Accounting Exam 2

The principles of internal control include:

Separate recordkeeping from custody of assets.

The understatement of the ending inventory balance causes:

Cost of goods sold to be overstated and net income to be understated.

A company's inventory records indicate the following data for the month of January:

15040

A company had the following purchases and sales during its first month of operations:

59.00

Identify each of the following statements as either true or false.

A .guideline for safeguarding cash is to separate the duties of those who have custody of cash from those who keep cash records. True b. Good internal control is to have only one employee be assigned the task of opening mail. False c. A voucher system of control improves internal control of cash payments. True d. A good internal control is to require that all cash receipts be deposited daily. True

Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $4,000 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:

Account Title Debit Credit Allowance for Doubtful Accounts: 4,000 Accounts Receivable—A. Hopkins 4,000

An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled:

Cash Over and Short.

At the end of the day, the cash register's record shows $1,282, but the count of cash in the cash register is $1,261. The correct entry to record the cash sales is

Debit Cash $1,261; debit Cash Over and Short $21; credit Sales $1,282.

Goods in transit are automatically included in inventory regardless of whether title has passed to the buyer.

False

The FIFO inventory method assumes that costs for the latest units purchased are the first to be charged to the cost of goods sold.

False

1. Brooks Agency set up a petty cash fund for $270. At the end of the current period, the fund contained $192 and had the following receipts: entertainment, $33; postage, $21; and printing, $24. Prepare journal entries to record (a) establishment of the fund and (b) reimbursement of the fund at the end of the current period. 2. Identify the two events from the following that cause a Petty Cash account to be credited in a journal entry.

General Journal Petty cash: 270 Cash: 270 Entertainment expense: 33 Postage Expense: 21 Printing Expense: 24 Cash: 78 A. Fund amount is being reduced. Yes b. Fund amount is being increased. No c. Fund is being eliminated. Yes d. Fund is being established. No

A car dealer acquires a used car for $18,000, with terms FOB shipping point. Compute total inventory costs assigned to the used car if additional costs include $100 for transportation-in. $200 for shipping insurance. $960 for car import duties. $170 for advertising. $1,700 for sales staff salaries. $130 for trimming shrubs.

Included in Inventory Cost:Debit: 18,000, 100, 960, 200 Credit: 170, 1,700, 130 = 19,260

A receivable is an amount due from another party

True

An internal control system consists of the policies and procedures companies use to protect assets, ensure reliable accounting, promote efficient operations, and uphold company policies.

True

The cost of an inventory item includes its invoice cost minus any discount, plus any other costs, such as, shipping, storage, import duties, and insurance.

True

The inventory turnover ratio is computed by dividing cost of goods sold by average inventory.

True

Homestead Crafts, a distributor of handmade gifts, operates out of owner Emma Finn's house. At the end of the current period, Emma looks over her inventory and finds that she has 1,600 units (products) in her basement, 26 of which were damaged by water and cannot be sold. 180 units in her van, ready to deliver per a customer order, terms FOB destination. 170 units out on consignment to a friend who owns a retail store. How many total units should Emma include in her company's period-end inventory?

Units in Ending Inventory: Units stored in basement 1,600 units Add: Units in transit: 180 Units on consignment: 170 Less: Damaged units: -26 Total units in period-end inventory: 1,924