A201 Test 2

The following represents the five steps in the revenue recognition model, in random order: a. Determine the transaction price. b. Identify the contract with the customer. c. Recognize revenue as the entity satisfies performance obligations. d. Allocate the transaction price to the performance obligations in the contract. e. Identify the performance obligations in the contract. Which of the following is the correct order for the five-step revenue recognition model? E, B, A, D, C B, A, D, E, C B, E, A, D, C E, A, B, D, C

B, E, A, D, C

Cola Company made sales of $ 31875 million during 2016. Cost of goods sold for the year totaled $ 12750 million. At the end of 2015​, Cola​'s inventory stood at $ 1400 ​million, and Cola ended 2016 with inventory of $ 1600 million. Compute Cola​'s gross profit percentage and rate of inventory turnover for 2016.

Begin by computing Cola​'s gross profit percentage for 2016. ​(Round your answer to the nearest tenth of a​ percent, X.X%.) Cola's gross profit percentage for 2016 is 60% Now compute Cola​'s rate of inventory turnover for 2016. ​(Round your answer to one decimal​ place.) Cola's rate of inventory turnover for 2016 is 8.5 times.

Cash may be a small item on the financial statements.​ Nevertheless, internal control over cash is very important. Why is this​ true?

Cash is important because of its effect on a business. All transactions ultimately result in either the collection or payment of cash. ​Also, cash is susceptible to theft because it is a medium of exchange. These factors combine to give cash more importance than its account balance would suggest.

City Market (CM) is a major food cooperative. Suppose CM begins 2017 with cash of $3 million. CM estimates cash receipts during 2017 will total $105 million. Planned payments will total $89 million. To meet daily cash needs next year, CM must maintain a cash balance of at least $14 million.

City Market (CM) Cash Budget For the Year 2017 Cash, beg. 3 million estimated cash receipts 105 million ------------------------------------------ 108 million estimated cash payments (89) million cash available 19 million budgeted cash balance (14) ------------------------------------------ cash available for add invest. 5

The income before taxes is maximized by using the --------- method of inventory costing.

FIFO

The income taxes are minimized by using the ------- method of inventory costing.

LIFO

A bank statement lists $700 deposit as $70. On a bank reconciliation, this will appear as a. deduction from the bank balance b. addition to the bank balance c. addition to the book balance d. deduction from the book balance

b - addition to the bank balance

Fraud is an intentional misrepresentation of facts, made for the purpose of persuading another party to act in a way that causes injury or damage to that acting party

Opportunity - usually arises through weak internal controls Motive - critical need or greed on part of the perpetrator Rationalization - the perpetrator is convinced that they deserve the object of the fraudulent behavior

List the components of internal control. Briefly describe each component.

Risk assessment - each company must evaluate its own risks, based upon its particular line of business Information system - accurate information is essential for success in business Control procedures - specific procedures are needed for a good system of internal control Control environment - top managers must set the "tone at the top" to establish a control environment Monitoring of controls - auditors can monitor a company's actions and its financial statements

Which of the following is true regarding the disclosure principle? a. All of these statements are true regarding the disclosure principle. b. A company has to report relevant and representationally faithful information about itself. c. The disclosure principle requires companies to report enough information in order for users to make informed decisions about the company. d. As a result of the disclosure principle, companies generally include a note to the financial statements that details the inventory costing method used.

a - All of these statements are true regarding the disclosure principle.

Which of the following accounting treatments violates the matching principle? a. Inventory is expensed in the period when it is purchased. b. A jewelry store uses the specific identification method. c. A grocery store uses the LIFO cost flow method. d. Inventory is expensed in the period when it is sold.

a - Inventory is expensed in the period when it is purchased.

During a period of rising prices, which inventory valuation method produces the lowest reported net income? a. Specific Identification b. LIFO c. FIFO d. Weighted-average method

b - LIFO

Which of the following items would most likely be accounted for using the specific identification inventory method? a. timex watches b. artistic painting c. video games d. cough drops

b - artistic painting

If a company's inventory was destroyed by fire but the accounting records were saved, the method that would probably be used to estimate the amount of inventory lost would be ________. a. the specific identification method b. the LIFO method c. the gross profit method d. the weighted average cost method

c - the gross profit method

Darice Goodrich receives cash from customers. Her other assigned job is to post the collection to customer accounts receivable. Her company has weak ______________ a. ethics b. assignment of responsibilities c. computer controls d. separation of duties

d - separation of duties

Ernst Electronics recorded sales in the last week of the year totaling $140,000 (cost of goods, $80,000). Ernst estimates that approximately 3% of these sales will be returned. What is the amount of Refund Liability Ernst will record at year-end related to these sales? a.$1800 b. Ernst will not recorded a Refund Liability related to these sales, as the amount of refunds is immaterial c. $2400 d. $4200

d - $4200

Navarro Company's ending cash balance is $850 before adjusting items. The only adjusting items were: $26 service charge NSF check for $190. $300 deposit is in transit outstanding checks totaling $470. What was Navarro's unadjusted bank balance on the bank statement? a. $634 b. $850 c. $504 d. $804

d - $804

Which of the following problems might explain an unusually high inventory turnover ratio? a. The inventory may have been bought in quantities that are too large, causing goods to be on hand for too long. b. The cost of inventory may have increased. c. The inventory may not be selling as quickly as it was in the past. d. The inventory may be too low, causing goods to be out of stock and sales to be lost.

d - The inventory may be too low, causing goods to be out of stock and sales to be lost.

Which of the following would be included in the total of "Cash and Cash Equivalents" on the balance sheet? a. U.S. government securities maturing in 60 days b. total of all bank accounts with unrestricted deposited funds c. time deposits d. all of these would be classified as "Cash and Cash Equivalents"

d - all of these would be classified as "Cash and Cash Equivalents"

Identify the other control procedures usually found in a​ company's system of internal control besides separation of​ duties, and tell why each is important.

1. Comparison + compliance monitoring - allows for cross-checking by other people and departments. 2. Limited access - Only authorized individuals are allowed access to the assets and records of the company. 3. Proper approvals - No transaction should be processed without management's general or specific approval. 4. Smart hiring practices - Every important duty must be staffed by a competent and honest person. 5. Adequate records - Allows the company to provide an audit trail later for internal or external auditors.

How do computer​ viruses, Trojan​ Horses, and phishing expeditions​ work? How can these​ e-commerce pitfalls hurt​ you?

1. a computer virus - enters program code without your consent and performs destructive action to your computer files or programs 2. a trojan horse - is a malicious program that hides inside a legitimate program and corrupts your computer files or programs 3. a phishing expedition - can be a bogus web site that tricks visitors and uses their personal data to steal or perform illicit activities

Flintman Company purchases inventory from Ocean Pool Supplies on June 1. The sales terms on the invoice from Ocean Pool Supplies are 4​/20​, net 30. What does this​ mean? What is Flintman​'s potential​ savings, if​ any? How much time does the company have to take advantage of these​ savings?

4​/20​, ​n/30 means that Flintman Company will get a 4% discount if they pay the invoice within 20 days of the invoice​ date; otherwise, the full amount is due within 30 days. The potential savings resulting from taking advantage of the discount will be 4% of the original invoice price. Flintman will need to pay the invoice within 20 days of the original invoice date in order to take advantage of these savings.

the lower-of-cost-or-market rule requires a company to ________ a. adjust the inventory balance downward if its replacement cost is lower than its historical cost b. use the LIFO method in times of rising prices c. use this method if its inventory has been destroyed or lost d. adjust the cost of goods sold downward if the inventory's replacement cost is lower than its historical cost

a - adjust the inventory balance downward if its replacement cost is lower than its historical cost

On December​ 23, 2016​, Robertson Sports Manufacturing sells a truckload of sporting goods to the Sports R Us store in Columbus​, Ohio. The terms of the sale are FOB destination. The truck runs into bad weather on the way to Columbus and​ doesn't arrive until January​ 2, 2017. Robertson Sports​ Manufacturing's invoice totals $ 150 comma 000 including sales tax. The​ company's year-end is December 31. What should Robertson Sports manufacturing reflect in its 2016 income statement for this​ sale? ​

Robertson should report $0 sales revenue for this sale on the income statement in 2016. Since the goods were sold FOB destination, revenue is not recorded until the goods are received.

Savings Unlimited made total purchases of $ 290000 in the most current year. It paid freight in of $ 3500 on its purchases. Freight out​ (the cost to deliver the merchandise to its​ customers) totaled $ 8600. Of the total​ purchases, Savings Unlimited returned $ 24000 of the merchandise. Savings Unlimited took advantage of $ 2700 of purchase discounts offered by its vendors. What was Savings ​Unlimited's cost of​ inventory?

Savings Unlimited's cost of inventory is $266,800.

Explain why separation of duties is often described as the cornerstone of internal control for safeguarding assets. Describe what can happen if the same person has custody of an asset and also accounts for the asset.

Separation of duties is essential for safeguarding assets. The person who has custody of an asset should not also account for the asset. With both​ duties, the person can steal the asset and hide the theft by making a false entry in the accounting records.

Donovan Company projects that sales for the year 2017 will be $32,000,000. For the past 5 years, Donovan's gross profit margin has averaged 45%. What amount should Donovan Company project for cost of goods sold for 2017? a. $17600000 b. $14400000 c. $7111111 d. $2880000

a - $17600000

Collectibles, Inc. estimates that 2% of its $900,000 sales will be uncollectible and has a $2,000 credit balance in the allowance account. What amount will Collectibles, Inc. record as uncollectible accounts expense for the period? a. $18000 b. $22000 c. $20000 d. $16000

a - $18000

Carly Construction borrowed $25,000 from Crush Casualties on December 30 by signing a 5 year, 7% note payable. The entire $25,000 was deposited into Carly's bank account, and Carly agreed to maintain a minimum of 10% of the deposited funds in the account at all times as a compensating balance. Assuming all funds are still available, how will Carly report the cash received from this loan on the balance sheet on December 31? a. $22,500 as Cash, $2,500 as a long term asset for the compensating balance b. $22,500 as Cash, $2,500 disclosed separately as current asset for the compensating balance c. $25,000 as Cash and Cash Equivalents d. $25,000 as Cash

a - $22,500 as Cash, $2,500 as a long term asset for the compensating balance

Carolina Supply accepted an eight-month, $16,000 note receivable, with 8% interest, from Reading Company on August 1, 2016. Carolina Supply's year-end is December 31. What is the amount of interest to be accrued on December 31, 2016? a. $533 b. $1280 c. $320 d. $800

a - $533

Bennett Bowling Supplies had Sales of $175,000 and Cost of Goods Sold of $90,000. What is Bennett's gross profit ratio? a. 48.6% b. 51.4% c. 205% d. 94.4%

a - 48.6%

Which of the following would be included in the total of "Cash and Cash Equivalents" on the balance sheet? a. all of these would be classified as "Cash and Cash Equivalents" b. U.S. government securities maturing in 60 days c. time deposits d. total of all bank accounts with unrestricted depostied funds

a - all of these would be classified as "Cash and Cash Equivalents"

Leroy's Lawn Services began the year with a cash balance of $124,000. Leroy's estimates cash receipts for the year to be $432,000 and cash payments to total $425,000. Leroy's needs to end the year with a cash balance of $140,000 to satisfy current loan balance requirements. Determine the amount of cash available for additional investments or new financing needed to achieve this ending cash balance. a. new financing needed, $9000 b. cash available for additional investment, $9000 c. cash available for additional investments, $23000 d. new financing needed, $23000

a - new financing needed, $9000

Which of the following is not a true statement regarding requirements of the Sarbanes Oxley Act? a. private companies must issue an internal control report, and the outside auditor must evaluate and report on the soundness of the company's internal controls b. an accounting firm may not audit a public company and provide other consulting services to that same client c. stiffer penalties await perpetrators of fraud d. the PCAOB was created to oversee the audits of public companies

a - private companies must issue an internal control report, and the outside auditor must evaluate and report on the soundness of the company's internal controls

Establishing effective controls minimizes waste, which lowers costs and increases profits. Which objective of internal controls is this statement referring to? a. promote operational efficiency b. encourage employees to follow company policies c. safeguard assets d. ensure accurate, reliable accounting records

a - promote operational efficiency

Which of the following is not one of the main objectives of internal control? a. separation of duties b. safeguard assets c. encourage employees to follow company policy d. promote operational efficiency

a - separation of duties

Renee's Radios overstated 2016 ending inventory by $15,000. What effect, if any, will this error have on Renee's 2017 income statement? a. This error has no effect on the income statement, as it occurred in inventory, which is a balance sheet account. b. 2017 net income is understated by $15,000. c. 2017 net income is overstated by $15,000. d. This error has no effect on the 2017 income statement, as the error occurred in 2016.

b - 2017 net income is understated by $15,000.

The gross profit ratio for Profits, Inc. increased from 45% in 2016 to 50% in 2017. Which of the following must be true? a. Profits' markup on its goods was less in 2017 than in 2016. b. Profits' cost of goods sold was lower relative to sales in 2017 than in 2016. c. Profits' made more sales in 2017 than in 2016. d. Profits' net income was greater in 2017 than in 2016.

b - Profits' cost of goods sold was lower relative to sales in 2017 than in 2016.

After performing a bank reconciliation, we need to journalize ____________________________ a. all items on the bank side of the reconciliation b. all items on the book side of the reconciliation c. no items from the reconciliation because the cast transactions need no adjustments d. all items on the reconciliation

b - all items on the book side of the reconciliation

What items appear on the book side of a bank reconciliation? a. outstanding checks b. book error c. bank error d. deposits in transit

b - book error

What is the effect on the financial statement of writing off an uncollectible account under the allowance method? a. decrease net income, decrease assets b. no net effect c. decreases assets, increases liability d. increases expenses, decreases assets

b - no net effect

Which of these items appear on the bank side of a bank reconciliation? a. EFT b. Outstanding checks c. NSF d. Book error

b - outstanding checks

Separation of duties is not important for internal control of a. cash payments b. personal, sensitive information of customers c. cash receipts d. sales on credit and purchases on credit

b - personal, sensitive information of customers

Establishing effective controls minimizes waste, which lowers costs and increases profits. Which objective of internal control is this statement referring to? a. safeguard assets b. promote operational efficiency c. encourage employees to follow company policies d. ensure accurate, reliable accounting records

b - promote operational efficiency

Angel Enterprises purchased 100 shares of Wings International at $10 per share on 12/15/16. Wings International was trading on the open market for $9 per share on 12/31/16. Angel then sold the 100 shares of Wings on 1/20/17 for $15 per share. Assuming Angel classified this investment as an available-for-sale security, what is the amount of gain or loss recognized on the sale of the investment? a. realized gain of $600 b. realized gain of $500 c. realized loss of $600 d. realized loss of $500

b - realized gain of $500

The current credit balance in Allowance for Uncollectible Accounts before adjustment is $450. A percent-of-sales reveals $2,800 of uncollectible accounts. What is the ending balance in the Allowance for Uncollectible Accounts? a. $2800 b. $2350 c. $3250 d. $0

c - $3250

Bedding By Us had net credit sales of $452,000 during the year and an average accounts receivable balance of $34,769. On average, how many days did it take Bedding By Us to collect Accounts Receivable? a. 26.45 days b. 30.02 days c. 28.08 days d. 13 days

c - 28.08 days

Which of the following is true regarding the disclosure principle? a. a company has to report relevant and representationally faithful information about itself b. the disclosure requires companies to report enough information in order for users to make informed decisions about the company c. all of these statements are true regarding the disclosure principle d. as a result of the disclosure principle, companies generally include a note to the financial statements that details the inventory costing method used

c - all of these statements are true regarding the disclosure principle

Which of the following would be included in the total of "Cash and Cash Equivalents" on the balance sheet? a. U.S. government securities maturing in 60 days b. time deposits c. all of these would be classified as "Cash and Cash Equivalents" d. total of all bank accounts with unrestricted deposited funds

c - all of these would be classified as "Cash and Cash Equivalents"

Baker's Bakery began the year with a cash balance of $74,000. Baker's estimates cash receipts for the year to be $256,000 and cash payments to total $220,000. Baker's needs to end the year with a cash balance of $100,000 to satisfy current loan balance requirements. Determine the amount of cash available for additional investments or new financing needed to achieve this ending cash balance. a. cash available for additional investments $62,000 b. new financing needed $10,000 c. cash available for additional investments $10,000 d. new financing needed $62,000

c - cash available for additional investments $10,000

What is the effect on the financial statements of writing off an uncollectible account under the direct write-off method? a. increase expenses and decreases liabilities b. no net effect c. decreases net income and decreases assets d. decreases assets and increases owners equity

c - decreases net income and decreases assets

Which of the following items used to reconcile cash does not require an adjusting entry? a. interest earned b. bank service charge c. deposits in transit d. a note collected by the bank

c - deposits in transit

How does preparing a cash budget help to control cash? a. these are all example of how preparing a cash budget helps to control cash b. helps to develop a plan for increasing future costs c. helps to determine available cash for investments or additional cash needed from financing d. ensures accurate and reliable reporting of cash on the balance sheet

c - helps to determine available cash for investments or additional cash needed from financing

What is the effect of using FIFO during a period of rising prices under a perpetual inventory system? a. Less net income than LIFO b. Higher cost of goods sold than average costing c. Higher gross profit than LIFO d. Lower taxes paid than if using LIFO

c - higher gross profit than LIFO

Which of the following is not a control over petty cash? a. supporting all fund disbursements with a petty cash ticket b. repleneshing the fund through normal cash disbursement procudures c. keeping an unlimited amount of cash on hang d. designating one employee to administer the fund

c - keeping an unlimited amount of cash on hand

Encryption is a technology based internal control measure that: a. cannot be broken by hackers b. avoids the need for separation of duties c. rearranges messages by a mathematical process d. creates firewalls to protect data

c - rearranges messages by a mathematical process

Which of the following is not an example of a misappropriation of assets? a. the purchasing manager agreed to pay extremely inflated prices for inventory from a supplier. The supplier, in return, provides the purchasing manager with monthly gift cards for personal use b. the inventory manager was caught stealing inventory for personal use, then writing off the inventory as being damaged or obsolete c. the company CFO intentionally misclassified long term assets as current assets d. an employee with a corporate credit card used to purchase dinner for his family weekly, writing this expense off as dinner with a client

c - the company CFO intentionally misclassified long-term assets as current assets

Which of the following is not an objective of internal control? a. to promote operational efficiency b. to encourage adherence to company policies c. to guarantee that a company will not go bankrupt d. to help safeguard the assets a business uses in its operations

c - to guarantee that a company will not go bankrupt

Frosty Drive In recorded credit card sales of $14,000 for the month. The credit card fee associated with the transactions totaled 2%. Which of the following is the correct journal entry to record these credit card sales?

cash (d) 13,720 credit card discount expense (d) 280 sales revenue (c) 14,000

In order to speed up the cash collection process, ABC decides to factor $300,000 of Accounts Receivable to DEF. DEF pays ABC $270,000 for these accounts. Which of the following is the correct journal entry to record this transaction?

cash (d) 270,000 financing expense (d) 30,000 accounts receivable (c) 300,000

Jules & Associates purchased 500 shares of stock in Joss & Co. on December 17. Jules has the intent and ability to sell these shares by February 15. How should Jules classify this investment on the balance sheet? a. as a current asset, investment in available for sale securities b. as a long term asset, investment in available for sale securities c. as a long term asset, investment in trading securities d. as a current asset, investment in trading securities

d - as a current asset, investment in trading securities

The document that explains all differences between a company's cash records and the banks figures is called _____ a. electronic fund transfer b. bank collection c. bank statement d. bank reconciliation

d - bank reconciliation

The document that explains all differences between a company's cash records and the banks figures is called _______ a. bank collection b. bank reconciliation c. electronic fund transfer d. bank statement

d - bank statement

Many companies use a lock box system to prevent unauthorized access to cash. Which of the following statements correctly describes a lock box system? a. cash received over the counter is maintained in a locked cash register. Access to the register is allowed only by approved employees b. details of checks received by mail are summarized; then those checks are immediatly placed in a lock box and delivered to the bank c. only limited cash is kept in the cash register at all times. Large bills and amount considered to be in excess of what is needed are immediately placed in a locked box in a secure location, only accessible by approved emplyees d. customers send checks directly to a post office box controlled by the bank. the bank then summarizes the collections and sends detailed information to the company

d - customers send checks directly to a post office box controlled by the bank. the bank then summarizes the collections and sends detailed information to the company

Which of the following is NOT an element of the fruad triangle? a. motive b. rationalization c. opportunity d. greed

d - greed

The excess of sales over cost of goods sold is ________. a. income before taxes b. net income c. operating income d. gross profit

d - gross profit

Which of the following is not one of the main objectives of internal control? a. encourage employees to follow company policy b. safeguard assets c. promote operational efficiency d. seperation of duties

d - separation of duties

Which of the following is not one of the main objectives of internal control? a. promote operational efficiency b. encourage employees to follow company policy c. safeguard assets d. seperation of duties

d - separation of duties

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. voided checks

d - voided checks

Which of the following items does not cause a difference between the cash balance per bank and book? a. deposit in transit b. NSF check c. outstanding checks d. voided checks

d - voided checks

Which of the following items does not cause a difference between the cash balance per bank and book? a. deposit in transit b. outstanding checks c. NSF checks d. voided checks

d - voided checks

As a recent college​ graduate, you land your first job in the customer collections department of Silktown Publishing. Alicia​ Donovan, the​ manager, asked you to propose a system to ensure that cash received from customers by mail is handled properly. Complete the short memorandum to explain the essential element in your proposed​ plan; explain why this element is important.

​To: Alicia Donovan ​Re: Essential element of internal control over collection from customers Separation of duties is the essential element in a system to ensure that cash received by mail from customers is properly handled and accounted for. It is very important to separate cash-handling duties from accounting duties.​ Otherwise, an employee can steal a cash receipt from a customer and cover the theft by writing off the customer account as uncollectible.