Test 3 (CH 7-10)

b) cash (net) realizable value.

Companies report accounts receivable on the balance sheet at a) cost. b) cash (net) realizable value. c) gross realizable value. d) face value.

a) $25,800.

Erin Danielle Company purchased equipment and incurred the following costs: Cash price $24,000 Sales taxes 1,200 Insurance during transit 200 Installation and testing 400 Total costs $25,800 What amount should be recorded as the cost of the equipment? a) $25,800. b) $25,200. c) $25,400. d) $24,000.

b) segregation of duties.

Having different individuals receive cash, record cash receipts, and hold the cash is an example of a) independent internal verification. b) segregation of duties. c) establishment of responsibility. d) documentation procedures.

d) expenses are understated.

If a company fails to record estimated bad debts expense, a) revenues are understated. b) receivables are understated. c) cash realizable value is understated. d) expenses are understated.

c) notes receivable.

Interest is usually associated with a) bad debts. b) accounts receivable. c) notes receivable. d) doubtful accounts.

b) Opportunity, rationalization and financial pressure

The fraud triangle consists of three factors: a) Rationalization, ability and financial pressure b) Opportunity, rationalization and financial pressure c) Ability, opportunity, rationalization d) Financial pressure, opportunity and ability

c) maker.

The party who issues a check is the a) payee. b) payer. c) maker. d) bank.

b) results in a better matching of expenses with revenues.

The percentage-of-sales basis of estimating uncollectibles a) considers the existing balance in Allowance for Doubtful Accounts. b) results in a better matching of expenses with revenues. c) emphasizes balance sheet relationships. d) produces a better estimate of cash realizable value.

b) documentation procedures.

The use of cash register tapes is an example of a) independent internal verification. b) documentation procedures. c) physical controls. d) other controls.

b) $82,000.

A company purchased land for $70,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at a) $75,000. b) $82,000. c) $77,000. d) $70,000.

c) electronic funds transfer system.

A disbursement system that uses wire, telephone, or computers to transfer cash balances from one location to another is called a(n) a) internal system. b) voucher system. c) electronic funds transfer system. d) automated system.

a) independent internal verification.

An internal auditor reconciling the bank statement monthly is an example of a) independent internal verification. b) establishment of responsibility. c) documentation procedures. d) segregation of duties.

a) $38,420.

Bailey Company purchases a new delivery truck for $35,000. The sales taxes are $2,000. The logo of the company is painted on the side of the truck for $1,200. The motor vehicle license is $120. The truck undergoes safety testing for $220. What does Bailey record as the cost of the new truck? a) $38,420. b) $37,000. c) $36,420. d) $38,200.

a) human resource controls.

Bonding employees who handle cash is an example of application of the principle of a) human resource controls. b) independent internal verification. c) establishment of responsibility. d) segregation of duties.

b) land improvements.

Land improvements should be depreciated over the useful life of the a) land. b) land improvements. c) buildings on the land. d) land or land improvements, whichever is longer.

a) land improvements.

Natural resources include all of the following except a) land improvements. b) oil and gas deposits. c) mineral deposits. d) standing timber.

c) $6,200.

On February 1, Kline Company received a $6,000, 10%, four-month note receivable. The cash to be received by Kline Company when the note becomes due is a) $200. b) $6,000. c) $6,200. d) $6,600.

a) A promissory note is not a negotiable instrument. b) A promissory note is often required from high-risk customers.

One of the following statements about promissory notes is incorrect. The incorrect statement is a) A promissory note is not a negotiable instrument. b) A promissory note is often required from high-risk customers. c) The party making the promise to pay is called the maker. d) The party to whom payment is to be made is called the payee.

a) accounts receivable, notes receivable, and other receivables.

Receivables are frequently classified as a) accounts receivable, notes receivable, and other receivables. b) accounts receivable, company receivables, and other receivables. c) accounts receivable, notes receivable, and employee receivables. d) accounts receivable and general receivables.

c) physical controls

Storing cash in a company safe is an application of which internal control principle? a) establishment of responsibility b) documentation procedures c) physical controls d) segregation of duties

a) maintain an adequate system of internal control.

The Sarbanes-Oxley Act requires that all major U.S. corporations? a) maintain an adequate system of internal control. b) prepare bank reconciliations monthly. c) maintain a petty cash fund. d) must file reports with the National Commission on Fraudulent Financial Reporting.

b) 365 days by the accounts receivable turnover ratio.

The average collection period is computed by dividing a) net credit sales by average net accounts receivable. b) 365 days by the accounts receivable turnover ratio. c) the accounts receivable turnover ratio by 365 days. d) net credit sales by ending net accounts receivable.

c) amount charged to expense since the acquisition of the plant asset.

The balance in the Accumulated Depreciation account represents the a) amount to be deducted from the cost of the plant asset to arrive at its fair value. b) amount charged to expense in the current period. c) amount charged to expense since the acquisition of the plant asset. d) cash fund to be used to replace plant assets.

a) parking lots.

The cost of land includes all of the following except a) parking lots. b) real estate brokers' commissions. c) accrued property taxes. d) closing costs.

c) shows only actual losses from uncollectible accounts.

The direct write-off method a) is acceptable for financial reporting purposes. b) debits Allowance for Doubtful Accounts to record write-offs of accounts. c) shows only actual losses from uncollectible accounts. d) estimates bad debt losses.

a) percentage of receivables basis.

The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the a) percentage of receivables basis. b) percentage of receivables and percentage of sales basis. c) direct write-off method. d) percentage of sales basis.

d) Companies must file financial statements with the Internal Revenue Service.

Which of the following is not required by the Sarbanes-Oxley Act? a) The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity. b) All publicly traded companies must maintain adequate internal controls. c) Corporate executives and board of directors must ensure that controls are reliable and effective and they can be fined or imprisoned for failure to do so. d) Companies must file financial statements with the Internal Revenue Service.