ACG EXAM 3

_____ value is the amount the company expects to receive for the asset at the end of its service life.

Residual

Which of the following methods are available for costing inventory?

Specific identification Weighted-average FIFO LIFO

Which of the following are commonly used depreciation methods?

Straight-line Activity-based Declining-balance

The estimated expense for accounts that may not be collected is referred to as

bad debt expense

Which of the following items are included in cash?

balance in checking accounts currency and coins checks from customers

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to

be more accurate

When selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the ______ value of the asset sold.

book

The original cost of an asset minus accumulated depreciation is

book value

The original cost of the asset less the accumulated depreciation is the _____ _____ of the asset.

book value

Long-term tangible assets include

buildings land equipment

Depreciation

Allocation of the cost of a tangible fixed asset

Amortization

Allocation of the cost of an intangible asset

Depletion

Allocation of the cost of natural resources

When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?

An entry to reinstate the account receivable and an entry to record payment

Giving only management the right to make purchases over a certain amount is an example of which preventive control?

Proper authorization

Purchasing inventory on account:

increases liabilities increases assets

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs

incurred several years earlier

The components of internal control do not directly include: risk assessment inflation adjustment monitoring control activities

inflation adjustment

Amortization refers to the allocation of the cost of _____ assets to expense.

intangible

An asset that has no physical substance is called a(n) _____ asset

intangible

A company's plans to minimize theft and enhance the accuracy of accounting information are referred to as:

internal controls

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as

internal controls

A periodic performance review is an example of a(n) _____ control

internal/detective

Which employees have an impact on the operation and effectiveness of internal controls?

All employees

Where is inventory reported in the financial statements?

Balance sheet as a current asset

A framework for designing an internal control system is provided by the:

Committee of Sponsoring Organizations

Krasel Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $70,000. The new asset received had a fair value of $50,000 and a book value of $45,000. The journal entry to record this exchange will include which of the following entries?

Debit accumulated depreciation $70,000 Credit gain on exchange of asset $30,000 Credit equipment $90,000 Debit equipment $50,000

Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries?

Debit equipment $80,000 Debit accumulated depreciation $60,000 Credit gain on exchange of asset $40,000 Credit equipment $100,000

Allowing only certain individuals to have passwords to conduct online purchases is an example of which preventive control?

E-commerce controls

Which of the following are long-term tangible assets?

Equipment Property

True or false: Accounts receivable not expected to be collected should be counted in the assets of the company until they are later written off.

FALSE Receivables not expected to be collected are not included in assets

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest cost of goods sold?

FIFO

For internal record keeping, most companies carry their inventory using the _____ basis.

FIFO

Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption?

FIFO

True or false: The entry for a sale to customers is different depending on whether the customer pays with cash or a check.

False The entry for a sale is the same regardless whether it is made with cash or a check. A check is treated the same as cash

Fraudulent reporting by management could include:

Fictitious revenues from a fake customer Improper asset valuation Mismatching revenues and expenses

The allowance method is required by

GAAP

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to:

Inventory

Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods.

Inventory Cost of Goods Sold

Which statement is true about the straight-line method of depreciation?

It allocates an equal amount of depreciation to each year the asset is used.

The definition of inventory includes which of the following items?

Items currently in production for future sale Items held for resale Items used currently in the production of goods to be sold

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory?

LIFO

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest pretax income?

LIFO

The disclosure that shows the difference in the cost of inventory between LIFO and FIFO is referred to as the

LIFO reserve

Which of the following methods are not used for inventory costing?

NIFO Simple-average

Perpetual inventory system Periodic inventory system

Neumann Company can determine the cost of inventory still on hand by referring to the inventory account. Shelly Company must first take a physical inventory to determine the cost of inventory still on hand.

Checking actual outcome of individuals or processes against their expected outcome is an example of which detective control?

Performance reviews.

The framework for designing an internal control system is provided by the

The framework for designing an internal control system is provided by the

Which employees are the ones who must take final responsibility for the establishment and success of internal controls?

Top executives

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

True

Inventory is classified as

a current asset

A trade discount is

a percentage reduction from list price

A(n) _____ _____ is the legal right to receive cash from a credit sale and represents an asset of the company

account receivable

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

accounts receivable

Which of the following items are not included in cash?

accounts receivable from customers

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the _____ method of accounts receivable.

aging

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to

allowance for uncollectible accounts

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

allowance method

Allocating the cost of intangible assets to expense is referred to as _____.

amortization

The gain or loss on disposal of an asset is calculated as:

amount received less the book value of asset sold

For accounting purposes, depreciation is

an allocation of a cost of an asset

Accounts receivable should be classified as a(n)

asset

Using the perpetual inventory system, what is the effect of a sale of inventory on assets?

assets increase by the sales price of the inventory assets decrease by the cost of the inventory

Meller purchases inventory on account. As a results, Meller's

assets will increase

Which of the following are detective controls?

audits reconciliations performance reviews

The cost of estimated accounts receivable that will not be collected is referred to as _____ _____ expense.

bad debt

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.

capitalized

The asset that is most easily stolen and susceptible to fraud is _____.

cash

The asset that is most susceptible to employee fraud is

cash

A periodic inventory system measures cost of goods sold by

counting inventory at the end of the period

When a business provides services to a customer, and the customer promises to pay later, this is referred to as

credit sales

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?

debit inventory

Lindell sells $100 of goods to a customer. The customer pays with a personal check. Recording this transaction will include a

debit to Cash

The journal entry to retire old equipment that is not fully depreciated includes a:

debit to accumulated depreciation debit to loss credit to equipment

The journal entry to record bad debt expense includes:

debit to bad debt expense credit to allowance for uncollectible accounts

Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n)

decrease in accounts receivable

Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated?

depositing checks into the bank and recording receipts in the accounting records opening the mail and deposit of checks in the bank

Straight-line, declining-balance, and activity-based refer to methods commonly used to _____ property, plant, and equipment.

depreciate

The allocation of the cost of a tangible asset over its service life is referred to as .

depreciation

The allocation of the cost of a tangible fixed asset is referred to as _____, whereas the allocation of the cost of an intangible asset is referred to as _____.

depreciation amortization

The Committee of Sponsoring Organizations (COSO) of the Treadway Commission provided a framework for

designing an internal control system

The two types of control procedures are preventive and

detective

The Accounts Receivable account is reduced when the seller

determines that a specific customer account will not be collectible

The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employer's resources is called occupational

fraud

When a person intentionally deceives another person or company for personal gain, this is referred to as

fraud

The three elements present in every fraud are commonly referred to as the ___________.

fraud triangle

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year.

future current

A trade discount is a reduction from the list price, which is used to:

give quantity discounts to customers change prices without publishing a new catalog disguise real prices from competitors

Which of the following are common controls over cash receipts?

having 2 different employees take custody of the checks and make the deposit opening mail daily and making a detailed list of checks received

In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be _____ than cost of goods sold determined using the FIFO inventory assumption.

higher

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are

included in Gerald's inventory.

A multiple-step income statement reports multiple levels of

income

A major difference between companies that provide services and companies that manufacture or sell goods is that those that manufacture or sell goods must account for:

inventory

Items held for sale in the normal course of business are referred to as _____.

inventory

Major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for

inventory cost of goods sold All companies account for liabilities and assets

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be _____ than ending inventory determined using the FIFO inventory assumption.

lower

Who has final responsibility for internal controls?

management

The most common source of occupational fraud is

misuse of company resources

The two most common sources of occupational fraud are:

misuse of company resources financial statement manipulation

The type of income statement that reports a series of subtotals such as gross profit, operating income, and income before taxes is a ______ income statement.

multiple-step

A retirement or abandonment of an asset is different from a sale of an asset because

no cash is received a loss must be recognized for the remaining book value

Receivables not expected to be collected should

not be counted in assets of the company

Kilian Company's inventory balance at the end of the current year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered, the effect of this error on financial statements in the following year will be:

overstated net income

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are

paid by the supplier

Separation of duties and E-commerce controls are examples of ______ controls.

preventive

Two types of control activities are

preventive and detective controls

Otto Inc. retires old equipment with a book value of $2,400. Otto should

recognize a loss of $2,400

Two entries are required when a previously written off account is collected. These two entries include:

record the collection on the account receivable reinstate the account receivable

The difference between LIFO and FIFO disclosed in the notes to the financial statements of a company currently utilizing the LIFO cost flow assumption is sometimes referred to as the LIFO _____

reserve

The depreciable cost of an asset is the asset's cost minus its estimated _____ value.

residual

The term used to describe the amount the company expects to receive for an asset at the end of its service life is

residual value

An asset _____ occurs when an asset is no longer useful, but cannot be sold.

retirement

Internal control consists of plans to

safeguard company assets provide accurate and reliable accounting information

Sales to customers in which the customers pay within 30 to 60 days are referred to as

sales on account credit sales

Which of the following are preventive controls?

separation of duties physical controls

What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements?

stockholders' equity increases total assets increase net income increases

The depreciation method that allocates an equal amount of the depreciable base to each year of the asset's service life is the

straight-line method

Who is responsible for providing an opinion on management's assessment of internal control?

the company's auditors

The depreciable cost is

the cost of the asset minus the residual value

The service life or useful life of an asset is

the estimated use that the company expects to obtain from the asset before disposing of it

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year

The allowance method estimates

uncollectible accounts

Kilian Company's inventory balance at the end of the year does not include $10,000 of inventory that was stored in a separate warehouse and accidentally excluded from the physical count. If the error is not discovered until the following year, the financial statement effect in the current year will be:

understated assets, retained earnings, and net income

The estimated use the company expects to obtain from an asset before disposing of it is referred to as the life of the asset.

useful/service/depreciable

FOB shipping point means title to the goods passes

when they are shipped

FOB destination means title to the goods passes

when they arrive at the destination