ACC 210 Test 2

What should Stiller report as the total asset's balance on its balance sheet?

Total Assests on Balance Sheet= Cash + Accounts Receivables - Allowance for Uncollectible Accounts + Inventory + Prepaid Rent + Equipment - Accumulated Depreciation.

After a company specifically writes off a customer's account receivable as being uncollectible, it may still collect the cash from the customer at some point in the future.

True

One of the major provisions of the Sarbanes-Oxley Act (SOX) requires a company's audit committee to hire the outside auditors.

True

Under GAAP, a company is generally not permitted to switch its inventory costing method from year to year.

True

From a merchandiser's perspective, the purchase and sale of its inventory is an example of which type of business activity?

Operating

Higher turnover rate

Person is better at managing inventory

Langley Corp. has the following inventory information available for the month of August: Date, Number of Units, Cost per unit August 1, Beginning Inventory,30, $18.33 August 10, Purchases, 25, $44.00 Langley sold 35 units in August. Question: What is the total cost of goods sold for August using the average-cost method? Round average cost per unit to the nearest penny before computing total cost of goods sold.

$1050 Explanation: - Cost of goods sold = number of units sold X average-cost per unit* -*Average-cost per unit = Total cost of goods available for sale divided by total number of units available for sale -To compute the total cost of goods available for sale, multiply the number of units by the per unit cost for each inventory layer. Add calculation totals up.

When inventory costs are rising, this method yields the highest cost of goods sold.

LIFO

When inventory costs are rising, this method yields the highest sales revenue.

Neither

A company wishes to prepare its bank reconciliation for the month of November. The following information is available: Bank's cash balance at Nov 30 (before adjustments)$6,000 Company's cash balance at Nov 30 (before adjustments) 6,600 Interest earned on bank account 20 Bank service charges 45 Deposits-in-transit 1,800 NSF check 250 Outstanding checks 1,475 Question: After preparing its bank reconciliation, what is the adjusted cash balance the company should report in its accounting records on Nov 30?

$6325 Explanation: Company's cash balance (6,600) + Interest earned on checking (20) - Bank Service Charges (45) - NSF Check (250) = Adjust company balance ($6325)

For each of the following transactions, indicate whether the cash flow is an operating, investing, or financing activity for purposes of preparing a statement of cash flows. In addition, be specific with respect to whether the activity leads to an inflow of cash or an outflow of cash from the company's perspective.

1. A company receives cash for services it will perform in the future. = Operating activity- inflow of cash 2.A company pays salaries to employees. = Operating activity- outflow of cash 3.A company sells equipment previously used in its business for cash. = Investing activity - inflow of cash 4. A company pays a cash dividend to its stockholders. = Financing activity- Outflow of cash 5. A company makes a cash purchase of equipment to be used in its business. - Investing outflow of cash 6. A company pays back the principal on a bank loan evidenced by a promissory note. = Financing activity - outflow of cash

Below are select examples of some of the control activities that a large department store of men and women's clothing has in place. Required: For each scenario being described, indicate the most likely control activity being described.

1. The company physically counts its inventory at the end of each year and compares the physical count to its accounting records. = Reconciliations 2. Most inventory items are fitted with a tag which can only be removed by a salesperson when the inventory item is sold. = Physical Controls 3. When an employee is first hired, he or she is given clear instructions regarding the company's internal control procedures as well as how to report any irregular activities the employee discovers. = Employee Management 4.The cashier is required to call for assistance when a customer wishes to pay for their order using a check in excess of $300. = Proper Authorization 5.The clothing buyer places inventory orders but a different person pays for the order. = Separation of Duties

Match each of the following descriptions with the component of internal control being described.

1. Transfer of data from lower managers to top executives for accurate financial reporting = Information and communication 2. Overall attitude of the company with respect to internal controls. = Control environments 3. Formal policies to evaluate internal and external threats to achieving company objectives. = Risk Assessment 4. Procedures for maintaining separation of duties. = Control Activities 5. Routine activities that are meant to continually observe internal control activities. = Monitoring

Wolfpack Inc. has the following normal account balances on December 31, 20X1, before any adjustment for bad debts: Accounts Receivable, $400,000 Allowance for Uncollectible Accounts, $8,000 (credit balance) Bad Debt Expense, $0 On December 31, Wolfpack estimates uncollectible accounts to be 3% of its total accounts receivables balance. Required: Based on the above facts, prepare the year-end journal entry to record uncollectible accounts receivables.

12/31/X1 Debit: Bad Debts Expense $4,000 Credit: Allowance for Uncollectible Accounts $4,000

The following information is available for Pearl Corp. for the past two years: 20X3, 20X2 Accounts Receivable $ 760,000, $ 490,000 Net Cash Sales $ 4,000,000, $ 3,000,000 Net Credit Sales 6,000,000, 5,000,000 Total Net Sales $10,000,000, $8,000,000 Question: Assuming a 365-day calendar year, what is the average collection period for accounts receivable in 20X3? Round each calculation to two decimal points.

38.02 Days Explanation: First, compute the accounts receivable turnover. Second, compute the average collection period. AR turnover = Net credit sales ÷ Average AR AR turnover = 6,000,000 ÷ 625,000 = 9.60 times Average collection period = 365 ÷ AR turnover Average collection period = 365 ÷ 9.60 times = 38.02 days

Minion Corp. has the following information available for 20X1: Beginning Accounts Receivable account balance (Jan 1) $ 64,000 Credit sales during the year1, 540,000 Collections on account during the year 1,520,000 Accounts receivable specifically written-off during the year 10,000 Question: What is Minion's "Accounts Receivable" account balance at the end of 20X1?

7400 Explanation: Beginning AR balance + Credit Sales - Collections - Specific Write-Offs = Ending AR balance

Given the information in the table below, what is the company's gross profit? Sales revenue $350,000 Accounts receivable $280,000 Ending inventory $230,000 Cost of goods sold $180,000 Sales returns $50,000 Sales discounts $20,000 Select one: A. $100,000. B. $50,000. C. $170,000. D. $280,000.

A. $100,000. Explanation: Net sales = $350,000 (Sales rev.) − $50,000 (Sales Return) − $20,000 (Sales Discounts) = $280,000. Gross profit = $280,000 Net Sales − $180,000 COGS= $100,000.

A company records a SALES RETURN from a credit customer. Indicate how this transaction would affect (1) assets, (2) stockholders' equity, and (3) revenues. Select one: A. (1) Decrease, (2) Decrease, (3) Decrease B. (1) No effect, (2) No effect, (3) No effect C. (1) Decrease, (2) Decrease, (3) No effect D. (1) Decrease, (2) No effect, (3) Decrease

A. (1) Decrease, (2) Decrease, (3)Decrease

A company's sales equal $60,000 and cost of goods sold equals $20,000. Its beginning inventory was $1,600 and its ending inventory is $2,400. The company's inventory turnover ratio equals: Select one: A. 10 times B. 5 times C. 30 times D. 20 times

A. 10 times Explanation: $20,000 (Cost Of Goods Sold) / [($1,600 (beginning inventory) + $2,400(ending inventory) / 2] = 10 times

After preparing a bank reconciliation, the collection of a note by the bank on a company's behalf would be recorded with a? Select one: A. Credit to Notes Receivable. B. Credit to Accounts Receivable. C. Debit to Notes Receivable. D. Credit to Cash.

A. Credit to Notes Receivable

Shupe Inc. estimates uncollectible accounts based on the percentage of accounts receivable. What effect will recording the estimate of uncollectible accounts have on the accounting equation? Select one: A. Decrease assets and decrease stockholders' equity. B. Decrease assets and decrease liabilities. C. Increase liabilities and decrease stockholders' equity. D. Increase assets and decrease stockholders' equity.

A. Decrease assets and decrease stockholders' equity.

On May 1, a company purchased inventory costing $2,000 on account with terms 2/10, n/30. On May 18, the company pays for this inventory and records which of the following using a perpetual inventory system? 1. Accounts Payable 2,000 Cash 2,000 2. Accounts Payable 1,960 Inventory 40 Cash 2,000 3. Accounts Payable 2,000 Inventory 40 Cash 1,960 4. Cash 2,000 Accounts Payable 2,000 Select one: A. Option 1 B. Option 2 C. Option 3 D. Option 4

A. Option 1 There is no purchase discount because payment is not within the 10- day discount period

Which of the following is recorded by a credit to Accounts Receivable? Select one: A. Writing off of bad debts. B. Sale of inventory on account. C. Estimating the annual allowance for uncollectible accounts. D. Estimating annual sales returns.

A. Writing off of bad debts

Whereas a merchandiser usually has one inventory account, a manufacturer has which of the following? (check all that apply) Select one or more: a. Finished goods inventory b. Raw materials inventory c. Work-in-process inventory

ALL

Diaz Inc. is a merchandiser which uses the perpetual inventory system. It had the following transactions occur during April: April 15:Purchased inventory costing $2,500 on account, terms 3/10, n/30 April 25:Paid for the inventory previously purchased on April 15.

April 15: D- Inventory 2500 C- Accts. Payable 2500 April 25: D-Accts. Payable 2500 C- Cash 2425 Inventory 75

Using a balance sheet approach to estimate bad debts involves calculating the desired ending balance in which account? Select one: A. Credit sales. B. Allowance for uncollectible accounts. C. Accounts receivable. D. Bad debt expense.

B. Allowance for uncollectible accounts

Using a perpetual inventory system, the entry to record the return of inventory previously purchased on account includes a ? Select one: A. Debit to Cost of Goods Sold. B. Debit to Accounts Payable. C. Credit to Sales Returns. D. Debit to Inventory.

B. Debit to Accounts Payable.

On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 2/10, n/30. How would Flores record the sale on November 10? A. Accounts Receivable 7,840 Sales Revenue 7,840 B. Accounts Receivable 8,000 Sales Revenue 8,000 C. Accounts Receivable 7,840 Cash Discounts 160 Sales Revenue 8,000 D. Accounts Receivable 8,000 Cash Discounts 160 Sales Revenue 7,840 Select one: A. Option A B. Option B C. Option C D. Option D

B. Option B

Which of the following is not an example of preventive controls? Select one: A. Physical controls. B. Reconciliations. C. Proper authorization. D. Separation of duties.

B. Reconciliations

On the multiple-step income statement, "gross profit" (also known as "gross margin") is calculated as follows:

B.. Net revenues less cost of goods sold

On March 17, Jackal Lumber sold building materials to Fredo Limited for $15,000 with terms of 3/10, net 20. What amount did Jackal record as revenue on March 25 when Fredo paid for the building materials? Select one: A. $15,450. B. $15,000. C. $0 D. $14,550.

C. $0 No revenue recorder on March 25. The revenue would have been recorded on March 17.

Beginning inventory is $30,000. Purchases of inventory during the year are $50,000. Cost of goods sold is $60,000. What is ending inventory? Select one: A. $10,000. B. $30,000. C. $20,000. D. $50,000.

C. $20,000. Explanation: Beg. Inventory $30,000 + Purchases on inventory $50,000 = $20,000

A company reports the following amounts at the end of the year: Sales revenue $900,000 Beginning inventory 100,000 Total purchases 500,000 Freight charges 10,000 Purchase discounts 25,000 Purchase returns 50,000 Ending inventory 120,000 Operating expenses 200,000 For what amount would the company report gross profit? Select one: A. $285,000. B. $465,000. C. $485,000. D. $400,000.

C. $485,000. Explanation: Cost of Goods Sold = $100,000 + ($500,000 Total purchases + $10,000 Freight charges − $25,000 Purchase Discounts − $50,000 Returns) − $120,000 Ending inventory= $415.000. Gross Profit = $900,000 Sales Revenue− $415,000 COGS = $485,000.

Inventory records for Marvin Company revealed the following: Date, Transaction, Number of Units, Unit Cost Mar.1, Beginning Inventory 1,000, $7.20 Mar.10, Purchase, 600, 7.25 Mar.16, Purchase 800, 7.30 Mar.23 Purchase, 600, 7.35 Marvin sold 2,300 units of inventory during the month. Ending inventory assuming LIFO would be: Select one: A. $5,075. B. $5,055. C. $5,040. D. $5,135.

C. $5,040. Explanation: 2,300 units- 700 units= Ending inventory = 700 × $7.20 = $5,040.

The following information was taken from a company's bank reconciliation at the end of the year: - Bank balance $8,000 - Checks outstanding $5,800 - Note collected by the bank $1,500 - Service fee $20 - Deposits outstanding $4,000 - NSF check $300 What is the correct cash balance that should be reported in the company's balance sheet at the end of the year? Select one: A. $6,160. B. $10,200. C. $6,200. D. $7,400.

C. $6,200 Explanation: Bank balance ($8,000) + deposits outstanding ($4,000) − checks outstanding ($5,800) = $6,200.

The following information pertains to a company's cash balance and bank reconciliation as of August 31: -Company balance before reconciliation $5,000 -Checks outstanding$2,500 -Notes collected by the bank $2,200 -Service fee $50 -Deposits outstanding $2,000 What is the correct cash balance for the company? Select one: A. $7,250. B. $7,650. C. $7,150 D. $5,150.

C. $7,150 Explanation: $5,000 (Cash) + $2200 (Notes collected by the bank) - $50 (Service fee) = $7,150

A company has the following information: Total revenues $860,000 Sales returns and allowances $50,000 Sales discounts $30,000 Ending inventory $100,000 What is the amount of net revenues for the company? Select one: A. $680,000. B. $230,000. C. $780,000 D. $330,000.

C. $780,000. Explanation: Net revenues = $860,000 (Total Revenues) − $50,000 (Sales Return and allowances) − $30,000 (Sales Discounts) = $780,000.

The lower of cost and net realizable value method for inventory was developed to: Select one: A. Provide an alternative to the FIFO, LIFO, and weighted-average methods. B. Prevent the company from selling the inventory below its original cost. C. Avoid reporting inventory at an amount that exceeds the benefits it provides. D. Prevent the company from selling inventory to customers who are not likely to pay.

C. Avoid reporting inventory at an amount that exceeds the benefits it provides.

The following data were obtained from the bank statement and from the process of reconciling the bank balance with the company's cash balance: -Bank service charges $20 -Deposit outstanding $150 -Interest earned on the bank account $10 -Checks outstanding $400 Which items should be deducted from and added to the bank balance in completing the reconciliation? Select one: A. Deduct checks outstanding; add service charges and deposit outstanding. B. Deduct deposit outstanding; add checks outstanding. C. Deduct checks outstanding; add deposit outstanding. D. Deduct interest earned; add deposit outstanding.

C. Deduct checks outstanding; add deposit outstanding.

What is the concept behind separation of duties in establishing internal controls? Select one: A. Duties of middle-level managers should be clearly separated from those of top executives. B. The external auditors of the company should have no contact with managers while the audit is taking place. C. Employee fraud is less likely to occur when access to assets and access to accounting records are separated. D. The company's financial accountant should not share information with the company's tax accountant.

C. Employee fraud is less likely to occur when access to assets and access to accounting records are separated.

During the year, Bears Inc. recorded credit sales of $500,000. Before adjustments at year-end, Bears has accounts receivable of $300,000, of which $50,000 is past due, and the allowance account had a credit balance of $2,500. Using the aging of receivables method, what would be the adjustment assuming Bears expects it will not collect 5% of the amount not yet past due and 20% of the amount past due? A. Bad Debt Expense 22,500 Allowance for Uncollectible Accounts 22,500 B. Bad Debt Expense 25,000 Allowance for Uncollectible Accounts 25,000 C. Bad Debt Expense 20,000 Allowance for Uncollectible Accounts 20,000 D. Allowance for Uncollectible Accounts 20,000 Bad Debt Expense 20,000 Select one: A. Option A B. Option B C. Option C D. Option D

C. Option C Explanation: $500,000(Credit sales)- 250,000 (300,000 acts. rec. - $50,000 past due)= ($250,000 X 5%) + ($50,000 X 20%) - $2,500 = $20,000

On July 8, Ray Inc. sold 100 printers to Office Rental Company at $600 each and offered a 2% discount for payment within 10 days. On July 15, Office Rental Company paid the full amount in cash. What should Ray Inc. record on July 15? A. Cash 60,000 Accounts Receivable 60,000 B. Cash 58,800 Accounts Receivable 58,800 C. Cash58,800 Sales Discounts 1,200 Accounts Receivable 60,000 D. Cash 60,000 Sales Discounts 1,200 Sales Revenue 58,800 Select one: A. Option A B. Option B C. Option C D. Option D

C. Option C Sales discount = $600 × 100 printers × 2% = $1,200.

Alba Corp. has the following inventory information available for the month of December: Date, Number of Units, Cost per unit December 1,Beginning Inventory, 40 $15 December 10, Purchases,50, $19 December 20, Purchases, 60, $18 The company sold 100 units in December.

Cost Of Goods Sold: FIFO-$1730 LIFO- $1840 Cost OF Ending Inventory: FIFO- $900 LIFO- $790

cash flows from investing activities do NOT include: Select One: A. The purchase of equipment. B. The purchase of a building. C. The sale of land. D. Borrowing.

D. Borrowing

Under the principle of lower of cost and net realizable value, when a company has 10 units of inventory A with net realizable value of $50 and a cost of $60, what is the adjustment? Select one: A. Debit Cost of Goods Sold $500; credit Inventory $500. B. Debit Inventory $500; credit Cost of Goods Sold $500. C. Debit Inventory $100; credit Cost of Goods Sold $100. D. Debit Cost of Goods Sold $100; credit Inventory $100.

D. Debit Cost of Goods Sold $100; credit Inventory $100. Explanation: Need to reduce inventory cost to the lower net realizable value. 10 × $10 = $100

Which of the following would NOT represent good controls over cash disbursements? Select one: A. Periodically verify amounts shown in the debit card and credit card statements against purchase receipts. B. The employee verifying the accuracy of the debit card and credit card statements should not also be the employee responsible for actual purchases. C. Set maximum purchase limits on debit cards and credit cards. D. Employees responsible for making cash disbursements should also be in charge of cash receipts.

D. Employees responsible for making cash disbursements should also be in charge of cash receipts.

In a period when inventory costs are rising, the inventory method that most likely results in the highest ending inventory is. Select one: A. LIFO. B. Weighted-average cost. C. Lower of cost and net realizable value. D. FIFO.

D. FIFO

After preparing a bank reconciliation, a check outstanding for the payment of advertising would be recorded with a: Select one: A. Debit to Cash. B. Debit to Advertising Expense. C. Credit to Advertising Expense. D. No entry is needed.

D. No entry is needed

Prior to year-end adjusting entries, what would explain the Allowance for Uncollectible Accounts having a debit balance? Select one: A. The amount of cash collections from customers in the current year was less the amount of cash collections from customers in the prior year. B. The amount of actual uncollectible accounts in the current year was less than the estimate of uncollectible accounts made at the end of the prior year. C. The amount of credit sales in the current year was greater than the amount of credit sales made in the prior year. D. The amount of actual uncollectible accounts in the current year was greater than the estimate of uncollectible accounts made at the end of the prior year.

D. The amount of actual uncollectible accounts in the current year was greater than the estimate of uncollectible accounts made at the end of the prior year.

Which of the following would NOT represent good controls over cash receipts? A. Record all cash reports as soon as possible B. Open mail each day and make a list of checks received with the amount and payers name C. Verify cash receipts by comparing the bank deposit slip with the accounting records D. The employee that receives cash and checks should also deposit them in the bank

D. The employee that receives cash and checks should also deposit them in the bank

On April 1, 20X1, Nelson Corp. sold inventory and received a $30,000, 12-month, 12% note in exchange for services provided to a customer. The note's face value plus interest will be due when the note matures on April 1, 20X2.

Date,Debit,Credit 4/1/X1, Notes Receivable 3000, Service Revenue 3000 12/31/X1, Interest Receivable 2700, Interest Revenue 2700 4/1/X2, Cash 33600, Credit: Note Receivable 3000, Interest Receivable 2700, Interest Revenue 900 Explanation: Interest revenue calculation: 4/1/X1 - 12/31/X1 = 30,000 x 12% x 9/12 = 2,700 Interest revenue calculation: 1/1/X2 - 4/1/X2 = 30,000 x 12% x 3/12 = 900

When inventory is shipped F.O.B. destination point and we are doing the accounting from the standpoint of the buyer of these goods, title passes at the _______ and our company ________ be responsible for the freight charges.

Destination Point, should NOT

When inventory costs are rising, this method yields the highest gross profit.

FIFO

One of the disadvantages of the perpetual inventory system is the company's decreased ability to keep better records with respect to the quantity and cost of its inventory on hand at a given point in time.

False

LIFO

The LIFO method assumes the most recently purchased units were sold first. Therefore, the oldest units remain in ending inventory.

One of the major provisions of the Sarbanes-Oxley Act (SOX) requires a company's investors to test and examine a company's internal controls in detail.

False- Auditors ARE required to test and examine the control in detail

All else being equal, as a company's inventory turnover ratio decreases, the average number of days in inventory will

Increase

All else being equal, as a company's accounts receivable turnover ratio decreases, the average collection period for its accounts receivable in terms of days

Increases

Below is a condensed income statement for 20X5 as well as select balance sheet information for 20X5 and 20X4 for a local company. Net sales $500,000 Cost of goods sold 170,000 Gross profit 330,000 Selling, general, and administrative expenses 100,000 Operating income 230,000 Interest revenue 15,000 Interest expense (5,000) Income before income taxes 240,000 Income tax expense 25,000 Net income $215,000 at 12/31/X5 at 12/31/X4 Accounts Receivable (net)$55,000, $45,000 Inventory$20,000, $10,000 Required: Using the above information, answer the following two questions: Question #1: On average, how many times did the company's inventory turnover in 20X5? Question #2: What is the company's gross profit ratio for 20X5 expressed as a percentage?

Inventory turnover = Cost of goods sold divided by average inventory. 11.33 Gross profit ratio = Gross profit divided by net sales 66.00%

Adams Inc. buys and sells merchandise sold on a local college campus. It uses the perpetual inventory system. On Jan 5, Adams sold inventory for $400 on account. The original cost of this inventory was $75.

Jan 5: Debit- Accts. Receivable 400 Credit- Sales Revenue 400 Debit- Costs of Goods Sold 75 Credit- Inventory 75

When inventory costs are declining, this method yields the highest cost of ending inventory.

LIFO

When inventory costs are declining, this method yields the highest income tax expense

LIFO

Wolfpack Corp. uses the allowance method for estimating is uncollectible accounts receivable. On March 18, it specifically wrote-off the receivable balance of one of its customers. This customer owed Wolfpack $1,000. Required: In the journal below, complete the journal entry to record the specific write-off.

March 18: Debit: Allowance for Uncollectible Accounts 1,000 Accounts Receivable 1,000

On May 1, Holloway Corp. received $1,600 cash for selling inventory to a customer. On May 25, the customer returned one-fourth of the inventory back to Holloway for a cash refund.

May 1: Cash 1600 Sales Revenue 1600 May 25: Sales Returns 400 Cash 400

If a company records too much accrued interest revenue at the end of its fiscal year, all else being equal, what are the effects on its net income, total assets, total liabilities, and total stockholders' equity? Required: Fill in the effects in each field of the following chart. Possible choices are overstated, understated, and no effect.

Net Income- Overstated Total Assets- Overstated Total Labilities- No effect Total Stockholders' Equity- Overstated

Assume that due to an error during the count of its physical inventory, a company understated the cost of its ending inventory at the end of 20X5.

Net Income- Overstated COGS- Overstated Retained Earnings-Understated

If a company underestimates its bad debts expense for the year, all else being equal, what are the effects on its net income, total assets, total liabilities, and total stockholders' equity? Required: Fill in the effects in each field of the following chart. Possible choices are overstated, understated, and no effect.

Net Income- Overstated Total Assets- Overstated Total Liabilities- No effect Total Stockholders' Equity- Overstated Explanation: -As bad debts expense goes up, net income goes down. Therefore, if bad debts expense is underestimated (too low), net income will be overstated (too high) for the year. -If bad debts is understated, the "Allowance for Uncollectible Accounts" account balance will be left understated as well. This will result in total assets being overstated. -Net income flows into retained earnings on the balance sheet. Therefore, if net income is overstated, the retained earnings balance will be left overstated. Retained earnings is a component of total stockholders' equity.

When a company is granted a discount for its prompt payment of inventory previously purchased on account, the discount is called a

Purchase Discount

When a company grants a discount to its customer for the customer's prompt payment related to a previous sale of inventory on account, the discount is called a

Sales Discount

On Sept 18, Johnson Corp provided consulting services on account to a customer for $800, terms 2/15, n/45. On Sept 28, the customer paid Johnson the amount owed. Required: In the journal below, prepare Johnson's Sept 28 journal entry. Assume the Sept 18 entry was previously recorded. Do not use cents or decimals in your responses.

Sept.28 Debit: Cash 784 Sales Discounts 16 Accounts Receivable 800

Which financial statement summarizes a company's cash receipts and cash disbursements for a period of time?

Statement of Cash Flows

FIFO

The FIFO method assumes the oldest units were sold first. Therefore, the most recently purchased units remain in ending inventory.

For each of the following statements regarding inventory systems, choose whether the statement applies to just the periodic system, just the perpetual system, or to both systems.

This inventory system computes and records sales revenue at the time of sale. - Both This inventory system computes and records cost of goods sold only at the end of the period. - Periodic This inventory system computes and records cost of goods sold at the time of sale. - Perpetual This inventory system requires a physical inventory count to be made at least once during the year.- Both

If a company uses the FIFO method for financial statement purposes, it may use the FIFO method for income tax purposes as well.

True

Notes and accounts receivables that arise from sales transactions with customers are often called trade receivables.

True

The Sarbanes-Oxley Act applies to all companies required to file their financial statements with the SEC.

True

The direct write-off method of accounting for bad debts is not an application of GAAP.

True

The ethical tone set by a company's top management rarely has any effect on a company's internal control environment.

True

True or False: One of the major provisions of the Sarbanes-Oxley Act (SOX) requires a company's outside auditors to express an opinion on whether management's assessment of the effectiveness of their internal controls is fairly stated.

True

Which element of the fraud triangle does a company have the greatest influence and ability to eliminate? Select one: a. Rationalization b. Motivation c. Opportunity

c. Opportunity

The following information is available regarding the interest revenue recognized on a note receivable: -Face Value $50,000 -The fraction of the Year 9 months -Interest $1,500 Question: What must have been the annual interest rate on this note? Select one: a. 4% b. 3% c. 6% d. 8% e. 2%

a. 4% Explanation: $50,000 x annual rate x 9/12 = $1,500

Which type of control activities are designed to detect errors or fraud which have already occurred?

a. Detective Controls

Which of the following is an example of a contra-revenue account? (Check all that apply) Select one or more: a. Sales Discounts b. Sales Allowances c. Cost of Goods Sold d. Accounts Receivable e. Sales Returns f. Interest Revenue g. Bad Debt Expense

a. Sales Discounts b. Sales Allowances

On a multiple-step income statement, which of the following account balances would normally appear above the "operating income" subtotal line? Select one or more: a. Sales revenue b. Interest expense c. Gain on sale of investment d. Cost of goods sold e. Interest revenue f. Salaries expense

a. Sales revenue d. Cost of goods sold f. Salaries expense

On its bank reconciliation for the month of December, Pack Corp. noted that it had made an accounting error. It recorded a cash purchase of equipment as $500 instead of the actual amount of $540. Question: In Pack Corp.'s month-end journal entry to record this reconciling item, which of the following is true? Select one: a. The "Equipment" account should be debited for $40. b. The "Equipment" account should be credited for $40. c. The "Inventory" account should be debited for $40. d. The "Inventory" account should be credited for $40. e. The "Accounts Payable" account should be debited for $40. f. The "Accounts Payable" account should be credited for $40.

a. The "Equipment" account should be debited for $40. Explanation: In its original entry, the company debited Equipment and credited Cash for $500. This is $40 too little. This leaves the Equipment account with a balance that is $40 too low and the Cash account with a balance that is $40 too high. To correct this error, the company should debit Equipment and credit Cash for $40.

Below is a list of various procedures a local retailer has regarding its cash receipts. Which control has the greatest chance of leading to errors or fraud? Select one: a. The company picks up its mail daily from the post office but requires it to be opened only weekly. b. The company encourages its employees to accept credit or debit cards from customers. c. The company deposits checks and cash on hand into the bank account daily. d. The company verifies the bank deposit slip against the accounting records.

a. The company picks up its mail daily from the post office but requires it to be opened only weekly.

Companies should have internal control procedures in place to (check all that apply) Select one or more: a. safeguard the company's assets. b. improve the accuracy and reliability of the company's accounting information.

a. safeguard the company's assets. b. improve the accuracy and reliability of the company's accounting information.

Which of the following is an example of a contra-asset account? (check all that apply) Select one or more: a. Bad Debts Expense b. Allowance for Uncollectible Accounts c. Interest Revenue d. Accounts Receivable e. Interest Receivable

b. Allowance for Uncollectible Accounts

Lopez Corp. and Gilmartin Inc. are in the same industry and are of similar size. During 20X5, Lopez and Gilmartin had inventory turnover ratios of 8 times and 13 times, respectively. Based on this information, which of the following statements is most likely true when comparing these two companies?

b. Gilmartin is better at managing its inventory.

As a customer's account receivable balance is specifically written-off due to its being uncollectible, what is the effect on the company's total assets amount? Select one: a. an increase b. no effect c. a decrease

b. No effect Explanation: While the individual account balances for the "Accounts Receivable" and "Allowance for Doubtful Accounts" accounts are decreasing, the net amount stays the same; therefore, total assets also remain the same.

Below is a list of common control activities. Which of these activities would be considered an example of a preventive control activity rather than a detective control activity? (check all that apply) Select one or more: a. Reconciliations b. Physical controls c. Separation of duties d. Performance reviews e. Employee management f. E-commerce controls g. Proper authorization h. Audits

c. Separation of duties b. Physical controls g. Proper authorization e. Employee management f. E-commerce controls

Indicate which of the following statements is FALSE with respect to internal controls. (check all that apply) Select one or more: a. The components of internal control are built on the foundation of the ethical tone set by top management. b. Historically, customer tips have been the most common means of detecting employee fraud. c. Fraud committed by top-level employees is more difficult to detect because those employees more often have the ability to override internal control procedures. d. Collusion refers to the act of a single individual circumventing internal control procedures.

d. Collusion refers to the act of a single individual circumventing internal control procedures.

For financial reporting purposing, which of the following items should be included in the "Cash and Cash Equivalents" total on the balance sheet? (check all that apply) Select one or more: a. Inventory which the company currently owns but expects to sell for cash within one day of the balance sheet date b. Accounts receivable balances with a due date of less than one month from the balance sheet date c. Short-term investments with a maturity date less than three months from the date of purchase d. Currency and coins e. Short-term investments with a maturity date between three months and six months from the company's balance sheet date f. Checking account balances g. Savings account balances h. NSF check from a customer i. Checks received from customers but not yet deposited as of the balance sheet date j. Note receivable balances with a due date of less than three months from the balance sheet date

d. Currency and coins g. Savings account balances f. Checking account balances i. Checks received from customers but not yet deposited as of the balance sheet date c. Short-term investments with a maturity date less than three months from the date of purchase

At the beginning of 20X6, Elm Corp.'s "Allowance for Uncollectible Accounts" had a credit balance of $25,000. During 20X6, account receivable balances totaling $24,000 were specifically written-off as being uncollectible. As a result of the above, which of the following statements is true immediately after these specific write-offs? Select one: a. The "Allowance for Uncollectible Accounts" account has a debit balance of $1,000 which implies that last year's estimate of bad debts was overestimated (too high). b. The "Allowance for Uncollectible Accounts" account has a debit balance of $1,000 which implies that last year's estimate of bad debts was underestimated (too low). c. The "Allowance for Uncollectible Accounts" account has a credit balance of $1,000 which implies that last year's estimate of bad debts was underestimated (too low). d. The "Allowance for Uncollectible Accounts" account has a credit balance of $1,000 which implies that last year's estimate of bad debts was overestimated (too high).

d. The "Allowance for Uncollectible Accounts" account has a credit balance of $1,000 which implies that last year's estimate of bad debts was overestimated (too high).

Below is a list of various procedures a local retailer has regarding its cash disbursements. Which procedure has the greatest chance of leading to errors or fraud? Select one: a. The company does not permit employees who are allowed to make cash disbursements to also be in charge of cash receipts. b. The company uses its petty cash only for small cash disbursements. c. The company sets maximum purchase limits on debit and credit cards it allows employees to use on behalf of the company. d. The company requires the employee who used a credit card on behalf of the company to reconcile the credit card statement to the actual invoice or receipt. e. The company requires all cash expenditures to be authorized before the cash disbursement.

d. The company requires the employee who used a credit card on behalf of the company to reconcile the credit card statement to the actual invoice or receipt.

Which company asset is most often involved with fraudulent activities? Select one: a. Prepaid Insurance b. Accounts Receivable c. Equipment d. Inventory e. Supplies f. Cash

f. Cash

On its bank reconciliation for the month of December, Pack Corp. noted it had a NSF check from a customer for $450. Question: In Pack Corp.'s month-end journal entry to record this reconciling item, which of the following is (are) true? (check all that apply) Select one or more: a. The "Accounts Payable" account should be credited $450. b. The "Accounts Receivable" account should be credited $450. c. The "Sales Revenue" account should be debited $450. d. The "Sales Revenue" account should be credited $450. e. The "Accounts Payable" account should be debited $450. f. The "Accounts Receivable" account should be debited $450.

f. The "Accounts Receivable" account should be debited $450.

Deflation

occurs when inventory costs are declining over time.

Inflation

occurs when inventory costs are rising over time whereas