Exam 2

b. $500

A company has the following inventory transactions: Jan. 1 Beginning inventory 100 units @ $4 each Jan. 15 Purchase100 units @ $5 each Jan. 31 Purchase 100 units @ $6 each What would be the cost of goods sold under the FIFO method if 120 units were sold in January? $ 600 $ 500 $ 620 $ 720

Which inventory method or cost flow assumption most closely resembles the actual physical flow of goods? FIFO LIFO Weighted-average FILO

C. weighted-average

Which of the following would NOT be considered a cash equivalent? Credit card sales for the day Debit card sales for the day Money orders received from customers Certificate of deposit (CD) that matures one year from now

Certificate of deposit (CD) that matures one year from now

Which of the following transactions would increase the balance of the inventory account for a company using the perpetual inventory system? Costs of incoming freight charges on merchandise inventory A return of damaged inventory to the vendor A purchase discount taken for prompt payment Shipping charges for outgoing inventory

Costs of incoming freight charges on merchandise inventory

Which of the following inventory accounts consists of items for which the manufacturing process is complete? Raw Materials Work-In-Process Cost of Goods Sold Finished Goods

D. finished goods Raw Materials Inventory is the cost of components that will become finished products, Work-In-Process Inventory consists of products that are not yet complete, and Cost of Goods Sold is not an inventory account but represents the cost of inventory sold during the period.

How would an NSF check from a customer be recorded in the accounting records? Debit Accounts Receivable; Credit Cash Debit Cash; Credit Accounts Receivable Debit Accounts Payable; Credit Cash Debit Cash; Credit Miscellaneous Expense

Debit Accounts Receivable; Credit Cash

How would an NSF check from a customer be treated on a bank reconciliation? Addition on the bank side Deduction on the bank side Addition on the company side Deduction on the company side

Deduction on the company side An NSF check would be shown on the company's side—the right-hand side—and it would be shown as a deduction. This is because when the company originally deposited the customer's check, they increased the Cash account. Now that the check has been discovered to be an NSF check, or a nonsufficient funds check, the company must reverse the cash out of its books, resulting in a decrease, or a deduction, on the company's side of the bank reconciliation.

An inventory error that understates the amount of ending inventory will result in which of the following in the current year? Overstated cost of goods sold Overstated net income Overstated assets Overstated gross profit

Overstated cost of goods sold An understatement of ending inventory will lead to a higher, or overstated, cost of goods sold, an understatement of net income, and an understatement in assets in the year the error was made.

Which of the following items would be categorized as an investing activity on a statement of cash flows? Borrowed money from the local bank by signing a note to repay the full amount two years later Paid for supplies in cash Paid for the purchase of equipment using cash Paid salaries to employees

Paid for the purchase of equipment using cash

When a periodic inventory system and the FIFO method are used, which of the following is correct? The inventory account will be continuously updated. The amount of cost of goods sold will be the same under a perpetual system and the FIFO method. The cost of goods sold account will be debited for the cost of each sale made. The amount of ending inventory will be larger under a perpetual system and the FIFO method.

The amount of cost of goods sold will be the same under a perpetual system and the FIFO method.

When a periodic inventory system and the FIFO method are used, which of the following is correct? The inventory account will be continuously updated. The amount of cost of goods sold will be the same under a perpetual system and the FIFO method. The cost of goods sold account will be debited for the cost of each sale made. The amount of ending inventory will be larger under a perpetual system and the FIFO method.

The amount of cost of goods sold will be the same under a perpetual system and the FIFO method. The amount of cost of goods sold will be the same under a perpetual system and the FIFO method.

Which of the following computations would be used to compute Net Revenue? Total Revenue + Accounts Receivable - Sales Discounts - Sales Allowances Net Revenue + Sales Allowances - Sales Discounts Total Revenue - Sales Discounts - Sales Allowances Net Income - Change in Accounts Receivable

Total Revenue - Sales Discounts - Sales Allowances

Net sales are $100,000 and cost of goods sold is $70,000. Inventory balances for the past two years are $10,000 and $20,000. What is the inventory turnover? 4.67 times per year 7.0 times per year 6.67 times per year 3.5 times per year

a. 4.67 The inventory turnover measures how often a company sells, or turns over, its inventory. The inventory turnover would be computed as $70,000 ÷ ([10,000 + 20,000] ÷ 2). The result is 4.67 times per year.

Which of the following statements is NOT true of the Sarbanes-Oxley Act of 2002? All companies in the U.S. fall under its provisions. It helped establish guidelines for internal control procedures. It helped establish corporate executive accountability. It helped establish guidelines for auditor-client relations.

a. All companies in the U.S. fall under its provisions.

Operating cash flows would include which of the following? a. Payment for prepaid insurance. b. Receipt of cash from selling a building. c. Payment of dividends to stockholders. d. Receipt of cash from bank borrowing.

a. Payment for prepaid insurance.

What is a direct purpose of internal controls? a. To improve the accuracy and reliability of accounting information. b. To help managers determine which projects are likely to be more profitable. c. To assist top executives in planning employment capacity. d. To minimize tax payments to the Internal Revenue Service (IRS).

a. To improve the accuracy and reliability of accounting information.

Which of the following are sometimes called trade receivables? Accounts receivable Interest receivable Notes receivable Tax refund claims

a. accounts receivable Accounts receivable are sometimes called trade receivables. Nontrade receivables include tax refund claims, interest receivable, and loans by the company to other entities.

Cost of goods sold is: Reported in the income statement a.Reported in the balance sheet b. A current asset c. The cost of inventory on hand d. at the end of the period

a. reported in the income statement

Sarbanes-Oxley Act (SOX) was passed in response to: a. Increasing inflation. b. Corporate scandals involving unethical behavior of top executives. c. Increasing pressure of foreign competition for American products and services. d. The establishment of the Securities and Exchange Commission (SEC).

b. Corporate scandals involving unethical behavior of top executives.

Which of the following items would be found on the "bank side," or the left-hand side, of the bank reconciliation? Interest income received on the account Deposit outstanding NSF check from a customer Service fee charged by the bank

b. Deposit outstanding

Which of the following generally would be considered a good internal control over cash payments? a. Employees responsible for making cash disbursements should also be in charge of cash receipts. b. Ensure checks are serially numbered and signed only by authorized employees. c. The employee who authorizes payment should also be the employee who prepares the check. d. Require only one signature for larger checks.

b. Ensure checks are serially numbered and signed only by authorized employees.

During a period of rising prices, which inventory cost flow assumption would result in the highest cost of goods sold, and thereby the lowest net income? FIFO LIFO Weighted-average FILO

b. LIFO

At any given time, the amount of cash in the petty cash fund should equal: a. All vouchers written during the accounting period. b. The established balance of the fund less all vouchers written during the accounting period. c. The amount of cash withdrawn from the fund during the accounting period. d. The amount of cash used to establish the fund.

b. The established balance of the fund less all vouchers written during the accounting period.

The effect of a sales allowance will result in which of the following: An increase to net income A decrease to net income An increase to accounts receivable An increase to sales revenue

b. a decrease to net income

Which level of profitability is considered profit from normal operations? Gross profit Operating income Income before taxes Net income

b. operating income

If a company places cash receipts from the day in a safe or bank deposit box, this would be an example of: Separation of duties Physical control Reconciliation Performance review

b. physical control

Everyone in the company has an impact on the operations and effectiveness of internal control, but who must take final responsibility? Internal auditors Top executives The firm's attorney The majority shareholder

b. top executives

Managers should act: a. As creditors of the company. b. As owners of the company. c. As stewards of the company's assets. d. In their own best interest.

c. As stewards of the company's assets.

Financing cash flows would include which of the following? a. Payment of salaries to employees. b. Sale of services to customers for cash. c. Repayment of long-term borrowing to the bank. d. Purchase of equipment for cash for company operations.

c. Repayment of long-term borrowing to the bank.

When preparing a bank reconciliation, nonsufficient funds (NSF) checks would be: a. Added to the company's cash balance. b. Added to the bank's cash balance. c. Subtracted from the company's cash balance. d. Subtracted from the bank's cash balance. d

c. Subtracted from the company's cash balance.

When an entry is made to write off an uncollectible account, Bad debt expense is debited. Net income is decreased. Total accounts receivable is unchanged. The allowance account is credited.

c. Total accounts receivable is unchanged. Overall, the write-off of an account receivable has no effect on total amounts reported in the balance sheet or in the income statement. There is no decrease in total assets and no decrease in net income with the write-off.

When writing off an uncollectible account: Bad debt expense is debited. Net income is decreased. Total assets are unchanged. The allowance account is credited.

c. total assets are unchanged

Which of the following is true regarding Allowance for Uncollectible Accounts? It is a liability account. It is added to the total of Sales Discounts, Sales Returns, and Sales Allowances. It is subtracted from the balance of Accounts Receivable in the balance sheet. It appears in the income statement as an expense.

c.It is subtracted from the balance of Accounts Receivable in the balance sheet.

Which of the following is considered cash for financial reporting purposes? a. Inventory that is likely to be sold within three months. b. Amounts to be collected from customers. c. Amounts owed to suppliers. d. Balances in savings accounts.

d. Balances in savings accounts.

On December 31 before adjusting entries, a company's balance of Allowance for Uncollectible Accounts is a credit of $2,000. What does a "credit" balance prior to adjusting entries indicate? The company did not estimate bad debts last year. Last year's estimate of bad debts was too low. The company's estimate equals actual bad debts. Last year's estimate of bad debts was too high.

d. Last year's estimate of bad debts was too high. The Allowance for Uncollectible Accounts is a contra account with a credit balance. The balance is reduced (debited) for actual bad debts. If the account balance at the end of the year is a credit, then estimated bad debts for this year are greater than this year's actual bad debts.

Which of the following is true about the aging method? No estimate for uncollectible accounts is made. Older accounts are more likely to be collected. It is not acceptable for GAAP. Older accounts are less likely to be collected.

d. Older accounts are less likely to be collected. The aging method recognizes that the longer accounts are past due, the less likely they are to be collected. The aging method should provide a more accurate estimate of total uncollectible accounts compared to using a single percentage.

When preparing a bank reconciliation, outstanding checks would be: a. Added to the company's cash balance. b. Added to the bank's cash balance. c. Subtracted from the company's cash balance. d. Subtracted from the bank's cash balance.

d. Subtracted from the bank's cash balance.

Which of the following statements is true? Having too much cash represents idle resources that are not being used to produce revenues. One way to assess cash holdings is to compare cash assets to noncash assets. In recent years cash holdings have increased tremendously. All of the above are true.

d. all of the above are true

Which of the following inventory accounts consists of items for which the manufacturing process is complete? a. Raw Materials b. Work-In-Process c. Cost of Goods Sold d. Finished Goods

d. finished goods