ACCT 5312 Chapter 5
What are the alternative cost flow assumptions?
last in first out (LIFO) first in last out (FIFO) specific identification weighted average
The beginning inventory for ProKnows, Ltd. consisted of 20 units at $4 each. During March, 40 more units of inventory were purchased for $5 each and during May an additional 40 units were purchased for $6 each. A total of 70 units of inventory were sold during the year. Under the FIFO cost flow assumption, ending inventory:
= (30 @ $6) = $180.
Purchases = $210,000, Cost of goods available for sale = $300,000, and Cost of goods sold = $230,000. Thus:
Beginning inventory = $90,000 and Ending inventory = $70,000.
Deposits in transit:
are added to the bank's balance.
The amount in the Cash account, which is reported as an asset on the balance sheet, includes all of the following except: demand deposit balances. petty cash fund balances. undeposited receipts. expected litigation settlements.
undeposited receipts.
Current assets include cash and other assets that are expected to be converted to cash or used up:
within a year, or an operating cycle, whichever is longer.
Assume that the balances in Accounts Receivable and the Allowance for Bad Debts accounts were $50,000 and $3,000, respectively, before a write-off entry for $1,000 was recorded. How much would have been reported on the balance sheet as "Net accounts receivable" after the write-off entry was recorded?
$47,000
Assume that the balances in Accounts Receivable and the Allowance for Bad Debts accounts were $50,000 and $3,000, respectively, before a write-off entry for $1,000 was recorded. How much would have been reported on the balance sheet as "Net accounts receivable" before the write-off entry was recorded?
$47,000
Assume that Missvel Inc. has credit sales terms of 2/10, n30. On May 5, Missvel Inc. made a $10,000 sale to Terene Co. This means that Terene Co. has the option of paying:
$9,800 by May 15 or paying $10,000 by June 4.
Assume that Missvel Inc. has credit sales terms of 1/10, n60. On May 5, Missvel Inc. made a $10,000 sale to Terene Co. This means that Terene Co. has the option of paying:
$9,900 by May 15 or paying $10,000 by July 4.
Identify a true statement about cash equivalents. Cash equivalents are used for making small payments for which writing a check will be inconvenient. Cash equivalents are short-term investments readily convertible into cash with minimal risk of price change. Cash equivalents are investments that are made for more than a year but less than five years. Cash equivalents are issued by very creditworthy corporations to raise short-term funds.
Cash equivalents are short-term investments readily convertible into cash with minimal risk of price change.
The entry to record the transfer of cost of the inventory sold to the income statement is:
Dr. Cost of Goods Sold Cr. Inventory
The entry to accrue interest on short-term marketable debt securities is:
Dr. Interest Receivable xx Cr. Interest Income xx
The entry to record accrued interest on Notes Receivable is:
Dr. Interest Receivable xx Cr. Interest Revenue xx
The entry to record the purchase of inventory is:
Dr. Inventory Cr. Accounts Payable (or Cash)
In the bank reconciliation process, errors are:
Either added or subtracted from the bank's balance or the company's book balance
Identify the true statements regarding a bank reconciliation. Select all that apply In a bank reconciliation, NSF checks are subtracted from the bank balance. In a bank reconciliation, outstanding checks are subtracted from the bank balance. In a bank reconciliation, deposits in transit are added to the bank balance. In a bank reconciliation, service charges are subtracted from the bank balance. In a bank reconciliation, interest earned is added to the bank balance.
In a bank reconciliation, outstanding checks are subtracted from the bank balance. In a bank reconciliation, deposits in transit are added to the bank balance.
Identify the true statements regarding a bank reconciliation. Select all that apply In a bank reconciliation, service charges are subtracted from the company's book balance. In a bank reconciliation, outstanding checks are subtracted from the company's book balance. In a bank reconciliation, deposits in transit are added to the company's book balance. In a bank reconciliation, interest earned is added to the company's book balance. In a bank reconciliation, NSF checks are subtracted from the company's book balance.
In a bank reconciliation, service charges are subtracted from the company's book balance. In a bank reconciliation, interest earned is added to the company's book balance. In a bank reconciliation, NSF checks are subtracted from the company's book balance.
The internal control process is designed to provide reasonable assurance that each of the following objectives are achieved, except:
The organization's compliance with applicable laws and regulations The effectiveness and efficiency of the operations of the organization The reliability of the organization's financial reporting
The internal control process is designed to provide reasonable assurance that objectives are achieved with respect to which of the following? Select all that apply The effectiveness and efficiency of the operations of the organization The organization's compliance with applicable laws and regulations The organization's effort in minimizing prevailing inflation rate The organization's ability to avoid taxes The reliability of the organization's financial reporting
The organization's compliance with applicable laws and regulations The effectiveness and efficiency of the operations of the organization The reliability of the organization's financial reporting
The impact on the financial statements of a write-off of an account receivable includes: an increase to total liabilities a decrease to a contra asset account a decrease to an asset account an increase to expenses
a decrease to a contra asset account- a decrease to an asset account
The impact on the financial statements of a write-off of an account receivable includes:
a decrease to a contra asset account.
The impact on the financial statements of a write-off of an account receivable includes:
a decrease to an asset account
The impact on the financial statements of the year-end adjustment for bad debts normally includes:
a decrease to total assets. an increase to a contra asset account.
Cash equivalents are short-term investments readily convertible into cash with minimal risk of price change due to:
interest rate movements.
The impact on the financial statements of the year-end adjustment for bad debts normally includes: (Check all that apply). an increase to net income. a decrease to total assets. a decrease to the Accounts Payable account. an increase to a contra asset account.
a decrease to total assets. an increase to a contra asset account.
Acceptable approaches in estimating bad debts include the: Select all that apply aging of receivables method. declining balance method. percentage of credit sales method. FIFO method. straight-line method.
aging of receivables method. percentage of credit sales method.
Bad debt expenses can be estimated using a percentage of credit sales method and _____.
an aging of receivables method
The net realizable value of accounts receivable is not affected by:
an entry to the write-off of an account receivable.
The effects on the financial statements of accruing interest on short-term marketable debt securities include: Select all that apply an increase in revenues. an increase in liabilities. an increase in expenses. an increase in assets. an increase in net income.
an increase in revenues. an increase in net income. an increase in assets.
The impact on the financial statements of the year-end adjustment for bad debts normally includes: (Check all that apply). an increase to expenses. a decrease in the net realizable value of accounts receivable. an increase to total liabilities. a decrease to paid-in capital.
an increase to expenses. a decrease in the net realizable value of accounts receivable.
The effects on the financial statements of accruing interest on Notes Receivable include: Select all that apply an increase to expenses. an increase to revenues. an increase to assets. an increase to net income. an increase to liabilities.
an increase to revenues. an increase to net income. an increase to assets.
Financial controls:
are related to the concept of separation of duties.
The security pledge by the borrower to support the loan is known as ___________.
collateral
The amounts reported for ending inventory and cost of goods sold will differ depending on whether the weighted-average, FIFO, or LIFO cost flow assumption is used by the reporting company because the ________ per unit _________ changes over time.
cost purchased
An agreement by the borrower to supply financial statements to the lender and an agreement by the borrower to refrain from paying dividends until the note is paid are both examples of provisions known as _________
covenants
In the bank reconciliation process, errors are: Select all that apply either added to or subtracted from the bank balance, if the error was made by the company. either added to or subtracted from the company's book balance, if the error was made by the bank. either added to or subtracted from the bank balance, if the error was made by the bank. either added to or subtracted from the company's book balance, if the error was made by the company.
either added to or subtracted from the bank balance, if the error was made by the bank. either added to or subtracted from the company's book balance, if the error was made by the company.
The cost of an inventory item is released to the income statement as an: Select all that apply expense when the product is sold. asset when the product is purchased. expense when the product becomes worthless. expense when the product is lost or stolen. revenue when the product is sold. expense when the product is purchased.
expense when the product is sold. expense when the product becomes worthless. expense when the product is lost or stolen.
A firm paying its suppliers within the discount period _____.
gives a positive signal to the credit-rating agencies and credit grantors regarding the firm's creditworthiness and liquidity.
The cost of an item purchased for inventory: Select all that apply includes freight and material handling charges. includes the invoice price paid to the supplier. is reduced by finders fees paid to product managers. includes warehousing fees until the product is sold. is reduced by cash discounts allowed on the purchase.
includes the invoice price paid to the supplier. includes freight and material handling charges. is reduced by cash discounts allowed on the purchase.
In times of rising prices, inventory profits (or phantom profits) are said to occur under the FIFO cost flow assumption. This occurs because under FIFO, the release of older, lower costs to the income statement results in higher profits than if current costs were to be recognized. This creates a problem for the reporting company because:
lower costs means higher taxable income and higher taxes payable.
Short-term marketable debt securities that fall in the held-to-maturity category are reported on the balance sheet at the entity's cost, which is usually about the same as market value, because _____.
of their high quality and the short time until maturity
The impact on the financial statements of a write-off of an account receivable includes: Select all that apply no effect on net income. a decrease to retained earnings. a decrease in the net realizable value of accounts receivable. offsetting decreases to asset and contra asset accounts.
offsetting decreases to an asset account and a contra asset account. no effect on net income.
Administrative controls:
often involve limit (or reasonableness) tests.
The LIFO cost flow assumption results in the most recentBlank 1Blank 1 recent , Correct Unavailable ________ costs being transferred to cost of goods sold. In times of rising prices, the costs transferred to cost of goods sold under LIFO will therefore be higherBlank 2Blank 2 higher , Correct Unavailable _________ than the costs transferred to cost of goods sold under FIFO.
recent higher
The sum of the cash on hand in the petty cash box and the receipts in support of disbursements (called petty cash vouchers):
should equal the amount initially put in the petty cash fund.
The net realizable value of accounts receivable is not affected by the write-off of an account receivable because:
the decrease to an asset account is offset by a decrease to a contra asset account.
Short-term marketable debt securities that are in the held-to-maturity category are reported on the balance sheet at:
the entity's cost of the securities.
The internal control process is designed to provide reasonable assurance that each of the following objectives are achieved, except:
the promotion of a positive organizational image.