ac 211 test 2- true and false

19. Which of the following statements is false? a. The journal entry to write down inventory to its market value results in a loss on the income statement. b. Many countries prohibit the use of LIFO for tax or financial reporting purposes. c. Purchase discounts taken by the purchaser decrease the total cost of merchandise acquired and therefore decrease the Inventory account. d. Under the perpetual inventory system, inventory losses can be identified more easily than under the periodic inventory system. e. Bad Debts Expense is a contra account that is used to reduce accounts receivable to its net realizable value.

e

A company stores its unused checks in the vault. Which internal control procedure does this reflect? a. Restrict access b. Independent verification c. Document procedures d. Segregate duties

restricted acess

14. Which one of the following is an accurate description of the Allowance for Doubtful Accounts? a. Contra-asset account b. Liability account c. Contra-revenue account d. Expense account e. Revenue account

a

25. Which internal control procedure is violated when the cashier at the checkout stand also records the daily receipts in the journal? a. Segregation of duties b. Independent review and appraisal c. Independent verifications d. Proper authorizations

a

If prices are rising, which inventory cost flow method will produce the lowest amount for Cost of Goods Sold? a FIFO b LIFO c Weighted Average d They will all produce the same amount for Cost of Goods Sold.

a

if a company hires an auditor ro check that the work done by others within the company is supported by documentation, it is doing so under the principle of control activies referred to as: a indepentent verification b segregation of duties c restrict acess d document procedures

a

protecting against theft if assests and enhancing accounting information is the objective of: a. interenal controls b. government regulations c. loan convenants d. the external auditors

a

which of the following is the primary goal of internal controls for cash payments? a ensure that the business pays only for properly authorized transcations b confirm that the request for payments is made by someone who is approved to order goods or serves of the type and amount requested c ensure that the supplier chargers only for items received at approved prices d make payments only when a purchase is supported by complete voucher documentation

a

Countryside Corporation provides $6,000 worth of lawn care on account during the month. Experience suggests that about 2% of net credit sales will not be collected. In conformity with the expense recognition principle, the company should: a. record an estimate of Bad Debt Expense in the same period as the lawn care is provided. b. not report the sales revenue until it collects payment. c. increase the value of its liabilities with an adjustment. d. wait until the accounts are determined to be uncollectible before making an entry to record the related Bad Debt Expense.

a. record an estimate of Bad Debt Expense in the same period as the lawn care is provided.

Which element is not part of the fraud triangle? a. Sustainability b. Incentive c. Rationalization d. Opportunity

a. sustainability

10.Which of these statements is true? A. Taking a physical inventory is not necessary under a perpetual inventory system. B. The inventory turnover ratio is defined as cost of goods sold divided by average inventory. C. The specific identification method is very appropriate for accounting for inventory in a discount store like Dollar Tree or Dollar General. D. There is no difference in cost to implement a perpetual as compared to a periodic system. E. Under the perpetual inventory system, cost of goods sold is not recorded and the inventory account is not adjusted until the end of the accounting period.

b

16. What are the effects on the accounting equation when a company makes the adjusting journal entry to estimate bad debt expense using the allowance method? a. Assets and owners' equity increase. b. Assets and owners' equity decrease. c. Assets increase and owners' equity decreases. d. Assets decrease and owners' equity increases.

b

26. A customer returned damaged inventory it had purchased for credit. Which of the seller's accounts decreases? a. Purchase Returns b. Accounts Receivable c. Sales Returns d. Sales Revenue

b

27. Ending inventory is equal to the cost of items on hand plus a. merchandise in transit sold to customers FOB shipping point. b. merchandise in transit sold to customers FOB destination. c. the cost of all inventory purchased during the period. d. merchandise purchased in transit with terms FOB destination.

b

6. Notification by the bank that a customer's deposited check was returned NSF requires that the company make the following adjusting journal entry: a Debit Cash, Credit Accounts Receivable b Debit Accounts Receivable, Credit Cash c Debit Bank Charge Expense, Credit Cash d Debit Accounts Payable, Credit Cash e Debit Cash, Credit Accounts Payable

b

7. Which of the following bank reconciliation items would not result in an adjusting journal entry in the company's books? a Bank service charge. b Outstanding checks. c A customer's check returned NSF. d Interest earned on deposits. e A customer's payment on account by EFT.

b

9.Which of these statements is true? a. Proper internal control procedures can guarantee the prevention of all theft. b. When reconciling a bank account, the company does not have to prepare an adjusting entry for outstanding checks. c. Typically, the lower the accounts receivable turnover ratio, the better. d. At the end of each day, the cashier should be the one responsible for comparing the amount on the cash register tape with the day's cash additions to the cash register. e. Cash received through the mail should be handled by only one employee to achieve effective internal control.

b

The entry required to recognize the bad debts expense for 2014 will act to: a Increase total assets and retained earnings b Decrease total assets and retained earnings c Decrease total assets and increase net income d Increase total assets and decrease net income

b

The primary reason for the popularity of LIFO, for companies whose inventory costs are increasing, is that it: a Provides better matching of physical flow and cost flow. b Saves income taxes currently. c Simplifies recordkeeping. d Provides a permanent reduction of income taxes.

b

Which of the following is not a difference between GAAP and IFRS? a The order in which assets are presented on the balance sheet. b The system of analyzing, recording, and summarizing transactions. c The names given to the income statement, balance sheet, and statement of stockholders' equity. d The standard-setting body with authority to establish accounting principles. e The order in which liabilities are presented on the balance sheet.

b

Which of the following statements is false? a The Sarbanes-Oxley Act requires external auditors to test the company's internal control system. b The four financial statements are the only items required in the annual report sent to the SEC; all other items are optional. c The opportunity to commit fraud exists if there are weak internal controls. d The Sarbanes-Oxley Act (SOX) requires the company's board of directors to establish an audit committee of independent directors to oversee the financial matters of the company. e The board of directors of a company uses financial accounting in their role in governance of management.

b

Which of the following statements is true? a The three components of the fraud triangle are opportunity, incentive, and market analysis. b The management team is ultimately and finally responsible for the internal controls of the company. c The Sarbanes-Oxley Act (SOX) attacks the incentive arm of the fraud triangle by requiring that auditors audit the internal controls. d The Sarbanes-Oxley Act was passed in 1934 when Congress formed the Securities e Exchange Commission. The opportunity point of the fraud triangle is best attacked through the imposition of tough fines and prison terms for those convicted of financial statement fraud.

b

a company's cash recepits procedues include the following, cashiers collect cash and issue a receipt at the point of sale. supervisors take custody of the cash at the end of each cashier's shift and deposit it in the bank. Accounting staff then ensure the receipts from cash sales are properly recorded in the accounting system. which internal control principle is most evident with these procedures? a restrict acess b segregate duties c document procedures d indenpently verfiy

b

Using the allowance method, which is the correct adjusting journal entry to record bad debt expense? a. Debit Allowance for Bad Debt Expense and credit Bad Debt Expense b. Debit Bad Debt Expense and credit Allowance for Doubtful Accounts c. Debit Bad Debt Expense and credit Sales Revenue d. Debit Bad Debt Expense and credit Accounts Receivable

b. Debit Bad Debt Expense and credit Allowance for Doubtful Accounts

Which of the following statements about The Sarbanes-Oxley Act is true? a. Its primary purpose was to form The Securities Exchange Commission (SEC) to regulate publicly traded companies. b. Its primary purpose was to improve financial reporting and restore investor confidence. c. Its primary purpose was to improve international relations and global trading. d. Its primary purpose was to make U.S. GAAP conform more closely to international reporting standards.

b. Its primary purpose was to improve financial reporting and restore investor confidence.

A weak system of internal ______ provides the ______ to commit fraud. a. loan covenants; incentive b. controls; opportunity c. financial statements; opportunity d. audits; rationalization

b. controls; opportunity

At Ajax Company, goods billed by suppliers are compared to purchase orders and receiving reports before being paid. Which internal control procedure does this reflect? a. Restrict access b. Independent verification c. Document procedures d. Segregate duties e. Establish responsibility

b. independent verification

Which of the following rules established by The Sarbanes-Oxley Act addresses the incentive component of the fraud triangle? a. Companies must adopt a code of ethics covering the top executives. b. Management can be sentenced to jail terms up to 20 years for violations. c. Companies must adopt of a whistleblower protection system. d. Companies must establish an audit committee of independent directors. e. All of the above.

b. management can be sentenced to jail terms up to 20 years for violations

1. Which of the following statements is false? a. The use of the allowance method is an attempt by accountants to match bad debts as an expense with the revenue of the period in which a sale on credit takes place. b. Under the allowance method of accounting for bad debts, the company estimates the amount of bad debts before those debts actually occur. c. In accounting for inventory, the assumed cost flow (LIFO, FIFO, average) must match the physical goods flow. d. If a company uses LIFO for tax purposes, it must also use LIFO for financial reporting purposes.

c

24. In preparing a monthly bank reconciliation, which of the following items would be added to the balance reported on the bank statement to arrive at the correct cash balance? a. Outstanding checks b. Bank service charge c. Deposits in transit d. A customer's note collected by the bank on behalf of the depositor

c

3. Which of the following situations would cause the balance per bank to be more than the balance per books? a Deposits in transit. b Service charges. c Outstanding checks. d Checks from customers returned as NSF.

c

What type of account is the Allowance for Doubtful Accounts? a Contra-revenue b Asset c Contra-asset d Expense e Liability

c

Which of the following is the primary (main) objective of the external audit of a company's financial statements? a To provide a forecast of the company's future earnings. b To assure no fraud has been committed by the company's management or employees. c To provide credibility that the financial statements are fairly presented. d To detect all accounting errors made by the accounting system and employees. e To assure creditors that they will be repaid.

c

Which of the following statements is true? a Independent auditors are advisors who analyze financial statements and other economic information to formulate forecasts and stock recommendations. b Comparative financial statements are those of a company in one industry presented with another company in the same industry. c The statement of stockholders' equity reports the same information as the statement of retained earnings, but also provides information about changes in contributed capital. d External audits are conducted by Certified Public Accountants (CPAs) who are not independent of the company and are usually also members of management.

c

the objective of a company's system of internal control include which of the following? a. provide innovative products b. retaining positions as market leader c. adhearing to laws and regulations d. ensuring the company's stock price provides a reasonable return to investors

c

which of the following was passed by congress in repsonse to finanical statement frauds that occured in early 2000s? a. federal accounting standards board act b. securities and exchange act c. sarbanes-oxley act d. clayton act

c

Which of the following elements of the fraud triangle is present when one employee both receives and deposits customer checks? a. Incentive b. Misappropriation c. Opportunity d. Rationalization e. Reconciliation

c. opportunity

The internal control principle related to assigning responsibilities so that one employee cannot make a mistake or commit a dishonest act without someone else discovering it is referred to as: a. duplication of responsibility. b. restriction of access. c. segregation of duties. d. rotation of duties.

c. segregation of duties

1. Which of the following statements is false? a Internal controls include the policies and procedures a company implements to protect against theft of assets, to promote efficiency, and to ensure compliance with laws and regulations. b A company's use of pre-numbered checks is an example of the internal control of documentation of procedures. Storing unused checks in a safe is an example of the internal control of restricting access. c A good voucher system includes procedures and approvals designed to control cash payments and disbursements. d Deposits in transit have been recorded by the bank but not yet by the company.

d

12.Under GAAP, an entry should be made to debit Bad Debt Expense account a. when an account receivable with terms 2/10, n30 is past thirty days due. b. when an account receivable previously written off is determined to be collectible. c. when an account receivable is determined not to be collectible and is written off. d.in the period when a sale is made.

d

13. Which of the following statements regarding ratios is true? a. All other things equal, a lower debt-to-assets ratio indicates a riskier financing strategy. b. A lower asset turnover ratio is a positive indicator of how well the company is generating sales revenue from its assets. c. The net profit margin ratio cannot be used to indicate how well a company is controlling its expenses. d. A net profit margin ratio of 0.2 means that $1 of net income is generated for every $5 of sales revenue.

d

15. If a company uses the allowance method of accounting for bad debts, which one of the following statements is true? a. The use of the method violates the matching principle of GAAP. b. The company will record bad debts only when an account is determined to be uncollectible. c. The company will reduce the accounts receivable balance directly at the end of the accounting period for estimated uncollectible accounts. d. It will report accounts receivable in the balance sheet at their net realizable value, less an estimate of uncollectible accounts.

d

17. When using the allowance method, what are the effects on the accounting equation when a company writes off a bad debt? a. Assets and stockholders' equity increase. b. Assets and stockholders' equity decrease. c. Assets increase and stockholders' equity decreases. d. No effect on overall assets or equity.

d

18. Which of these statements is true? a. Sales Returns and Allowances is a contra-asset account. b. Freight charges associated with the purchase of inventory normally are not included in inventory cost. c. When prices are rising, use of the FIFO method will result in a lower tax liability than the other methods. d. Goods in transit shipped FOB shipping point should not be included in the seller's ending inventory. e. Specific identification is a very popular inventory method because it is very easy to apply.

d

22. Which one of the following procedures is not part of preparing a bank reconciliation of a checking account a. Tracing deposits listed on the bank statement to the books to identify deposits in transit b. Arranging canceled checks in numerical order and tracing them to the books to identify outstanding checks c. Identifying items added on the bank statement which have not been recorded as cash receipts by the company d. Preparing adjustments to reverse the transactions recorded for checks that are still outstanding

d

31. Which method assigns the cost of the most recent items purchased to cost of goods sold? a. Specific identification b. Weighted average cost c. FIFO d. LIFO

d

32. Which of the following rules was not mandated by The Sarbanes-Oxley Act of 2002 for U.S. publicly traded companies? a. Management is now held responsible for the internal controls and must issue a report on the controls. b. The auditors must now audit the internal controls of the company. c. The board of directors must form a committee to serve as the party in between management and the external auditors. d. The company must file Form 10-K with the Securities Exchange Commission.

d

An adjusting journal entry to recognize accrued salaries payable would cause which of the following? a A decrease in assets and stockholder's equity. b A decrease in assets and liabilities. c An increase in expenses, liabilities, and stockholder's equity. d An increase in expenses and liabilities and a decrease in stockholder's equity. e A decrease in expenses, liabilities, and stockholder's equity.

d

Assuming a company uses the allowance method, the entry to recognize the write-off of the specific uncollectible accounts will act to: a Increase total assets and total equity b Increase total assets and decrease total equity c Decrease total assets and total equity d Not affect total assets or total equity

d

the account cash shortage is which type of account? a an asset account b a liability account c a revenue account d an expense account

d

the fraud triangle contains three elements that must exist for accounting fraud to occur. The elements are: a. fear, greed, and satisfaction b. greed, larceny, and access c. motive, opporunity, and means d. incentive, opporunity, and rationaliation

d

On the balance sheet, the Allowance for Doubtful Accounts: a. is included in current liabilities. b. increases the reported Accounts Receivable, Net. c. is reported under the heading "Other Assets." d. is subtracted from Accounts Receivable.

d. is subtracted from accounts receivable

Two individuals at a retail store work the same cash register under the same password. While evaluating the internal controls of this store, you determine that this procedure is: a supporting the principle of segregation of duties. b supporting the principle of establishment of responsibility. c supporting the principle of independent verification. d a violation of the principle of documentation of procedures. e a violation of the principle of establishment of responsibility.

e

Which of the following statements is true? a Internal controls, if significant in number and strength, will eliminate 100% of all error and fraud in a company. b Segregation of duties means that a company assigns responsibilities so that employees are restricted to jobs for which they have adequate training. c A bank reconciliation is an external report prepared to report the cash balance to investors and creditors. d Deposits in transit would cause the balance per bank to be more than the balance per books. e None of the above.

e

Which of the following statements is true? a The fraud triangle provides three steps in the accounting cycle from adjusting to closing of the books. b The U.S. has mandated that all publicly traded companies switch from GAAP to IFRS on January 1, 2015. c MD&A (Management's Discussion & Analysis) in an annual report contains the auditor's report, a list of officers, and a listing of adjusting journal entries made. d Form 8-K is the annual report that publicly traded companies must file with the Securities & Exchange Commission (SEC). e When auditors conclude that a company's financial statements conform to GAAP, the audit report is said to be unqualified.

e