RETL 261 Exam 3

A company borrowed $10,000 by signing a 180-day promissory note at 9%. The total to be paid at maturity of the note is:

$10,450

The interest accrued on $7,500 at 6% for 90 days is:

$112.50

straight line depreciation

(cost - salvage value) / useful life

Purposes of Internal Control

1. protect assets 2. ensure reliable accounting 3. promote efficient operations 4. urge adherence to company policies

steps in preparing a bank reconciliation

1.Enter the bank statement balance from the bank statement. 2.Add any unrecorded deposits to the bank balance. 3.Subtract outstanding checks from the bank balance. 4.Compute the adjusted bank balance. 5.Enter the company's book balance from its accounting records. 6.Add any unrecorded interest earned to the book balance. 7.Subtract bank fees from the book balance. 8.Compute the adjusted book balance.

Assume that the custodian of a $450 petty cash fund has $65 in coins and currency plus $382 in receipts at the end of the month. The entry to replenish the petty cash fund will include:

A credit to Cash for $385.

The entry to record reimbursement of the petty cash fund for postage expense should include:

A debit to Postage Expense.

voucher system

A set of procedures for authorizing and recording liabilities and cash payments.

electronic funds transfer

A transfer of cash from one party to another that does not involve a paper document.

what is a note receivable

A written promise between the creditor and their buyer. This is usually used for bigger ticket items

bad debts

Accounts of customers who do not pay what they have promised to pay; an expense of selling on credit; also called uncollectible accounts.

If a check correctly written and paid by the bank for $749 is incorrectly recorded in the company's books for $794, how should this error be treated on the bank reconciliation?

Add $45 to the book balance.

If a company made a bank deposit on September 30 that did not appear on the bank statement dated September 30, in preparing the September 30 bank reconciliation, the company should:

Add the deposit to the bank statement balance.

Interest earned on the cash balance in the bank is recorded by the bank as:

An increase in the depositor's bank account.

When reimbursing the petty cash fund:

Appropriate expense accounts are debited

Accounts payable:

Are amounts owed to suppliers for products and/or services purchased on credit.

Employer payroll taxes:

Are an added expense beyond the wages and salaries earned by employees

An analysis that explains differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n):

Bank reconciliation.

Spencer Co. has a $200 petty cash fund. At the end of the first month the accumulated receipts represent $43 for delivery expenses, $127 for merchandise inventory, and $12 for miscellaneous expenses. The fund has a balance of $18. The journal entry to record the reimbursement of the account includes a:

Credit to Cash for $182.

At the end of the day, the cash register's record shows $2,050, but the count of cash in the cash register is $2,058. The correct entry to record the cash sales is

Debit Cash $2,058; credit Cash Over and Short $8; credit Sales $2,050.

Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper's entry to record the collection of the note and interest at maturity should be:

Debit Cash $25,437.50; credit Interest Revenue $437.50; credit Notes Receivable $25,000.

Jervis accepts all major bank credit cards, including those issued by Northern Bank (NB), which assesses a 3% charge on sales for using its card. On June 28, Jervis had $3,500 in NB Card credit sales. What entry should Jervis make on June 28 to record the deposit?

Debit Cash $3,395; debit Credit Card Expense $105; credit Sales $3,500

Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid? (Assume reversing entries are not made.)

Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100; credit Notes Receivable $4,800.

Lemming makes an $18,750, 120-day, 8% cash loan to Notions Co. on November 1. Lemming's end-of-period adjusting entry on December 31 should be:

Debit Interest Receivable $250; credit Interest Revenue $250.

Giorgio Italian Market bought $4,000 worth of merchandise from Food Suppliers and signed a 90-day, 6% promissory note for the $4,000. Food Supplier's journal entry to record the sales transaction is:

Debit Notes Receivable $4,000; credit Sales $4,000

On July 9, Mifflin Company receives an $8,500, 90-day, 8% note from customer Payton Summers as payment on account. What entry should be made on July 9 to record receipt of the note?

Debit Notes Receivable $8,500; credit Accounts Receivable $8,500.

Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Co. Jasper's entry to record the transaction should be:

Debit Notes Receivable for $25,000; credit Cash $25,000.

If a check that was outstanding on last period's bank reconciliation was not among the cancelled checks returned by the bank this period, in preparing this period's reconciliation, the amount of this check should be:

Deducted from the bank balance of cash as an outstanding check.

On a bank reconciliation, the amount of an unrecorded bank service charge should be:

Deducted from the book balance of cash.

Internal control policies and procedures have limitations not including:

Establishing responsibilities.

When a petty cash fund is in use

Expenses paid with petty cash are recorded when the fund is replenished

Depreciation measures the actual decline in market value of an asset T/F

FALSE

If the Cash Over and Short account has a debit balance at the end of the period, the amount is reported as miscellaneous revenue T/F

FALSE

Notes receivable are always classified as current liabilities. T/F

FALSE

Obligations not due within one year or the company's operating cycle, whichever is longer, are reported as current liabilities. T/F

FALSE

Plant assets refer to intangible assets that are used in the operations of a business T/F

FALSE

True or False Good internal control dictates that a person who controls an asset also maintains that asset's accounting records.

FALSE

Which of the following is not one of the policies and procedures that make up an internal control system?

Guarantee a return to investors.

Cash Over and Short

Income statement account used to record cash overages and cash shortages arising from errors in cash receipts or payments.

A contingent liability:

Is a potential obligation that depends on a future event arising from a past transaction or event

The maturity date of a note receivable:

Is the day the note is due to be repaid.

A 90-day note issued on April 10 matures on:

July 9

deposit ticket

Lists items such as currency and checks along with their dollar amounts.

Formula for accts receivable turnover

Net sales / avg accts receivable

Honoring a note receivable indicates that the maker has:

Paid in full.

Plant assets

Resources that have physical substance, are used in the operations of the business, and are not intended for sale to customers. have a useful life of more than one year

check

Signed by the depositor instructing the bank to pay a specified amount of money to a designated recipient.

A single liability can be divided between current and noncurrent liabilities T/F

TRUE

Accounts receivable occur from credit sales to customers T/F

TRUE

Depreciation expense is calculated using estimates of an asset's salvage value and useful life T/F

TRUE

The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due, the lower the likelihood of collection. T/F

TRUE

The formula for computing interest on a note is principal of the note times the annual interest rate times time expressed in fraction of year T/F

TRUE

The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible T/F

TRUE

The petty cash fund should be reimbursed when it is nearing zero and at the end of the accounting period when financial statements are prepared T/F

TRUE

What are the two methods used to account for bad debts

The Direct Write Off Method and the Allowance Method

signature card

Used by bank employees to verify signatures on checks.

Outstanding checks refer to checks that have been:

Written, recorded on the company books, sent to the payee, but not yet paid by the bank.

A bank issues a debit memorandum to notify a depositor of:

a deduction to a depositor's account

A promissory note received from a customer in exchange for an account receivable is recorded by the payee as:

a note receivable

which must be adjusted to the book balance:

book error interest earned on checking account collections of accounts receivable by the bank

An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled:

cash over and short

Obligations due to be paid within one year or the company's operating cycle, whichever is longer, are

current liabilities

The entry to establish a petty cash fund includes:

debit petty cash and credit cash

Failure by a promissory notes' maker to pay the amount due at maturity is known as:

dishonoring a note

what are the two limitations of internal control?

human error and human fraud

The person who signs a note receivable and promises to pay the principal and interest is the:

maker

On July 9, Mifflin Company receives a $8,500, 90-day, 8% note from customer Payton Summers as payment on account. Compute the maturity date for the note.

october 7

Formula for interest on a note

principal of the note X the annual interest rate X time expressed in fraction of year.

Units of Production

produces varying amounts of depreciation in different accounting periods depending upon the number of units produced

Proper internal control

responsibility for a task is clearly established and assigned to one person