ACC201 Exam 2

Bank statement

statement received monthly from the bank that shows the depositor's bank transactions & balances

Fall Company purchased equipment for $90 cash. As a result of this event,

total assets remained unchanged

Electronic Funds Transfers (E.F.T.)

transfer cash from one location to another using telephone/computer

Under accrual accounting when is revenue recognized?

when earned, and expenses when incurred

Temporary accounts

"closed" (reset to 0) at end of one period & then started over again (normally Income Statement accounts)

Carlock Systems received a 6-month, 12% note for $50,000 from a customer on November 1, 2019. The note is due on April 30, 2020. Assuming the company's accounting period ends on December 31, how much interest revenue should be recognized during 2019 and 2020?

$1,000 $2,000

While preparing the April 30th bank reconciliation, the accountant identified the following items: Company's balance according to the general ledger $15,000 Outstanding checks 2,500 Bank service charge 15 A customer's NSF check returned by the bank 100 What is the company's adjusted cash balance at April 30th?

$14,885

Which of the following would be deducted from the balance per books on a bank reconciliation?

service charges

Cash equivalents

short-term, highly liquid investments that can be converted to a specific amount of cash

Cozy Corporation purchased supplies at a cost of $15,000 during the year. At January 1, supplies on hand were $5,000. At December 31, supplies on hand are $2,000. Calculate supplies expense for the year.

$18,000

If a seller offered terms of 2/10, n30 on a $20,000 sale and the purchaser pays on the ninth day, how much does the seller receive?

$19,600

Beginning balance ($2,500) + Purchases ($3,200) = Supplies available ($5,700) minus Supplies used ($3,000) = amount on hand at the end of the year ($2,700). The amount on hand at the end of the year is an asset--an economic resource of the firm--and is therefore, the amount shown on the balance sheet

$2,700

If the end-of-year supplies on hand totaled $200, and purchases totaled $300, and supplies on hand at the beginning of the year amounted to $100, how much will be reported as supplies expense for the current year?

$200

Refer to AT&U Company. If the company estimates its bad debts at 1% of net credit sales, what amount will be reported as bad debt expense?

$24,500

A company uses the allowance method to account for losses from sales on credit. Sales on credit for the year were $200,000, cash sales were $50,000, and the company estimates its uncollectible accounts as $6,000 at year end using the aging method. If there is already a $2,000 credit balance in the account Allowance for Doubtful Accounts, how much should be recorded as an expense due to uncollectible accounts for the year?

$4,000

Refer to the information for Accent Flooring. What is the total amount of interest the company will receive when the note is collected?

$450

Refer to Dreammaker Kitchens. As a result of the bank reconciliation process, what is the net increase or decrease in cash which must be recorded on the company's books?

$600 decrease

Refer to AT&U Company. If the company estimates its bad debt to be 2% of net credit sales, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?

$69,000

A company needs to record 6 months of accrued interest on a 4-year, 12%, $12,000 promissory note payable. How much interest expense should be accrued?

$720

Leaf, Inc. borrows $7,500 at 8% interest for 3 months on October 1. If adjusting entries are prepared on October 30, how much will be credited to Interest Payable?

$7500 x .08 x 1/12 or @50

Calendar year

12 months running from January through December. Fiscal year—is 12 months or 52 weeks. Can be from June 1 to May 30 or any other 12 month or 52 week period

Each of the following items is considered a cash equivalent except

180-day note issued by a local government

A company receiving payment of a $20,000 accounts receivable within 10 days with terms of 2/10, n/30, would record a sales discount of:

2% of $20,000

The general term employed to indicate an expense that has not been paid or revenue that has not been received and has not yet been recognized in the accounts is:

ACCRUED

A customer's check for $25 that had been deposited into the company's checking account the previous month was returned stamped "NSF" by the bank. Which of the following journal entries is required?

Accounts receivable 25 - Cash 25

C.F.E.

Certified Fraud Examiner

The entry on Fall's books to record the purchase of $300 of supplies on account would include a:

Credit Accounts payable $300

The entry on Rainbow's books to record stockholders investment of $10,000 in exchange for common stock in Rainbow would be:

Debit Cash $10,000 & Credit Common Stock $10,000

The entry on Rainbow's books to record the purchase of $500 of supplies on account would be:

Debit Supplies $500 and Credit Accounts payable $500

The following accounts with debit balances are included on the year end trial balance of a company: Prepaid advertising $2,000; advertising expense $5,000. If it is determined that the cost of advertising applicable to future periods is $1,500, the correct adjusting entry is:

Debit advertising expense $500; credit prepaid advertising $500

True/False: The Direct Write off method has an account titled "Allowance for Doubtful Accounts"

FALSE

True/False: Balloon Company uses the Direct Write-off method to account for receivables. They would have an account titled "Allowance for Doubtful Accounts" on balance sheet.

FALSE

True/False: The IRS prefers the "Allowance Method" for calculating Bad Debt Expense

FALSE

Which of the following entries properly closes a temporary account?

Income summary 400 - Salaries expense 400

Refer to the information for Accent Flooring. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Accent Flooring on the maturity date assuming that none of the interest had already been recognized?

Increase Cash by $20,450, increase Interest Revenue by $450, and decrease Notes Receivable by $20,000

Which is the correct order of steps in the accounting cycle?

Journalize and post transactions, journalize and post adjusting entries, journalize and post closing entries.

The College Store accepts MasterCard for payments of purchases made by students. The credit card drafts are deposited directly in a bank account. MasterCard charges a 1.55% collection fee. Credit card drafts totaling $10,000 are deposited during August. Recording the sales and deposits will result in an increase in

Service charge expenses for $155

The asset account, Supplies, has a balance of $10,000 on January 1. During January, $22,000 of supplies were purchased on account and the liability was appropriately recorded. A count of supplies at the end of January indicates a balance of $2,000. What adjusting entry is necessary at January 31?

Supplies expense 30,000 - Supplies 30,000

True/False: Accounts receivable is a permanent account

TRUE

True/False: Balloon Company uses the Allowance method to account for receivables. They would have an account titled "Allowance for Doubtful Accounts" on balance sheet.

TRUE

True/False: Balloon Company uses the Allowance method to account for receivables. They would have an account titled "Bad Debt Expense" on their income statement

TRUE

True/False: Balloon Company uses the Direct Write-off method to account for receivables. They would have an account titled "Bad Debt Expense" on their income statement

TRUE

True/False: The "Allowance Method" is preferred for Financial Reporting by accountants b/c it better follows the Accrual Method

TRUE

Which statement is correct

The use of the cash basis of accounting violates both the revenue recognition and matching principles.

The entry on Rainbow's books to record revenue earned of $1,000 would include

a credit to Revenue for $1,000

The entry on Rainbow's books to record the payment of a liability of $300 would include

a debit to Accounts Payable for $300

The entry on Fall's books to record the payment of a liability of $1,000 would include

a debit to Accounts payable for $1,000 and a credit to cash for $1,000

The entry on Fall's books to record revenue earned of $600 would include

a debit to Unearned revenue for $600

Permanent/Real accounts

accounts that carry over from period to period (normally Balance Sheet accounts)

Contra account

account that is offset against another account can be an asset w/ a credit balance or a liability w/ a debit balance

Periodicity (Time period) assumption

assumption that the economic life of a business can be divided into artificial time periods—months, quarters, fiscal years

the reconciling item in a bank reconciliation that will result in an adjusting entry by the depositor is

bank service charges

From an internal control standpoint, the asset most susceptible to improper diversion and use is

cash

Collection of $600 Accounts Receivable

causes assets to remain unchanged

N.S.F. Check

check that is not paid by bank b/c of insufficient funds in a customer's bank account most cases: N.S.F. check is one written to the company by a customer—not one written by the company.

Cancelled check

checks that have been written by you which are returned in your bank statement (or a copy is returned) and it is "cancelled" on the back

Outstanding checks

checks written & recorded by the company which have not yet been paid by the bank out of the company's account

Cash

coins, currency, checks, money orders, and money on hand or on deposit in a bank/credit union

Internal auditors

company's employees who evaluate on a continuous basis the effectiveness of the company's system of internal control

Cash budget

projection of anticipated cash inflows & out flows over time

Gross profit equals the difference between

sales revenue and cost of goods sold

Paid $40 on account payable due to Green Ltd, this transaction

decreases an asset (Cash) and decreases a liability (Accounts Payable)

Deposits in transit

deposits recoded by the company that have not yet been recorded by the bank in the company's bank account

book value

difference between the cost of a depreciable asset and its related accumulated depreciation (contra account)

Fraud

dishonest act by an employee that results in personal benefit to the employee at a cost to the employer

Accrual-basis accounting

entity records revenue in the period the revenue is earned (revenue recognition principle) and matches expenses to the period in which the revenue was earned (expense recognition or sometimes called the matching principle)

Cash-basis accounting

entity records revenue when cash is received and records expenses when cash is paid

Closing entries

entries made at end of accounting period to transfer balances of temporary accounts to Income Summary Account & then to Retained Earnings Account which will then be on the Balance Sheet

permitting only designated personnel to handle cash receipts is an application of the principle of:

establishment of responsibility

Collection of $1,200 Accounts Receivable

increase an asset and decrease an asset

A company purchased equipment for $9 cash. As a result of this event,

increase an asset and decrease and asset which means assets remain the same

Which of the following items would be added to the company's cash balance on a bank reconciliation?

interest earned on the bank account

Adjusting entries

journal entries made by an entity to show revenue in the period it was earned & match expenses w/ this earned revenue

Failure to record the earned portion of unearned revenue would result in which of the following?

net income being understated

Which of the following adjusting entries involves the cash account?

none of these choices are correct

3 factors that contribute to fraudulent activity

opportunity, financial pressure, rationalization

Which one of the following is not an objective of a system of internal controls?

overstate liabilities in order to be conservative

the use of pre-numbered checks in disbursing cash is an application of the principle of:

physical/mechanical/electronic controls

Internal control

plan of organization & all the related methods & measures adopted within a business to safeguard its assets & enhance accuracy & reliability of the business's accounting

Which one of the following items would not be considered cash?

postdated checks

Bank reconciliation

process of comparing the bank's account balances w/ the company's cash balance, and explaining the differences to make them agree