ACCT 205 Chapter 4/5

Factoring is the act of selling accounts receivable to a third party to generate cash quickly

True

T or F: An NSF check would be recorded on the books by debiting Accounts Recievable?

True

T or F: Different people should perform various accounting duties to minimize errors and the opportunities for fraud?

True

T or F: Encryption helps to secure confidential info in e- commerce.

True

T or F: The three corners of the fraud triangle consist of motive, opportunity, and rationalization

True

T or F:A budget is a financial plan that helps coordinate business activities

True

True or False: A written promise to pay a specified amount of money at a particular future date is referred to as a promissory note

True

True or False: The Allowance for Uncollectible Accounts is a contra account to Accounts Receivable.

True

True or False: The principal amount of a note is the amount borrowed by the debator and lent by the creditor

True

True or False: Under the allowance method, the entry to write off an account receivable that is determined to be uncollectible includes a debit to the allowance for uncollectible accounts.

True

True or False: Under the allowance method, the entry to write off an receivable that has been deemed uncollectible has no effect on the total assets of the firm

True

True or False: Under the allowance method, the write-off of an account receivable has no effect on net income

True

Which of the following is not a control over petty cash? pp (259-260). a. Keeping an unlimited amount of cash on hand b. Supporting all fund disbursements with a petty cash ticket c. Replenishing the fund through normal cash disbursement procedures d. Designating one employee to administer the fund

A. Keeping an unlimited amount of cash on hand

Which of the following statements about bank reconciliations is correct? a. Should not be prepared by an employee who handles cash transactions b. is required by sarbanes- oxley c. Is a formal financial statement d. Both a and b correct

A. Should not be prepared by an employee who handles cash transactions

If the allowance method is used for uncollectible receivables, what account is credited when writing off a customer's account? a. accounts receivable b. allowance for Uncollectible Accounts c. Uncollectible- Account Expense D. Sales returns and Allowances

A. accounts receivable

Classify: Collection of note receivable plus interest revenue by bank

An addition to the book balance

Chuck Battle's account of $5,000 must be written off. Which of the following would be journalized assuming that the allowance method is used? a. A debit to Battle's Accounts Receivable and a credit to Allowance for Uncollectible Accounts b. A debit to Allowance for Uncollectible Accounts and a credit to Battle's Accounts Receivable c. A debit to Cash and a credit to Uncollectible-Account Expense d. A debit to Cash a credit to battle's accounts receivable

B. A debit to Allowance for Uncollectible Accounts and a credit to Battle's Accounts Receivable

What is the type of account and normal balance of Allowance for Uncollectible Accounts? a. Asset, debit b. Contra asset, credit c. Liability, credit d. Contra liability, debit

B. Contra asset, credit

What is the effect on the financial statements of writing off an uncollectible account under the direct write-off method? a. Increase expenses and decrease liabilities b. Decreases net income and decreases assets c. Decreases assets and increases stockholders' equity d. Increases expenses and increases assets

B. Decreases net income and decreases assets

Which of the following is not an objective of internal control? a. Encourage employees to follow company policy b. Encourage employees to come to work on time each day c. Safeguard assets d.Encourage employees to comply with legal requiremens

B. Encourage employees t come to work on time each day

Which of the following is not an objective of internal control? a. Help safeguard the assets a business uses in its operations b. Guarantee a company will not go bankrupt c. Encourage adherence to company policies d. Promoate operational efficiency

B. Guarantee a company will not go bankrupt

Which of the following is the first step in preparing a cash budget? A. Add budgeted cash receipts and subtract budgeted cash payments b. Compare the ending cash balance to the budgeted cash balance at the end of the period c. Determine the companys cash balance at the beginning of the period d. Tae the beginning balance, add receipts, and subject payments to give the expected cash balance at the end of the period

C. Determine the company's cash balance at the beginning of the period

If a manager is convicted of fraud, he or she could be subject to which of the following? a. Fine B. Payment of monetary damages c. Imprisonment d. All of the above

D. All of the above

Which of the following items does not cause a difference between the cash balance per bank and book? a. NSF checks b. Deposits in transit c. Outstanding Checks d. Canceled checks

D. Canceled checks

What are the most common reconciling items that will be on the bank's side of the reconciliation? a. interest earned, deposits in transit and outstanding checks b. deposits in transit, outstanding checks, and electronis fund trasnfers c. NSF checks, outstanding checks, and deposits in transit D. outstanding checks, bank errors, and deposits in transit

D. outstanding checks, bank errors, and deposits in transit.

T or F: A deposit in transit has been recorded by the bank but not by the company

F. A deposit in transit has been recorded by the company, not by the bank

T or F: Outstanding checks would include only those checks written for the current month that have not cleared or been canceled by the bank.

False- Outstanding checks include all checks written that have not cleared the bank. They could be from the current month or previous periods

T or F:The person who prepares checks for payment would be a suitable employee to reconcile the bank account.

False- Responsibilities for custody, approval, and accounting should be held by separate employees

T or F: It is a good control to have just one person open the checks and deposit them in the bank

False- Separate individuals should be assigned custody, approval, and accounting tasks

The acid- Test ratio includes cash, inventory, and net accounts receivable in the numerator

False- The acid- test ratio includes cash, short-term investments, and net accounts receivable in the numerator

True or False: The direct write- off method is the preferred way to apply the accrual basis for measuring uncollecitble-account expense because it matches revenues and expenses on the income statement

False- The allowance method is the preferred way to apply the accrual basis for measuring uncollectible-account expense because it matches revenues and expenses on the income statement

T or F: The Sarbanes- Oxley Act requires only auditors to issue internal control report.

False- The sarbanes- Oxley Act requires reports from both management and the auditor. It requires management to issue a report on internal controls and also requires auditors to audit the system and issue their own report on the soundness of those internal controls

True or False: Under the direct write- off method, the entry to write off an account receivable that has been deemed uncollectible has no effect on the total assets of the frim

False- The write-off of an account under the direct write-off method results in a credit to Accounts Receivable, which reduces total assets

True or False: If a trading investment has increased in value, the year- end adjustment requires a debit to Loss on Trading Investment

False- if a trading investment increases in value, the year-end adjustment requires a credit to Gain on Trading Investment

Which of the following items used to reconcile cash requires an adjusting entry? a. Bank service charge b. Outstanding checks c. Bank error d. Deposits in transit

a. Bank Service Charge

A 90-day, 12% not for $40,000, dated july 10, is received from a customer. What is the maturity value of the note? a. 40000 b. 41184 c. 42400 d. 44800

b. 41184

The following data are available for Wonder Boutique for October: Book balance, OCT 31....$5,575 Outstanding Checks... 584 Deposits in transit... 2,500 Service Charges....... 75 Interest revenue... 25 What is the adjusted book balance on Oct 31 for Wonder Boutique based on the preceding data?

b. 5,525

Carolina Supply accepted an eight-month, $16,000 note receivable, with 8% interest, from Reading Corporation on August 1, 2011. Carolina Supply's year-end is December 31. What is the amount of interest to be accrued on December 31, 2011? a. 320 b. 533 c. 853 d. 1280

b. 533

The entry to record dividends received from a trading investment includes which of the following? a. A debit to Short-Term Investment b. A credit to Dividend Revenue c. A credit to Short- Term Investment d. A credit to Gain from Short- Term Investment

b. A credit to Dividend Revenue

The current credit balances in Allowance for Uncollectible Accounts before adjustment is $658. An aging schedule reveals $3,700 of uncollectible accounts. What is the ending balance in the Allowance for uncollectible accounts? a. $3,042 b.$3,700 c.$4,029 d.$4,358

b.$3,700

How are trading securities reported on a the balance sheet? a. At market value as either current assets or long-term investments on the balance sheet b.At market value as current assets on the balance sheet c. At cost as current assets on the balance sheet d. at lower of cost or market as current assets on the balance sheet

b.At market value as current assets on the balance sheet

The bank statement lists a $70 deposit as $700. On a bank reconciliation, this will appear as which of the following? a. Addition to the book balance b. Deduction from the book balance c. Addition to the bank balance d. Deduction from the bank balance

d. Deduction from the bank balance

The current debit balance in Allowance for Uncollectible Accounts before adjustment is $742. An aging schedule reveals $3,5 00 of uncollectible accounts. What is the amount of the journal entry for Estimated Uncollectible Accounts? a. 742 b.2758 c.3500 d.4242

d.4242