EXAM 2 ACC

Which of the following provisions of the SOX Act aim to encourage honesty and the reporting of dishonest acts?

-whistle-blower protection -code of ethics -anonymous tip lines

An understatement of the 2018 ending inventory will affect ________. (check all hat apply) 1) 2018 cost of goods sold 2) 2019 ending inventory 3) 2019 cost of goods sold 4) 2019 beginning inventory

1) 2018 cost of goods sold 3) 2019 cost of goods sold 4) 2019 beginning inventory

Which inventory costing method assumes that the inventory's cost flow out in the same order the goods are received? 1) FIFO 2) Weighted average 3) LIFO

1) FIFO

If cost of acquiring inventory is rising. LIFO will result in which of the following compared to FIFO? (check all that apply) 1) Sales will be higher 2) cost of goods sold will be higher 3) gross profit will be lower 4) income tax expense will be lower

2) cost of goods sold will be higher 3) gross profit will be lower 4) income tax expense will be lower

Sales transactions affect the _____.

income statement and the balance sheet

After approval of a purchase has been obtained, the purchasing agent completes a prenumbered ________ that identifies the supplier, the delivery location, and the approved quantity and cost.

purchase order

In preparing your bank reconciliation, you notice that you recorded a deposit as $100 instead of $10. You should _____________.

subtract $90 from your cash and make an entry

Which of the following would be found on the debit side of the Inventory T-account? (Select all that apply.) a. Frieght-out b. Purchase Returns c. Purchases d. Purchase Discounts e. Beginning balance f. Freight-in

c, e, & f

When a check is presented to a bank for payment & the amount is deducted from the payer's account the check is said to have ________ the bank.

cleared

Which of the following is subtracted from the bank balance on a bank reconciliation?

Outstanding checks

Instead of a petty cash system, many companies use ___________ which allow employees to purchase business-related items.

Pcards (purchasing cards)

Which is used to avoid the time and cost of writing checks for business expenses that are small in amount and is controlled by limiting the amount in it and subjecting it to surprise audits?

Petty Cash

Company C: 2.4, Company A: 3.4, Company B: 5.6

Rank companies A-C based on how favorable their receivables turnover ratio is (from least to most):

___________ cash must be reported separately on the balance sheet because it is legally or contractually required to be set aside for a specific purpose.

Restricted

Beyer Company bought inventory from Sellar Company, FOB destination. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier, Inc., and not expected to arrive until January 2. Which company should include these goods in its December 31 Inventory?

Sellar

Acme Enterprises, which uses a perpetual inventory system, recorded a debit to Sales Returns & Allowances and a credit to Accounts Receivable. (No other accounts were affected.) What business event must have taken place?

The customer received a damaged product, but kept the product and asked for a reduction in the price

Expense Recognition (matching) Principle

The direct write-off method is not allowed under GAAP because it violates the:

Debit to Interest Receivable of $10

ABC Corp. received a 2-month, 8% per year, $1,500 note receivable on Dec. 1. The adjusting entry on Dec. 31 will include:

When a company provides $1,000 of service to a customer on account with payment terms of 2/10, n/30, the entry it records when it records the sale includes a debit to _____ and a credit to _____.

Accounts Receivable for $1,000; Sales for $1,000

$2100; A write-off is recorded with a debit to the Allowance and a credit to Accounts Receivable. The write-off has no effect on net receivables which equals a lower Accounts Receivable minus a lower Allowance balance. (Net Receivables = ($2300-80) - ($200-80) = $2100)

Accounts Receivable has a $2,300 balance, and the Allowance for Doubtful Accounts has a $200 credit balance. An $80 account receivable is written-off. Net receivables (net realizable value) after the write-off equals:

Which line item would be found on merchandiser's balance sheet and not on a service firm's?

Inventory

Inventory is reported as a(n) _____ on the _____.

current asset; balance sheet only

Sales discounts should appear in the financial statements as a(n) _____.

deduction from sales

Which of the following is an example of weak internal controls?

the mail-room clerk records daily cash receipts in the journal

At year end, CurlZ, inc.'s inventory consists of 200 bottles of CleanZ at $1 per bottle and 100 boxes of DyeZ at $10 per box. Market values are $1.20 per bottle for CleanZ and $8 per box for DyeZ. should report its inventory at ___________. 1) 1,040 2) 1,000 3) 1,200 4) 1,240

2) 1,000

If a company's inventory costs are rising, _________ inventory costing method(s) typically results in a higher income tax expense. 1) both FIFO and LIFO 2) the FIFO 3) the LIFO

2) the FIFO

Barry, Inc.'s sales equal $30,000 and cost of goods sold equals $10,000. Its beginning inventory was $800 and its ending inventory is $1,200. Barry's inventory turnover ratio equals ________ times. 1) 5 2) 15 3) 10

3) 10

2/12; interest rate = $1000 (P) x 12% (R) x 2/12 (T)

A 2-month interest calculation on a 3-year, 12% annual rate, $1,000 note receivable has a time variable of:

Which of the following would be added to your cash balance based on the information on your bank statement?

Interest deposited

Assets to decrease and Stockholders equity to decrease

The adjusting entry to record the allowance for doubtful accounts causes total:

An _________ system controls the amount paid to others by limiting the total amount of money available for making payments.

imprests

An inventory quality increases, its cost usually _________.

increases

If the bank makes an error by depositing your check into another depositor's account, then you should __________ and contact the bank.

not change your records

A difference between an imprest payroll account and petty cash is petty cash is ___________.

not held at the bank

In a perpetual inventory system, the journal entry to record the payment of cash for the shipping costs of purchased merchandise will cause _____.

one asset to increase and another asset to decrease

Beginning inventory was $5,000. During the month, the company purchased an additional $25,000 of inventory. At the end of the month, ending inventory was $10,000. Cost of Goods sold equal _____.

$20,000

Good internal control for cash receipts to be performed by the accounting department should include ___________.

-recording the cash receipts in the journal -comparing cash register sales with the cash count sheets and bank deposit slip

Which financial statements are needed to calculate the inventory turnover ratio? (check all that apply) 1) Income statement 2) statement of retained earnings 3) management's responsibility report 4) balance sheet

1) Income statement 4) balance sheet

In a periodic system, for cost of goods sold to be updated, which of the following must occur? (check all that apply) 1) compute cost of goods sold by subtracting ending inventory from goods available for sale 2) take a physical count of inventory 3) nothing has to be done. Cost of goods sold is kept up to date each time a product is sold

1) compute cost of goods sold by subtracting ending inventory from goods available for sale 2) take a physical count of inventory

LIFO uses the _________ unit costs for Cost of Goods Sold on the income statement and the __________ unit costs for inventory on the balance sheet. 1) newest; oldest 2) oldest; newest 3) newest; newest 4) oldest; oldest

1) newest; oldest

Which of these will require a credit to the inventory account in a perpetual inventory system? (check all that apply) 1) selling inventory on account 2) selling inventory on cash 3) purchasing inventory for cash 4) purchasing inventory on account

1) selling inventory on account 2) selling inventory on cash

Channel Stuffing

A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing would suggest:

It is time-consuming, costly, and can annoy customers and cause them to take their business elsewhere

What are potential drawbacks of speeding up collection of receivables?

Using a perpetual system, what is the correct journal entry when a customer returns a product that was purchased on account?

a debit to Sales Returns and Allowances and a credit to Accounts Receivable; and a debit to Inventory and a credit to Cost of Goods Sold

In an perpetual system, the entry to record the sales of merchandise to a customer on account would include a _____. (Check all that apply.) a. credit to Inventory b. credit to Accounts Receivable c. credit to Cost of Goods Sold d. debit to Inventory e. debit to Accounts Receivable f. debit to Sales Revenue g. debit to Cost of Goods Sold h. credit to Sales Revenue

a, e, g, & h

This month's bank statement shows that the bank incorrectly credited ABC Corp.'s account for a $600 deposit that should have been credited to XYZ Corp.'s account. How would this item be treated on ABC's bank reconciliation?

It would be deducted from the bank balance

Allowance for Doubtful Accounts is a:

Permanent account so its balance carried forward to the next accounting period

Under a periodic inventory system, net purchases equal _____.

Purchases + Freight-in - Purchase Returns and Allowance - Purchase Discounts

Debit to Cash and Credit to Notes Receivable

The correct journal entry for the collection of a note receivable includes a:

A _________ is a collection of documents prepared in the process of approving, processing and documenting all purchases and payment made on account.

voucher

Which of these are cash equivalents?

-Investments within 3 months of maturity -Money market funds

Which inventory costing methods are based on assumptions that accountants make about the flow of inventory costs? (check all that apply) 1) LIFO 2) FIFO 3) specific identification

1) LIFO 2) FIFO

A ___________ inventory turnover ratio may result in a reduction in storage and obsolescence costs as well as reduced borrowing. 1) higher 2) negative 3) lower

1) higher

Which of these inventory accounting methods are acceptable under US GAAP? (check all that apply) 1) specific identification 2) LIFO 3) weighted average 4) FIFO 5) FIDO

1) specific identification 2) LIFO 3) weighted average 4) FIFO

The inventory turnover ratio directly measures ______________. 1) the times per period the average inventory balance is sold 2) how many days it takes to collect its sales of inventory sold on account 3) the days it takes to sell its average inventory balance

1) the times per period the average inventory balance is sold

Alpha company bought 75 units of inventory for $4 each and 25 units of inventory for $5 each. Alpha's weighted average cost per unit is _____________. 1) 4.5 2) 4.25 3) 5 4) 4

2) 4.25

Which step must happen first when determining cost of goods sold using a periodic inventory system? 1) compute the dollar value of the ending inventory balance 2) count the number of units on hand 3) compute and record cost of goods sold

2) count the number of units on hand

Blog Inc. has sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is ______. 1) 25,000 2) 30,000 3) 20,000 4) 15,000

3) 20,000

Which method will result in the same cost of goods sold amount whether it is computed using the periodic inventory system or the perpetual inventory system? 1) LIFO and FIFO will never result in the same cost of goods sold 2) LIFO 3) FIFO

3) FIFO

Factoring

An arrangement where receivables are sold to another company for immediate cash

Subsidiary Account

For billing and collection purposes, companies keep a separate accounts receivable account for each customer called a:

Credits

The Allowance for Doubtful Accounts is a contra-asset account. Increase to the account (to record the periods estimated bad debt expense) are recorded with:

Debited

The Allowance for Doubtful Accounts, a contra-asset account, is _____ when specific uncollectible accounts are written off

Which line item would be found on a merchandiser's income sheet and not on a service firm's? a. supplies b. depreciation expense c. sales revenue d. service revenue e. cost of goods sold f. inventory

c & e

An incentive to commit fraud may be caused by managers who receives bonus payments based on the strength of the company's reported ____________.

net income

To avoid duplicate payment, the voucher should be marked "______" as the final step in the voucher system.

paid

NSF checks are the same as _________.

-bounced checks -non sufficient funds checks

The three components of the __________ ____________ are incentive, opportunity and rationalization.

Fraud Triangle

In a bank reconciliation, interest revenue on the bank account balance is added to the __________ balance.

book

Days to Collection Calculation:

365 days/receivables turnover ratio

Companies that use a perpetual inventory system never need to do a physical count of inventory because in a perpetual system cost of goods sold and inventory are kept up-to-date every time a sale is recorded. T/F

False

T/F: Strong internal control surrounding cash receipts requires the cashier to perform the following procedures: count the cash receipts, take the cash to the bank, and record the amount collected in the accounting records

False

What does FOB shipping point mean?

Goods are owned by the buyer when they leave the seller's place of business

Debit to Bad Debt Expense of $1000 and Credit to Allowance for Doubtful Accounts of $1000

Management estimated that 1% of the $100,000 of credit sales will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts include a:

Gross Profit equals _____.

Net Sales minus Cost of Goods Sold

Gross profit percentage is calculated as _____.

Net sales minus Cost of Goods Sold, then divide by Net sales, and multiply by 100

X Company, which uses a perpetual inventory system, sold $2,000 of merchandise on account with credit terms 2/10, n/30. If the customer pays within the disocunt period and takes the discount, X will record a journal entry that includes _____. a. a credit to Accounts Receivable of $1,960 b. a debit to Sales Discounts of $40 c. a credit to Sales Discounts of $40 d. a debit to Cash of $2,000 e. a debit to Cash of $1,960 f. a credit to Accounts Receivable of $2,000

b, e, & f

The bank will show a customer's withdrawal as a _____________.

debit, because a withdrawal decreases its liability from the bank's point of view

Inventory consists of _____.

purchase price plus freight-in

Good internal control for checks received through the mail would include the mail clerk __________.

-sending the cash receipts list and the customers' remittance advices to the accounting department -giving checks and money orders to the supervisor who makes the bank deposit

Make an adjusting entry at the end of the current period to accrue the interest earned

When a company has earned interest in the current period but has not yet recorded the interest, what type of adjustment is the company required to make?

The company would lose track of which customers still owe money and because the amounts are estimates and no one knows which particular customers will not pay

When recording the adjusting entry for uncollectible accounts using the allowance method, customers subsidiary accounts are not directly reduced. The reason is:

A loan _____________ specifies terms of a loan agreement that, if broken, can allow the leader to renegotiate the terms of the loan to force repayment.

covenant

Breyer Company bought inventory FOB shipping point from Cellar Company for $4,000 cash, including shipping charges. On December 31, the last day of the accounting year, the goods were on a truck owned by Common Carrier Company, and not expected to arrive until January 3. Which company should include these goods in its December 31 inventory?

Breyer Company should include the $4,000 in its inventory

Allowance for Doubtful Accounts of $1000 credit balance and Bad Debt Expense of $950 ($1000- 50 (unadjusted))

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and Credit Sales of $100,000. Based on an aging of its receivable, management estimates that $1,000 of receivables will be uncollectible. Delectable's financial statements will show:

Allowance for Doubtful Accounts of $2050 credit balance ($50 credit unadjusted balance + $2000 credit for the amount expensed) and Bad Debt Expense of $2000

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and Sales Revenue of $100,000 (all on credit). Management estimates that 2% of credit sales will be uncollectible. Delectable's financial statements will show:

Write off the uncollectible account and its corresponding allowance from the accounting records

During the year, ABC Corp. realized that a particular customer will never pay. What action should ABC take?

True or false: Gross Profit is a stockholders' equity account and is credited when goods are delivered to customers.

false

restricted cash is reported ___________.

separately as an asset on the balance sheet

Inventory is a(n) _____ intended to be _____.

current asset; sold

____________ is one of the three fraud triangle components where the fraudsters perceive the misdeed is unavoidable or justified.

Rationalization

Which of the following are true regarding a bank statement.

-It lists all checks that have cleared the bank -It may include NSF checks -It includes interest earned -It may include service charges

Employee fraud is often grouped into 3 categories:

-corruption -assest misappropriation -financial statement fraud

Place the order of the steps in documenting and controlling purchases in a voucher system with the first step listed at the top and the last at the bottom.

1. Request goods or services by submitting a purchase requisition 2. Prepare a purchase order after suppliers and prices have been approved 3. Prepare a receiving report 4. Prepare a supplier invoice and prepare the journal entry

Oops, Inc. overstated its ending inventory, during its physcial inventory count, by $1,000 in year 1. Which of the following will also be misstated in year 1? (Check all that apply) 1) purchases will be overstated by $1,000 2) gross profit will be overstated by $1,000 3) cost of goods sold will be understated by $1,000 4) net income will be understated by $1,000

2) gross profit will be overstated by $1,000 3) cost of goods sold will be understated by $1,000

On May 1, beginning inventory consists of 10 items at a cost of $10 each. On may 3, 10 items are purchased at $14 each. Using perpetual LIFO, ending inventory at may 31 equals ____________. 1) $196 2) $140 3) $236 4) $220

4) $220

If a cashier rang up sales totaling $5,096, but had $5,100 to deposit, which journal entry would be recorded?

A debit to cash for $5,100; a credit to Cash Overage of $4; and a credit to Sales Revenue of $5,096

If the cash collected is less than the amount per the cash register, then ___________.

Cash shortage is debited

Direct write-off

Not considered an acceptable method under GAAP

Net Sales on an income statement equals _____.

Sales Revenue less Sales Returns & Allowances less Sales Discounts

Cost of goods sold may include the write-down of inventory to market even though the goods haven't been sold. T/F

True

A goal of the SOX Act is improving corporations' internal controls. Which of these may accomplish this goal?

-Marketing managers must determine whether the marketing team is submitting accurate sales and expense reports -An audit committee of independent directors oversees financial matters of the company -External auditors must test the effectiveness of the company's internal controls

The Sarbanes-Oxley (SOX) Act aims to reduce fraud by _________.

-counteract incentives -encouraging honesty in employees -reducing opportunities

How do banks help businesses control cash?

-documenting procedures -restricting access to cash -independently verifying

Which of the following statements are true? (check all that apply) 1) an increased inventory balance is desirable if the resulting inventory turnover ratio is lower 2) an increase inventory balance is desirable if management is building up stock in anticipation of higher sales. 3) an increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory

2) an increase inventory balance is desirable if management is building up stock in anticipation of higher sales. 3) an increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory

What inventory accounts would one expect to see in the accounting records of a company that makes furniture? (check all that apply) 1) cost of sales inventory 2) finished goods inventory 3) work in process inventory 4) raw materials inventory

2) finished goods inventory 3) work in process inventory 4) raw materials inventory

The same period the related credit sales are recorded

An objective of the expense recognition (matching) principle is to have bad debt expense debited in:

Recovery

Collection of a previously written-off account is called a(n):

The bank will shows a customer's deposit on bank statements as a _____________.

credit, because a deposit is a liability from the bank's point of view

Which of the following would be found on the credit side of the Inventory T-account? (Select all that apply.) a. Purchase discounts b. Purchases c. Freight-out d. Beginning balance e. Purchase returns f. Freight-in

a & e

The journal entry to record the payment of cash to FedEx for shipping costs for inventory purchased FOB shipping point includes a _____. (Select all that apply.) a. credit to Accounts Payable b. debit Transporation-in Expense c. stockholders' equity to decrease d. debit to inventory e. stockholders' equity to increase f. credit to Cash g. debit to Cost of Goods Sold

d & f

The purchasing system begins with an authorized employee completing a manual or electronic ________ which is then reviewed and approved by a supervisor before an order is placed with a supplier.

purchase requisition

Cost of good sold equals beginning inventory plus _____ minus inventory.

purchases

On May 3, Botit Inc. purchased merchandise on account for $1,000, FOB shipping point, with terms 1/10 n/30 from Cellar, Inc. On May 6, Botit received the merchandise, along with an invoice for $1,000. In addition, $100 in shipping costs was owed to We Deliver, Inc. On May 12, Botit paid all amounts owed, which amounted to _____.

$1,000 - $10 + $100 = $1,090

Blog Inc., has sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is _____.

$20,000

ABC Company had beginning inventory of $20,000, purchases of $81,000, and ending inventory of $24,000. Sales revenue was $160,000. What is ABC's gross profit percentage?

(20,000 + 81,000 - 24,000 = 77,000) (160,000 - 77,000 / 160,000 = 52%) 52%

Why might a bank statement and the company's records differ?

- Customer checks that bounced (NSF) - Deposits were made at the end of the bank statement date in an ATM - Not all checks written cleared the bank

The SOX Act provides increased regulations for __________.

- corporate executives - internal controls - auditors

Which of the following statements are true? (check all that apply) 1) Managers can choose the method of accounting for inventory cost that best fits their business 2) GAAP require that all companies in the same industry use the same method of accounting for inventory 3) using a different inventory accounting method leads to reporting a different amount for cost of goods sold 4) It doesn't matter which method you use to account for inventory as long as it mimics the actual physical flow of goods

1) Managers can choose the method of accounting for inventory cost that best fits their business 3) using a different inventory accounting method leads to reporting a different amount for cost of goods sold

What may cause inventory turnover ratios to vary significantly between companies in the same industry? (check all hat apply) 1) Some companies may sell more lower-cost goods 2) companies in the same industry will have the same inventory turnover ratios 3) some companies may sell fewer higher-cost goods

1) Some companies may sell more lower-cost goods 3) some companies may sell fewer higher-cost goods

Angus company agreed to sell goods for longhorn company on consignment, but wasn't willing to take ownership of the goods in case they do not sell. Which of the following statements is true? 1) Angus owns the inventory, since possession is nine-tenths of the law, but should not report it on its balance sheet 2) Longhorn owns the inventory and should report it on its balance sheet 3) Angus owns the inventory and should report it on its balance sheet

2) Longhorn owns the inventory and should report it on its balance sheet

Which company is most likely to have a higher inventory turnover than its competitors within the same industry? 1) a company with higher-priced goods and lower gross profit 2) a company with lower-priced goods and lower gross profit 3) a company with higher-priced goods and higher gross profit

2) a company with lower-priced goods and lower gross profit

If year 1 ending inventory is overstated by $1,000, then the year 2 _____________. (check all that apply) 1) ending inventory will be overstated by $1,000 2) beginning inventory will be overstated by $1,000 3) goods available for sale will be overstated by $1,000

2) beginning inventory will be overstated by $1,000 3) goods available for sale will be overstated by $1,000

If ending inventory in year 1 is misstated, then year 1's _____________ also must be misstated. 1) goods available for sale 2) purchases 3) cost of goods sold

3) cost of goods sold

Days to sell measures the average number of ____________. 1) times per year inventory is purchased 2) days' sale in accounts payable 3) days' from the time inventory is purchased to the time it is sold 4) time per year receivables are collected

3) days' from the time inventory is purchased to the time it is sold

When costs to purchase inventory are falling over time, using LIFO leads to reporting ___________ than FIFO. 1) lower inventory on the income statement 2) higher inventory on the income statement 3) high inventory on the balance sheet 4) lower inventory on the balance sheet

3) high inventory on the balance sheet

The assumption that a company makes about its inventory cost flow can affect cost of goods sold on its __________ and inventory on its __________. 1) balance sheet; balance sheet 2) income statement; income statement 3) income statement; balance sheet 4) balance sheet; income statement

3) income statement; balance sheet

Of the 4 companies listed below, which company is more likely to use specific identification to value is inventory and cost of goods sold? 1) fast food restaurant 2) dog biscuit manufacturer 3) bulk candy merchandiser 4) custom home builder

4) custom home builder

Which of the following statements concerning inventory is correct? 1) inventory is not reported as a current asset 2) Inventory is a non-current asset because it is held for sale in the ordinary course of business and is not available to meet current obligations 3) inventory is reported as a current asset because it has been sold 4) inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date

4) inventory is reported as a current asset because it will be converted into cash within a year of the balance sheet date

Goods in transit are _________. 1) always included in the buying company's inventory 2) always included in the selling company's inventory 3) always included in the transportation company's inventory 4) inventory items being transported from a seller to a buyer

4) inventory items being transported from a seller to a buyer

If Barry Bees, Inc.'s days to sell equals 73 days based on a 365-day year, then its inventory turnover ratio equals ______ times.

5

If a company assumes that its inventory costs flow out in the opposite order from which the goods were purchased, it uses __________ to value its inventory

LIFO

Cashiers at a supermarket have to talk to a manager before approving price changes at the register. Which internal control principle is being followed?

Segregate duties

Percentage of Credit Sales

Simpler to apply but less accurate

Which of the following is not an internal control for checks received through the mail?

The accounting department counts the cash, prepares the deposit slip and deposits the cash in the bank

Debit to Notes Receivable of $1000 and Credit to Cash $1000

The entry to record lending $1,000 to an employee at a rate of 6% for 8 months includes a:

Debit to Allowance for Doubtful Accounts and Credit to Accounts Receivable

The entry to record the write-off of a specific customers account requires a:

Debit to Accounts Receivable of $5.6 million and Credit to Sales Revenue of $5.6 million

The journal entry to record $5.6 million in sales in account includes a:

Specific identification is an inventory method typically used when accounting for expensive and unique inventory items. T/F

True

Aging of Accounts Receivable

Uses more detailed data and is more accurate

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ______. (Check all that apply.) a. detect booking errors b. are not needed when a perpetual system is used c. detect theft d. detect shrinkage

a, c, & d

Good internal control for cash receipts would include having the __________ compare the record of cash sales per the register with the count sheets and bank deposit slip returned by the bank.

accounting department

Deposits in transit are ________ on a bank reconciliation.

added to the bank balance

Sales Returns & Allowances is a _____ account and is _____ when goods are returned by customers for a refund.

contra-revenue; debited

The gross profit percentage is the ratio to watch if you are worried about increased competition. If the company lowers its prices to retain market share without lowering its costs of goods sold, its gross profit percentage will _____.

decrease

A __________ deposit is initiated by an EFT instructing a bank to transfer pay due employees into the employees' bank accounts.

direct

Outstanding checks are checks that ___________.

have been written but have not yet cleared the bank.

The procedure of bank reconciliation is an example of which principle of internal control?

independent verification

The operating cycle is a series of activities that the company undertakes to generate _____ and, ultimately, cash.

profit

This document indicates the date, quantity, and condition of the goods. It is then sent to the accounting department to notify so the purchase can be recorded.

receiving report

This document is compared to the internally generated documents of the voucher system to ensure the quantity and costs agree with what has been ordered and received. If all reconciles, the accounting department will record the purchase in the accounting records.

receiving report

Match the following control components of the framework used when analyzing internal control systems with the appropriate description.

-control environment: refers to the attitude of the people in the organization and their commitment to integrity -risk assessment: evaluate the potential for fraud -control activities: work responsibilities and duties completed to reduce risks to an acceptable level -monitoring activities: evaluating the internal control system to see if working as intended

The quality of financial reporting for publicity traded companies is improved through _____________.

-evaluating and reporting on the effectiveness of internal controls -obtaining an external audit

Incentives for committing fraud in order to satisfy personal greed include

-getting a bigger paycheck -increasing personal wealth

Which of the following duties should not be responsibility of an employee who has access to cash?

-perform bank reconciliations -record cash collected in journal

A lower of cost or market write-down _________. (check all that apply) 1) is viewed by analysts as a positive sign because it means the inventory is easily replaced 2) is viewed by analysts as a negative sign because it may indicate a problem with the company's inventory management 3) recorded incorrectly is one of the most common types of financial statement misstatements

2) is viewed by analysts as a negative sign because it may indicate a problem with the company's inventory management 3) recorded incorrectly is one of the most common types of financial statement misstatements

Companies generally report their accounting method for inventory in the ____________. 1) income statement 2) notes to the financial statements 3) balance sheet 4) bottom section of the balance sheet and income statement

2) notes to the financial statements

Bad Debt Expense of $7250 on the income statement and Allowance for Doubtful Accounts of $8000 on the balance sheet (Credit to AFDA and Debit to BDE)

ABC, Inc.'s unadjusted trial balance included Accounts Receivable $80,000 debit; Allowance for Doubtful Accounts $750 credit; and credit sales $400,000 credit. ABC uses the aging-of-receivables method and estimates that $8,000 of its receivables will be uncollectible. After the adjusting entry is made, ABC's financial statements will report:

Sales to decrease and Bad Debt Expense to decrease

Accepting only cash and canceling a credit card program that previously allows customers to purchase merchandise in credit may cause:

The journal entry to record the payment for merchandise previously purchased on account includes a debit to _____ and a credit to _____.

Accounts Payable; Cash

An error in ending inventory in year 1 will cause ending inventory in year 2 to be missated as well. T/F

False

Which of the following costs should be added to the buyer's Inventory account?

Freight-in with terms FOB shipping point

Debit to Bad Debt Expense and Credit to Allowance for Doubtful Accounts

When using the allowance method, the adjusting entry to record estimated bad debt expense includes a:

(1) Avoid lengthy cash collection periods and (2) reduction of bad debts expense

Which of the following are advantages of using national credit cards?

What does the sales discount 2/10, n/30 mean?

You can take a 2% discount if you pay within 10 days, or the full amount is due within 30 days

Bijoux Company uses a perpetual inventory system. Its bookkeeper properly recorded a $5,000 sale on account, but forgot to record the related cost of the sale of $3,000. As a result of this error, _____. (Check all that apply.) a. total assets will be too high b. total assets will be too low c. net income will be too high d. net income will be correct e. total assets will be correct f. net income will be too low

a & c

The gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost of goods sold. This ratio is used to: (Check all that apply.) a. compare one company with another b. measure the frequency of inventory turnover c. makes comparisons over time d. determine whether a company is collecting its receivables in a timely fashion

a & c

After performing a physical count of inventory at the end of the accounting period, it was discovered that the amount of inventory on hand was less than the accounting records reported. The entry to record this inventory shrinkage includes _____. (Check all that apply.) a. debit to Cost of Goods Sold b. debit to Purchase Discounts c. credit to Cost of Goods Sold d. credit to Inventory e. debit to Inventory f. credit to Purchase Discounts

a & d

In which of these situations would a merchandiser record revenue? (Select all that apply.) a. The obligation has been fulfilled and control of the goods has been transferred to the customer b. Goods were delivered FOB Destination but have not yet arrived at the buyer's place of business c. The customer paid for the good in advance d. Goods were delivered FOB Shipping Point but have not yet arrived at the buyer's place of business

a & d

XYZ's journal entry to record the return of merchandise previously purchased on account by XYZ was recorded by debiting Inventory and crediting Accounts Payable. As a result of this entry, _____. (Select all that apply.) a. liabilities will be overstated b. liabilities will be understated c. stockholders' equity will be overstated d. assets will be overstated e. assets will be understated f. stockholders' equity will be understated

a & d

In a perpetual system, the entry to record a purchase of merchandise on account includes a _____. (Check all that apply.) a. credit to Inventory b. debit to Accounts Payable c. credit to Accounts Payable d. debit to Accounts Receivable e. debit to Inventory f. credit to Accounts Receivable

c & e

Which of the following are reported on the income statement? (Check all that apply.) a. Inventory b. Goods Available to Sell c. Cost of Goods Sold d. Sales Revenue e. Gross Profit

c, d, & e

What are the two stages of accounting for a purchase discount? (Check all that apply.) a. The purchase is first recorded at the discounted amount b. The Accounts Payable account is later reduced by the discounted amount c. The Inventory account is first reduced by the expected discount d. The Inventory account is later reduced if payment is made within the discount period e. The purchase is first recorded at full cost

d & e

The journal entry to record the payment for merchandise previously purchased on account includes a _____. (Select all that apply.) a. credit to Accounts Receivable b. credit to Accounts Payable c. debit to Accounts Receivable d. credit to Cash e. debit to inventory f. debit to Accounts Payable

d & f

In a bank reconciliation, an outstanding check is __________.

deducted from the bank balance

Your customer's NSF check found on the bank statement is a reconciling item on a bank reconciliation and will need to be ___________.

deducted from the cash balance in your accounting records

A bank service charge should be a _________ on a bank reconciliation.

deduction from the book balance

The seller of inventory pays for shipping if the shipping terms are FOB _____. destination

destination

Which of these will decrease the inventory account? (Check all that apply.) a. paying cash for inventory previously purchased on account b. purchasing inventory on account c. collecting cash for inventory previously sold on account d. purchasing inventory for cash e. selling inventory for cash f. selling inventory on account

e & f

Each cash drawer is assigned to only one employee in a supermarket. This is an example of the internal control principle of ____________.

establishing responsibility

Merchandisers record revenue when they _____.

fulfill their performance obligations by transferring control of the goods to customers

Receivables Turnover Ratio:

net sales: (Y1)/net accounts receivable: (Y1+Y2)/2

Inventory shrinkage as a result of theft, damage or obsolescence that is discovered during a physical inventory count at the end of the accounting period is recorded with a decrease to Inventory _____.

only in a perpetual system

The _____ cycle is a series of activities that the company undertakes to generate sales and ultimately cash.

operating

Under the _____ inventory system, inventory records are updated only at the end of the accounting period.

periodic

A cash register does not _________.

reconcile accrual accounting with cash accounting

The journal entry to record the payment for merchandise previously purchased on account will cause stockholders' equity to _____.

remain unchanged

Increasingly, the basic steps of the voucher system are performed using ____________ process automation, which combines automation and artificial intelligence.

robotic

Service charges are __________ of a bank reconciliation.

subtracted from the book's balance

NSF checks from customers should be a _____ on a bank reconciliation

subtraction from the book balance

Mandatory ____________ is a policy that is established to make it difficult for fraudsters to cover up their theft while they are away.

vacation

Electronic funds transfer (EFT) discovered on the bank statement ____________.

will need to be adjusted on your records because your cash balance is affected

Bijoux Company has a Net Sales of $40,000; Beginning Inventory of $5,000; Purchases of $25,000 and Ending Inventory of $7,000. Cost of Goods Sold equals _____.

$23,000

A company has $10,000 cash balance per its books. The bank statement has a balance of $9,580. The bank reconciliation included $800 of deposits-in transits, $500 of checks outstanding, a $100 NSF check from a customer, and a $20 bank service charge. Given the following reconciling items, the up-to-date cash balance equals __________.

$9,880

Which statement are true? (check all that apply) 1) The inventory method is an assumed cost flow and does not have to correspond with the actual physical flow of goods 2) a grocery store may use the last-in, first-out inventory method 3) first-in, last-out is one of the titles of inventory methods allowed by GAAP 4) the inventory methods apply to perpetual inventory systems and not periodic inventory

1) The inventory method is an assumed cost flow and does not have to correspond with the actual physical flow of goods 2) a grocery store may use the last-in, first-out inventory method

Using a perpetual inventory system, when a company records a sale of merchandise, it must also record _________. (check all that apply) 1) cost of goods sold, which will be reported on the income statement 2) a decrease in its inventory 3) cost of goods sold, which will be reported on the balance sheet 4) an increase in its inventory

1) cost of goods sold, which will be reported on he income statement 2) a decrease in its inventory

The journal entry to record a write-down of inventory from cost to its lower market value includes a __________. (check all that apply) 1) debit to cost of goods sold (or inventory write-down) 2) credit to inventory 3) debit to sales revenue 4) debit to inventory

1) debit to cost of goods sold (or inventory write-down) 2) credit to inventory

Probes, Inc. wrote down its inventory to the lower replacement value. The effect on Probes' accounting equation includes a(n) _________. (check all that apply) 1) decrease in stockholders' equity 2) decrease in assets 3) increase in assets 4) decrease in liabilities

1) decrease in stockholders' equity 2) decrease in assets

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts ________. (check all that apply) 1) detect theft 2) are not needed when a perpetual system is used 3) detect bookkeeping errors 4) detect shrinkage

1) detect theft 3) detect bookkeeping errors 4) detect shrinkage

Which of the following is merchandise inventory? 1) goods held for sale in the normal course of business 2) raw materials and work in process 3) office supplies that a company plans to use in the next few months 4) equipment used to manufacture products which will be sold later

1) goods held for sale in the normal course of business

Which of the following income statement line items are affect by the inventory method chosen? (check all that apply) 1) gross profit 2) income tax expense 3) sales 4) income before income tax expense 5) net income 6) income from operations

1) gross profit 2) income tax expense 4) income before income tax expense 5) net income 6) income from operations

Which of the following 2019 financial statement line items will be affected if the 2019 ending inventory is overstated? (check all that apply) 1) net income will be overstated 2) cost of goods sold will be overstated 3) cost of goods sold will be understated 4) current assets will be overstated

1) net income will be overstated 3) cost of goods sold will be understated 4) current assets will be overstated

If companies are required to adopt IFRS, companies will _________. 1) no longer be able to use LIFO 2) have to switch to weighted average cost 3) no longer be able to use FIFO 4) have to switch to FIFO

1) no longer be able to use LIFO

Iris, Inc. uses FIFO for financial reporting purposes and LIFO for its income tax return. Iris' accounting treatment of its inventory is _________. 1) not in accordance with the LIFO conformity rule 2) in conformity with IFRS 3) in conformity with the IRS tax code

1) not in accordance with the LIFO conformity rule

Which financial statements will be misstated if the year 1 ending inventory balance is understated? (check all that apply) 1) year 1 income statement 2) year 2 income statement 3) year 2 balance sheet 4) year 1 balance sheet

1) year 1 income statement 2) year 2 income statement 4) year 1 balance sheet

The LIFO conformity rule requires that LIFO by used ____________. 1) for both IFRS and GAAP 2) for financial reporting if it is used on the company's income tax return 3) every accounting period even when prices are rising

2) for financial reporting if it is used on the company's income tax return

Which of these might cause the value of inventory to fall below its original cost? (check all that apply) 1) decrease in gross profit 2) increased competition 3) damage 4) obsolescence from going out of style

2) increased competition 3) damage 4) obsolescence from going out of style

If the year 1 ending inventory balance is overstated, then the year 2 beginning inventory balance will be __________. 1) correctly stated 2) overstated 3) understated

2) overstated

When analyzing a company's inventory turnover ratio, it is more important and more meaningful to compare the ratio with ____________. 1) other industries' ratios 2) prior years' ratios for the company 3) other companies' ratios

2) prior years' ratios for the company

Which of the following events might cause inventory prices to decrease? (check all that apply) 1) increased customer demand 2) technological improvements in the industry 3) increased competition 4) the merchandise goes out of style or becomes obsolete 5) an economic recession

2) technological improvements in the industry 3) increased competition 4) the merchandise goes out of style or becomes obsolete 5) an economic recession

Ending inventory errors in 2018 _________. 1) will affect only 2018 2) will affect the 2019 goods available for sale but will not affect the 2019 ending inventory 3) are offset by the end of 2019, and thus, are not considered errors

2) will affect the 2019 goods available for sale but will not affect the 2019 ending inventory

Acme, Inc. had cost of goods sold of 2,000. If beginning inventory was 2,100 and ending inventory was 500, Acme's purchases must have been $_______.

400

(1) The company loans money to employees of businesses, (2) The company sells expensive items for which coroners require and extended payment period, or (3) The company concerts and existing account receivable to a note receivable to allow an extended payment period

In which situations does a company issue a note receivable?

Match the principle of internal control responsibility described.

Independent verification- The supervisor reconciles the cashier's count sheet to the cash collected Restrict access- The supervisor is responsible for keeping the cash safe and getting the cash to the bank Document procedures- The supervisor prepares a deposit slip Segregation of duties- The supervisor forwards the verified deposit slip to the accounting record to record the cash receipts

In a perpetual system, the _____ account is debited when a company purchases merchandise on account.

Inventory

Debit to Cash of $4000, Credit to Interest Receivable of $3000, and Credit to Interest Revenue of $1000

On Feb. 1, 2016, Stretchers, Inc., receives $4,000 of interest of which $3,000 was earned and recorded in the prior accounting period ended Dec. 31, 2015. The entry to record the collection of interest in Feb. 1 includes a:

Calculating interest:

Principal (the amount of the note receivable) x Interest Rate (the annual interest rate charged on the note) x Time (how many months out of 12 or how many days out of 365)

In a strong system of internal control, which employee should be the one to verify cash count sheets and prepare deposit slips and take the cash to the bank?

Supervisor

Bad Debt Expense is a:

Temporary account so its balance is closed (zeroed out) at the end of the accounting period

(1) Report accounts receivable at the amount the company expects to collect (net realizable value) and (2) Match the cost of bad debts to the accounting period in which the related credit sales are made

The objectives when accounting for accounts receivable and bad debts are to:

A multistep income statement is useful to financial statement users because it _____. (Select all that apply.) a. separates income statement items into meaningful components b. provides the amount of resources available to use in the future c. separates cost of goods sold from other operating expenses, which allows the calculation of gross profit

a & c

The recording of a company's purchase returns and purchase allowances are similar in that both may result in a(n) _____. (Check all that apply.) a. decrease in Accounts Payable b. increase in Inventory c. decrease in Inventory d. increase in Accounts Receivable e. increase in Accounts Payable

a & c

Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes a(n) _____. (Check all that apply.) a. increase in liabilities b. decrease in assets c. increase in assets d. decrease in stockholders' equity

a & c

Using a perpetual inventory system, the entry to record the return of goods you previously purchased on account includes a _____. (Check all that apply and answer from the viewpoint of the buyer.) a. debit to Accounts Payable b. credit to Accounts Receivable c. credit to Inventory d. debit to Purchase Returns e. credit to Cash

a & c

The journal entry to record the payment within the discount period for goods previously purchased on account causes _____. (Check all that apply.) a. total liabilities to decreased b. total assets to increase c. total stockholders' equity to increase d. total liabilities to increase e. total assets to decrease f. total stockholders' equity to decrease

a & e

If a new company calculates the average cost of its inventory by adding together the total cost of all purchases and then dividing it by the number of units purchased during the period, it is using the weighted _____________ cost method.

average

The company needs to record the reconciling items that are on the ________ side of the bank reconciliation.

book