accounting 2036 - exam 2

Santiago Cleaners allows customers make purchases using their VISA credit cards. If customers purchase Santiago using VISA credit cards, which of the following statements is correct?

Santiago does not have to collect directly from customers.

components of internal control?

control environment, risk assessment, control activities, information and communication, and monitoring activities

FIFO, an inventory costing method, actually describes how to calculate the:

cost of goods sold

Cost of goods sold reports the:

cost times the quantity of goods sold

common principles of internal control?

establish responsibility, segregate duties, restrict access, document procedures, independently verify

Recording the estimate of bad debt expense:

follows the expense recognition ("matching") principle

A check that you have written has cleared the bank when:

funds have been withdrawn from your account to cover the check.

What is in the fraud triangle?

incentive, opportunity, rationalization

Which of the following is the most common wording for a measure for the company's income from regular operating activities, before considering the effects of the interest, income taxes, and any nonrecurring items?

income from operations

Bank reconiliation

matching the balance of cash in the bank account with the balance of cash in the company's own records

The gross profit percentage is an indication of how:

measures the percentage of profit earned on each dollar of sales

robotic process automation (RPA)

using automation and artificial intelligence to create software bots that capture data, execute sequences and make simple decisions

The direct-write off method for uncollectible accounts:

violates the expense recognition principle

Neakanie Industries sells specialized mountain bikes. Each specialized bike purchased includes free maintenance service for 12 months. The price of the specialized bike is $1,900. When sold separately, a maintenance contract is $900 and a comparable but non-specialized bike is $1,100. What amount of revenue will Neakanie recognize at the date of sale for each bike?

$1,045 $1,900 × [$1,100/($1,100 + $900)] = $1,045

On January 1, Portillo, Inc. lends a corporate customer $90,000 at 8% interest. The amount of interest revenue that should be recorded for the quarter ending March 31 equals:

$1,800 Interest = Principal x Interest Rate x Time 90,000 x 0.8 x 3/12 (January through March) = $1,800

Urban Bloom, Inc.'s books show an ending cash balance of $10,500 before preparing the bank reconciliation. Given the bank reconciliation shows outstanding checks of $3,100, deposits in transit of $2,100, NSF check of $110, and interest earned on the bank account of $20, the company's up-to-date ending cash balance equals:

$10, 410 up-to-date ending cash balance = Ending cash balance per books + interest received from bank - NSF check 10,500 + 20 - 110 = $10,410

The following is a listing of some of the balance sheet accounts and all of the income statement accounts for Northview Company as they appear on the company's adjusted trial balance. Accounts Payable$13,000 Accounts Receivable 23,000 Inventory 22,400 Advertising Expense 18,000 Cost of Goods Sold 137,000 Delivery Expense 7,200 Income Tax Expense 3,900 Insurance Expense 1,000 Rent Expense 16,800 Sales Revenue 280,000 Sales Discounts 9,800 Sales Returns & Allowances 37,000 Net income would be:

$49,300 Net income = net sales - CGS - selling, general, and admin expenses - income tax expense =233,200 - 137,000 - (18,000+7,200+1,000+16,800) - 3,900 = $49,300

On October 31, 2018, the bank statement shows that your company has $14,856.73 in its checking account. You are aware of three outstanding checks that total of $4,962.19. During October, 2018, the bank rejected two deposited checks from customers totaling $ 1,129.19 because of insufficient funds and charged you $50.00 in service fees. You had not yet received notice about the bad checks, but you were aware of and have recorded the $50.00 of service fees. Prior to adjustment on October 31, 2018, your Cash account would have a balance of:

$11,023.73 Bank balance doesn't reflect the outstanding checks, and the unadjusted cash account per the company does not reflect the NSF check. Unadjusted balance per books = $14,856.73 - 4,962.19 + 1,129.19 = $11,023.73

Monte Vista uses the perpetual inventory system. At the beginning of the quarter, Monte Vista has $32,000 in inventory. During the quarter the company purchases $8,200 of new inventory from a vendor, returned $900 of inventory to the vendor, and took advantage of discounts from the vendor of $220. At the end of the quarter the balance in inventory is $27,500. What is the cost of goods sold?

$11,580 Net purchases = purchases - purchase returns - purchase discounts =8,200 - 900 - 220 = $7,080 Cost of goods sold = beginning inventory + net purchases - ending inventory =32,000 + 7,080 - 27,500 = $11,580

A company reported the following: Cost of Goods Sold$234,000 General, Selling, and Administrative Expenses 10,000 Income Tax Expense 8,600 Inventory 25,500 Net Income 119,900 Sales Revenue 380,000 Sales Discounts 4,600 Sales Returns & Allowances 2,900 What is the amount of income before income taxes?

$128,500 Net sales - CGS - Operating Exp = Income before taxes 372,500 - 234,000 - 10,000 = 128,500

McKeel Publishing had outstanding checks totaling $5,500 on its June bank reconciliation. In July, McKeel issued checks totaling $39,900. The July bank statement shows that $27,800 in checks cleared the bank in July. The amount of outstanding checks on McKeel's July bank reconciliation should be:

$17,600 Remaining outstanding checks = outstanding checks + additional checks issued - check cleared 5,500 + 39,900 - 27,800 = 17,600

At year end, CurlZ, Inc.'s inventory consists of 320 bottles of CleanZ at $1 per bottle and 220 boxes of DyeZ at $12 per box. Market values are $1.60 per bottle for CleanZ and $10 per box for DyeZ. CurlZ should report its inventory at:

$2,520 Total lower of cost or market = lower of cost or market per unit x number of units in inventory ($1 x 320 units) + ($10 x 220 units) = $2,520

On October 31, 2018, your company's records say that the company has $19,504.03 in its checking account. A review of the bank statement shows you have three outstanding checks totaling $8,157.81, and the bank has paid you interest of $23.69 and charged you $19.00 in service charges. The bank statement dated October 31, 2018 would report a balance of:

$27,666.53 1. up-to-date ending cash balance per books 2. up-to-date ending cash balance per bank statement 1. 19,504.03 + 23.69 - 19 = 19,508.72 2. 19,508.72 + 8,157.81 = 27,666.53

Delta Diamonds uses a periodic inventory system. The company had five one-carat diamonds available for sale this year: one was purchased on June 1 for $650, two were purchased on July 9 for $750 each, and two were purchased on September 23 for $800 each. On December 24, it sold one of the diamonds that was purchased on July 9. Using the specific identification method, its ending inventory (after the December 24 sale) equals:

$3,000 Ending inventory = cost of one purchased June 1 + Cost of one purchased July 9 + Cost of two purchased September 23 ($650 x 1) + ($750 x 1) + ($800 x 2) = $3,000

Wrangler Inc. uses the percentage of credit sales method to estimate Bad Debt Expense. At the end of the year, the company's unadjusted trial balance includes the following: Accounts Receivable$367,000 Allowance for Doubtful Accounts (credit balance) 2,000 Net Credit Sales 918,000 Wrangler has experienced bad debt losses of 0.4% of credit sales in prior periods. What is the Bad Debt Expense to be recorded for the year?

$3,672 Bad debt expense = net credit sales x bad debt loss rate 918,000 x 0.004 = 3,672

The unadjusted trial balance at the end of the year includes the following: Accounts Receivable$100,000 Allowance for Doubtful Accounts 1,200 Both accounts have normal balances. The company uses the aging of accounts receivable method. Its estimate of uncollectible receivables resulting from the aging analysis equals $6,100. What is the amount of Bad Debt Expense to be recorded for the year?

$4,900 6,100 - 1,200 = 4,900

Lenore, Inc. gathered the following information from its accounting records and the October bank statement to prepare the October bank reconciliation: Ending cash balance per books, 10/31 - $4,600 Deposits in transit - 370 Interest received from bank - 1,400 Bank service charge for check printing - 140 Outstanding checks - 3,100 NSF check of T. Owens - 230 What is the up-to-date ending cash balance on October 31?

$5,630

Using the aging method of accounts receivable method, $6,600 of the company's Accounts Receivable are estimated to be uncollectible. At the end of the year, the balance of Accounts Receivable is $116,000 and the unadjusted credit balance of the Allowance for Doubtful Accounts is $820. Credit sales during the year totaled $182,000. What is the current year's Bad Debt Expense?

$5,780 6,600 - 820 = 5,780

On July 1, 2018, Empire Inc. lends $9,000 to a customer and receives a 12% note due in two years. Interest is due in full on July 1, 2020, the due date of the note. What is the amount of Interest Revenue that will be reported on Empire's income statement for the year ended December 31, 2018?

$540

Inventory costing $6,300 is sold for $7,800 with terms 2/10, n/30. If the buyer pays within the discount period, what amount will be reported on the income statement as net sales?

$7,644 Sales discounts = sales revenue x discount percentage (7,800 x 0.02 = 156) net sales = sales revenue - sales discounts (7,800 - 156 = 7,644)

King Costume uses a periodic inventory system. The company started the month with 10 masks in its beginning inventory that cost $13 each. During the month, King Costume purchased 52 additional masks for $15 each. At the end of the month, King counted its inventory and found that 6 masks remained unsold. Using the LIFO method, its cost of goods sold for the month is:

$832

Delta Diamonds uses a periodic inventory system. The company had five one-carat diamonds available for sale this year: one was purchased on June 1 for $950, two were purchased on July 9 for $1,000 each, and two were purchased on September 23 for $1,050 each. On December 24, it sold one of the diamonds that was purchased on July 9. Using the FIFO method, its cost of goods sold for the year ended is:

$950

3 key differences between income statement and balance sheet of merchandising and service companies:

1. BS excerpts show that merchandisers report INVENTORIES as current assets, but service companies don't (they report supplies) 2. IS excerpts show service companies EARN REVENUE FROM SERVICES where merchandisers earn revenue from sales 3. merchandisers report expense called COST OF GOODS SOLD which is the total cost of all goods sold to customers while service companies don't

Barron Industries has the following information: Sales Revenue$650,000 Ending inventory 70,000 Cost of Goods Sold 500,000 Beginning inventory 60,000 What is Barron's number of days to sell?

47.5 days

The adjusting entry to record the estimated bad debts in the period credit sales occur would normally include a debit to:

Bad Debt Expense and a credit to Allowance for Doubtful Accounts

Goods available for sale equals:

CGS + ending inventory

Which of the following is not a commonly used internal control?

Consolidating duties

If inventory is updated periodically, which of the equations is correct?

Cost of goods sold = beginning inventory + purchase - ending inventory

Which of the following is a significant objective of the Sarbanes-Oxley (SOX) Act?

Counteract incentives

Which of the following would generally be considered an operating revenue or expense?

Depreciation

If inventory is updated perpetually, which of the following equations is correct?

Ending inventory = beginning inventory + purchases - CGS

Which method will result in the same cost of goods sold amount whether it is computed using the periodic inventory system or the perpetual inventory system?

FIFO

This month's bank statement includes a check from a customer that was marked NSF. How would this item be treated on the bank reconciliation?

It would be deducted from the book balance.

what is internal control?

actions taken to promote efficient & effective operations, protect assets, enhance accounting information, and adhere to laws and regulations

NSF (non-sufficient funds) check

amount written greater than funds available

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

be split between cost of goods sold and ending inventory

Which of the following are similarities between six-month note receivable and an account receivable? They both are:

current assets.

All of the following bank reconciliation items would result in a journal entry on the company's books except:

outstanding checks.

voucher system

process of approving and documenting purchases and payments made on account

imprest system

process that controls the amount paid to others by limiting the total amount of money available for making payments to others

petty cash fund

reimburse employees for expenditures they've made on behalf of the organization (PUTTING MONEY IN: Debit petty cash, credit cash)

where is restricted cash reported?

separately on the balance sheet

What is the Sarbanes-Oxley Act?

set of laws established to strengthen corporate reporting in the United States 1. counteract incentives 2. reduce opportunities 3. encourage honesty

what is primary internal control goal?

to ensure the business receives the appropriate amount of cash & safety deposits in the bank