Accounting Final

Which of the following statements is correct?

A bank statement is a document from the bank that reports the activity in the customer's account.

Mercury Company established a petty cash fund with a $200 balance. Which of the following statements is incorrect?

A journal entry is needed to debit the cash account and credit the petty cash account for $200

A company that uses the perpetual inventory system purchased inventory for $1,030,000 on account with terms of 5/7, n/20. Which of the following correctly records the payment made 15 days after the date of invoice?

Accounts Payable 1,030,000 Cash 1,030,000

company that uses a perpetual inventory system purchased inventory on account and later returned goods worth $100 to the vendor (prior to payment). Which of the lowing would be the correct journal entry to record these returns?

Accounts Payable 100 Merchandise Inventory 100

A company that uses a perpetual inventory system purchased inventory on account and later returned goods worth $200 to the vendor (prior to payment). Which of the following would be the correct journal entry to record these returns?

Accounts Payable 200 Merchandise Inventory 200

Uptown, Inc. has determined that an account receivable of $125 is uncollectible. The company uses the direct write - off method. Which of the following entries is required to record the write - off?

Bad Debts Expense 125 Accounts Receivable 125

Regarding the end of period adjusting entries to record estimated sales returns, which of the following statements is correct? (Assume the perpetual inventory system is used.)

Both Sales Revenue and Cost of Goods Sold accounts are decreased.

Landon Jewelers uses the perpetual inventory system. On April 2, Landon sold merchandise with a cost of $1,500 for $10,000 to a customer on account with terms of 5/15, 1/30. The journal entry to record the cost of goods sold would be:

Cost of Goods Sold 1,500 Merchandise Inventory 1,500

The ending Merchandise Inventory for the current accounting period is understated by $2,700. What effect will this error have on Cost of Goods Sold and Net Income for the current accounting period?

Cost of Goods Sold/Overstated Net income/Understated

A company has purchased inventory and received an invoice that requires the buyer to pay the transportation costs for delivering the merchandise. The terms are

FOB shipping point

Which of the following is the correct order of subtotals that appear on a multi - step income statement?

Gross profit, Operating income, Net income

The Sales Revenue, Delivery Expense, and Sales Discounts Forfeited accounts will be closed via the___________account

Income Summary

Which of the following statements describes a receiving report?

It is a report showing that the goods have been received in good condition, as ordered.

Which of the following statements describes a purchase order?

It is an order to purchase goods from a supplier.

Which of the following is true of the balance sheet presentation of the Allowance for Bad Debts?

It is shown as a contra account related to accounts receivable.

Which one of the following is true of the bank reconciliation?

It should not be prepared by an employee who handles cash transactions.

Which one of the following is true of a signature card?

It shows each authorized person's signature for a bank account

Customer G. Smith owed Stonehollow Electronics $525.00. On April 27. 2024, Stonehollow determined this account receivable to be uncollectible and wrote off the account. The company uses the direct write - off method. On July 15, 2024, Stonehollow received a check for $525.00 from the customer. How should the July 15, 2024 transaction be recorded?

July 15 Account Receivable - G. Smith 525 Bad Debt Expense 525

Which of the following statements is true?

Notes Receivable usually have longer collection terms than accounts receivable

On July 7, A - 1 Credit Union loaned $410,000 to Bridal Retail Shop on a 90 day, 5% note. What is the maturity date of the note?

October 5

Which of the following is true of internal control?

One of the major purposes of internal control is to ensure that the assets are safeguarded.

A customer returned merchandise purchased with cash with a sales price of $5,500. The cost of goods was $2,200. Which of the following represents the correct way to record this transaction assuming an adjusting entry had been prepared for estimated returns?

Refunds Payable 5,500 Cash 5,500

On March 18, James Smith purchased $5,000 of furniture from Home Furnishings on account. The cost of the goods was $3,000. On March 20, Home Furnishings granted the customer a $700 sales allowance for goods damaged in transit. Which of the following represents the correct way to record this transaction?

Refunds Payable 700 Accounts Receivable 700

At Carlson Services, the cashier collects checks and cash from customers, and the junior accountant records the transactions in the journal. The controller approves the journal entries and bank reconciliations. The treasurer signs checks and approves contracts. Which internal control procedure is exemplified in the above situation?

Separation of duties

Which of the following is a disadvantage when a business accepts credit cards or debit cards from customers?

The business pays a processing fee

Which of the following is the last step in the daily control over cash receipts by mail?

The controller compares the records of the day's bank deposit amount from the treasurer and the debit to cash from the accounting department

The ending merchandise inventory for the current year is overstated by $20,000. What effect will this error have on the following year's net income?

The net income will be understated by $20,000

Which of the following is NOT an appropriate internal control for cash receipts over the counter?

The store clerk deposits the cash in the bank.

In reconciling a bank statement, the bank balance is $2,100, and the checkbook balance is $2,001. Which of the following is the most probable reason for the bank balance being larger than the book balance?

There are outstanding checks.

Which of the following would be included in the journal to record an NSF check?

a debit to accounts receivable and a credit to cash

Which of the following is the result of the maker of a promissory note failing to pay the note on the due date?

a dishonored note

A company with significant amounts of accounts receivable experiences uncollectible accounts from time to time. If the company uses the direct write - off method the effect of writing off an uncollectible receivable will be

a reduction in net income

The two methods of accounting for uncollectible accounts receivable are

allowance method and direct write - off method

A check was written by a business for $507 but was recorded in the journal as $705. How would this error be included on the bank reconciliation?

an addition on the book side

A company check for payment must be signed by

an employee specifically authorized by the company

The controller at Business Services Consulting needs new computers for the accounting department. However, there are no guidelines specifying whether the controller can approve purchases of office equipment. Which internal control procedure needs strengthening?

assignment of responsibilities

A __________ is a document explaining the reasons for the difference between a depositor's Cash account in the ledger and the depositor's cash balance in its bank account.

bank reconciliation

Which of the following items are reconciling items on the book side of the reconciliation?

bank service charge and correction of book error

Which is the most liquid form of asset?

cash

Two or more people working together to circumvent internal controls and defraud a company is known as

collusion

Goldman Services hired a new clerk to keep custody of and maintain all the equipment in the equipment yard. The clerk has not yet been adequately trained on the maintenance needs of the equipment. Which internal control procedure needs strengthening?

competent, reliable, and ethical personnel

Vaughan Services hires a new accountant to maintain its petty cash fund. Although the employee possesses an accounting degree, he/she had been previously convicted of embezzlement. Which internal control procedure needs to be addressed in this situation?

competent, reliable, and ethical personnel

Gross profit is calculated as the difference between net sales revenue and

cost of goods sold

Which of the following line items will appear on the income statement of a merchandiser but not of a service company?

cost of goods sold

On the balance sheet for a merchandiser, Merchandise Inventory is listed as a(n)

current asset

Which of the following entries would be made to record the purchase of inventory on account, if a company uses the perpetual inventory system?

debit Merchandise Inventory; credit Accounts Payable

The petty cash fund has a current balance of $150, which is the established fund balance. Based on activity in the fund, it is determined that the balance needs to be changed to $700. Which journal entry is needed to make this change?

debit the petty cash account and credit the cash account for $550

Which of the following items are reconciling items on the bank side of the reconciliation?

deposit in transit and outstanding checks

Under GAAP, which of the following is NOT an acceptable method of estimating the amount of bad debt expense at the end of the accounting period?

direct write-off

The terms of an invoice are 3/10. n/25. This means that a

discount of 3 percent is allowed if the invoice is paid within 10 days after the invoice date

Under the weighted - average method for inventory costing, the cost per unit is determined by

dividing the cost of goods available for sale by the number of units available for sale

Which of the following items would require an adjusting entry after preparation of the bank reconciliation?

errors made on the books revealed by the bank reconciliation

Under which of the following inventory costing methods is the ending inventory based on the costs of the most recent purchases?

first in first out

Which of the following inventory costing methods uses the cost of the oldest purchases to compute the cost of goods sold?

first in first out

Which of the following inventory costing methods yields the highest net income during a period of rising inventory costs?

first in first out

The disclosure principle states that a company should disclose all major accounting methods and procedures in the

footnotes to the financial statements

For a merchandiser, the term "inventory" refers to

goods held for sale to customers

On a multi - step income statement, the operating expenses are subtracted from _______ to arrive at operating income.

gross profit

For a company with significant uncollectible receivables, the direct write - off method is unsuitable because

it violates the matching principle

Which of the following inventory costing methods results in the lowest value of ending inventory during a period of rising inventory costs?

last in first out

Which of the following inventory costing methods uses the costs of the oldest purchases to calculate the value of the ending inventory?

last in first out

Which of the following inventory costing methods yields the highest cost of goods sold during a period of rising inventory costs?

last in first out

Which of the following inventory valuation methods minimizes income tax expense during a period of rising inventory costs?

last in first out

A company decides to ignore a very small error in its inventory balance. This is an example of the application of the

materiality concept

Which of the following is affected as a result of an error in performing the physical count of inventory at the end of the accounting period?

net income

A check for which a maker's bank account has inadequate money to pay the check is known as a(n)

nonsufficient funds check

When a check is issued, the party being paid the cash is referred to as the

payee

Merchandise inventory accounting systems can be broadly categorized into two types. They are

perpetual and periodic

The tracking of inventory shrinkage due to theft, damage, or errors is done with the help of a (n) _________ of inventory.

physical count

Which of the following remains the same regardless of the inventory costing method used by a company? Assume the cost of inventory is rising

purchases

After making a sale, a seller may have customers that return goods. The seller uses the perpetual inventory system. This requires the seller to

reduce sales and cost of goods sold for the period use historical data to record sales revenue in the amount that is expected to be received record two adjusting entries to account for the estimated returns (All of the statements are correct)

Which of the following is an application of conservatism?

reporting inventory at the lower of cost or market

The Sales Discounts Forfeited account

represents additional revenue due to the customer not paying within the discount period

On a multi - step income statement, which of the following is added to operating income to arrive at net income?

sales discounts forfeited

FOB destination refers to a situation where title to goods while in transit belongs to the

seller

Which of the following is an example of exercising internal control over receivables?

separating cash collection and credit approval duties

Which of the following inventory costing methods is based on the actual cost of each particular unit of inventory?

specific identification

Net sales revenue is calculated by

subtracting sales discounts and estimated sales returns and allowances from sales revenue

When a company uses the allowance method to measure bad debts,

the amount of bad debts expense is estimated at the end of the accounting period

Which of the following is included in the internal control procedure documents?

the invoices and orders must be pre-numbered

Jayson Enterprises uses the allowance method to account for uncollectible receivables. When an uncollectible account is written off,

the write off has no effect on net income

No journal entries are required for the reconciling items on the bank side because

those transactions have already been recorded in the company's journal

GAAP requires companies to ________ method to record bad debts expense.

use the allowance