Accounting Test 2 (Chapters 5-8)

Which of these will require a credit to the inventory account in a perpetual inventory system?

- Selling inventory for cash - Selling inventory on account

The purchase of merchandise on account is recorded with a debit to ______ and a credit to ______.

Inventory, Accounts Payable

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

Iris, Inc. uses FIFO for financial reporting purposes and LIFO for its income tax return. Iris' accounting treatment of its inventory is?

Not in accordance with the LIFO Conformity Rule

Companies generally report their accounting method for inventory in the?

Notes to the financial statements

Under the ______ inventory system, the inventory account is updated every time inventory is bought, sold, or returned.

Perpetual

Which inventory system requires that the inventory account be updated at the time merchandise is sold?

Perpetual System

Which of the following is not one of the control components that are part of the framework used when analyzing an internal control system.

Reconcillations

The journal entry to record a write-down of inventory from cost to its lower market value includes a?

- Credit to Inventory - Debit to Cost of Goods Sold (or Inventory write-down)

In a periodic system, the entry to transfer beginning inventory and purchases into cost of goods sold includes a?

- Credit to Inventory(beginning balance) - Debit to Cost of Goods Sold - Credit to Purchases

On May 1, beginning inventory consists of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using perpetual FIFO, the Cost of Goods Sold for the month ended May 31 equals?

124

Independently Verifies

A company manager compares the cash count sheet with the bank deposit slip

In a perpetual inventory system, Inventory is initially recorded at?

Cost

Inventory consists of all?

Costs needed to get the inventory ready for sale

Among the new requirements of SOX is those who willfully misrepresent financial results _____.

Face stiff fines and possible jail sentences

When costs to purchase inventory are falling over time, using LIFO leads to reporting ______ than FIFO?

Higher inventory on the balance sheet

Gross Profit equals?

Net Sales minus Cost of Goods Sold

If companies are required to adopt IFRS, companies will?

No longer be able to use LIFO

Cost of Goods Sold will show a higher balance during the accounting period if?

The perpetual system is used

Beta Company bought 80 units of inventory for $12 each and 20 units of inventory for $12.5 each. It sold 90 units fr $25 each. Beta's weighted average cost is?

$12.1

On May 1, beginning inventory consists of 10 items that cost $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $12 each. Using perpetual LIFO, Cost of Goods Sold for the month ended May 31 equals?

$140

Widget Company started the month with 10 gadgets in its Inventory that cost $5 each. During the month, Widget bought 50 more gadgets that cost $6 each. At the end of the month, Widget counted its inventory and found that 8 gadgets remained unsold. If Widget uses FIFO, its Cost of Goods Sold for the month is?

$302

In a perpetual inventory system, which of the following statements are true?

- The seller should record freight-out as a selling expense - The purchaser should record freight-in as an asset, Inventory.

Fraudsters may rationalize their actions?

- Through a feeling of personal entitlement - By convincing themselves their actions are justified - As legitimate since they are underpaid

Goods available for sale equals?

Beginning Inventory + Purchases + Freight-in - Purchases Returns and Allowances - Purchase Discounts

Assuming sales remain unchanged, if Cost of Goods Sold increases then Gross Profit?

Decreases

The seller of inventory pays for shipping if the shipping terms are FOB?

Destination

A weak system of internal ____ provides the ____ to commit fraud.

Controls; opportunity

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

Freight-in with terms FOB shipping point

Document Procedures

Cash receipts are summarized and their total is calculated.

Reporting

Objective is to produce reliable and timely accounting information

Cost of good sold equals beginning inventory plus ______ minus ending inventory.

Purchases

Create an income statement in the proper order from the top to bottom?

1. Sales Revenue 2. Sales Returns, Allowances and Discounts 3. Net Sales 4. Cost of Goods Sold 5. Gross Profit

True or False: Cost of Goods Sold may include the write-down of inventory to market even though the goods haven't been sold.

True

Lux Company started the month with 20 lamps in its beginning inventory that cost $30 each. During the month, Lux purchased 80 additional lamps for $31 each. At the end of the month, Lux counted its inventory and found that 25 lamps remained unsold. If Lux uses periodic weighted average cost, its Cost of Goods Sold for the month is?

$2,310

Risk Assessment

Evaluate the potential for fraud

Monitoring Activities

Evaluating the internal control system to see if working as intended

The LIFO Conformity Rule requires that LIFO be used?

For financial reporting if it is used on the company's income tax return

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

Imprest

Establish Responsibility

Just one employee receives cash

A difference between an imprest payroll account and petty cash is petty cash is?

Not held at the bank

To find a description of the inventory accounting method used by a company, you need to look at the?

Notes to the financial statements

ABC Corp. sells a product for $1,000 cash that cost $600. The journal entry for this transaction using a perpetual inventory system includes a debit to?

Cash of $1,000 and a credit to Sales Revenue of $1,000' a debit to Cost of Goods Sold of $600 and a credit to Inventory of $600.

The assumption that a company makes about its inventory cost flow has?

- An effect on the company's balance sheet - An effect on the company's income statement

Operations

Objective is to ensure the efficient and effective completion of work and the protection of assets.

Compliance

Objective is to focus on adhering to laws and regulations

FIFO uses the _____ cost for Cost of Goods Sold on the income statement and the _____ cost for Inventory on the balance sheet.

Oldest; Newest

The ______ inventory system requires that the inventory account be updated only at the end of the accounting period.

Periodic

Which inventory system updates the inventory account only at the end of the accounting period?

Periodic

A cash register does not?

Reconcile accrual accounting with cash accounting

Mountain Made started the month with 3 quilts in its beginning inventory that cost $200 each. During the month, Mountain Made purchased 7 additional quilts for $210 each. At the end of the month, Mountain Made counted its inventory and found that 2 quilts remained unsold. If Mountain Made uses periodic weighted average cost, its Cost of Goods Sold for the month is?

$1,656

A multi-step income statement is useful to financial statement users because it?

- Separates cost of goods sold from other operating expenses, which allows the calculation of gross profit - Separates income statement items into meaningful components

The Sarbanes-Oxley Act contains measures aimed at reducing both opportunities and incentives to commit fraud. Which of the following are designed to reduce the opportunity for fraud?

- Stronger oversight by directors - Internal control audit by external auditors - Internal control report from management

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. CurlZ should report its inventory at?

$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 $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using the perpetual weighted average cost, Cost of Goods Sold for the month ended May 31 is?

$132

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

$20,000

Delta Diamonds had 5 diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds. Using specific weighted average cost, its Cost of Goods Sold is _______.

$560

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

Sales Discounts is a _____ account with a normal ____ balance.

Contra-Revenue; debit

Which of these inventory accounting methods are acceptable under US GAAP?

- FIFO - LIFO - Specific Identification - Weighted average

On May 1, beginning inventory consists of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Using the perpetual weighted average cost, ending inventory at May 31 is?

$228

Mountain Made started the month with 3 quilts in its beginning inventory that cost $200 each. During the month, Mountain Made purchased 20 additional quilts for $210 each. At the end of the month, Mountain Made counted its inventory and found that 5 quilts remained unsold. If Mountain Made uses LIFO periodic, its Cost of Goods Sold for the month is?

$3,780

Fraudulent reporting by management includes?

- Mismatching revenues and expenses - Recording fictitious revenues from a phantom customer - Improper asset valuation

Probes, Inc. wrote down its inventory to the lower replacement value. The effect on Probes' accounting equation includes a?

- Decrease in assets - Decrease in stockholders' equity

Probes, Inc. wrote down its inventory to the lower replacement value. The effect on Probes' accounting equation includes a _______.

- Decrease in stockholders' equity - Decrease in assets

If cost of acquiring inventory is rising, LIFO will result in which of the following compared to FIFO?

- Gross Profit will be lower - Cost of Goods Sold will be higher - Income Tax Expense will be lower

A lower of cost or market write-down?

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

Which inventory costing methods are based on assumptions that accountants make about the flow of inventory costs?

- LIFO - FIFO

In a periodic system, for Cost of Goods Sold to be updated, which of the following must occur?

- Take physical count of inventory - Compute Cost of Goods Sold by subtracting Ending Inventory from Goods Available for Sale

Business opportunities create incentives for fraud for which of the following reasons?

- To attract business partners - To increase equity financing - To satisfy loan covenants

In which company would you rather invest?

A company with high gross profit percentage and high sales volume.

An EFT cash receipt from a customer is?

Added to the cash balance

Fraud is best defined as?

An attempt to deceive others for personal gain

Berkley Company had beginning inventory of $4,000 and purchases of $20,000. If half of its inventory was sold, Berkley's goods available for sale during the period will?

Be split between cost of goods sold and ending inventory

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

Direct

Which inventory costing method uses the oldest cost for Cost of Goods Sold on the income statement and the newest cost for Inventory on the balance sheet?

FIFO

What does FOB shipping point mean?

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

The assumption that a company makes about its inventory cost flow can affect cost of goods sold on its ____ and inventory on its ____.

Income Statement; Balance sheet

Segregate Duties

A person different from whom receives the cash makes the deposit in the bank

How do banks help businesses control cash?

- Documenting procedures - Independently verifying - Restricting access to cash

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

- Encouraging honesty in employees - Counteract incentives - Reducing opportunities

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 $1090.

$1,090

Ace Electronics uses a perpetual inventory system. On May 1, beginning inventory was $100,000. During May, Ace purchased $35,000 of inventory and sold $71,000 of inventory. After the store closed on May 31, employees counted the inventory in the store and found that $60,000 of inventory remained unsold. What was Ace's inventory shrinkage?

$4,000

XYZ Company sold merchandise for $5,000, with payment terms of 2/10, n/30. If the customer pays within the discount period and takes the discount, XYZ will receive ______.

$4,900

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

Delta Diamonds had 5 one-carat diamonds available for sale this year: 1 purchased June 1 for $500, 2 purchased July 9 for $550 each, and 2 purchased September 23 for $600 each. On December 24, it sold 1 of the diamonds that was purchased on July 9. Using perpetual specific identification, its Cost of Goods Sold is?

$550

X Company, which uses a perpetual inventory system, sold $2,000 of merchandise on account with credit terms of 2/10, n/30. The journal entry to record the initial sale gross of any discounts will include?

- A debit to Accounts Receivable of $2,000 - A credit to Sales Revenue of $2,000

Using a perpetual inventory system, when a company records a sale of merchandise, it must also record?

- A decrease in its inventory - Cost of Goods Sold, which will be reported on the income statement

In a perpetual inventory system, the return of merchandise XYZ recently purchased on account will have the following effects on XYZ's accounting equation.

- Assets will decrease - Liabilities will decrease

Good internal controls for cash receipts that should be performed by a supervisor include _____.

- Completing bank deposits - Restricting access to cash by locking it up - Comparing cash in registers with cash count sheets

The 3 categories of employee fraud is?

- Corruption - Financial statement fraud - Asset misappropriation

The journal entry to record the payment for merchandise previously purchased on account includes a?

- Debit to Accounts Payable - Credit to Cash

Using a perpetual inventory system, the entry to record the return of goods you preciously purchased on account includes a?

- Debit to Accounts Payable - Credit to Inventory

When using the gross method, the journal entry to record taking a discount when paying for goods previously purchased on account includes a?

- Debit to Accounts Payable for the original cost - Credit to Inventory for the discount amount - Credit to Cash for the amount paid

In a perpetual system, the entry to record the sale of merchandise to a customer on account would include a ?

- Debit to Cost of Goods Sold - Credit to Inventory

The journal entry to record the payment of cash to FedEx for shipping costs for inventory purchased FOB shipping point includes a?

- Debit to Inventory - Credit to Cash

To ensure the accuracy of inventory accounted for using a perpetual system, physical counts?

- Detect bookkeeping errors - Detect Shrinkage - Detect theft

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

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

Which of the following would be found on the debit side of the Inventory T-account?

- Freight-in - Beginning Inventory - Purchases

Which of the following are reported on the income statement?

- Gross Profit - Cost of Goods Sold - Sales Revenue

Which of the following income statement line items are affected by the inventory method chosen?

- Income before Income Tax Expense - Gross Profit - Income Tax Expense - Net Income - Income from Operations

Incentives for committing fraud in order to satisfy personal greed include?

- Increasing personal wealth - Getting a bigger paycheck

Which of these are cash equivalents?

- Investments within 3 months to maturity - Money market funds

The quality of financial reporting for publicly traded companies is improved through?

- Obtaining an external audit - Evaluating and reporting on the effectiveness of internal controls

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

In which of these situations would a merchandiser record revenue?

- The obligation has been fulfilled and control of the goods has been transferred to the customer. - Goods were deliver FOB Shipping Point but have not yet arrived at the buyer's place of business

To segregate duties involving cash receipts, specific responsibilities are assigned to various employees. Put the following steps in the correct chronological order.

1. Cashiers are responsible for collecting cash and issuing a receipt at the point of sale 2. A supervisor is responsible for collecting the cash at the end of each cashier's shift 3. Members of the accounting department are responsible for ensuring that cash sales are properly recorded

Assuming rising inventory prices, rank which inventory method results in the higher ending inventory value. List, from top to bottom , in order of highest ending inventory to lowest ending inventory value.

1. FIFO 2. Weighted Average 3. LIFO

Place the order of the steps in documenting and controlling purchases in a voucher system with the first step listed on the top and final step 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

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

If a cashier rang up sales totaling $4,000, but had only $3,997 to deposit, which journal entry would be recorded? A debit to?

Cash of $3,997 and Cash Shortage of $3 and a credit to Sales Revenue of $4,000

A weak system of internal ______ can lead to fraudulent financial statements. These procedures and policies help ensure that information entered into the accounting system and reported in the financial statements is accurate and complete.

Controls

Under a perpetual inventory system, the entry to record the return of goods you had previously purchased on account was recorded with a debit to Accounts Payable and a credit to Inventory. This entry is ____?

Correct

On May 1, beginning inventory consists of 10 items at a cost of $10 each. On May 3, 10 items are purchased at $12 each. On May 8, 12 items are sold. On May 15, 10 items are purchased at $14 each. Will Cost of Goods Sold be higher using a FIFO periodic inventory system or FIFO perpetual inventory system?

Cost Of Goods Sold will be the same

A loan _____ specifies terms of a loan agreement that, if broken, can allow the lender to renegotiate the terms of the loan or force repayment.

Covenants

In a periodic system, the end-of-period adjustment that adjusts cost of goods sold for the amount in ending inventory requires a _____ to Cost of Goods Sold.

Credit

Control Activities

Work responsibilities and duties completed to reduce risks to an acceptable level

Sales transactions affect the?

Income statement and the balance sheet

Firing employees if they are not meeting a certain performance target _____ the risk that others with commit fraud in the future.

Increases

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

Inventory

The ____ inventory system records all inventory-related transactions in the inventory account (e.g. transportation, purchase returns and allowances, purchase discounts) and reduces inventory at the time of sale. The _____ inventory system uses separate accounts for these items and records cost of goods sold at the end of the accounting period.

Perpetual, periodic

Control Environment

Refers to the attitude of the people in the organization and their commitment to integrity

Restricted cash is reported?

Separately as an asset on the balance sheet

The purchaser of inventory pays for shipping if the shipping terms are FOB?

Shipping Point

Which elements is not part of the fraud triangle?

Sustaninability

True or False: Specific identification is an inventory method typically used when accounting for expensive and unique inventory items.

True

A ______ system is a process for approving and documenting all purchases and payments made on account.

Voucher