit indicated that the December, Year 2, interest was unpaid atyearend. Income statement indicates that eleven months of intertest has been expensed in year 2. Employee overtime pay for hours worked before yearend, but paid in the following year, were not recorded in year 2. At the end ofyear 2, a major customer filed for bankruptcy. Consigned inventory was included in the inventory count. (Smithstone Company is the consignee} 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. At the beginning ofyear 2, Smithstone purchased a small building on a piece of land. The total acquisition price was allocated to land