ACC Exam 2

Assume the following sales data for a company: Year 1 $6,000,000 Year 2 8,400,000 Year 3 7,500,000 By what percentage did sales differ between Years 1 and 2 and Years 2 and 3, respectively?

40.0% and (10.7%)

A company had net sales of $21,500 and ending accounts receivable of $2,700 for the current period. Its days' sales uncollected equals:

45.8 days

A company's net sales were $676,600, its cost of goods sold was $236,810 and its net income was $33,750. Its gross margin ratio equals:

65%

Freeman Co. had net sales of $4.2 million and ending accounts receivable of $0.8 million. Its days' sales uncollected equals:

69.5 days

Managers place a high priority on internal control systems because the systems assist managers in all of the following except:

Assuring that no loss will occur

An analysis that explains differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n):

Bank reconciliation.

Which of the following statements about liquidity and solvency ratios is correct?

Both liquidity ratios and solvency ratios measure a company's ability to meet its financial obligations

At the end of the day, the cash register's record shows $1,050, but the count of cash in the cash register is $1,055. The correct entry to record the cash sales and its overage is

Debit Cash $1,055; credit Cash Over and Short $5; credit Sales $1,050

A company that uses the gross method of recording purchases and a perpetual inventory system purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the purchase on July 5 is:

Debit Merchandise Inventory $1,800; credit Accounts Payable $1,800.

A company that uses the gross method of recording purchases and a perpetual inventory system made a purchase of $400 with terms of 2/10, n/30. The entry to record the purchase would be:

Debit Merchandise Inventory $400; credit Accounts Payable $400

Ferguson Co. decides to establish a petty cash fund with a beginning balance of $200. The company decides that any purchase under $25 can be processed through petty cash instead of the voucher system. The journal entry to record establishing the account is:

Debit Petty Cash $200 and credit Cash $200

If an analyst wants to examine a company's current ability to generate income, which of the following would best be considered?

Profitability

Internal control systems are:

Required by Sarbanes-Oxley (SOX) to be documented and certified if the company's stock is traded on an exchange.

On July 1, Ferguson Company, Inc. sold merchandise in the amount of $3,700 to Tracey Company, with credit terms of 2/10, n/30. The cost of the items sold is $2,000. Ferguson uses the gross method of accounting for sales and a perpetual inventory system. On July 5, Tracey returns some of the merchandise. The selling price of the merchandise returned is $500 and the cost of the merchandise returned is $350. The entry or entries that Ferguson must make on July 5 to record the return is:

Sales returns and allowances 500 Accounts receivable 500 Merchandise inventory 350 Cost of goods sold 350

The principles of internal control include:

Separate recordkeeping from custody of assets

In which of the following company attributes would a long-term bond holder be most interested?

Solvency

A voucher is an internal document or file:

Used to accumulate information needed to control cash disbursements and to ensure that transactions are properly recorded

Which of the following analysis techniques does not pertain to changes over time?

Vertical analysis

Goods in transit are included in a purchaser's inventory:

When the purchaser is responsible for paying freight charges.

KLM Corporation's quick assets are $5,888,000, its current assets are $11,700,000 and its current liabilities are $8,000,000. Its acid-test ratio equals:

0.74

A company records the following journal entry: debit Cash $1,470, debit Sales Discounts $30, and credit Accounts Receivable $1,500. This means that the customer has taken what percentage cash discount for early payment?

2%

A company's gross profit was $83,750 and its net sales were $347,800. Its gross margin ratio equals:

24.1%

Garza Company made a $135,000 sale with terms 2/10, n/45: If the company uses the gross method of accounting for sales, the sale should be recorded with a debit to Accounts Receivable and a credit to Sales for which of the following amounts?

$135,000

If the company's accountant mistakenly recorded a $69 deposit as $107, the error would be shown on the bank reconciliation as a(n):

$38 deduction from the book balance.

A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:

$417,000

Juniper Company, Inc. uses a perpetual inventory system. The company purchased $9,750 of merchandise on August 7 with terms 1/10, n/30. On August 11, it returned $1,500 worth of merchandise. On August 16, it paid the full amount due. The amount of the cash paid on August 16 equals:

$8,167.50

Net income was $418,600 in the current year and $364,000 in the prior year. The year-to-year percentage change in net income is closest to:

15%

The credit terms 2/10, n/30 are interpreted as:

2% cash discount if the amount is paid within 10 days, or the balance due in 30 days

The entry to establish a petty cash fund includes:

A debit to Petty Cash and a credit to Cash.

If a check correctly written and paid by the bank for $749 is incorrectly recorded in the company's books for $794, how should this error be treated on the bank reconciliation?

Add $45 to the book balance

If a company made a bank deposit on September 30 that did not appear on the bank statement dated September 30, in preparing the September 30 bank reconciliation, the company should:

Add the deposit to the bank statement balance

Cash equivalents:

Are short-term, highly liquid investment assets.

On February 3, Smart Company, Inc. sold merchandise in the amount of $5,800 to Truman Company, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Smart uses the gross method of accounting for sales and a perpetual inventory system. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

Cash 5,684 Sales discounts 116 Accounts receivable 5,800

An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled:

Cash Over and Short.

Quick assets are defined as:

Cash, short-term investments, and current receivables.

Horizontal analysis involves:

Comparing individual financial statement line items over time

Multiple-step income statements:

Contain more detail than a simple listing of revenues and expenses.

Which of the following ratios is used to evaluate a company's liquidity?

Current ratio

A company that uses the gross method of recording purchases and a perpetual inventory system purchased $1,800 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $200 worth of merchandise. On July 28, it paid the full amount due. The correct journal entry to record the merchandise return on July 7 is

Debit Accounts Payable $200; credit Merchandise Inventory $200

At the end of the day, the cash register tape shows $1,020 in cash sales but the count of cash in the register is $1,035. The proper entry to record cash sales and its overage is:

Debit Cash $1,035; credit Sales $1,020; credit Cash Over and Short $15

A voucher system is a set of procedures and approvals:

Designed to control cash disbursements and the acceptance of obligations

The voucher system of control:

Establishes procedures for verifying, approving, and recording obligations for eventual cash disbursement.

The limitations of internal control policies and procedures do not include

Establishing responsibilities

Which of the following measures would assist in assessing the profitability of a company?

Fixed asset turnover

Which of the following is not one of the policies and procedures that make up an internal control system?

Guarantee a return to investors.

The number of days' sales uncollected:

Is used to evaluate the liquidity of receivables

The Cash Over and Short account:

Is used to record the income effects of errors in making change from a cash register and/or processing petty cash transactions.

If an analyst wants to examine a company's short-run ability to survive, which of the following would best be considered?

Liquidity

Beginning inventory plus net purchases equals:

Merchandise available for sale

A company using the gross method of accounting for purchases and a perpetual inventory system recorded the following entry: Accounts Payable 2,500 Merchandise Inventory 50 Cash 2,450 This entry reflects a:

Payment of the account payable less a 2% cash discount taken

Basic bank services do not include:

Petty cash management.

Meng Co. establishes a $250 petty cash fund on January 1. On January 8, the fund shows $68 in cash along with receipts for the following expenditures: postage, $74; transportation-in, $49; and miscellaneous expenses, $59. Meng uses the perpetual system in accounting for merchandise inventory. The journal entry to reimburse the fund on January 8, is:

Postage Expense 74 Merchandise Inventory 49 Miscellaneous Expense 59 Cash 182

A bank statement provided by the bank includes:

The beginning and the ending balance of the depositor's account

Cost of goods sold is:

The term used for the expense of buying and preparing merchandise for sale

All of the following are requirements of the Sarbanes-Oxley Act (SOX) except:

evaluation and reporting on the effectiveness of internal control over financial reporting for all public companies by management with disclosure that management is not responsible for the internal control system

Vertical analysis:

identifies the relative contribution made by each financial statement line item.

Horizontal analysis:

is used to identify trends over time

Solvency ratio data are primarily concerned with the ability of a company to

maintain long-term survival and repay its debt.

Segregation of duties means that a company assigns responsibilities so that:

responsibilities for related activities are assigned to two or more people

To perform a vertical analysis of an income statement, you would divide each line item on the statement by:

sales

Ratio analysis:

will tell you how a company will perform in the future