Accounting test 2

If the company's accountant mistakenly recorded a $58 deposit as $85, the error would be shown on the bank reconciliation as

$27 deduction from the book balance

A company has sales of $40,000, beginning inventory of $5,000, purchases of $25,000, and ending inventory of $7,000. The goods available for sale for the period equal

$30,000

A company bought 75 units of inventory for $4 each and 25 units of inventory for $5 each. The company's weighted average cost per unit is

$4.25= (75 x $4)+(25 x $5)/100

Which of these would explain an increase in a company's inventory turnover ratio? A. a decrease in cost of goods sold B. an increase in demand for the company's products C. a decrease in total inventory

B and C

The operating cycles involves A. purchasing of long term assets B. borrowing and repaying of long-term debt C. generating revenues and collecting from customers D. issuing of stock

C

Inventory is reported as an

asset on the balance sheet

The journal entry to record the payment for merchandise previously purchased on account includes a debit to _______ and credit to _____

accounts payable; cash

A corporation sells a product for $1000 cash that cost $600. The journal entry for this transaction using a perpetual inventory system includes a debit to

cash of $1000 and a credit to sales revenue of $1000; a debit to cost of goods sold of $600 and a credit to inventory of $600

Which of the following is not a significant objective of the Sarbanes-Oxley (SOX) act?

conceal fraud

Fraudsters may rationalize their actions by

convincing themselves that their actions are justified, through a feeling of personal entitlement, and as legitimate since they are underpaid

Using a perpetual system, purchasing merchandise on account includes a

credit to accounts payable and debit to inventory

In a perpetual system, the entry to record a purchase of merchandise on account includes a

debit to inventory and credit to accounts payable

The bank will show a customer's withdrawal as a

debit, because a withdrawal decreases its liability from the bank's point of view

The recording of a company's purchase returns and purchase allowances are similar in that both may result in a

decrease in inventory

Among the new requirements of SOX is those who willfully misrepresent financial results

face stiff fines and possible jail sentence

Merchandisers record revenue when they

fulfill their performance obligations by transferring control of the goods to customers

What type of system controls the amount paid to others by limiting the total amount of money available for making payments?

imprest

Gross profit equals

net sales minus cost of goods sold

Which of the following is subtracted from the bank balance on a bank reconciliation?

outstanding checks

Which inventory method is typically used when accounting for expensive and unique inventory items?

specific identification

What are the two stages of accounting for a purchase discount using the gross method?

the inventory account is later reduced if payment is made within the discount period and the purchase is fully recorded at full cost

Which of the following are reported on the income statement? A. gross profit B. cost of goods sold C. inventory D. sales revenue E. goods available to sell

A, B, and D

Goods available for sale equals A. beginning inventory - purchases - freight-in - purchase returns and allowances - purchase discounts B. beginning inventory + purchases + freight-in - purchase returns and allowances - purchase discounts C. purchases + freight-in - purchase returns and allowances - purchase discounts

B

Which inventory costing method assumes that inventory cost flow out in the opposite order from which the goods are purchased?

LIFO

T/F Cost of goods sold may include the write down of inventory to market even though the goods haven't been sold

True

Deposits in transit are _______ on a bank reconciliation

added to the bank balance

In a bank reconciliation, interest revenue earned on the bank account balance is

added to the book balance

XYZ's journal entry to return the record of merchandise previously purchased on account by XYZ was recorded by debiting inventory and crediting accounts payable. As a result of this entry,

assets will be overstated and liabilities will be overstated

Purchase transactions affect the

balance sheet and not the income statement

ending inventory equals

beginning inventory + purchases - cost of goods sold

Using the allowance method, which is the correct adjusting journal entry to record bad debt expense?

debit bad debt expense and credit allowance for doubtful accounts

The assumption that a company makes about its inventory cost flow can affect cost of goods sold on its _____ and inventory on its ______

income statement; balance sheet

Goods in transit are

inventory items being transported from a seller to a buyer

What are the three components of the fraud triangle?

rationalization, incentive, and opportunity

Which line would be found on a service firm's income sheet and not on a merchandiser's?

service revenue

The adjusting entry to record the allowance for doubtful accounts causes total

stockholders' equity to decrease and assets to decrease

What is the inventory costing method that adds together the total cost of all goods available for sale during the period, and then divides that by the number of units available for sale to get a value to assign to all goods sold and all goods remaining in inventory?

weighted average cost

Sales returns and allowances are reported on the

income statement

Which of the following would be considered a merchandise inventory? A. cost of goods sold B. raw materials C. work in progress D. purchased finished goods

D

Which of the following would be found on the debit side of the inventory T-account? A. purchase returns B. purchase discounts C. freight-out D. beginning inventory E. purchases F. freight-in

D, E, and F

Which inventory system records a change in the inventory account every time goods are bought, sold, and returned?

perpetual

Inventory consists of the purchase price

plus freight-in

In which company would you rather invest? A. a company with high gross profit percentage and high sales volume B. a company with low gross profit percentage and low sales volume C. a company with low gross profit percentage and high cost of goods sold

A

Good internal control for checks received through mail would include the mail clerk A. sending the cash receipts list and the customers' remittance advices to the accounting department B. giving checks and money orders to the supervisor who makes the bank deposit C. verifying the cash receipts list with a deposit slip from the bank

A and B

Which of the following may occur with a higher inventory turnover ratio? A. reduction in inventory storage costs B. increase in sales allowance C. reduction in obsolescence D. reduction in bad debt expense

A and C

Additional mechanisms of internal control include A. anonymous hotlines B. a slow computer network C. mandatory vacations D. a sound marketing plan E. bonding

A, C, and E

An increase in a company's inventory balance from a prior year is A. good if the inventory turnover ratio is higher B. always good C. always bad

A. good if the inventory turnover ratio is higher

Some managers commit fraud because they are under great pressure to report a high net income to meet ______ A. internal revenue service regulations B. shareholders' expectations C. financial analysts' earnings forecasts D. loan convenant requirements

B, C, and D

Which inventory costing method assumes that the inventory's cost flow out in the same order the goods are received?

FIFO

Which inventory costing methods are based on assumptions that accountants make about the flow of inventory costs?

FIFO and LIFO

A company, which uses the perpetual system, sold $2000 of merchandise on account with credit terms of 2/10, n/30. If the customer pays within the discount period and takes the discount, X will record the journal entry that includes

a debit to cash of $1960, a debit to sales discounts of $40, and a credit to accounts receivable of $2000

If a cashier rang up sales totaling $5096, but had $5100 to deposit, which journal entry would be recorded?

a debit to cash of $5100; a credit to cash coverage of $4; and a credit to sales revenue of $5096

An example of an EFT is

a direct deposit of an employees paycheck

When a company provides $1000 of services to a customer on account with payment terms of 2/10, n/30, the entry to record the sale using the gross method includes a debt to _______ and a credit to ______

accounts receivable for $1000, sales for $1000

While preparing the bank reconciliation for March, the accountant for ABC Company discovered that a $694 check in payment of an account payable had been entered incorrectly in the journal as $649. Which of the following is true?

an adjusting entry must be made to debit accounts payable and credit cash for $45

Cost of goods sold equals

beginning inventory + purchases - ending inventory

The gross profit percentage measures the percentage of profit earned on each dollar of sales before deducting all expenses other than cost of goods sold. This ratio is used to

compare one company with another and make comparisons over time

Good internal controls for cash receipts to be performed by the accounting department should include

comparing cash register sales with the cash count sheets and bank deposit slip, and recording the cash receipts in the journal

The bank will show a customer's deposit on a bank statement as a

credit, because a deposit is a liability from the bank's point of view

Inventory is reported as a

current asset on the balance sheet

Inventory is a _________, intended to be

current asset; sold

The journal entry to record the payment for merchandise previously purchased on account includes a

debit to accounts payable and credit cash

After performing a physical count of inventory at the end of the accounting period, it was discovered that the amount of inventory on hand was less than the accounting records reported. The entry to record this inventory shrinkage includes

debit to cost of goods sold and credit to inventory

Sales discounts should appear in the financial statement as a

deduction from sales

Outstanding checks written by the company should be a ______ on the company's bank reconciliation

deduction from the bank balance

A bank service charge should be a ______ on a bank reconciliation

deduction from the book balance

Which of the following is added to the bank balance on a bank reconciliation?

deposits in transit

On a bank reconciliation, which of the following are typical reconciling items the bank would not know about because of time lags?

deposits in transit and outstanding checks

A check you have written has cleared the bank when

funds have been withdrawn from your account to cover the check

Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes an

increase in liabilities and increase in assets

In a perpetual system, the ______ account is debited when a company purchases merchandise on account

inventory

This month's bank statement shows that the bank incorrectly credited ABC corporation's account for a $600 deposit that should have been credited to XYZ corporation's account. How would this item be treated on ABC's bank reconciliation?

it would be deducted from the bank balance

This months's bank statement includes a statement 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

A company's bookkeeper recorded the purchase of merchandise on account with a debit to cost of goods sold and credit to cash. As a result

liabilities are understated, stockholders' equity is understated, assets are understated

In a perpetual inventory system, the return of merchandise XYZ recently purchased on account will have the following effects on XYZ's accounting equation

liabilities will decrease and assets will decrease

A company's balance sheet shows three inventory accounts--raw materials, work in progress, and finished goods. The company must be a

manufacturer

Applying the lower of cost or market rule results in inventory being reported at the

market value if lower than cost

What companies sell goods that have been obtained from other companies?

merchandising

Net sales on an income statement equals sales revenue

minus sales returns, allowances, and discounts

Fraudulent reporting by management includes ____ A. mismatching revenues and expenses B. reporting revenues earned before receiving cash C. reporting fictitious revenues from a phantom customer D. improper asset valuation

mismatching revenues and expenses, reporting fictitious revenues from a phantom customer, and improper asset valuation

If companies are required to adopt IFRS, companies will

no longer be able to use LIFO

A difference between an imprest payroll account and petty cash is petty cash is

not held at the bank

To find a description of the inventory accounting method used by a company, you need to look at the

notes on the financial statement

In a perpetual inventory system, the journal entry to record the payment of cash for the shipping costs of purchased merchandise will cause

one asset to increase and another asset to decrease

Good internal controls for cash receipts that should be performed by a supervisor include

restricting access by locking it up, completing bank deposits, and comparing cash in registers with cash count sheets

T/F When a company sells different types of products, the income statement will report the Cost of Goods sold for all of the products in one line item

true

The entry that includes a debit to allowance for doubtful accounts and a credit to accounts receivable is a

write-off of a specific customer's account