Accounting test 3

The accounts receivable turnover ratio is used to evaluate how well a company does in collecting its accounts recievalbe

True

The higher the accounts recievable turnover the better because it indicates that the company is more quickly collecting cash (through sales)

True

The use of the allowance method is an attempt by acccounts to match bad debt as an expense with the revenue of the period in which a sale on credit takes place

True

Research and development costs should be added to the cost of patents

False

The sole purpose of creating an internal control system is to deter embezzlement

False

The weighted average cost is calculated by adding the units costs from each purchase and then dividing by the number of purchases

False

When a bank collects a note on behalf of a company, the bank is likely to issue a debit memo

False

When plant assets are purchased in a group, each asset is debited to the respective plant asset account for its fair market value at the time of acquisition

False

As part of a sound system of internal controls, all disbursements (with the exception of petty cash) should be made by cash

True

Cost of goods sold represents an outflow of a resource, inventory, which is caused by the sale of products

True

If the company uses the same depreciation method as other firms in the same industry, investors will have enhanced comparability if the financial reporting results

True

The following items relate to the company's March bank reconciliation Bank statements balance - $29,600 Unadjusted cash balance - ? Deposit in transit - $2,200 Outstanding checks - $3100 Bank service charges - $200 Interest earned - $100 Customers NSF check returned by bank - $300 What's the company's adjusted cash balance? A. $28,700 B. $29,100 C. $28,300 D. $29,600

A $28,700

A company uses plant assets that are subject to rapid decreases in value due to obsolescence and physical deterioration. Which depreciation method is most appropriate to measure the decline in the usefulness of the assets? A double declining method B revenue expenditure method C straight line D units of production

A double declining method

While preparing a bank reconciliation, which items would be added to the bank statement balance? A outstanding checks B deposits in transit C bank service charges D interest earned on bank account

B deposits in transit

Fitness Depot purchases a building on land and allocated the entire cost of the purchase to building. Normally, the company depreciates buildings over 40 years using straight line method with 0 residual value and doesn't depreciate land. Because of the improper accounting treatment of the purchase, the company's income for the next 20 years will be A overstated B understated C unaffected D cant be determined with the info provided

B understated

What is the company's adjusted cash balance? A $34,000 B $34,900 C $32,500 D $32,800

C $32,500

A check written by a company but NOT yet presented to the bank for payment is called a check in transit

False

A company using periodic inventory system must total the selling prices of the units on hand at the end of the period in order to value the ending inventory

False

A loss in inventory value caused by application of the lower of cost or market (LCM) rule is recorded in a "Loss from Impairment" account

False

A purchases account is not needed under a periodic inventory system

False

An accounting system must be computerized in order to ensure the company has proper internal controls

False

Noland INC uses LIFO method of inventory costing and merchandise purchases have increased since they started using LIFO. If Noland INC doesn't purchase additional merchandise, which one of the effects will occur? A reported earnings for the current year will be higher B Income taxes for the current year will be lower C cost of goods sold for the year will be higher D gross margin for the year will be lower

A reported earnings for the current year will be higher

According to SOA of 2002, who's primarily responsible for establishing and maintaining a system of internal control over the company's financial reporting? A. Management of the company B. The company's auditors C. The company's internal auditors D. The audit committee of the company's board of directors

A. Management of the company

Refer to AT&T company. If the company estimates its bad debts at 1% of net credit sales, what amount will be reported as bad debt expense? A $44,000 B $25,000 C $24,500 D $4,500

C $24,500

Which one is NOT included in cash and cash equivalents on a company's balance sheet? A savings account at the bank B checking account at the bank C a bank certificate of deposit for one year D petty cash

C a bank certificate of deposit for one year

Equipment with an estimated residual value at acquisition of $15,00 was sold on 12-31 for $20,000 cash. The following were available at the time of sale: Acquisition cost - $100,000 Accumulated depreciation - $5,000 When this transaction is recorded it should include a A debit of $80,000 to the loss on disposal account B credit of $20,000 to the equipment account C credit of $5,000 to the gain on disposal account D debited of $20,000 to the Accumulated depreciation account

C credit of $5,000 to the gain on disposal account

For which type of merchandise would a company most likely use the specific indentification method of inventory costing? A gasoline held in storage tanks B cases of bottled water C custom made boats D Barbie dolls

C custom made boats

Regan company reported net income of $95,000 for 2019. Early 2020, the company discovered that in 2019 the ending inventory was overstated by $5,000. Determine the effect of the errors. A assets and stockholders equity would be overstated by $5,000 on balance sheet; expenses and net income would be understated by $5,000 on income statement B assets and stockholders equity would be overstated by $5,000 on balance sheet; expenses would be overstated by $5,000 on income statement, thus net income would be understated by $5,000 C assets and stockholders equity would be understated by $5,000 on balance sheet; expenses would be understated by $5,000 on income statement, thus net income would be understated by $5,000 D assets and stockholders equity would be understated by $5,000 on balance sheet; expenses would be understated by $5,000 on income statement, thus net income would be overstated by $5,000

D assets and stockholders equity would be understated by $5,000 on balance sheet; expenses would be understated by $5,000 on income statement, thus net income would be overstated by $5,000

What effects on a retail store's accounting equation occur when it records merchandise purchased for cash, using the perpetual system? A Assets and stockholder's equity increase B Assets and stockholder's equity decrease C assets and liabilities increase D No net effect

D no net effect

Refer to Tedder Co. Which of the following entries correctly records the purchase assuming the units were acquired on credit under terms of 2/10, n/30? A inventory 270; cash 270 B inventory 270; accounts payable 270 C purchases 264.60; purchase discounts 5.40; Accounts payable 270 D purchases 270; Accounts payable 270

D purchases 270; Accounts payable 270

Many companies use MACRS depreciation for A financial reporting purposes and a different method for tax purposes B financial reporting purposes because depreciation is not allowed for tax purposes C tax purposes because it results in a larger net income in the early years of plant assets life D tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes

D tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes

The journal entries required for purchase and sales transactions using the prepetual system are more complex than under the periodic system but offer the advantage of - A. Requiring the additional control of a physical inventory count whenever accurate amounts are needed B. Delaying the majority of the accounting effort until year end C. The use of average cost D. Providing management with more complete info from which to control inventory

D. Providing management with more complete info from which to control inventory

As a result of the bank reconciliation process, a company will prepare an adjusting entry for a debit memo but NOT for a credit memo

False

Costs incurred related to plant assets that are already in use are called revenue expenditures if the cost increases the useful life or the productivity

False

If a company hires honest employees and it's top management acts with integrity, NO internal control procedures will be necessary

False

On the balance sheet a company reports plant assets by subtracting residual value from the original cost of the plant asset

False