Exam 2 ( Smart Book ) questions

Controls designed to prevent errors or fraud from occurring are referred to as _____ controls.

preventive

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, cost of goods sold will be

$1,760 Reason: ($1,980/900 x 800) = $1,760

The list price in Boyton's catalog indicates that Product A sells for $3,000, with a trade discount of 5%. Boyton sells the goods to a customer who qualifies for the trade discount. At what amount should Boyton record the sale and related account receivable?

$2,850 Reason: $3,000 less 5% discount

On November 1, year 1, ABC, Inc., received a 3-month, 8%, $1,500 note receivable with interest and principal to be collected on February 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?

$20 The 8% is an annual rate and since only 2/12 of a year has been earned, interest revenue is $20 (=$1,500 x 0.08 x (2/12)). Nov and Dec is 2/12 of a year.

On Sept 1, year 1, Parnell Inc. received a 6-month, 6%, $2,000 note receivable with interest and principal to be collected on March 1 of year 2. What is the amount of interest revenue that should be recorded for year 1?

$40 Reason: The 6% is an annual rate and since only 4/12 of the year has been earned, interest revenue is $40 (=$2,000 x .06 x (4/12)). Sept, Oct, Nov, Dec is 4/12 of a year.

Which of the following items are included in cash? Notes receivable from customers currency and coins checks from customers balance in checking accounts accounts receivable from customers

1. currency and coins 2. checks form customers 3. balance in checking account

Which of the following items are not included in cash?

Accounts receivable from customers

Bell provides $500 of services to customers on account with terms 3/10, n/30. The Service Revenue account is credited for $500. If the customer pays within 10 days, Bell will record which of the following?

Debit Sales Discount $15 Reason: $500 *.03 = $15

Claire provides $100 of services to customers on account with terms 2/10, n/30. The Service Revenue account is credited for $100. If the customer pays within 10 days, Claire will record which of the following?

Debit Sales Discount $2 Credit Accounts Receivable $100 Debit Cash $98

Maier Company purchases inventory from Kunze Corporation and debits inventory and credits accounts payable to record the transaction. Which of the following journal entries would Kunze make to record the sale?

Debit accounts receivable, credit sales revenue

Effective internal control over cash requires segregation of duties. Which of the following duties should be segregated?

Depositing checks into the bank and recording receipts in the accounting records Opening the mail and deposit of checks in the bank

Bernie Corp. uses the FIFO inventory method to calculate cost of goods sold for financial reporting purposes. Which of the following methods can Bernie use for tax purposes?

FIFO and weighted-average only

A $250 bank deposit made on the last day of the month did not appear on this month's bank statement. How would this item be treated on the bank reconciliation?

It would be added to the bank balance. Deposits in transit should be added to the bank, not company, balance. The deposit was already added to the books back when the deposit was made. The bank has yet to record the deposit

This month's bank statement shows interest earned of $45. How would this item be treated on the bank reconciliation?

It would be added to the company balance. The company balance must be increased by the amount of interest earned as reported on the bank statement. The bank balance already includes the interest.

The definition of inventory includes which of the following items?

Items held for resale Items currently in production for future sale Items used currently in the production of goods to be sold

Turn Company utilizes the LIFO inventory method to calculate taxable income. Which method is available to Turn for financial reporting purposes? FIFO only

LIFO only

Which of the following might be included in cash equivalents on the balance sheet?

Money market funds Treasury bills

Debit Inventory, credit Accounts Payable

Purchase of inventory on account

Debit Accounts Receivable, credit Sales Revenue

Sale of inventory on account

The Public Company Accounting Reform and Investor Protection Act of 2002 is known as the

Sarbanes- Oxley Act

What would cause a bank statement not to agree with the cash balance in the accounting records?

The bank made an error in recording a deposit made by the company. The company made an error in recording a deposit. The bank paid interest that the company has not recorded. Deposits outstanding that have been recorded on the company's records, but not on the bank's.

Which of the following might be included in cash equivalents on the balance sheet?

Treasury bills Certificates of deposit Money market funds

Periodically, management should verify that amounts related to the company's physical assets agree with the _______,records.

accounting

Using the perpetual inventory system, what is the effect of a sale of inventory on assets?

assets decrease by the cost of the inventory assets increase by the sales price of the inventory

A trade discount is recognized

by reducing the revenue amount recorded.

Under a perpetual inventory system, the entry to record the return of goods previously purchased on account was recorded with a debit to Accounts Payable and a credit to Inventory. This entry is:

correct

Largo Corp. discovered $2,000 for an NSF check in its bank reconciliation. When the cash account is updated for items that affect the company's cash balance, the entry will include

credit Cash, $2,000.

ABC Corp. received a 3-month, 8%, $1,500 note receivable on November 1. The adjustment for interest earned by December 31 will include a:

credit to Interest Revenue of $20 Reason: $1,500 x 0.08 x (2/12) = $20; the time is 2/12 of the annual rate of 8%, not 2/3 of the 8% (12-month rate).

On October 1, Light Corp. sold goods on account to Dark Corp. Light agreed to accept a $100,000, 8%, 6-month interest-bearing note from Dark in payment for the goods. Light has a December 31 year-end. The entry required on Light's books for interest on April 1 when the note is due requires (Select those that are correct.)

credit to interest revenue, $2,000 credit to interest receivable, $2,000. debit to cash $4,000 Reason: Interest rates are always stated at an annual rate. On December 31st, the company would have accrued interest receivable of $2,000. It will be collected when the note is due along with the additional interest from Jan 1 - April 1. $100,000 x 0.08 x (3/12)

On November 1, Orange Corp. sold goods on account to Apple. Orange agreed to accept a $40,000, 12%, 3-month interest-bearing note from Apple in payment for the goods. Orange has a December 31 year-end. On February 1, year 2, when the note matures, the journal entry will include a

credit to interest revenue, $400. The 12% is an annual rate and since only 1/12 of a year has been earned (year 2), interest revenue is $400 (=$40,000 x 0.12 x (1/12))

If a company uses a perpetual inventory system, the entry to record the company's return of goods previously purchased on account includes ______ and _____. (Answer from the viewpoint of the buyer.)

debit to Accounts Payable credit to Inventory.

Albert Corp. received a 2-month, 8%, $1,500 note receivable on December 1. The adjustment for interest earned by December 31 will include a:

debit to Interest Receivable of $10

In a bank reconciliation, which of the following items does not need to be recorded to adjust the company's cash balance?

deposit outstanding

The two types of control procedures are preventive and _______

detective

sell stock to investors

financing activity

A company's plans to safeguard company assets and enhance the reliability and accuracy of accounting information are referred to as

internal controls

Items held for sale in the normal course of business are referred to as

inventory

purchase equipment

investing activity

Peter Company, a produce distributer, always tries to sell its oldest produce first. Peter company

is allowed to use the FIFO, LIFO, or Weighted-average cost flow assumptions.

The statement of cash flows is useful because

it provides information on the company's ability to maintain long-term success.

The three elements present in the fraud triangle are:

motive rationalization opportunity

The acronym NSF stands for

nonsufficient funds.

If a bank reconciliation included a deposit outstanding of $670, the company's entry for this reconciling item would include:

nothing; the deposit has already been recorded

The cash flow category that is closely related to a company's profitability is cash from ______ activities.

operating

sell goods to customers

operating activity

A manager compares the monthly sales revenue to the amount forecasted. Which type of internal control is this?

performance review

A bank statement may not agree with the amount of cash recorded by the company in the cash account because of _________differences and errors.

timing

The LIFO adjustment is used internally to convert the inventory

to the LIFO basis

What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements? (Assume that the sales price is higher than the cost of inventory)

total assets increase stockholders' equity increases net income increases

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, ending inventory will be

$420 Reason: ($1,980/900 x 100) +$200 = $420

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

It would be deducted from the bank balance.

This month's bank statement includes a check from a customer that was marked NSF. How would this item be treated on the bank reconciliation? Is it added or subtracted from the bank balance or the company's cash (book) balance?

It would be deducted from the company balance.